Greetings, and welcome to the Macy's, Inc. Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Ms. Quintiliano, you may now begin.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our CEO; and Adrian Mitchell, our COO and CFO. Along with our fourth quarter 2023 press release, a presentation has been posted on the Investors section of our website, macysinc.com, and is being displayed live during today's webcast. Unless otherwise noted, the comparisons we provide will be versus 2022. Comparisons to 2019 are provided where appropriate to best benchmark performance. All references to our prior expectations, outlook or guidance refer to information provided on the November 16 earnings call, unless otherwise noted. All forward-looking statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today. A detailed discussion of these factors and uncertainties is contained in our filings with the Securities and Exchange Commission. In discussing the results of our operations, we will be providing certain non-GAAP financial measures. You can find additional information regarding these non-GAAP financial measures as well as others viewed on the Investors section of our website. Today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call. With that, I'll turn it over to Tony.

Thanks, Pam. It's great to be here on my first call as CEO. We have a lot to cover this morning, including our fourth quarter results, our outlook for fiscal 2024 and our strategy, A Bold New Chapter, which is designed to accelerate financial improvement and deliver sustainable, profitable growth. Taking a step back, this holiday season, we offered an improved omnichannel experience with effective merchandising and a clear demonstration of value. Fourth quarter and full year adjusted EPS were above our most recent guidance, reflecting better-than-expected gross margin, SG&A and other revenues and higher asset sale gains. We are a company defined by the quality of our people and we could not have accomplished these results without the enthusiasm and dedication of our teams across stores, distribution centers and our corporate offices. Throughout the year, our consumer proved to be more resilient than expected. While there was pressure from ongoing reallocation of spend to non-discretionary items, our focus on new and relevant private and national brands enabled us to effectively compete. The likelihood of a recession is now lower than it was a year ago. Inflation has slowed, but so has labor and wage growth. As such, we expect our consumer to remain under pressure. It is against this backdrop that we share our vision from modern Macy's, Inc. that takes a holistic view of our portfolio of brands. It is the thoughtful culmination of comprehensive research and reflection that began in earnest early last year. A Bold New Chapter is designed to return Macy's, Inc.'s enterprise growth, unlock shareholder value and better serve our customers. It builds on our five growth vectors as newly identified and stress tested areas of opportunity and is supported by our financial disciplines. Over the next three years, we intend to one, strengthen…

Thank you, Tony and good morning, everyone. Over the past several years, we've taken proactive steps to fortify our operations, including strengthening our balance sheet managing expenses and tightening inventory controls. This provides the foundation for our Bold New Chapter, which is designed to return Macy's, Inc. to sustainable, profitable growth provide meaningful free cash flow generation and enhance shareholder value. Our new strategy gives us the opportunity to simplify and modernize our supply chain, planning and allocation and technology operations, which should drive improved inventory productivity and ultimately, better sales. Efforts should result in about $100 million of cost savings this fiscal year, an increase to an annual run rate savings of approximately $235 million by 2026. Savings will fund the investments necessary to support our strategy, offset inflationary cost pressures and constrained fulfillment expense and SG&A dollar growth and are factored in our near and longer-term outlook. For supply chain, we should benefit from consolidating capacity as we close centers with higher processing costs and monetize select assets. In addition, we plan to further reduce fulfillment costs by increasing automation across several facilities. Our efforts should result in faster and more reliable deliveries, greater efficiencies and a right-sized distribution center network. The inventory planning and allocation changes underway should help improve how we flow products from vendors to customers. They should provide quick replenishment in stores and fulfillment centers, reduce split shipments and lead to higher in stocks, particularly for best-selling items. We also plan to streamline and automate business processes. We will leverage this across the Macy's Inc. portfolio. These efforts are already underway and encompass reducing dependency on expensive software and hardware by consolidating our vendor base, simplifying our application portfolio by moving over 90% from on-premise to the cloud and eliminating mainframe application which reduces…

