Macy's Q3 2025 Earnings Report

Macy's EPS Results

• Actual EPS: $0.04
• Consensus EPS: $0.07
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: $0.21

Macy's Revenue Results

• Actual Revenue: $4.74 billion
• Expected Revenue: $4.74 billion
• Beat/Miss: Met Expectations
• YoY Revenue Growth: -2.40%

Macy's Announcement Details

• Quarter: Q3 2025
• Date: 12/11/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, December 11, 2024
• Conference Call Time: 8:00AM ET

Macy's (NYSE:M) engages in the retail of apparel, accessories, cosmetics, home furnishings, and other consumer goods. The firm's brands include Macy's, Bloomingdale's, and Bluemercury. It offers men's, women's, and children's apparel, women's accessories, intimate apparel, shoes, cosmetics, fragrances, as well as home and miscellaneous products. The company was founded by Rowland H. Macy in 1858 and is headquartered in New York, NY.

Macy's Q3 2025 Earnings Call Transcript

Presentation

[Operator]

Greetings, and welcome to the Macy's, Inc. Third Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this call is being recorded.

[Operator]

I would now like to turn the call over to Pamela Quintiliano, VP of Investor Relations. Pamela, you may now begin.

[Pamela Quintiliano, Vice President - Investor Relations at Macy’s]

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 Q3 2024 press release, a Form 8 ks has been filed with the SEC and a presentation has been posted on the Investors section of our website macysinc.com and is being displayed live during today's webcast. The Form 8 ks includes revisions made to its historical consolidated financial statements that were impacted by the immaterial misstatements that the company has previously disclosed.

[Pamela Quintiliano, Vice President - Investor Relations at Macy’s]

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 August 21st earnings call, unless otherwise noted. In addition, 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. 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.

[Pamela Quintiliano, Vice President - Investor Relations at Macy’s]

A detailed discussion of these factors and uncertainties is contained in our filings with the Securities and Exchange Commission. In discussing the results of our operations, we will be providing certain non GAAP financial measures. You can find additional information regarding these non GAAP financial measures as well as others on the Investors section of our website. Today's call is being webcast on our website. A replay will be available approximately 2 hours after the conclusion of this call.

[Pamela Quintiliano, Vice President - Investor Relations at Macy’s]

With that, I'll turn it over to Tony.

[Antony Spring, CEO & Chairman at Macy’s]

Thank you, Pam, and good morning, everyone. As previously reported, Macy's first fifty locations, Bloomingdale's and Blue Mercury all comped positive in the 3rd quarter. We maintained effective expense controls, generated above plan asset sale gains and are encouraged by our quarter to date comparable sales trends, which remain above our 3rd quarter levels. Year to date, we have made progress in our Bold New Chapter strategy and remain on track to achieve our long term goal of sustainable profitable growth. Before we get into our Q3 financial performance, I want to discuss the independent investigation into the issue related to small package delivery expenses in one of our accrual accounts.

[Antony Spring, CEO & Chairman at Macy’s]

Our investigation is now complete. We've determined that the individual responsible for the issue intentionally made erroneous accounting accrual entries beginning in Q4 2021 and in subsequent periods, acted alone and did not pursue these acts for personal gain. As noted in our press release this morning, we've concluded that these erroneous entries had an immaterial impact on our cumulative financial results and no impact on our cash position as all vendors were fully paid. As a reminder, our delivery expenses recorded and cost of goods sold, which falls within gross margin. To provide transparency, adjusted numbers for fiscal 2021, 2022, 2023 and quarterly periods for fiscal 2023 are in today's Form 8 ks filed earlier this morning.

[Antony Spring, CEO & Chairman at Macy’s]

Adrian will also provide detail on the impact to our financial statement metrics in his prepared remarks. But I want to be clear, integrity is paramount at Macy's Inc. And we promote a culture of ethical conduct. When discovered, we move quickly to investigate and address the issue. The responsible individual is no longer with the company following the discovery of their actions.

[Antony Spring, CEO & Chairman at Macy’s]

We've also identified and begun to implement additional controls to be a stronger and more disciplined organization, so that an action like this could not happen again. Now let's turn to the 3rd quarter results. Net sales of $4,700,000,000 were in line with our outlook provided in August. Momentum in first fifty locations at Macy's and Bloomingdale's and Blue Mercury were offset by weakness in Macy's non first fifty locations, its digital channel and its cold weather categories, all of which have registered sequential quarter to date comparable sales improvements from their 3rd quarter levels. Inclusive of delivery expense impact, adjusted 3rd quarter EPS of $0.04 benefit from a pull forward of non go forward asset sale gains into the 3rd quarter from the 4th quarter.

[Antony Spring, CEO & Chairman at Macy’s]

We are pleased with our 3rd quarter results. Our teams did a great job. They thoughtfully responded to the extended warm weather conditions and an active hurricane season. We took proactive steps to address the dynamic environment and best serve our customers through reprioritizing categories, marketing, in store presentations and adjusting go forward orders to provide more newness. At the same time, we continue to invest in and execute our Bold New Chapter strategy.

