Greetings, and welcome to the Macy's, Inc. Fourth Quarter 2024 Earnings Conference 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. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO; and Adrian Mitchell, our COO and CFO. Along with our fourth quarter 2024 press release, a Form 8-K has been filed with the SEC and a presentation has been posted on the Investor 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 2023. All references to our prior expectations, outlook or guidance refer to information provided on our December 11th earnings call or our January 13th sales and earnings press release, unless otherwise noted. On today's call, we will refer to certain non-GAAP financial measures. Reconciliations to these measures can be found in our earnings presentation and SEC filings available at www.macysinc.com/investors. All references to comp sales throughout today's prepared remarks represent comparable owned-plus-licensed-plus-marketplace sales and owned-plus-licensed sales for our store locations unless otherwise noted. And go-forward, Macy's, Inc.'s comp sales include the approximately 350 Macy's go-forward locations in digital, and Bloomingdale's and Bluemercury nameplates inclusive of stores in digital. Go-forward Macy's comp sales includes the approximately 350 Macy's go-forward locations and Macy's digital. Lastly, to further year-over-year comparability, we are providing quarterly and annual 2024 sales contributions for store closures. 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. 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.

Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal 2024 results and our 2025 outlook. It's been one year since my first call as Macy's, Inc. CEO and the introduction of a Bold New Chapter strategy, our three-year plan designed to return the company to sustainable profitable growth. The Bold New Chapter is different from recent strategies as it firmly places our energy and focus on the needs of the roughly 40 million customers annually who shop our three iconic nameplates. It prioritizes an improved store environment and omnichannel customer experience as we reallocate capital from underproductive Macy's stores and focus our resources and investments on our go-forward business. In fiscal 2024, we realized substantive enterprise-wide improvements. These give us confidence in the long-term viability of the Bold New Chapter chapter. In light of year one progress, I want to extend my gratitude to all of Macy's, Inc.'s colleagues for embracing this important work and delivering a better experience for our customers. For the year, we improved Macy's, Inc.'s annual comps by 510 basis points to down 0.9% versus 2023. We posted four consecutive quarters of positive comps at Macy's First 50 locations. We returned to positive annual comps at Bloomingdale's, and had four consecutive years of positive comps at Bluemercury. We achieved record annual net promoter scores at Macy's and Bloomingdale's, rising 160 basis points and 90 basis points, respectively. We closed 64 of our approximately 150 non-go-forward Macy's stores ahead of our annual plan of 50 closures. We lowered CapEx by $111 million to $882 million, representing the second consecutive year of reduced spend. We generated $679 million of free cash, inclusive of $283 million of asset monetization proceeds, up 71% from last year. We ended the year with $1.3 billion…

Thank you, Tony, and good morning, everyone. Today, I'm going to review our fourth quarter 2024 results in more detail and provide guidance for 2025. Fourth quarter net sales were roughly $7.8 billion versus $8.1 billion last year, in line with our most recent guidance. As a reminder, the 53rd week contributed $252 million to the prior year. Total enterprise comps were up 0.2%, the highest quarterly results since the first quarter of 2022. Macy's, Inc. go-forward comps rose 0.6%. By nameplate, Macy's net sales, which include all Macy's locations and digital, were down 5.3%, while comps were down 0.9%. Macy's go-forward business comps were down 0.5% and First 50 comps were up 1.2%. At our luxury nameplates, Bloomingdale's net sales were up 2% and comps rose 6.5%. Bluemercury net sales were up 2.4% and comps rose 6.2%. Other revenues were $239 million. Net credit card revenues of $175 million were ahead of our guidance due to better-than-expected profit share, primarily from favorable net credit losses. Macy's media network revenues were $64 million, up 7%, reflecting continued growth in advertisers and campaign counts. Gross margin rate of 35.7% was at the high-end of our guidance and 80 basis points below last year. The change relative to the prior-year gross margin rate was impacted by Macy's nameplate conversion to cost accounting, and this is the last quarter with a comparability impact. Merchandise margin benefited from favorable year-over-year shortage trends, which were offset by product mix. Year-end inventories were up 2.5% year-over-year. Roughly half of increase was due to the previously mentioned conversion to cost accounting, with the remainder reflecting the timing of spring receipts. Relative to our guidance, year-end inventories also reflect higher in-transit inventory as we moved product through the network faster. Entering fiscal 2025, we are pleased with the…

Thank you, Adrian. As we navigate the fluid nature of our business, we're highly focused on delivering a better experience for the consumer. We'll continue to make the appropriate investments that support our long-term growth ambitions, while returning value to shareholders. And with that, operator, we're now ready for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Today's first question is coming from Matthew Boss of JPMorgan. Please go ahead.