Thanks, Adrian. Let me briefly touch on the announcement that Arc House management has nominated nine individuals to stand for election to the Macy's Inc. Board of Directors at our Annual 2024 Meeting. As we have shared, our Board is evaluating these candidates and will present its recommendation in our proxy statement. These nominations followed the December 1st, 2023 unsolicited nonbinding proposal from Arc house and Brigade and for additional details, we refer you to the two press releases that we have already issued on this matter. As the purpose of today's call is to discuss our financial results and outlook, as well as our bold new chapter strategy, we ask that you keep your questions and comments focused here. Before turning to Q&A, I'd like to end with this. Evolution is in our DNA. In 1858, R.H. Macy opened a dry goods store on 14th Street and 6th Avenue. In 1902, he created a new shopping district with Herald Square, and we've been a cultural touch point ever since. We are leaders not followers. While we have missed the mark in some years, we're self-aware and have developed a bold strategy to deliver a better experience for our customers. As an organization, we are fully aligned on returning Macy's, Inc. to top and bottom line growth accelerating free cash flow generation and unlocking shareholder value. We have the team in place to execute. Our senior leaders are a powerful group recently hired external and internal talent with years of institutional knowledge. This team, with their diverse backgrounds and viewpoints are emblematic of our vision for the new modern Macy's, Inc. With Adrian and I, they are leading our people and evolving our culture to bring our vision to reality. As we embark on our pivotal new chapter, we are confident that we are building a stronger Macy's, Inc. that is well positioned to thrive and create meaningful value for all of our stakeholders. With that, operator, we are ready for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

So Tony, on the Bold New strategy -- the Bold New Chapter strategy, could you walk through near-term actions that you're prioritizing to strengthen the Macy's nameplate and just elaborate on the competitive advantage you see from executing your portfolio company approach multi-year? And then for Adrian, could you just help speak to sales trends post-holiday, what you're seeing out there? And how best to think about comps in the first half versus back half of the year?

Thanks, Matt. The focus on the Macy's nameplate is threefold. One is to address the underproductive assets within the franchise. Hopefully, that will be about 50 assets monetized this year. If you recall from the comments in the opening remarks, there's a big delta in sales performance between the go-forward fleet and the non-go-forward fleet on both comp store sales and 4-wall EBITDA. In terms of actions that we're taking, we have focused ourselves on the first 50 to make sure that those stores are emblematic of what the future of Macy's brand will be, and that's elevated merchandise assortments, more powerful visual presentations, additional staffing in areas like women's shoes and ready-to-wear. The other piece I would say is ensuring that our digital experience is more consistent. It's providing product pools that allow you to have selection and choice without fatigue and making sure that there's a level of inspiration throughout the brand touch points with the consumer. And finally, it's leaning into the breadth of our portfolio. So it's opening stores while we're closing stores, looking at Macy's small-format opportunities, expanding the reach of Bloomingdale's and leaning into the growth opportunity in Bluemercury. Adrian?

Good morning, Matt. Thank you, Tony. Good morning, Matt. Good to be with you. In terms of the sales trend, let me frame it this way. When we think about our performance in the fourth quarter, our sales were very much in line with our expectations. And when we think about some of the testing and investment that we did in the fourth quarter, we believe that brings us into momentum into this transition and investment year 2024. As we think about the first quarter, there are a few things that I think is important to note. The first is that there's about an $80 million benefit last year from our return policy change from 90 days to 30 days. So we're lapping that this year in terms of first quarter. From a bottom line standpoint, just reiterate that there aren't any asset sale gains expected in the first quarter, but we had asset sales gains in the first quarter of last year. As we think about the second quarter, we do not plan to repeat the elevated levels of clearance markdowns that we had last year. So from that perspective, we will not be lapping that. But from a sales standpoint, we're making the investments necessary for growth. We've done a number of testing coming out of last year that have been scaled is 2022 and the first 50, which gives us confidence and conviction of the traction around the top line sales that we actually have provided in our guidance. The key thing to keep in mind is as we think about 2025, we expect to get back to low single-digit comp sales growth. In the fourth quarter, when we tested our assortment changes, we saw a 350 basis point improvement in trend in those stores. Our staffing changes also showed and yielded favorable results and we expect to have more traction on our Bold New Strategy or Bold New Chapter Strategy initiatives as we progress through the year in stores, in digital and marketing in different parts of our business. Quarter-to-date, without providing any update on quarter-to-date performance. We have a lot of the quarter still ahead of us. We're reporting a little bit earlier this year than we did last year than prior years. So we look forward to sharing with you our updated view on first quarter later in the year.