[Antony Spring, CEO & Chairman at Macy’s]

3 quarters into the strategy, initiatives continue to gain traction across all three pillars. We're using data to test, iterate and refine our initiatives. Our healthy balance sheet and ample liquidity allow us to deploy capital that supports our long term aspirations without compromising our financial health. Turning to the first pillar of our strategy, strengthening the Macy's nameplate. First fifty locations delivered a positive 1.9% comp, representing their 3rd consecutive quarter of comp sales growth and 4 10 basis points of outperformance relative to the total Macy's nameplate.

[Antony Spring, CEO & Chairman at Macy’s]

These results reflect positive customer response to investments in staffing, merchandising, visual presentation and eventing, which led to a 400 basis point improvement in net promoter scores compared to last year, representing our 3rd consecutive quarter of improvement. We've also been testing women's shoes and handbag staffing at about 100 forward locations. Having dedicated runners to get shoes from the stockroom and salespeople available to assist in handbags allows our colleagues to spend more time with the customer. Compared to non First 50 Macy's locations and those that did not receive additional staffing, women's shoes and handbag sales outperformed by roughly 60700 basis points respectively year over year. This illustrates the importance of dedicated customer assistance in high touchpoint categories.

[Antony Spring, CEO & Chairman at Macy’s]

These learnings along with those from the first fifty are being used to inform our plans for expanding initiatives to additional go forward locations in 2025, which will be discussed in more detail on the Q4 earnings call. Improvements have not been limited to our first fifty and 100 test store locations. Across the Macy's nameplate, we continue to take active steps to improve the customer experience. We are training colleagues to be more helpful by leveraging digital tools and in person coaching. And our merchandise revitalization is gaining traction.

[Antony Spring, CEO & Chairman at Macy’s]

We've reduced exposure to less relevant brands and expanded our offering in ones that customers are responding to including EnSant, Donna Karan, Steve Madden, Avec Le Fille, Dolce Vita just to name a few. We're providing compelling fashion and value in our women's private label brands such as Charter Club and Style and Co. Beyond women's apparel, Fragrances continued to be a standout, while men's non active apparel, handbags and home sales, although still weak, sequentially improved in the Q3. Customers have taken notice of the better product and experience with total nameplate net promoter scores up roughly 230 basis points year over year and representing our highest score ever. Rounding out the discussion on Macy's, we're encouraged by the pace and economics of our non go forward store deals.

[Antony Spring, CEO & Chairman at Macy’s]

We now expect to close roughly 65 locations this year. In line with our typical cadence, closures will occur post holiday. The second pillar of our bold new chapter strategy is accelerating luxury growth. Both Bloomingdale's and Blue Mercury posted positive 3rd quarter comps. Customers continue to respond well to their breadth of product, price points, market and private brands and we remain confident in our ability to grow sales at each of these nameplates.

[Antony Spring, CEO & Chairman at Macy’s]

At Bloomingdale's, our aspirational to luxury positioning and associated price points are key differentiators. Comp sales rose 3.2% driven by women's advanced contemporary apparel, which continued to be a standout as well as beauty and digital. Customers responded well to new brands including SKIMS and Jenny Kane. And handbags have begun to show signs of improvement with strength in Tory Burch, Coach, Longchamp and ReBag, which is our recent pre owned luxury accessories launch. These improvements were partially offset by the softness in certain areas of the home store.

[Antony Spring, CEO & Chairman at Macy’s]

During the Q3, Bloomingdale's had its From Italy With Love campaign, which was a strong driver of traffic and a brand amplifier. It brought the best of Italy to the U. S. Embracing its fashion, design, cuisine and culture through 300 exclusive products from 150 plus renowned partners and 30 new brands and have garnered roughly 2,000,000,000 media impressions. From Italy with Love is a tangible example of how Bloomingdale's remains close to and connects with its customers through unique product and experiences, empowering it to be the local leader in the markets it serves.

[Antony Spring, CEO & Chairman at Macy’s]

We recently opened our 4th Bloomies location located in Shrewsbury, New Jersey. This store was informed by extensive customer and market research. It's our first women's only store and offers a highly curated assortment that's been well received. Blue Mercury achieved its 15th consecutive quarter of positive comps, posting a 3.3% gain. During the quarter, we expanded popular lines such as Sicily Paris, SkinMedica, Augustinus Bodder and introduced Victoria Beckham Beauty.

[Antony Spring, CEO & Chairman at Macy’s]

The quarter also benefited from Blue Mercury's 25th anniversary celebration, which kicked off in September with the unveiling of an elevated website aesthetic that offers improved navigation and educational blog and new logo. Blue Mercury's 25th anniversary celebration is not limited to its website. We've also introduced a more modern aesthetic to our new and remodeled stores. During the quarter, Blue Mercury remodeled 4 locations and opened 8 for a total of 5 remodels and 9 new stores this year. New and remodeled locations can continue to outperform the total fleet.

