Macy's, Inc. Q3 FY2024 earnings call

• Investigation into small package delivery expenses: Erroneous accounting entries from Q4 2021 were made by an individual, had immaterial impact on cumulative financial results. Responsible individual no longer with the company, additional controls implemented.
• Third quarter results: Net sales $4.7B in-line with outlook. Momentum in First 50 locations at Macy's, Bloomingdale's, and Bluemercury offset by weakness in Macy's non-first 50 locations, digital channel, and cold weather categories. Adjusted third quarter EPS $0.04 benefited from pull forward of non-go-forward asset sale gains.
• Bold New Chapter strategy: Three pillars
  • Strengthening Macy's nameplate: First 50 locations had 1.9% comp, 400 basis point improvement in Net Promoter Scores. Testing women's shoes and handbag staffing in 100 locations. Merchandise revitalization with reduced less relevant brands and expanded popular ones.
  • Accelerating luxury growth: Bloomingdale's and Bluemercury had positive comps. Bloomingdale's 3.2% comp driven by women's advanced contemporary apparel, beauty, digital, and From Italy with Love campaign. Bluemercury had 15th consecutive quarter of positive comps, expanded lines and celebrated 25th anniversary.
  • Simplifying and modernizing end-to-end operations: Phasing out legacy technology, improving search platforms, and supply chain efficiency with improved speed of delivery and fulfillment, lower fulfillment costs, and improved Net Promoter Scores.

Total Macy's, Inc. net sales were $4.7 billion, down 2.4% year-over-year. By nameplate: Macy's net sales were down 3.1% with comps down 2.2%, while First 50 locations at Macy's had a positive 1.9% comp, representing their third consecutive quarter of comp sales growth. Bloomingdale's net sales were up 1.4% and comps rose 3.2%. Bluemercury net sales were up 3.2% and comps rose 3.3%. First 50 locations' 1.9% comp contributed 410 basis points of outperformance relative to the total Macy's nameplate.

• Fourth quarter net sales expected $7.8 billion to $8 billion, on a 13-week basis down approximately 1% to up approximately 1.5%.
• Full year 2024 net sales expected approximately $22.3 billion to $22.5 billion. Macy's nameplate go-forward locations and digital expected down 1% to roughly flat, luxury nameplates collectively up 2% to up 2.5%.
• Adjusted full year EPS outlook $2.25 to $2.50.
• Gross margin rate expected approximately 35.3% to 35.7% for fourth quarter, full year gross margin as a percent of net sales 38.2% to 38.3%.

• Consumer pressure: Persistent pressure on consumer discretionary spend. - Competitive environment: Need to compete for share of wallet relative to competition. - Delivery expense issues: Erroneous accounting entries previously impacted financials, but revised outlook accounts for updated expectations.

Q: In the shoe and handbag locations, can you talk about the initiative and trends? And on inventory levels, how far out are adjustments to order book?

A: Tony Spring said changes in 100 stores are predominantly about people, reducing assortment duplication, having staff to assist. Adrian Mitchell talked about inventory levels ending flat, adjustments to order books already made, focusing on green shoots in revenue performance.

Q: Promotions in quarter-to-date and impact on sales; impact of store closures on e-com business?

A: Tony Spring said promotions quarter-to-date comparable to last year, mix of business and liquidations impact margin. Adrian Mitchell said closures are of underperforming stores, impact on comp limited as most in markets with other stores, focus on retaining customers through omni-strategy.

Q: Elaborate on digital business pressure and change into fourth quarter and beyond; strategically top of mind for 2025?

A: Adrian Mitchell said digital business improved with SEO enhancements, new category pages, better layout, etc. Tony Spring said digital includes merchant and marketing organization working together, delivery expense and cost accounting conversion behind us, pivoting to scaling in 2025 with more new brands, expanding First 50, Bloomingdale's, and Bluemercury.

Q: Furniture business drag and handbag trends; post-holiday comp trends?

A: Tony Spring said furniture business softer than mattress, handbags seeing strength at Bloomingdale's and Macy's. Consumer interested in shopping post-holidays, bodes well for nameplates.