.:

Thank you.

Thanks, Matt.

Thank you. Our next question comes from the line of Oliver Chen with TD Cowen. Please proceed with your question.

Hi, Tony and Adrian. As we think about the guidance on the negative to positive comp, what are key factors that could drive upside or downside as you monitor a fairly volatile environment? And Adrian, what's incorporated for merchandise margin? You've done a very good job managing inventories tightly and merchandise margin would love to know on the guidance, what you're thinking. And then as we look forward to follow up? There's a lot of things happening quite positively with marketplace and advertising as well as luxury as you think about Bloomingdale's and Bluemercury and seeing the momentum there. How do we dimensionalize what -- how those factors will contribute to sales and margins? And if they can help how they'll contribute to both of those to generate more consistently positive revenue growth? Thank you.

Thanks, Oliver. I'll take the first piece of it. So I think in terms of the range on our sales forecast, we have a lot of newness in the spring season, whether that be the composition of our inventory in the first quarter, more seasonally appropriate, the right mix of both newness as well as transitional product. I think it's the lapping of the expansion of Nike. So we were not up against Nike until the third quarter of this year. It's the introduction of Under Armour into more stores. I think it's the -- being up against less exiting of the private brand portfolio and the full year of On 34th and the reimagination of I.N.C. So I think that from within the Macy's construct on both private brand and new market brands, we feel like we're entering 2024 with more upside and the headwinds come down a little bit. As it relates to the contribution of Bloomingdale's and Bluemercury, they're clearly smaller parts of our portfolio today. They have ample opportunity for growth. Both are leaders within their categories. The beauty market is obviously far bigger than our fair share today. And Bloomingdale's is coming off of several years of good performance and has the opportunity to capitalize on the disruption in the marketplace. They are not solely a luxury brand, which means they have growth potential across a number of different categories with a very loyal multi-generational customer.

Oliver, it's great to be with you this morning. Let me speak to your comment around merchandise margin and gross margin. We've been very disciplined on inventory management over the years, and that continues to serve us quite well. With the 340 basis point improvement over last year in the fourth quarter merchandise margin. It's a combination of managing our inventory well and we've talked a lot about volume, about freshness and about composition, but also it's about managing our gross margin expense appropriately like delivery expense. We spoke to a number of the initiatives that we're doing as we look at our end-to-end operations. And what you see with the 80 basis point improvement in delivery expense, it's really around better allocation and simplifying our fulfillment processes are benefiting from that. As we continue to think about these disciplines going forward, I'm really excited about what it means on the cost accounting. We are now fully on cost accounting. From an inventory management standpoint, we're now able to focus our energies less on markdown management, but much more so on the demand and selling of our products more than ever before. From a margin standpoint by having SKU level profitability we can make really good decisions about the SKUs we keep versus the SKU we edit, and for the SKUs, we keep what's the most profitable subchannel to place it? Should it be owned in our network? Should it be licensed or should it be marketplace? And then the third piece is just the cultural change that Tony and I talked a lot about shifting from away from a focus of markdown management to really selling and serving the customer well. So we're very, very pleased with that. When we think about marketplace we're excited about it from two dimensions. One is just the customer experience, broader assortment, great style, edited selection, but also again, from a profit pool standpoint, being able to have that additional flexibility and that additional dimension of carrying assortment that may be more probable for us on marketplace versus in our own distribution channel. So merchandise margin, gross margin will continue to be a focus for us, and we're excited about the additional initiatives we plan to bring online within the operations of the organization across the portfolio for the next several years.

Best regards. Thanks.

Thank you, Oliver.