[Antony Spring, CEO & Chairman at Macy’s]

We plan to open an additional 9 and remodel 2 more stores in the Q4. Moving to our final pillar, simplifying and modernizing end to end operations. We are pleased with the work our teams are doing to phase out legacy technology across the organization, improve our search platforms and deliver and improve customer experience. In our supply chain, we remain focused on creating a more efficient and effective network. Through the Q3, speed of delivery and fulfillment have each improved by roughly 800 basis points compared to the prior year to date period.

[Antony Spring, CEO & Chairman at Macy’s]

As a result of our multi year investments, we're realizing lower fulfillment costs, optimized cash flow generation and seeing improved Net Promoter Scores for product availability, in stock rates and fulfillment of packages. Before I turn it over to Adrian, I wanted to share more on quarter to date trends and how we're approaching the remainder of the year. Consistent with our press release commentary, quarter to date comparable sales trends remain above 3rd quarter levels. We're listening to our customers and believe our compelling product, marketing, value and experiences and of course frontline colleagues are giving them a reason to shop our nameplates. Our marketing teams in conjunction with merchandise and digital developed exciting holiday strategies with multiple touch points and events.

[Antony Spring, CEO & Chairman at Macy’s]

We're leveraging our Macy's Thanksgiving Day parade and gift giving destination status. Heading into Thanksgiving, our Parade of Deals event built excitement with 24 hour specials that culminated in our 98th Annual Parade, which had about 32,000,000 viewers, a new record. And this year, we've brought our gift guide to life in human form with actress Alison Brie, stars in our holiday campaign, which is supported by a team of high profile social content creators with over 24,000,000 followers and we call them the Macy's giffluencers. And the excitement is not limited to Macy's. Bloomingdale's holiday campaign and iconic windows are inspired by its collaboration with Universal Pictures' Wicked.

[Antony Spring, CEO & Chairman at Macy’s]

The Wicked good holiday campaign includes 100 exclusive products, 150 brand participants and our biggest Aqua collection to date. And at Blue Mercury, we're emphasizing the gift of self care and unique skin and beauty products, including new perfume offerings and gift sets from Perfume de Marley, Creed, The Manicurist and Flamingo Estate. As we look to the remainder of the year and beyond, we are well positioned across nameplates to capture mind share through curated assortments, relevant messaging, enhanced customer service, compelling value and promotions, all supported by improved end to end operations. With that, let me turn it over to Adrian.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you, Tony, and good morning, everyone. Our Q3 performance reflects our team's ongoing focus and agility in navigating a dynamic environment, positive reception to investments in our customer experience and the benefits of continued operational productivity efforts. These efforts continue as our teams work to deliver on holiday and the execution of our bold new chapter strategy. Before discussing the quarter, I'll first provide detail on the revisions to our financial statements. We have concluded from our independent investigation that the erroneous entries had an immaterial impact on our financial results over the cumulative period the actions took place.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

The erroneous entries from the Q4 of 2021 through the fiscal quarter ended November 2 this year totaled a combined $151,000,000 During the same period, the company recognized approximately $4,360,000,000 of delivery expenses. The largest quarter delivery expense impact tended to occur in the 4th quarter due to elevated holiday volumes. This was not theft. There was no impact to revenues and there was no impact to cash or inventories as all vendors were fully paid. This matter did not require reissuing prior financial statements as the impacts were deemed immaterial.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We have provided revised historical financial information in this morning's press release and 8 ks for your reference. For purposes of today's call, Q3 year over year comparisons as well as our Q4 and full year outlooks reflect our revised results. Management performed additional analysis and other procedures to ensure that our consolidated financial statements were prepared in accordance with the U. S. Generally Accepted Accounting Principles.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Now diving into Q3 results. Total Macy's Inc. Net sales were $4,700,000,000 down 2.4% to last year, unchanged from what we reported on November 25. Owned AUR rose 3.7 percent driven primarily by category and product mix. Total enterprise comps were down 1.3%.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Go forward business Macy's Inc. Comps, which includes Macy's, Bloomingdale's and Blue Mercury go forward locations plus digital declined 0.9%. By nameplate, Macy's net sales, which includes all Macy's locations in digital, were down 3.1% and comps were down 2.2%. We estimate that unseasonably mild temperatures and the associated negative impact on fall transitional and colder weather product sell throughs accounted for roughly one point of comp sales. Macy's nameplate go forward business comps, which include approximately 350 go forward locations and digital were down 1.8%.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

