Macys 2Q15 Earnings Call Notes

Four factors contributed to sales weakness including weak tourist business, slow growth in core categories and challenges with the consumer

We would highlight the following four major factors in no particular order that contributed to our sales weakness in the quarter. Two of these are the same as we mentioned last quarter. The first is our decision to no repeat a friend and family event that we had last year in the second quarter.”

“two, continued weakness in the international tourist business. We estimate this hurt comp growth by approximately 1% as it did in the first quarter.”

“Three, slower growth in some key center core categories. These businesses are still growing well above the total company, but just not at the same level as they had been growing. And four, the continued challenges with the consumer.”

Overall economic growth modest and consumers are spending on other categories

“The overall growth in the economy is modest to best and we are seeing customers gravitating to restaurants, recreational services, healthcare and electronics rather than to traditional general merchandize apparel and furnishing category.”

Category breakdown

“two of our best performing categories in the quarter were in the center core areas; handbags and fragrances. We also had strong sales performance and active furniture and mattresses. The weaker categories included fashion jewelry and watches, petites and large size women’s apparel, men’s tailored clothing, house wares and table top.”

Considered unlocking value of real estate but benefits didn’t justify it

” We have regularly considered ways to realize the value of our own real estate over the years, but each time we did not see enough meaningful economic benefit to justify the added cost and lower flexibility that would come from doing so.”

We’re taking a look now with real estate values at all time highs

“With that said though real estate values clearly are nearing all time highs and so over the past few months, we have been intensely studying this subject again. We have brought on specialized real estate advisors as well as financial, legal and tax advisors to look at a wide range of alternatives from financing to structural that have the potential to create value.”

The economy didn’t do us any favors in the 1st half

“The overall economy didn’t do us any favors in the first half of the year. We look forward to the effects of the stronger dollar beginning to year around in the fourth quarter and to consumers replenishing their closets as their wardrobes require updating heading into the fall and holidays.”

We see opportunities to generate more sales from our customers, but it’s clearly getting harder

“I think the real answer Matt is that we see opportunities of generating more sales from our consumers. It is clearly getting harder. As I said there is a lot of competition for the dollar in categories other than what we sell, but we have confidence in our team to develop — deliver the sales that we’ve talked about and continue to be a market leader here.”

It’s too early to claim victory on back to school, but feel good about the early start

“in terms of back-to-school, it’s way too early to claim victory. So we do feel good based on the early start.”

Higher medical costs pressure sales this year

” One is I think we’ve talked for a long time about the pressure of higher medical cost which I think is probably impacting most companies/ What’s different about this year is we’ve gone to a consumer directed plan and as part of that and this is probably more detail than you need. We’ve helped to fund the HSA accounts for our employees and so there was more expense in the second quarter than it would have been last year. So part of it is timing, but we also expect a big increase in medical expense for the full year as well.’