Thanks, Oliver.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good morning, and thank you for taking our question. I was hoping you could provide a little bit more context on the plan to close the 150 Macy's stores and invest in first 50. What actions are you taking to protect the e-commerce sales and retain customers that may be impacted by these closures? And within the first 50, can you speak to how this plan compares to previous top door strategies such as the Growth Fifty strategy, which we saw a few years ago? Thank you.

Thank you, Brooke, for the question. First, as it relates to the decision on the closure of the 150, I really just want to underscore the dimension and difference between the go-forward fleet and the non-go-forward fleet. The 150 these stores represent 25% of our gross square footage at Macy's, Inc., but less than 10% of our sales. It was a 500 basis point difference between the sales performance in 2023 between those stores and our go-forward stores and over 950 basis points difference in our EBITDA performance on a 4-wall basis between the go-forward fleet and the non-go-forward fleet. So the economics obviously makes sense. But what I would say is the team spent greater part at 6.5, 7 months doing a complete diagnostic on our entire portfolio looking at demographic, psychographics, digital demand, the condition of the center, the condition of our store, capital required to bring the stores to standard. And I think we made a decision on our go-forward fleet that was far more comprehensive than it would have been in the past. So I feel good about the go-forward fleet, the decisions we've made and the value to monetize is greater than the value to operate in these stores. So relative to the differences between the first 50 and any other focused store plan previously. This one is rooted in the customer feedback. We talked to 60,000 customers to understand what they were looking for from the Macy's brand. It was an enjoyable shopping experience. It was clear and easy to understand value, and it was a compelling product. So these first 50 stores are going to have elevated merchandise assortments. They're going to have better visual presentations. They're going to have additional staffing in important areas like women's shoes and women's ready-to-wear. They're going to have the kind of eventing that a local store is looking for. And then finally, your question about digital demand recapture. We have stores in these markets beyond the stores we're closing, not every market, but most markets. So we'll be looking at neighboring stores to capture that demand as well as digital outreach to make sure that we lose as little as possible. Adrian?

Just to build on Tony's point, I would just add a few more things. The first thing is with regards to the monetization, we expect to close these scores as soon as possible without compromising value for our shareholders. And as you know, we have a track record over the past several years since 2015 of over $2.4 billion of sales proceeds. We've monetized real estate last year. We had a few real estates, so we're encouraged by that. The second thing just building on Tony's point, is the ability to distort investments and our energy of our leadership team on the 350 go-forward fleet, which we believe have the capacity to grow. They're in solid locations. Customers are shopping them. We've done the research. But more importantly, as we think about this combination of really optimizing our fleet, which includes the omni market, not just the stores, we believe that we can unlock value for our shareholders with the strategy.

Great. Thanks so much.

Thank you, Brooke.

Thank you.

Thank you. Our next question comes from the line of Ashley Helgans with Jefferies. Please proceed with your question.

Hi. This is Blake on for Ashley. Thanks for taking our question. I wanted to ask on the evolution of the medium-term EBITDA guide? I know previously, you had mentioned low double-digit margin range. Now it's a mid-single-digit growth, which is above comp growth. Just wondering about that evolution, how much the store closures impact is having on it? And then talk about the factors that would still be able to get you maybe to that low double-digit range, if possible?

Good morning, Blake. It's great to be with you. The important thing that we would say here is that we're pursuing A Bold Chapter Strategy, which is designed for profitable growth. That's what we expect of ourselves, and that's what our shareholders and our Board expect of us. We are committed to driving EBITDA expansion under the strategy. But with this strategy, we've effectively changed how we're measuring our progress. What Tony and I have spoken to on this call are the financial and operating outcomes that we expect and are holding ourselves accountable to track our progress, but we remain very committed to EBITDA expansion and very committed to that growth. As we talked about, starting next year, we expect EBITDA to expand at the mid-single-digit range. And that's about a better customer experience the cost disciplines that we're putting in place, the healthy and elevated gross margin profile that we continue to sustain because of our inventory discipline, our inventory discipline as well as our cost accounting practices that are coming online this year. So we are very pleased with how we're approaching it, but we expect and commit to continued EBITDA expansion going forward.