First50, which we view as the leading indicator of go forward Macy's ability to achieve comp sales growth posted a positive 1.9% comp. Both Bloomingdale's and Blue Mercury had a strong 3rd quarter. Bloomingdale's net sales were up 1.4% and comps rose 3.2%, while Blue Mercury net sales were up 3.2% and comps rose 3.3%. Other revenues of $161,000,000 declined 9.6%. Net credit card revenues were $120,000,000 Profit share was better than our expectations while net credit losses were in line.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Macy's Media Network revenues were $41,000,000 and continued to be supported by higher advertiser and campaign counts. Before discussing gross margin rate and inventory, a reminder that for this year neither are directly comparable to the prior periods due to our conversion to cost accounting at the beginning of this fiscal year. And gross margin rate for the current and prior year quarters have been adjusted for delivery expense by 30 basis points and 10 basis points respectively. Gross margin rate was 39.6%, down 60 basis points year over year. Within that merchandise margin declined 70 basis points.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Relative to last year slightly less than half of the decline was due to our shift to cost accounting. The remainder reflected product mix. Relative to our expectations, we took proactive discounting on seasonal fall transitional product and had higher penetration of clearance sell throughs in response to warmer weather conditions and a more value conscious customer. This was partially offset both year over year and relative to expectations by efficiencies in the company's fulfillment network and lower shift sales volume. End of quarter inventories were up 3.9% year over year, approximately half of which was due to the conversion to cost accounting.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We made sequential progress on the quantity and quality of our merchandise and believe Q3 ending inventories reflected an appropriate amount of newness for this holiday season. SG and A expense dollars were $2,100,000,000 or 42.1 percent of total revenue. We continue to take a disciplined approach to cost controls while making strategic customer facing investments. These investments contributed to the $24,000,000 increase in SG and A compared to last year, while lower total revenue led to the 160 basis point increase in rate. Turning to real estate, during the quarter, we recognized $66,000,000 of asset sale gains reflecting the pull forward of select deals into the Q3 from the Q4.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

The deal making environment remains favorable and as Tony mentioned, we now expect to close about 65 locations this year, up from our prior expectation of 5550 at the beginning of the year. Concluding the conversation on earnings, we delivered adjusted 3rd quarter EPS of $0.04 Results primarily reflect higher asset sale gains, which contributed roughly $0.10 of EPS. This was offset by this year's delivery expense adjustment related to our recent concluded investigation, which negatively impacted EPS by approximately $0.04 On a year to date basis, cash used by operating activities was $30,000,000 largely driven by lower earnings. Capital expenditures totaled $649,000,000 Free cash flow was an outflow of $492,000,000 and we have paid $144,000,000 in cash dividends. We also completed a $220,000,000 tender offer to further remove liabilities from the enterprise, while keeping the flexibility to fund our own growth and invest in consumer facing initiatives.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We, along with our Board, are constantly evaluating our capital deployment to ensure it aligns with our priorities, which are maintaining a healthy balance sheet, investing in profitable growth initiatives and returning capital to shareholders. Before discussing our Q4 and full year outlooks, a few reminders. First, the outlooks incorporate the revised historical delivery expense and updated delivery expense expectations for the 4th quarter fiscal year as small package delivery expense had not been forecasted properly by the individual responsible for the erroneous accounting entries. 2nd, we assume current pressure on the consumer persists and that they will remain choiceful in their discretionary spend. And 3rd, the Q4 of 2024 is a 13 week period, while Q4 2023 was a 14 week period.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

The 53rd week in fiscal 2023 contributed $252,000,000 to net sales. For the Q4, net sales are expected to be $7,800,000,000 to $8,000,000,000 On a 13 week basis, net sales are expected to be down approximately 1% to up approximately 1.5%. Although quarter to date comparable sales trends have improved sequentially from the 3rd quarter, there are several large volume weeks still ahead. We are pleased with recent trends, but do not believe there will be a full recapture of the lost cold weather product sales, especially given this year's shortened holiday season. Other revenues are projected to be roughly $206,000,000 to $216,000,000 including credit card revenues of approximately $138,000,000 to $148,000,000 Gross margin rate to be approximately 35.3 percent to 35.7 percent, which includes a roughly 85 basis point accounting adjustment for delivery expense that was not included in our previously issued guidance.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

On an adjusted basis, year over year, the majority of the anticipated gross margin rate decline is due to the shift to cost accounting at the beginning of this fiscal year. The gross margin outlook range also incorporates our expectation for a heightened promotional environment relative to our prior view and commitment to taking actions to limit inventory liabilities particularly in seasonal goods as we enter fiscal 2025. End of quarter inventories to be roughly flat on a reported basis relative to last year. Adjusting for the shift to cost accounting, inventories would be projected down low single digits. We are proud of the work the team has done to improve our sales to stock ratio.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Asset sale gains are expected to be roughly $32,000,000 primarily reflecting the pull forward of certain asset monetizations into the 4th quarter from fiscal 2025. Finally, we expect adjusted diluted EPS of $1.40 to $1.65 including an approximately $0.17 adjustment for delivery expense. Taking into account 3rd quarter results and our 4th quarter outlook, we now expect the following for the full year 2024. Net sales of approximately $22,300,000,000 to $22,500,000,000 For the full year, we now assume Macy's Inc. Comps inclusive of non go forward locations and digital to be down 1% to roughly flat, representing a sequential improvement from the 3rd quarter levels.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Macy's nameplate go forward locations and digital are expected to be down 1% to roughly flat and our luxury nameplates are expected to collectively be up 2% to up 2.5%. Other revenue of $680,000,000 to $690,000,000 including credit card revenues of $500,000,000 to $510,000,000 gross margin as a percent of net sales of 38.2 percent to 38.3 percent. This compares to an adjusted prior outlook of 38.6% to 38.8%, which includes an approximate 40 basis point adjustment for delivery expense. The adjusted full year gross margin outlook is relatively in line with last year's adjusted rate. SG and A as a percent of total revenue of 36.5 percent to 36.3 percent.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Asset sale gains of approximately $135,000,000 and asset sale monetization proceeds of approximately $275,000,000 compared to our prior outlook of $115,000,000 $150,000,000 respectively. Adjusted EBITDA as a percent of total revenue of 8% to 8.4%. This compares to an adjusted prior outlook of 8.2% to 8.7%, which includes an approximately 35 basis point adjustment for delivery expense. Annual adjusted diluted EPS outlook of $2.25 to $2.50 which compares an adjusted prior outlook of $2.34 to $2.69 which includes $0.21 related to the adjustment of delivery expense. Capital spend of approximately $895,000,000 which compares to roughly $993,000,000 last year.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

