Release Date: May 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First quarter EPS results exceeded outlook, with net sales of $4.8 billion near the high end of expectations.
- Strong performance in the First 50 locations, with a 3.4% comp gain, indicating successful pilot initiatives.
- Positive customer response to new and expanded assortments, including brands like Donna Karan, Free People, and Hugo Boss.
- Bloomingdale's and Bluemercury continue to show growth, with Bluemercury experiencing its 13th consecutive quarter of comp growth.
- Digital initiatives, including the launch of an online baby registry and Marketplace, are gaining traction and contributing to sales.
Negative Points
- Overall net sales were down 2.7% year-over-year, reflecting ongoing challenges.
- Gross margin rate declined by 80 basis points to 39.2%, primarily due to additional discounting for slower-moving warm weather products.
- Net credit card revenues declined by 27.8% from the prior year, indicating higher delinquency rates and net credit losses.
- Continued pressure on the consumer due to inflationary pressures, leading to cautious discretionary spending.
- Weakness in select warmer weather categories and ongoing challenges in the Big Ticket and Home segments.
Q & A Highlights
Q: Congrats on the progress. Tony, could you elaborate on the key initiatives, which you saw drive the 3% to 4% comp in the First 50 doors, maybe what you're seeing between traffic and AUR in these stores? And how quickly could you scale this playbook?
A: Thanks, Matt. We're excited by the early innings of First 50. It's a combination of the things that we have talked about in people, product, presentation, and experience. People, it's having the right people in place at the right time. It sounds easy, but using technology and the data we have on traffic and conversion by day, by hour, making sure that we have people in the shoe department, people in the ready-wear fitting rooms, people in the big ticket area and fine jewelry. The team is all over it, and I think doing a great job in leaning into the opportunities to increase the quality of the experience in our stores. That's why we saw a 500 basis point improvement in Net Promoter Scores in the First 50 stores. It's the product, the team feeling the obligation to meet the needs of the customer. And whether that's the rollout of new brands like Donna Karan or the expansion of brands like French Connection and Free People and Karl Lagerfeld and Hugo Boss, we need more variety. We need less redundancy. We need more interest within the assortment, and I think that's making a difference in the customers' reception to the stores. The experience, it's adding animation and events into the stores, and it's also making sure from a presentation standpoint, we look crisp, we look compelling. That's the partnership with the brands to make sure that the impact is in each of the categories of business. And again, I would add that we're in the early innings. So we're going to study this. Capital is something that we care a lot about, capital allocation. We're going to be very discerning in terms of what we decide to do and where. But I feel good, and I think opportunities exist to expand this as the year progresses as soon as we see another quarter or more consistency amongst the stores and the overall results. Traffic is good. The AUR is up about 4%. So conversion, I think, is reflective of the discerning customer who feels under pressure and is going to wait to buy the things that they love. So we accept the challenge and we'll respond to it appropriately.
Q: I wanted to follow up on your comment that the vendor partners are engaging with the enhancements you're making in these First 50 stores. Is that driving a lift in the vendor mix or allocations versus what you had planned? And also curious if that's driving any impact on the full price sell-through or margins you're realizing in those First 50 stores?
A: Thanks, Warren, for the question. I think the vendors feel a sense of partnership, and there is a natural obligation that we have to each other. We do well when the vendors do well, the vendors do well when we do well. And I think that we have seen a level of engagement relative to these First 50. I think as we talked about on the last call, we hate closing stores or even rationalizing the store base, but the vendors were very supportive of that idea, meaning they wanted to focus on our most productive assets. They wanted to invest with us. They wanted to offer us a better assortment in the stores. They see higher full price sell-through in those stores. And that's really all kind of coming to fruition. Again, it's early innings, so we're going to be careful, but we wouldn't do these weekly events if our vendors weren't partnering with us. We wouldn't be able to add the level of staffing if our vendors weren't partnering with us. We certainly wouldn't be able to offer the distinction and variety within our assortment if our vendors weren't partnering with us. And so I feel it's a story of two mutually-dependent partners. I think we said private brand was 15% last year. Maybe one day, we'll get it back to closer to 20%. But ideally, we're going to lean into the partnerships where 80% of our businesses to make sure that they feel Macy's, Bloomingdale's and Bluemercury are the best places to do business.
Q: For the First 50 locations that were up 3.3%, how much was ticket versus traffic? And then maybe you could talk about the level of promotions at those stores versus the rest of the fleet?
A: Sure, Ashley. There was no difference in the level of promotion in those stores versus the rest of the fleet. So no change there. The difference was in traffic, a higher conversion rate and a comparable increase in average unit retail. The customers are responding, as we said, to the right recipe. And I want to use the analogy of a recipe because a recipe means you have to get all the ingredients right. Sometimes in our business, the merchants want to do their part only if the stores do their part. And the stores only want to do their part if the digital team does their part. In First 50, we're all doing our part, and we're getting credit for product improvement. We're getting credit for visual animation. We're getting credit for the experiences we're adding. We're getting credit for the service experience. Those Net Promoter Scores are a great indicator, and we drill down to perception on availability of size and color. We drill down to the inspiration from visual animation. We drill down to have the brands and styles and products that I like. We're seeing meaningful increase across all of those metrics. And I think that's a good indicator, early innings, but the team working together and improving the overall experience in our First 50 stores.
Q: What is the high end of your comp guide for the fiscal year in terms of the health of the consumer versus current levels? I guess, said differently, would the consumer need to get better to hit that range?
A: Yes. From our perspective, we've been pretty consistent that the pressure on the consumer is a given in terms of how we think about our business. So as we think about the range of our comp this year, it does not assume any improvement in the consumer. What it doesn't assume is improvement in how we're executing our business and how well we're serving the customer, given the growth investments that we're placing in our stores, in digital and the acceleration of growth within our luxury nameplate. The range that you see is really reflective of the competitive environment and the continued pressure on the consumer. But from our perspective, we feel that what we can control is really what we're going to be focused on, but the consumer, we believe, will remain under pressure for the balance of the year.
Q: I had a question on SG&A. It came in below your expectations this quarter, and I was wondering what the drivers of that were. And then what kind of expense initiatives you have for the remainder of the year.
A: Tracy. So to your point, we are pleased with how we're managing expense ongoing. And from
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