Got it. That's very helpful. And then our follow-up is on the increased focus on just having a relevant merchandise assortment. I was wondering if you could talk about how much you're maybe leaning into existing brands versus adding entirely new brands versus private label. And maybe just talk about any other structural or organizational changes you're making to really kind of ramp up that assortment relevance?

Sure, Blake. I think the importance of the merchandise assortment the right combination of work on refreshing and modernizing our private brands, which I think we've spoken to a good amount over the last few quarters. We feel like we are making solid progress. The go-forward performance of our private brand fleet is well performing to our plan. And we just need to get through the remaining disposition of the private brands that are not go-forward. So far, I feel good about the work that we've done in private brand, have a little more work to do to exit the remaining private brands but that should be a growth vehicle for us in the years to come. In terms of market brands, we're excited about Nike. We're excited about the additional launch or expansion of Under Armour. We have a number of other brands that we'll be launching over the course of the year. But this is an exercise that exists within the merchant organization now that we have a full category responsibility and looking at both owned and licensed, inclusive of how we capitalize on the growth of Marketplace. We want to have an assortment that offers a range and variety but doesn't have the level of redundancy. There's a level of SKU rationalization that we're going through to make sure that in every category, we are offering the customer something that we can both be in stock on and the size and color basis but offer them also compelling value and relevancy. So I would say more work to come, but very pleased with the initial results in private brand and the work we're beginning now in earnest in market brands.

Understood. Thank you both.

Thank you, Blake.

Thank you. Our next question comes from the line of Paul Lejuez with Citi. Please proceed with your question.

Thanks, guys. Just a couple of quick ones. Curious about your transaction versus ticket assumptions within your comp expectations both for this year and as you think about the longer-term dynamic. Second, Backstage, just curious what these this new plan, this new restructuring plan, what does it mean for the Backstage business? And then last Adrian, probably a few marketplace, the accounting on marketplace sales, how does that work? What are you recording in terms of sales? How does that flow through the P&L? Thanks.

Thanks, Paul, for the questions. As it relates to the opportunity in off-price, we see Backstage as being an important vehicle, not just for productivity but also capturing the value-conscious consumer at Macy's. And obviously, Bloomingdale's off-price continues to outperform, but we see that as a growth vehicle for that brand as well. So off-price to luxury, Backstage remains an important ingredient in our overall value equation. In terms of transaction and ticket assumptions for 2024, we see a low single-digit growth in AUR. The traffic being slightly down to a year ago and conversion holding somewhat stable. So the consumer remains under pressure, I'm not going to worry about what we can control. But the team is highly focused on leaning into the things that we've worked on over the last several months, which is creating a better and more compelling assortment, making sure that we're working much harder to modernize our marketing and digital exposure and working in store to make sure that the presentation is better than it's been in the past. I'm excited about the visual investments we've made and certainly the focus we have on our first 50.

Paul, just let me give you 3 metrics, and then I'll walk through kind of how it flows through with marketplace, comp sales growth, net sales and EBITDA. When we look at our comp sales growth, we call it O + L + M, that is reflected from a marketplace GMV standpoint in our comp sales number. For every dollar of GMV, we get what we call a take rate or commission rate, which we call kind of marketplace revenue. And that is actually reflected in our net sales. The operation there operates a lot like our license sales business. So that take rate is a percentage of the GMV the EBITDA pretty much flows through. There are some expenses of our team and our licensing around the marketplace platform. But what's nice about the EBITDA benefit is with scale assortment on the marketplace, the rate of EBITDA increases pretty rapidly. And again, our focus on marketplaces about the experience. But what we're seeing is a lot of opportunity for growth as we've seen Q3 to Q4 and as we think about future years.

I guess I would also add -- I would add, Paul, that the team is highly focused on the incrementality in marketplace. So the opportunity to pursue brands in categories where we don't have an existing assortment, and we're seeing the best build on those areas in particular.

Thank you. Good luck.

Thank you, Paul.