This represents our 2nd consecutive year of reduced capital expenditures and reflects our commitment to efficient capital allocation. To conclude, as we close out this year and look to fiscal 2025, we are thoughtfully balancing the consumers' desire for value with our pursuit of profitable top line growth. We're taking learnings, making adjustments, building on successes and finding additional areas of opportunity. We are encouraged by recent results and 4th quarter to date comparable sales trends across nameplates and remain focused on navigating the near term while executing our longer term goals supported by our strong and experienced team and our healthy balance sheet. With that, I'd like to pass it back to Tony.

[Antony Spring, CEO & Chairman at Macy’s]

Thank you, Adrian. We now have 3 quarters of our 3 year bold new chapter strategy in the books and 3 consecutive quarters of sales growth and improved Net Promoter Scores leading to our 3rd consecutive quarter of positive comps in Macy's First 50 locations and Bloomingdale's and Blue Mercury also comping positive in the 3rd quarter. All of our nameplates are well positioned for growth supported by end to end operations are yielding customer facing benefits and cost savings as well as improving enterprise wide inventory management. Although we still have work to do, we believe our bold new chapter initiatives including the closure of roughly 65 non go forward locations this year gets us even closer to our go forward end state of becoming a more profitable Macy's Inc.

[Pamela Quintiliano, Vice President - Investor Relations at Macy’s]

Thank you, Tony. With that operator, we are ready for questions on our Q3 results and 4th quarter and fiscal year outlook.

[Operator]

Thank you. We will now be conducting a question and answer session. Our first question today is coming from Matthew Boss of JPMorgan. Please go ahead.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

Great. Thanks. So Tony, could you elaborate on drivers of the comp improvement in the back half of the year? And with the 4th quarter comp guidance pointing to your 1st positive comp in 3 years, what drivers do you see as sustainable? What initiatives specifically build or accelerate into 2025?

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

And then Adrian, just on the target for long term sustainable positive growth, do you see high-30s gross margin as sustainable or any areas of give back that we would need to consider?

[Antony Spring, CEO & Chairman at Macy’s]

Thanks, Matt. Appreciate the question. Yes, we feel strongly about the progress we're seeing on the top line. Obviously, the first fifty locations at 1.9% for the quarter are the best leading indicator of the growth potential of the Macy's brand.

[Antony Spring, CEO & Chairman at Macy’s]

We look forward to expanding our 1st 50 program in 2025 and we'll talk about that more on the Q4 earnings call. But we're seeing progress across a number of categories, whether it Macy's, we're talking about tailored clothing or dresses, continued strength in fragrances, mattresses. So it's across a broad array of categories. And I think those are all sustainable as we go into the next fiscal year. Obviously, we're continuing to see strength at Bloomingdale's and Blue Mercury.

[Antony Spring, CEO & Chairman at Macy’s]

And I think the Bloomingdale's team has done an outstanding job at building on their recent success and positioning that brand for further expansion and growth. The private brand, reinvent is almost complete. We have the home store to do next year, but that instead of being a headwind becomes a tailwind as we go forward. So looking at it from a merchandise assortment, category assortment, brand matrix, price strategy, I think if we could set aside some of the issues that have impacted us this quarter, we are positioned, I think, for improvement as we go forward.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Matt, good morning and thank you for your question. As you think about the path ahead, we remain enthusiastic. We remain committed to the results that we believe the bold new chapter will deliver for us. We're laser focused on really the fundamentals of the business. And as Tony pointed out, we're very encouraged with the top line momentum that we're seeing.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We're seeing it in the F-fifty stores. We're seeing it in the 100 pilot stores for women's and handbags. We're seeing it in our luxury segment. We're just really encouraged by what that looks like. On the gross margin side, what I would say here is that we do expect to continue to lean into improvements in our gross margin through a combination of factors.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

