Macys 3Q15 Earnings Call Notes

Retail industry is going through a tough period

“We believe that the retail industry is going through a tough period that we seem to experience something like this every five years to seven years or so, and this one feels familiar in that regard.”

Not happy with our results and committed to fixing it

“know just that I’m just not happy with our current overall results and I’m committed to fixing it.”

International tourist sales down

‘First, sales performance in our tourist doors weakened versus the second quarter, with a significant decline in international tourist sales. Using international credit card sales as the proxy, we estimate the impact of the lower international tourist sales to be approximately 1.5 points in the third quarter, which compares to the one point that we talked about for the first quarter and the second quarter.”

Warm weather hasn’t helped

“Second, the weather has not helped with the warm temperatures experienced across the country. Our sales of cold weather merchandise, such as coats, sweaters, boots, et cetera were significantly below last year in the quarter.”

Active continues to be very strong category

“Active continues to be a very strong category for us across the store, whether it be in men’s, women’s, or kids.”

Our industry can be cyclical and it’s wise to maintain investment grade flexibility

“Our industry can be cyclical and you don’t have to look far back for evidence that swings in leverage can be material through this cycle. We’ve lived through enough downturns and bankruptcies to know that there is a real benefit to the retailer of maintaining the flexibility of an investment grade rating and having access to capital in all markets, particularly when the industry is in flux.”

We’re modeling easier comps as we anniversary weak tourist spend, but other than that not expecting much improvement

“as difficult as the 2% to 3% it is, it’s a slight improvement versus how we have been in the third quarter. And frankly I think part of that is the fact that we will anniversary the weakness of the international tourist business which we felt in the middle of December last year and throughout January. But we’re not expecting any major trends and change, as you can tell, other than that. So I wish I could say it’s going to get ice cold across the country, I wish I could say that tourists are going to begin to show up and start spending, but you can see in our forecast for fourth quarter, we’re not expecting that.”

I’m not selling lumber, I can’t carry inventory over to 2016, I have to take markdowns

“of course all retailers who are in the fashion business like us, we’re not selling lumber, so I can’t carry the lumber over to 2016 and sell it at the same price next year. We’re selling fashion apparel and so we’re going to mark that inventory down. That will be good for consumers, but it will obviously put pressure on our own margins in the fourth quarter”

You have to shoot when the ducks are flying

“you have to shoot when the ducks are flying, and they’re flying in November and December. That’s when the traffic is there.”

Eventually it’s going to get cold and hopefully before we mark down inventory

“You want to believe that eventually it is going to get cold, and so when it does, that consumers will, and traditionally, they have reacted to that. So you don’t necessarily need to mark all of that inventory down. At some point, we will; but you’d like to be able to get some of that business in the higher margin and at the higher average retail early when the weather does break before you have to mark down.’

Data indicates that consumers still have money to spend we’re just waiting to see if they will. I think the state of the consumer is actually reasonably ok

“First of all, one of the things that you mentioned about the consumer is that the nature of the consumer is that they’re (46:24) first quarter they were spending in categories such as automobiles, in home improvement, certainly in technology and healthcare. You could find the specific categories where the consumer was spending and that did demonstrate that there is reason to believe in the GDP forecast. However, that dropped off, we all saw how that dropped off in the third quarter and yet some of those categories continued to perform. So, they have – and their savings accounts still indicate – well they’re a little less than they were in second quarter, they still indicate that there is money to spend if the consumer chooses to do so in the fourth quarter. We’re just waiting now to see if, in fact, they will. So, I think the state of the consumer is actually reasonably okay”

It’s hard not to talk about the weather

“I hate complaining about the weather but in a quarter like this it’s really hard not to talk about it.”

Omnichannel complicates measurement of sales by channel

“One of the complicated things about our business is that we’re going to continue to aggressively support omnichannel shopping, but in many cases the customer is actually looking at her phone first, deciding where to go, coming in to the store, spending time inside the store, talking with our associates, maybe even trying the product on and then buying the product from us later, either that day or putting it in her basket and buying it a day or two days later. And so we don’t necessarily believe that that sale would take place if they didn’t have the store experience, but when you look at the store impact, that’s a negative for the store in terms of time invested, expense invested versus – and a positive for the online business, who is getting the credit for the sale.”

“it does create a complication for us in making sure that we understand just how many stores we need, how far will the customer drive to, try on this product once they’ve discovered it on their mobile device or their tablet device.”

This is absolutely not like 2008 or 2009

“Someone asked me just earlier this morning, is this similar to 2008 and 2009, and my answer is absolutely no. It’s not similar because then it was a crystal-clear massive pullback by consumers and we literally saw them stop shopping the day of the Lehman Brothers collapse. The next day business dropped dramatically, we just saw consumers stop spending for a strong period of time. So this is different. This is what we’ve seen, a slowdown, as you said, in transactions particularly in this last quarter. We also here can see that the fundamentals of the economy are in much better shape than they were in 2008 and 2009. ”

There was no major difference in upscale vs. mid household income

“there was no major difference in the more upscale consumer of Bloomingdale’s than there is for the more mid-household income consumer of Macy’s. It was really the swing was more along the lines that I’ve just described with that international tourism and the concentration of our business in the Northeast.”