Great. Thanks. So, maybe, Tony, on 2025 or Bold New Chapter 2, could you walk through areas of strength relative to same-store sales constraints that you're embedding in the down 2% to down 0.5%, maybe relative to initial expectations for the return to growth? And then, Adrian, if you could elaborate on drivers of the SG&A rate pressure in the 2025 guide? And just what revenue growth multi-year is needed to hold or expand margin?

Thanks, Matt. Good morning. We enter 2025 far stronger than we entered 2024. So, I think we look at the first year of the Bold New Chapter as being one of progress: first 50 stores growth all four quarters, closing 64 underproductive stores, growth at Bloomingdale's and Bluemercury, making progress on our delivery and speed of delivery and end-to-end operations. And I think that is the kind of the progress point for year two. We added 75 more stores, we're at 125 stores in the reimagined environment. We lean into more growth both in number of stores at Bloomingdale's and Bluemercury and organic growth. And we continue to invest and leverage the benefits of our previous capital investments in end-to-end operation with better speed of delivery, less cost in delivering to the consumer. And so, I view it as being confidence in the strategy, caution in the environment. And the things that hold us back are the untouched stores that remain within the fleet. You still have over 150 stores, whatever it is, 175 stores that we've not touched as a part of the program. And so, those stores are not going to see the progress that we're seeing in the rest of the fleet. But we had digital growth in the fourth quarter. We had Macy's go-forward enterprise perform better in the quarter. Overall, Macy's, Inc. up as a comp in the quarter, best in 11 quarters. And I think if we were in an environment where they were operating in, I would be even more bullish on our potential, but I think prudency is important at this point in time.

Matt, good morning. Let me touch on your two questions around gross margin as well as around SG&A, and then I'll just kind of close out with overall how we're looking at the year just to build on Tony's comments. As it relates to gross margin, for us, it's all about inventory control, particularly in this environment of uncertainty. And we're really looking at it from three different dimensions. One is around from an assortment perspective, making sure that we're increasing the variety of items that customers actually want to buy, and this is through the manifestation of new brand introductions and things of that sort. We're also reducing redundant styles across brands. So, the assortment piece is an important dimension. As we think about inventory planning, we're investing in newness to drive full price sell-throughs. We're managing the appropriate level of aged inventory to reduce liquidations. We have a lot of progress on this dimension in 2024. And we're continuing to drive better allocation, which is driving better in-stocks. From a supply chain standpoint, speed is really important, particularly with replenishment items, but we're also scaling this year our hold-and-flow capabilities to better allocate supply to demand at the store location. Now, with regards to your question around SG&A, the key thing I would say here is that we're reinvesting the savings from closing stores back into the customer experience. And as you saw in 2024, many, many proof points of investing in the customer experience in terms of driving growth for our business. We're offsetting that by the actions that we're taking with regards to end-to-end operations. We're simplifying our business. We're adding in automation. We're eliminating unnecessary work, just a number of things to really make sure that we're continuing to be very disciplined on SG&A. But as we take a bit of a step back to the question that you posed to Tony and I, our guidance really simply reflects for the year the heightened uncertainty in the environment, while giving us the flexibility to navigate that environment and still meet our results.

Great. Best of luck.

Thank you.

Thank you, Matt.

Thank you. The next question is coming from Brooke Roach of Goldman Sachs. Please go ahead.

Good morning, and thank you for taking our question. Tony, Adrian, as you think about the opportunity for Macy's, Inc. to return to positive comps over the course of the next few quarters, how are you thinking about engaging various customer demographics? And then, on recent trends, can you talk to the trends you've been seeing and what you would view as transitory or recapturable, and what might be a function of something that might persist? Thank you.

Thanks, Brooke. Good to talk to you. I think that these times it's good to remind everybody just the power of the Macy's, Inc. portfolio. You've got three iconic nameplates between Macy's, Bloomingdale's and Bluemercury. You've got 40 million active customers. You've got a multi-category business that allows us incredible agility and flexibility and liquidity to kind of move to where the customer is going. You've got great partnerships in the marketplace because we are -- yes, benefit from private brand. We've got a lot of market brands. And so, we represent a major partner or the biggest partner to some of the biggest names in the industry. So, I think it's moments like this where you say from off-price to luxury, our portfolio is well positioned to navigate an uncertain environment. The five generations of customers that shop our stores is an advantage, not a weakness. And you've got a lot of money obviously in the baby boomer population. At some point, we expect that transfer of wealth to the next generations of customers. We are the primary destination for prom season. We are a great destination for the first suit for work. So, it's our opportunity, I think, to leverage the strength of what a portfolio business like Macy's, Inc. can provide, build on the progress of the first year of the Bold New Chapter strategy, while being well aware that we're operating in an uncertain climate and that our ability to use the liquidity that we have and the strength of our partnerships can position us to take a challenging environment and turn it into an opportunistic opportunity for this company.