But in this holiday season, we're navigating a competitive discretionary environment. But what we're seeing gives us encouragement that we can continue to achieve year over year sales growth that's profitable over time. If you just think about what we're dealing with in this environment, we do see a customer that's very value oriented. We see it in the higher sales penetration of our clearance. We're seeing it in how the customer has responded to our offers.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And one of the biggest challenges we had with the unseasonably warmer weather later into the year is that a lot of our higher margin categories, cold weather is really coming online sequentially a bit later than what we had expected. But we have to manage a number of variables, Matt. We have to manage their inventory control. We have to manage what the customer is looking for in terms of value, which is around experience, great product, etcetera, etcetera. We have to execute well.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And so we continue to to execute well. And so we continue to invest in the fundamentals of the business and driving profitable sales growth. And the thing that I would leave you with as well as we're really encouraged by the quality of execution. In our opening remarks, we talked about better in stocks, faster delivery, highest NPS scores for Bloomingdale's and Macy's in history. And so we're seeing progress coming out of this transition and investment year, and we're very encouraged by the results as we look ahead.

[Antony Spring, CEO & Chairman at Macy’s]

Great. Best of luck.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

you, Matt.

[Matthew Boss, Equity Research Analyst at JPMorgan Chase]

Thank you.

[Operator]

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

[Brooke Roach, Analyst at Goldman Sachs]

Good morning and thank you for taking our question. Tony, as you invest in customer experience and staffing in First50 and select shoe and handbag initiatives, what gives you confidence that these test locations are transferable to a broader swath of the fleet? And do you expect these to be accretive to profitability as we move into 2025 given the additional SG and A investments? And then for Adrian, could you just elaborate a little bit more on your updated outlook for gross margins for the Q4 and what you're seeing in the promotional environment? What changes have you made to your promotional calendar versus 90 days ago?

[Brooke Roach, Analyst at Goldman Sachs]

And how should we be thinking about the opportunity to recapture that pressure into 2025?

[Antony Spring, CEO & Chairman at Macy’s]

Good morning, Brook, and thanks for the question. I think that the investments that we've made in our first fifty locations and frankly in the 100 other pilot shoe and handbag doors gives us confidence that the customer is responding to the changes that we're making in those stores. That's 3 consecutive quarters of comp store sales growth and acceleration of comp growth in the 1st 50 from the 2nd quarter, 600 basis points, 700 basis points of improvement in those additional 100 test locations. So I think the net promoter score being up over 400 basis points for a 3rd consecutive quarter, highest net promoter scores that we've seen in on record at the Macy's brand. So all those to me are strong indicators that the changes that we're making are the right changes that we underserved the customer in the Macy's brand, in our store experience and we had to make the necessary changes to create a better shopping experience.

[Antony Spring, CEO & Chairman at Macy’s]

On the question of affordability of investment, that's our responsibility. We have to make choices and we have to make sure that we can provide the customer with a compelling reason to shop at Macy's. They are going to be accretive to the overall profitability of the company, but that will be through our adjustments to the other ways in which we invest in our business. This to us is a priority. We set out this year to change the Macy's experience.

[Antony Spring, CEO & Chairman at Macy’s]

We pick 50 stores to do it. We will expand First 50 next year and that expansion strategy will be communicated on our Q4 call.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Good morning, Brook. Let me speak briefly to the gross margin outlook. I'd start here by saying that the teams are executing well. There are a number of different factors that we're navigating. As it relates to the gross margin, just a quick reminder that the Q4 includes roughly 85 basis point adjustment for the delivery expense and we reflected the adjusted numbers comparable year over year in the press release this morning and the Form 8 ks.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Now relative to what we talked about with regards to our outlook, we are updating our outlook for just the competitive and promotional landscape that we're dealing with. We see that the consumer remains under pressure. The consumer remains quite choiceful and discretionary of spending. And where we are adjusting is that we're focused on offering real value and making sure that we're doing so as profitably as possible in order to win share within the market. But we're navigating a number of things.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We're navigating weather. We're navigating a competitive environment. We're navigating a variety of promotions that's happening in the marketplace. But overall, we feel good about our marketing calendar across all of our nameplates, the newness of content for the holiday season, the quality of the merchandise and the quality of execution across the operation, across our markets and across our channels. So we'll continue to be very thoughtful.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We're very pleased with the sequential improvement in sales throughout the course of quarter to date relative to the prior quarter, but we're balancing profitability, inventory management, the quality of sell throughs as we navigate the balance of the season.

[Brooke Roach, Analyst at Goldman Sachs]

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

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you, Brook.

[Operator]

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

[Blake Anderson, Vice President at Jefferies & Company Inc]

Hi, guys. It's Blake on for Ashley. Thanks for taking our question. So I wanted to ask on the first fifty stores. Wondering if you could touch on AUR versus traffic and then conversion for those?

[Blake Anderson, Vice President at Jefferies & Company Inc]

And then just second question on that topic on the first fifty. Are you seeing new customers show up to the first fifty stores that you might have not seen before? How does that customer compare to the traditional Macy's Shopper?

