• Net Sales: $4.7 billion, down 2.4% year-over-year.
• Adjusted EPS: $0.04, benefiting from asset sale gains.
• Gross Margin Rate: 39.6%, down 60 basis points year-over-year.
• Comparable Sales: Down 1.3% for the enterprise; Macy's down 2.2%, Bloomingdale's up 3.2%, Bluemercury up 3.3%.
• SG&A Expense: $2.1 billion, 42.1% of total revenue.
• Inventory: Up 3.9% year-over-year.
• Asset Sale Gains: $66 million recognized in the quarter.
• First 50 Locations Comp Sales: Positive 1.9% comp.
• Store Closures: Expected to close roughly 65 locations this year.
• Free Cash Flow: Outflow of $492 million year-to-date.

• Warning! GuruFocus has detected 3 Warning Signs with RROTF.

Release Date: December 11, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Macy's Inc (NYSE:M) reported positive comparable sales growth in its First 50 locations, Bloomingdale's, and Bluemercury for the third consecutive quarter.
• The company maintained effective expense controls and generated above-plan asset sale gains.
• Macy's Inc (NYSE:M) is on track with its Bold New Chapter strategy, aiming for sustainable profitable growth.
• The company has made significant improvements in customer experience, leading to higher Net Promoter Scores.
• Macy's Inc (NYSE:M) has a healthy balance sheet and ample liquidity, allowing for strategic investments without compromising financial health.

Negative Points

• Macy's Inc (NYSE:M) faced challenges in its non-First 50 locations, digital channel, and cold weather categories, impacting overall sales.
• The company had to address an issue related to erroneous accounting entries, although it was deemed immaterial.
• Gross margin rate declined due to product mix and proactive discounting in response to warmer weather conditions.
• The digital business has been a pressure point, requiring significant improvements in customer experience and operational metrics.
• Macy's Inc (NYSE:M) anticipates a competitive and promotional environment, which may impact profitability.

Q & A Highlights

Q: Tony, could you elaborate on drivers of the comp improvement in the back half of the year? And with the fourth quarter comp guidance pointing to your first positive comp in three years, what drivers do you see as sustainable? What initiatives specifically build or accelerate into 2025? A: Thanks, Matt. We feel strongly about the progress we're seeing on the top line. The First 50 locations at 1.9% for the quarter are the best leading indicator of the growth potential of the Macy's brand. We look forward to expanding our First 50 program in 2025. We're seeing progress across a number of categories, including tailored clothing, dresses, fragrances, and mattresses. These are sustainable as we go into the next fiscal year. Bloomingdale's and Bluemercury are also showing strength. The private brand reinvention is almost complete, which will become a tailwind as we go forward.

Q: As you invest in customer experience and staffing in First 50 and select shoe and handbag initiatives, what gives you confidence that these test locations are transferable to a broader swath of the fleet? And do you expect these to be accretive to profitability as we move into 2025 given the additional SG&A investments? A: The investments in our First 50 locations and the 100 other pilot shoe and handbag doors give us confidence that the customer is responding positively. We've seen three consecutive quarters of comp store sales growth and improvement in Net Promoter Scores. These changes are the right ones, and we believe they will be accretive to profitability through adjustments in other business investments. This is a priority for us, and we will expand First 50 next year.

Q: Could you elaborate on your updated outlook for gross margins for the fourth quarter and what you're seeing in the promotional environment? What changes have you made to your promotional calendar versus 90 days ago? A: The teams are executing well, and we're navigating a competitive and promotional landscape. The fourth quarter includes an 85 basis point adjustment for delivery expense. We're focused on offering real value and doing so as profitably as possible. We're pleased with the sequential improvement in sales and are balancing profitability, inventory management, and quality of sell-throughs as we navigate the season.

Q: On the First 50 stores, are you seeing new customers show up to the First 50 stores that you might have not seen before? How does that customer compare to the traditional Macy's shopper? A: We're seeing consistent performance in the First 50 in terms of metrics like AUR and average order value growth. We're seeing familiar customers spend more and increase visits, and we're beginning to see some new customers. More new customers today come through our digital channel, and our opportunity is to bring them into a location to make them omni consumers.

Q: Can you talk about the store closure rate taken up to 66 from what has been 55? What's the difference? And does this change at all the 150 in total over the next three years that you were talking to? A: The increase in closures reflects the value of our assets and our ability to transact even in a less stable market. The number remains approximately 150, and we'll provide an update in 2025. The core goal is to get to a fleet that can provide sustainable profitable growth for the enterprise. We've continued to open Macy's small formats, and we're learning as we go.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.