Good morning, Brooke, and thanks for your question. Let me start with your question around short-term trends and then talk a bit about the build over the course of the year that you're asking about. As we entered the first quarter, we just simply recognized as many that have mentioned that we're just -- as Tony commented, we're just in an uncertain environment. There's a lot of changes that we're seeing day to day happening with tariffs. We recognize the inflationary pressure. And obviously, there were some unexpected factors in the early part of the quarter with the fires and cold weather that impacted results for the business. But for the first quarter, we expect that pressure to continue, and we're really focused on what we can control. The good news is that the investments that we're making in the customer experience are working. And what we're doing now is scaling those initiatives to a larger portion of our business. And so, we do expect as we progress throughout the year to actually see momentum build even in this uncertain environment. As you know, we're making changes in an additional 75 Macy's stores. We're pleased with the luxury momentum where we're adding new locations, new points of distribution, new brand launches. The quality of our assortment continues to improve as we're increasing variety and eliminating redundancy. We have marketing moments that are still ahead of us as we approach holiday, whether that be Mother's Day or Father's Day or Fourth of July. And the execution continues to get better, replenishing faster. We continue to see year-over-year improvements in our in-stocks. So, we're really being very prudent and disciplined. And again, this year is just an uncertain environment at this point and just very much reflected in our guidance.

Great. Thanks so much. I'll pass it on.

Thank you, Brooke.

Thank you. The next question is coming from Ashley Helgans of Jefferies. Please go ahead.

Hi. Thanks for taking our questions. So, sort of follow-up to Brooke's question, I know you just talked about some of the factors impacting Q1, but maybe you can talk about just the overall consumer health that's embedded for the remainder of the guide? And then, same question on promotional levels. I'm curious what sort of promotional levels you have embedded in the guide? Thanks.

Thanks, Ashley. Good to be with you. The consumer health, in our opinion, remains very similar to what we saw in the latter part of 2024: under pressure, navigating food prices and the cost of housing and the stubborn inflation rate, and yet wanting to indulge at times on things that make him or her happy. And I think that we are in that retail therapy business, a place of escapism, an opportunity to get away from all of the political noise that happens every day. And we have to lean into that. And so, I don't think the consumer is going to feel a sense of relief in the short-term. I'm not an economist. I can't tell you how long it will go on. I challenge our teams every day to think about what do we control, how do we make what we're doing more compelling for the customer, whether that's the flow of newness, whether that's the launch of new marketing campaigns, whether that's expanding, as we said, our partnership with the NBC with the fireworks and the parade, and other tentpole events that will come in the future. The excitement that exists at Bloomingdale's between White Lotus and the partnership with Wicked in the fourth quarter and the launch of Coachtopia, there is so much energy that we are putting into the business because we know people are feeling a sense of concern and fatigue. In terms of the promotional environment, I just -- I'm in this business too long that I think when has it not been a promotional environment. I like our inventory position. We're up a couple of points, maybe 1.5 point, 2 points more than I'd like to be, but relative to the competitive set, we look awfully darn good. And I think the composition of our inventory is much better going into the months now as we warm up. So, we've had some unpleasant weather in January and the beginning of February. I think the weather now turns in our favor. And as a team, we have to lean into that opportunity.

Ashley, the only other thing I would add to Tony's comments is there is an important correlation between inventory and promotionality. And as we entered the new fiscal year, we felt pretty good about our inventory position. Just to kind of build on some of the comments that Tony referenced, on comp sales up in the fourth quarter versus prior year, our inventories were up about 2.5%, but half of that increase was actually driven by the conversion to cost accounting for Macy's last year. We also had higher in-transit inventory because of the progress that we've made on the speed of the supply chain. And to Tony's point, with the composition of inventory we have, we have more newness and less aged inventory than we did last year. So, we're quite encouraged from that perspective. In terms of navigating the uncertainty, we're working very closely with our partners with regards to known and unknown variables and really trying to get visibility to opportunities as they emerge. We have a little bit more visibility as it relates to private brands, because we're working directly with factories, but we've been able to kind of manage and navigate some of those knowns, but we're really operating in an environment with some knowns and many unknowns.