Thank you. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Good morning, Tony and Adrian. As you think about the store closures that you're doing, is there any -- as you think on the remaining base, what's the geographic spread? How do you think of off-mall and on-mall? What is the portfolio look like? And then on the private brand expansion and extension saw State of Day this week or last week, how are you thinking about the growth of that going forward and the potential accretion to gross margin? Thank you.

Thanks, Dana, for the questions. We believe in store. So I think these are always tough conversations, not only for the colleagues affected and for our brand partners. But when these stores, 25% of our gross square footage only 10% -- a little less than 10% of our sales, they're underproductive. And we have to focus on making sure that we have the best stores, not the largest number of stores. So yes, we want to have both strong on mall presence, some of the best stores in the country. We want to also pursue off-mall to make sure that we have availability and convenience and where a lot of put steps are going today. But we're going to remain a majority mall-based freestanding store company with the right complement of off-mall stores to Macy's and Bloomingdale's more convenient. We're excited about the launches day-to-day. It's gotten a nice early response from the consumer. It's only 2.5 weeks on the floor. So pleased there. And I think as we've stated on private brand, this is our opportunity to make sure we're filling in white space, make sure that we are complementing our market brands. It obviously offers greater margin and greater profit contribution than our market brands. But we also know that our market brands are the majority of our business. So this is a healthy balance that we, as merchants need to make sure that we maintain the right relevant market brands, the right range and variety of price points, and we complement that with the missing elements in white space and price points and value with what we do in private brands.

Thank you.

Thanks, Dana.

Thank you. Our next question comes from the line of Michael Binetti with Evercore ISI. Please proceed with your question.

Tony, Adrian thanks for taking my question. I just want to ask on, I guess, on the gross margin for first quarter guided down after a pretty impressive beat in fourth quarter. Could you walk us through the puts and takes a little bit? I get the transition from fourth quarter to first quarter with the return policy change. Adrian, I think you might have said there's no impact from the revenue recognition change. But then the transition from gross margins being down in first quarter to being up for the rest of the year and I think up pretty meaningfully. Maybe you could just help walk us through that transition a little?

Absolutely and great to be with you Mike. Let me just talk a little bit about expectations for the first quarter versus full year. First, the prior year first quarter relative to this year included the $80 million that I referenced a little bit earlier. And that equates to about $0.07 of EPS as I mentioned a little bit earlier in my opening comments. The second thing is our expected Q1 gross margin reflects a more normalized clearance and markdown cycle compared to the first quarter of last year when we remember they did not have enough spring seasonal products. So that's an important to mention as we think about a little bit higher inventory coming into the quarter, but having that transitional product to drive both top and bottom line. The third thing I would say is, look, we're investing in our customer experience. So based on the research and the test that we've run, both Tony and I have spoken to that quite a bit in our opening remarks, we believe that we have to invest in the customer experience to grow and grow profitably. And so as we think about also one last thing about asset sale gains, we don't anticipate asset sale gains in the first quarter. We expect that to be all in the fourth quarter of this year but we did have asset sale gains in the first quarter last year. So that's kind of the composition of how we think about kind of the margin profile in the first quarter relative to the full year.

Is that specific to the gross margins up as much as they are in 2Q to 4Q?

Well, I think what you'll see with regards to gross margin specifically, we continue to expect to have a healthy level of gross margin. As I mentioned a bit earlier, inventory disciplines are very mature within our business now. The new capabilities that we're bringing online with regards to cost accounting, we're excited about. We have a number of process and simplification initiatives as part of our end-to-end work to manage and bring down our delivery expense. You saw some of that benefit in our early testing in Q4 when you saw an 80 basis point difference. So the disciplines in gross margin and the disciplines in delivery expense as part of that that will continue and only continue to get better. But we do want to recognize that as we think about bottom line margin and EBITDA that we're investing in the customer experience to grow. So I wanted to make sure that you had kind of a full view of our margin profile.

Okay. If I could sneak in a second one. On the credit income, you're guiding it down to 30% for the year that excludes the potential regulation change on late fees, but it was down 30% in the fourth quarter. I'm trying to figure out why it would still be down as much or if that's just a conservative assumption on your part.