[Antony Spring, CEO & Chairman at Macy’s]

Thanks, Blake. I'll take the first part of it and Adrian can add anything he'd like. We're seeing consistent performance in the first fifty as it relates to the metrics that we measure. So we're obviously looking at all elements of that equation, whether it be AUR, IPT, average order value, numbers of customers, conversion. The biggest driver of performance has been AUR growth and average order value growth.

[Antony Spring, CEO & Chairman at Macy’s]

We're certainly seeing the customers who are familiar with those stores spend more and increase their visits and we're beginning to see some new customers. The reality is more of our new customers today come through our digital channel. So it's our opportunity because those customers by the way live in a geography is to bring them into a location to make them an omni consumer. The work again from the types of stores, we have stores that are less than $40,000,000 We have stores that are over $150,000,000 So we're learning a lot with stores that exist across the entire country, stores of different volume levels. And as we did the expansion of the Schuh and Handbag test, we went to lots of different types of stores to again increase our learnings in 2024 in this transition and investment year to set us up for expansion of First50 in 2025.

[Antony Spring, CEO & Chairman at Macy’s]

Adrian?

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

I think, Blake, good morning. Tony covered it quite well. Just a few things around the proof points, which I think is quite important here. When you think about some of the opening comments around MPS, it's improved for our Macy's business, but it's improved even more sequentially for our F50 stores. When you think about the categories that we've touched like ready to wear, women's shoes, handbags, the places where we've made capital light investments in these categories, you see a pretty significant acceleration.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

When you think about all the volatility and what we've dealt with throughout this year of 2024 year to date, 3 consecutive quarters of year over year growth and growth that's more than 400 basis points ahead of those stores that did not have to change. To Tony's earlier point, the 100 store task was really important for us because we wanted to demonstrate that putting in these key capital light changes into these stores, can they make a difference and can they be replicated at scale? And the simple answer is, yes, they can. So we're quite encouraged. We've learned a ton.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We see additional opportunities that we'll bring online in 2025, but we feel very good about what we've learned. We feel good about the progress, but our work is not done.

[Blake Anderson, Vice President at Jefferies & Company Inc]

That's great to hear. Thanks so much and best

[Blake Anderson, Vice President at Jefferies & Company Inc]

of luck for the holidays.

[Antony Spring, CEO & Chairman at Macy’s]

Thank you, Blake.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you, Blake.

[Operator]

Thank you. The next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Good morning, everyone. It's nice to see the progress on the Bloomingdale's and Mercury and how you're progressing.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

When you think about the store closure rate taken up to 66 from what had been 55, what's the difference and does this change at all the 150 in total over the next 3 years that you were talking to? Second thing is on the smaller format stores, how are those 2 doing? And the merch margin down 70 basis points, I think it was up 2 10 last quarter. Delivery expense and how do you unpack it and how you're thinking about it going forward? Thank you.

[Antony Spring, CEO & Chairman at Macy’s]

Let me take the first and then I'm going to turn over to Adrian for a good part of your question, Dana. Good morning. We at the start of the closure strategy said we had locations that were less profitable and less productive and we wanted to monetize them as soon as possible. So the fact that we are closing more stores this year is a reflection of the fact that our assets have value and that even in this less stable market, we're transacting. And the number remains approximately 150.

[Antony Spring, CEO & Chairman at Macy’s]

We'll provide an update on that as we get into 2025. But the core is to get to a fleet that we think can provide sustainable profitable growth for the enterprise. We've continued to open Macy's small formats. We're up to 24 locations. And like First50, we're learning as we go.

[Antony Spring, CEO & Chairman at Macy’s]

Bloomingdale's opened its 4th small format in Trewsbury, New Jersey and very pleased with the initial response to that smallest location that we have. Adrian, you want to talk a little bit about margin?

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Yes, absolutely. Let me just add one thing with regards to the closures. Just to amplify Tony's point, with regards to the closures of approximately 65 relative to the 50 we started the year with, we're just seeing really good deal making. And we are eager to get to the go forward enterprise. So when we're able to have favorable deals that are at or above our expectations, we're certainly taking advantage of that opportunity.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And as we said earlier, we do have a long history in terms of managing these opportunities and walking value. The great thing about that is that with the monetization, which we highlighted in terms of sales proceeds being approximately $275,000,000 forecasted for this year, that's almost 2x what we planned coming into the year. That gives us capital to invest in the go forward enterprise and capital to return to our shareholders. Now as it relates to margin, on the adjusted financials that we provided, what you see is some deterioration in the merchandise margin. That's about the product mix given the weather impact, that's about the competitive environment we're in that we spoke to a little bit earlier.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And in terms of the delivery expense from an operating standpoint, we do see improvement in how we're managing the expense profile and the quality of execution on the delivery side. But keep in mind, Tony, myself, the team are very much focused on the fundamentals, focused on managing our profitability, and we do have a lot of sight to our goal of achieving profitable growth as we look ahead.