Great. Thanks so much.

Thank you.

Thank you.

Thank you. The next question is coming from Oliver Chen of TD Cowen. Please go ahead.

Hi, Tony and Adrian. On the Macy's go-forward comps, how did those trends relative to your expectations and the main deltas in terms of the categories, or what were the main differences relative to what you expected? And related, on the categories, it sounded like you had good momentum in ready-to-wear and beauty. What's assumed in terms of the category dynamics throughout the year? And any strengths and weaknesses and/or opportunities to improve there, especially as we think about your private brands and driving differentiation versus competition? Thank you.

Thanks, Oliver. On the trends in the business, I think we talked about the differential that we saw in ready-to-wear and in handbags and in women's shoes, particularly in the First 50 stores where we had investments at Macy's. So, we've planned ourselves to be able to capture share in ready-to-wear and continue to see the response in the expanded now 125 stores in those categories where we've added additional staffing, additional marketing and visual inspiration. We, obviously, talked about at Bloomingdale's, the ready-to-wear and advanced contemporary business being particularly strong, seeing growth in really the DNA of Bloomingdale's and it's just a great moment for them to have had in the fourth quarter, the best quarter in the history of the company. The softness in the business, I think, the home business, in general, being pressured by the interest rates and housing starts and competitive landscape. And so, we're doing a lot of work to refresh our home business at Macy's. We have -- that was the last piece of our private brand refresh, which will launch mid-2025. So, we still have more work to do. But I think, again, the benefit of being a multi-category retailer is that we're going to be able to pivot. We've got a lot of liquidity built into the business and be able to kind of watch the customer signals and be able to invest into those areas of opportunity. Marketplace had a nice growth in 2024. We plan it for additional growth in 2025. And we know that comes with no inventory risk and the opportunity to take the signals that we also see in marketplace businesses and lean into the opportunity to expand those into our stores as well.

Good morning, Oliver. Just to speak to your distinction between the go-forward comps and the total Inc. comps, I think this is an important dimension. Our destination is the go-forward business. And so, it was important for us to articulate the difference in terms of our reporting this year between total Inc. comps and go-forward Inc. comps. As you saw in the fourth quarter, our go-forward Inc. comps outperformed total Inc. comps and that's really because of the composition of stores that have not received some of the changes and the closure stores. So, as we look ahead, we really want to focus The Street really on the go-forward Inc. comp because that's really the destination that we're focused on. And so, when you look at total Inc. comps this year, you have 225 Macy's go-forward stores that have still not received the growth changes in addition to a remaining approximately 85 non-go-forward stores that last year experienced mid- to high-single-digit declines year-over-year. So, this is something that we'll speak to as we progress through the year so that you can understand the performance of our core go-forward business. But we're pleased with the progress thus far and have a bit more work to do as we lean into 2025.

Okay. Just finally, you mentioned and we discussed a lot of the first quarter pressure. The assumption is, it could just continue to have pressure throughout the year. Is that true? Or what's the dynamic of which factors may or may not be transitory? And then, as you think about high-, middle-, lower-income, are you seeing anything in terms of greater pressure at the low-end where we continue to see these themes of bifurcation at other companies? Thanks a lot.

Yeah, Oliver, I think there's an impact to all levels of consumers. And so, we come off of a position of strength on our luxury brands, but I think the affluent customer that's shopping Macy's is just as uncertain and is confused and concerned by what's transpiring. So, our outlook tries to take into account the pieces that we know and the things that we don't know. Our first quarter inventories are in good shape. There'll be no impact from the pending tariffs. As we look at the remainder of the year, we're taking a case-by-case basis and trying to react in real time as we learn more. The second quarter, we're up against a softer quarter. So, as you look at the kind of flow of the non-linear nature of our growth expectations, we have opportunity to perform better in the second quarter than we do in the first quarter. And a lot of the initiatives that we're rolling out will benefit more of the back half of the year than the front half of the year. That's just the nature of implementing new programs. So, I think the guidance assumes a level of uncertainty. The first quarter assumes more uncertainty and is consistent, I think, with how many are looking at the current environment that we're operating in.

Okay. Thank you. Best regards.

Thank you.

Thank you, Oliver.

Thank you. [Operator Instructions] Our next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.