Well, if you look at what's happening in the broader industry in retail, what you see are a combination of things. The first thing is that the consumer remains under pressure. And as a result, what we're seeing across the industry are higher credit card balances and higher delinquencies really returning to more normalized levels. As you know, Mike, the last few years had an abnormally low or historically low level of net credit losses, delinquencies as folks were flushed with cash. But now we're back to more normal times. And so what's reflected in our credit card revenues, which does exclude the impact from late fee ruling is really the increase in net credit losses as we are more in a normalized environment.

Okay. Thanks a lot, guys. Congrats again on a nice holiday.

Thank you so much, Mike.

Thank you. Our next question comes from the line of Bob Drbul with Guggenheim Securities. Please proceed with your question.

Good morning. Can you spend a little bit more time on the inventory? I guess, the plans around the inventory and how you're thinking about inventory throughout the year. Just -- I guess I'm just curious if you think that with some of the newness that you're bringing in, will that be the plan for the full year as you think about fall and into holiday, just especially as it relates to sales? Thanks.

Bob, let me take the first part of that, and I'm sure Adrian will add. Our plans incorporate the liquidity to buy into the newness that we've described and to be able to chase into opportunities as they occur. So we retain an inventory reserve in each of our areas of business to make sure that we both have made commitments to brands that require that, and at the same time, hold back the flexibility to should opportunities arise or should softness occur that we can pull back as necessary. But all of that has been incorporated into our forecast. And I think that inventory should be on or around flat to last year as we begin to improve sales.

Just to build on Tony's comments, there's another dimension of inventory that we're focused on this year with our data science tools, and that's really around continuing to get better on the allocation side. So as we think about the style, the brand, the color and size allocated by market, allocated by channel, allocated by store, we see that there are opportunities to drive the top line by actually increasing product availability and stocks by putting in some new procedures. And this is one of those places where the data science and being able to scale that data science with some new capabilities is something that we're leaning into. But we believe with all the work that's being done to have the right product in the assortment, we also want to make sure it's in the right place. And that will also complement our ability to grow the top line as well.

Great. Can I just credit -- a credit question as well? In this quarter, there was a note around the impact of sort of better contractual profit sharing within your partner. Can you just talk about how you're positioning? I guess, what drove the better-than-expected sort of contractual profit? And then as you think about the prospects of the credit filing, the late fee filing proposal, just where you think there might be opportunities if something were to be implemented negatively?

Absolutely, Bob. It's a good question. So the terms of our CD agreement is pretty much predetermined. So there's clearly a little bit of benefit in terms of how we think about the profit sharing based on the level of credit card revenues and receivables that we actually build. I think the more important conversation is how do we actually increase usage of our credit card. And there's a lot of work that's happening around our loyalty program around the use of our credit card to drive engagement with our customer and just thinking about that program more broadly. There's real opportunity there. We don't have customers that are tapping out on their spend on average. We actually see that our customers do have capacity to spend. And do have capacity to use our card because they are already shoppers at Macy's or Bloomingdale's. From a mitigation standpoint, we're already thinking through and partnering with Citi on mitigation factors for if and when the late fee ruling is actually implemented. As I mentioned a bit earlier with Mike, we have not included the late fee impact in our outlook for this year but we're working on mitigation factors in case that were to happen. And so that's something that we're very thoughtful about working through and trying to get ahead of us.

Great. Thank you.

Thank you, Bob.

Thank you. Our next question comes from the line of Alex Straton with Morgan Stanley. Please proceed with your question.

Perfect. Thanks a lot for taking the question. Just a couple from me. Just first, can you walk us through how maybe you factored in the 53rd week reversal into your guidance, just so we can understand how that flows through the year? And then secondly, just on the long-term targets, can you break down that low single-digit comparable sales growth number for me in terms of kind of how you arrived at that level as comfortable? Thanks a lot.

