Karen M. Hoguet – Chief Financial Officer

5.6% negative comp

“Sales in the first quarter were $5.771 billion or 7.4% below last year due both to the stores that we’ve closed in 2015 and the decline in comp sales. While we had planned comp sales to be below last year in the first quarter, our 5.6% decline on an owned plus licensed basis was worse than expected. On a two-year basis, the comp sales were down 2.9% per year.”

The business weakened considerably vs expectations starting in March and continued through April

“While the quarter started stronger, the business weakened considerably versus our expectations beginning in mid-March, and that trend continued through April. As Terry said in our press release, we are seeing weakness in consumer spending levels in apparel and related categories. The number of transactions declined 7% in the quarter, which is far worse than what was experienced last year. This is the proxy, as you know, for traffic.”

Digital was strong but also grew less rapidly than anticipated

” Digital sales continued strong, still growing double digits, but it too grew less rapidly than anticipated. Bloomingdale’s trends were also weak due to the same trends impacting Macy’s. ”

y/y comps get easier in 3Q

“Also, as you know, the year-over-year comparisons get easier in the third quarter and fourth quarter given the weakness last year. We also are hoping for a more normal winter.”

The retail industry is clearly in a rough patch but the consumer seems to be doing ok

“All of us have been reading the stream of negative news stories about various retailers over the past several weeks. Clearly, our industry is in something of a rough patch. We know we are not alone. But the consumer seems to be doing okay. Employment is steady and wages continue to rise. The consumer savings rate remains high and most macroeconomic indicators are better than flat. So it’s reasonable to conclude that the consumer will return to more aggressive discretionary spending at some point, hopefully sooner than later.”

We are not pulling our commitment to omnichannel

” we are absolutely not pulling back our commitment to digital and omnichannel retailing. Mobile remains a very high priority, and we continue to invest. ”

We are assuming that what happened in Q1 could continue but we’re hoping there was something fluky

” Look, I’m not going to comment on early May sales. We’ve done that before and usually the first couple of weeks of a quarter don’t necessarily predict it. Had I done that in February, the first quarter would’ve been very different. So, for now, we’re assuming that what we saw in the first quarter could continue on a two-year basis. Again, we hope we’re wrong and we hope there’s improvement and there was something fluky in the last six weeks of the quarter. But I don’t know enough to say that, and I don’t know about going back to 2008. I’ll do that and look more into it. I’m not sure. When you look at the economic trends, you would say that’s not the case, but I’m not sure.”

The competitive environment has gotten a lot more promotional

“Yes, I think the competitive environment has become a lot more promotional. I think part of this is a result of the Internet where every promotion happens across the country immediately. And also there’s a lot of price matching going out with some of the (23:59) with some of the competitors and there’s some irrational behavior that I think is giving us some challenges, and that’s in part why we lowered the expectation around gross margin a bit from what we had said earlier in the year.”

Don’t think that Q1 would have been a lot different if we had promoted more

” I don’t think, had we promoted more, the first quarter would’ve been a lot different, but that’s the question we’re certainly asking ourselves as we move forward. ”

Delinquency levels are somewhat elevated but still within normal range

“Delinquency levels remain somewhat elevated post our credit conversion, but the level is still within what I would call our normal range and certainly within the range of our other issuers. Also the level continues to come down, so I do not think it’s concerning at this point.”

Trying to fight price comparison with more exclusive merch

” One of the things we’re all focusing on is having more exclusive merchandise that you could only get at Macy’s and you can’t price compare it as easily, but also giving the customer just a better experience so that she’s more likely to come in and buy from us at regular price.”

We agree we need to make brick and mortar experience better

“we absolutely agree with you that we need to work hard to make the bricks and mortar experience a lot more exciting and we’re working on that and trying to test some concepts, one of which actually is the whole health and wellness. So we agree with you that making our bricks and mortar experiences even better is a very high priority, and we’re really focused on that. ”

We are puzzled about what we’re seeing with the consumer vs. traffic into stores

We’re frankly scratching our heads. We see the same economic data you all see and it would point to a customer that would be spending more. I think that gets to what he and she are spending it on. Savings rates are high, which tells you that either they’re purposefully saving more or that there’s some of that savings that can be used for discretionary spending if they get motivated to do so. Some of it is spending in different categories; health, restaurants, travel. I’m not sure, but I would say that we too are somewhat puzzled by the data that we’re seeing on the consumer and the traffic we’re seeing in the stores and on the site. ”