Q1 2025 Earnings Summary
- Early success of the First 50 Macy's locations: These stores achieved a 3.4% comp increase in the first quarter, outperforming other locations and indicating that strategic investments are driving growth and customer satisfaction ,.
- Strong performance and expansion of small format stores: Macy's is encouraged by the rollout of small format stores, with 11 more openings planned this year. Customer response has been positive, suggesting a successful new growth avenue.
- Growth in digital initiatives and Marketplace model: Macy's digital strategies are yielding positive results. The Macy's Media Network revenue rose 27.6% to $37 million, and the launch of an online baby registry with over 150 new brands has been well received, contributing to increased customer engagement and revenue streams ,.
- Management expects the consumer to remain under pressure for the rest of the year, which could negatively impact sales. Adrian Mitchell stated, "the consumer, we believe, will remain under pressure for the balance of the year."
- Luxury handbag and shoe business is softer than before, indicating potential challenges in higher-margin categories. Antony Spring noted that "luxury handbag and shoe business is much softer than it was" and that the high-end consumer "is being very thoughtful in the category she's purchasing in."
- Higher credit card balances could indicate increased risk of delinquencies. While Macy's saw higher balances in their credit card portfolio, which contributed positively to revenues, persistent consumer pressure may lead to increased credit losses. Adrian Mitchell mentioned that delinquency metrics "are very much in line with our expectations," but consumers remain under pressure.
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Comp Guidance & Consumer Health
Q: Does your comp guidance assume improvement in consumer health?
A: Management stated that their comp guidance for the fiscal year does not assume any improvement in consumer health; they expect the consumer to remain under pressure for the balance of the year. The range reflects the competitive environment and continued consumer pressure, and they are focusing on improving execution and serving customers better through growth investments in stores, digital, and luxury. -
Gross Margin Outlook
Q: What are your expectations for Q2 gross margin and back half merchandise margins?
A: Management expects second quarter gross margin to be at least 170 basis points above last year. They are pleased with inventory health and positioning for warm weather goods, emphasizing inventory discipline as they enter the fall and holiday seasons. -
Credit Card Revenues & Delinquencies
Q: How are credit losses and delinquencies trending?
A: Management is pleased with credit card results, increasing the annual outlook by $15 million due to higher balances and better-than-expected profit sharing with Citi. Delinquency and payment metrics are in line with expectations. -
Asset Monetization Plans
Q: Can you provide an update on asset monetization plans?
A: Management is encouraged by the traction in asset monetization efforts. They are focusing on quality deals, finding the right buyers, and ensuring they get the right price. Proceeds will be used to reinvest in the business and return capital to shareholders. -
SG&A Savings & Initiatives
Q: What drove SG&A to come in below expectations, and what expense initiatives are planned?
A: Lower SG&A was due to effectively managing variable expenses and gaining traction on structural cost savings initiatives related to end-to-end operations. Actions include consolidating tech vendors, offshoring parts of the finance team, and better balancing fulfillment activities. -
Consumer Health & Income Levels
Q: How is the consumer's health, and does it differ by income levels?
A: Management observes that the consumer remains under pressure and is discerning in purchases. Higher-income customers continue to spend but are more thoughtful about categories, shifting interest to advanced contemporary, beauty, and home rather than luxury handbags and shoes. -
Promotions & Apparel Outlook
Q: What are your thoughts on promotions and apparel comping positive?
A: Management is carefully managing promotions, targeting value where necessary without overinvesting. In apparel, they see opportunities based on positive trends at Bloomingdale's and are working through private brand disposition, expecting growth as new brands gain materiality. -
Scaling "First 50" Initiatives
Q: How quickly can you roll out "First 50" initiatives to more stores?
A: Management plans to expand these capital-light initiatives when consistent results are evident. They will carefully scale as the year progresses, with potential for more stores in 2025. -
Luxury Trends & Bluemercury
Q: Can you discuss luxury trends and initiatives, especially in Bluemercury?
A: Management notes a shift toward "quiet luxury" with less logo emphasis. Bluemercury is performing well, with strong demand for high-end skincare, and plans to open 30 new stores over the next couple of years. -
CFPB Credit Regulations
Q: What's your latest view on CFPB credit card regulations and mitigation efforts?
A: The impact of the regulations remains uncertain, including size and timing. Management is exploring mitigation strategies with Citi but will disclose the impact once the final ruling is out. -
Comp Sales Cadence
Q: Can you comment on comp sales cadence and early Q2 trends?
A: Management did not comment on monthly cadence or quarter-to-date results, noting it is premature to assess the quarter based on a few weeks. -
Vendor Engagement in First 50
Q: Is vendor engagement in "First 50" stores driving lift in vendor mix or margins?
A: Management sees strong vendor partnerships, leading to better assortments and higher full-price sell-through in these stores. Vendors are investing in the most productive assets, enhancing the overall performance. -
Marketplace & Digital Advertising
Q: What should we know about modeling marketplace and digital advertising?
A: The marketplace and media network performed well; Macy's Media Network is up over 20% year-over-year. They see strong vendor engagement beyond beauty and are diversifying offerings within the media network.