Hi, good morning, everyone. As you think about the private label portion of the business, how are you thinking about that penetration this year? I know it's been an important part for you. And what are you thinking about -- I think you had talked about some of the underperforming categories that you would focus on private label. How do you see that and how you're thinking about pricing overall? And then, Adrian, as you think about the store portfolio, how many closures do you expect in 2025? And is that 150 number of store closures, any more further perspective on that going forward? Thank you.

Good morning, Dana. Private brand has been an area where we have worked hard to reimagine the entire portfolio. We've now touched more than 20 brands. We'll have by the middle of 2025 addressed all of the home furnishing brands. And it remains, I would say, a work in progress. Our private label penetration is down now at an all-time low. So, the opportunity to rebuild the business is advantageous from a long-term margin accretion perspective, but also I think is good in this particular moment in time and that it protects us or isolates us -- insulates us a little bit from some of the tariff uncertainty. I feel good about the work on some of the brands. You look at a brand like Style & Co or State of Day, or the strength of a brand like Hotel, those brands have done exceptionally well over time and are big volume and represent leaders within their families of business. There are other brands that are more nascent or needing more work and reimagination. And so, I was with the private brand team yesterday kind of walking through fall 2025. It looks spectacular. And the challenge we always have in the business is things look great when you see them six months early and then they hit the floor and the world has changed and you never know. But I was really pleased with what the team showed me yesterday. I think it looks tasty. I think there's great value in the brands. It's not about the lowest price, but it's about great looking product, great design. And I take my hat off to the team because they've really worked hard to be learning from the market brand environment, leaning into white space and not have just duplicative product in private brand that's at a lower price. And I think it will position us well for the long-term.

Good morning, Dana. Let me speak to the store portfolio. We have not shared the number of closures this year. But rest assured, we remain committed to closing approximately 150 stores by the end of next fiscal year, fiscal 2026. The reality is we continue to see that these stores are not financially and operationally viable, especially relative to the monetization opportunity that we've recognized and demonstrated last year. And frankly, Dana, we're off to a solid start. When you look at what we were able to close and monetize last year, we exceeded our own expectations that we actually shared with The Street. We also are very pleased with the momentum on the monetization side of those closures. We spoke to the range of opportunity of sales proceeds to come into the business. We really are pleased with what we saw last year, but we're just giving ourselves the flexibility over the course of this fiscal year and next fiscal year to really be patient given the strength of our balance sheet. And as those proceeds come in, we'll invest in growth initiatives and returning capital to shareholders, but we're very pleased with the progress and we remain committed to what we said we're going to do.

Thank you.

Thank you, Dana.

Thank you. The next question is coming from Paul Lejuez of Citigroup. Please go ahead.

Thanks. It's Tracy Kogan filling in for Paul. I was hoping you guys could give a little more detail on the credit trends you saw in 4Q, but also if you've seen any notable changes in either payment rates or losses quarter-to-date? Thanks.

I can go ahead and take that, Tracy, and good morning. Give my best to Paul as well. What we saw in 2024 was a stabilization of credit card revenues. What we expect in 2025 is a return to growth. And so, as you think about what we experienced in the fourth quarter and really in the back half of the year was credit card revenue growth that was ahead of our expectations. Now, we've been focused on a number of initiatives in 2024 that's going to be paying dividends in 2025 because we've seen the traction in the back half of last year. We're very focused last year in maintaining a healthy credit portfolio as demonstrated by the underwriting we're working on with our partners as well as the FICO scores. And that demonstration of a healthy portfolio has really stabilized net credit losses given the health of the file that we currently have. But we have a number of other initiatives designed to increase card usage at Bloomingdale's and at Macy's, as well as some [indiscernible] transactions. We've been increasing year-over-year application growth, which is something we have not seen in quite a number of years. And also, with the increase in APR early last year, we're definitely seeing the flow-through of those benefits in the back half of last year into this year. So, those are kind of the combination of factors that's really driving the credit card business, which we're pleased with the progress thus far, but we recognize that there's more that can be done as well, and we'll continue to lean in there.

Great. Thank you. So, no meaningful changes quarter-to-date?

No meaningful changes quarter-to-date. We expect this year to be a return to growth as reflected in our guide.

Got it. Thank you.

Thank you, Tracy.

Thank you. At this time, there are no further questions. I would like to turn the floor back over to Mr. Tony Spring for closing comments.

Thank you, operator, and thank you all for attending the call this morning. We look forward to continuing to update you on our progress on the Bold New Chapter and our opportunity to take you to stores, if appropriate, and look forward to updating you on the first quarter call. Have a good morning, everyone.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.