Let me take the second part of the question first, Alex. In terms of our low single-digit sales target, it reflects the delta that we see today between our go-forward fleet versus our non-go forward fleet first, it's based on store sales. There's an opportunity in our existing Macy's and Bloomingdale's and Bluemercury fleet to grow comp sales starting in 2025 when you exclude the non-go-forward locations. Second, it's the return of growth in digital, which is a breakdown between lower growth in our own digital business and accelerated growth in the Marketplace business. And then finally, it's beginning to add versus the lead from our private brand portfolio or making sure that all the work that we've done in analytics on our assortments with SKU rationalization and the pursuit of brands that are missing from our portfolio begin to take hold. So there's an ample opportunity to grow across all 3 nameplates by making sure that our assortments are appropriate, as Adrian talked about, making sure that our inventory is accurately allocated between the channels and getting into a more normalized environment where we're not up against as many discontinued private brands.

Good to be with you this morning, Alex. So the 53rd week last year was about $252 million of our sales coming out of the fourth quarter. As we think about 2024, we're making the adjustments with regards to the calendar and promotional shifts given that 53rd week. I think the way to think about it from our perspective, from a comp standpoint is we're focused on more full price sell-through getting the right combination of assortment in terms of variety, breadth and depth and also making sure that we're actually positioning our content to the customer across channels in a way that allows us to have more full price sell-through and less discounts. And so we're navigating that throughout the year, but we're encouraged with the traction that we're seeing, particularly in the test and first 50 stores. We're pleased with the traction that we're seeing, and we'll continue to keep you updated as that evolves throughout the year.

Thanks a lot. Good luck.

Thank you.

Thank you. Ladies and gentlemen, our final question this morning comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Thanks. Congrats, Tony, on the new position again. Just on the transaction decline in the fourth quarter. I was wondering if you could parse that out across your various income cohorts that you cater to. And then Adrian, on the first quarter comp guide, is that on a shifted basis or a non-shifted basis, given the 53rd week last year?

Good to be with you, Chuck. I think the comment about the decline in fourth quarter transactions, was more pronounced at Macy's than had Bloomingdale's or Bluemercury, although all segments are under pressure. And the decision is more today about buying those things that people are looking for that sometimes are a higher AUR and then we get fewer units versus customers not shopping. So we're really trying to follow the customer in this regard, make sure that the inventories are shifted to where we see the business happening. It's always one of the advantages, I think, of being a multi-category and multi-brand retailer is that we have the opportunity to have content, where, when and how the customer shops as long as we're paying attention to the most important signals.

As we think about the first quarter comp, it really just reflects the calendar shifts that we're doing with regards to our promotions and the calendar coming out of a 53rd week. We're encouraged with some of the traction that we're seeing with regards to test coming out of the fourth quarter. But from our perspective, the number of the ships that I mentioned earlier is how we're approaching it.

Okay. I'll sort it back later with you, Adrian. And then just bigger picture, on revitalizing the assortment and your comment earlier, Tony, on duplication. I think it's pretty interesting. Just wondering if you could maybe size up the opportunity, what you learned at Bloomingdale's with this endeavour, how long it took to take to start to see some of the benefits?

Look, it's a process that every merchant and every planning partner has to go through in order to have the most compelling assortment in every category. We work in multiple seasons at one time. We're obviously executing the spring season, planning the fall season and in some areas are beginning to buy the spring 25 season. So I would say it's a multi-season exercise but it's not a multiyear exercise. It starts with the ability to kind of ebb and flow or shrink or grow depending on what's happening in the particular business segment. When something occurs where jackets are important or blazers are important, you want to have a more robust assortment of blazers. And when you return to a moment where sweaters are more important, you need to downsize the amount of blazers you carry and augment the amount of sweaters. And you don't want to have all black sweaters and you don't want all of them to be embellish. So the ability to kind of look at your assortment as the customer will see it, make sure that you're serving a multigenerational customer with a variety of price points, understanding where brand is important where price is important and where style may be important. And sometimes it's all three. But I think in my kind of learning and listening with the Macy's team over the last six to eight months, the team is really leaning into this. I think you'll see the assortments improve as we move sequentially through the quarters this year and then make meaningful improvement as we get into 2025.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Spring for any final comments.

Thank you, operator. We look forward to updating all of you on our Bold New Chapter strategy progress in the coming quarters. I hope everyone has a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.