[Antony Spring, CEO & Chairman at Macy’s]

And Jane, I would just add that the comparability because of the conversion to cost accounting, the reference you made to the 2nd quarter beat the gross margin, was benefited from cost accounting conversion and the 3rd quarter miss, was impacted by the conversion to cost accounting. We couldn't be more excited to get to 2025 so that we have these conversions and changes behind us so you have a better view into the natural margin of the company.

[Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group]

Thank you.

[Operator]

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

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Hi, happy holidays. What's assumed in terms of the guidance at the higher end of your comp range relative to the lower? And on your comments related to value and the customer throughout the call, how does that intersect with your private brand developments as well as we think about merchandise margin and promotions on a longer term basis? Thank you.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

So, Oliver, it's great to be with you this morning. Look, the guidance range on the top end shows year over year growth. And as you look at our performance in the Q4 of last year, we reflect on a good quarter last year. So on the high end, having growth year over year, we're quite encouraged by. On the low end of the range, it's about 1% decline year over year and we're talking about this on a 13 week comparable basis.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And so we're quite encouraged. I think the most important thing that we've seen as we progress through this investment year is sequential improvement in performance. As Tony spoke about in the opening remarks, our quarter to date trends are better than what we saw in the Q3. And so we're encouraged by how all this is really coming together within the business.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Robert Brown?

[Antony Spring, CEO & Chairman at Macy’s]

Yes. And I would add, Oliver, we're using 2019 as the analog year because of the 5 fewer days between Thanksgiving and Christmas and the fact that you have a later Hanukkah that year. That's another reinforcement for the quarter to date trends versus the Q3 and why we're cautiously optimistic on our opportunities to improve our revenue performance. Yes, private brands is absolutely a part of being able to respond to the value equation and the desire of the consumer to have choice and to be able to invest where they see fit and to be able to have more value where they're looking for it. And we see that in our cashmere program in Charter Club this year is having a very strong response even with the inconsistency in weather.

[Antony Spring, CEO & Chairman at Macy’s]

We're seeing that with the growth in Style and Co. We're continuing to see that with the strength within parts of our private brand business within the men's pyramid. So it's area by area and 85% of our business is market brands. So it's obviously equally important or more important that we get that right too for both a breadth of assortment and a breadth of price availability, so the customer finds their definition of value across our suite of brands.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Okay. And you made really nice progress with First50, which aspects of First50 will be easier and faster to implement versus aspects that will take a little bit longer? Thanks a lot.

[Antony Spring, CEO & Chairman at Macy’s]

Well, I think if you break down, Oliver, the First50 into the things that we did differently, I just want to remind the community that it's an asset light strategy. So we really did not put a lot of capital into these stores. The focus was on operating expense and merchandising strategy. So certainly less density on the floor is very easy to replicate. The visual enhancements are easy to replicate based on the dedicated visual team that we have in the stores.

[Antony Spring, CEO & Chairman at Macy’s]

The ability to have a common set of relevant brands is easier to execute once we have a go forward fleet that is compelling to the vendor community. I think the additional staffing is the one that we will have a variable strategy for because if we're talking about a $20,000,000 box versus $150,000,000 box that incremental staffing will obviously be different based on the rate of sale. Interestingly, what we're also learning is some of our lower volume stores are having our largest increases, which gives us confidence in the next wave of First 50 that we will have, as much or more opportunity for improvement in the Macy's fleet.

[Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen]

Thank you. Best regards.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you.

[Antony Spring, CEO & Chairman at Macy’s]

Thank you, Oliver.

[Operator]

Thank you. The next question is coming from Michael Binetti of Evercore ISI. Please go ahead.

[Michael Binetti, Senior Managing Director at Evercore ISI]

Hey, guys. Thanks for taking our questions here. So just a couple for me. To get to the high end of the guidance in the 4th quarter comps up about 3%. When we think about the multitude of different same store sales lines you report to us today, beyond the first 50, which speak for themselves, which one of those comps in the presentation will see the biggest change in Q4 to get to the higher end of the 3% guidance relative to the Q3?

[Michael Binetti, Senior Managing Director at Evercore ISI]

And then I guess using the first 50 as a leading indicator as you've spoken to Tony, what do you think about the timeline to close the gap between the first 50 consistently in the positive low single digits and the 2.5% decline for the non first fifty go forward? And then as we think about 2025, can you think about closing the 65 doors, assuming those are unprofitable and lower 4 wall margin like you pointed to a few times? All else equal, when we consider some of the other forward looking comments you gave today, do margins go up next year?

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

So why don't I start and Tony, I encourage you to add anything that I may miss. Mike, it's great to be with you this morning and thanks for your questions. Let me talk about the high end, 1st of all, in terms of the sales guide. When we think about what we've seen quarter to date, we're seeing sequential improvement across many dimensions of our business. We're seeing sequential improvement in digital.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We're seeing sequential improvement in stores. We're seeing sequential improvement in Macy's nameplate. We're seeing sequential improvement in luxury, both Bloomingdale's and Blue Mercury. We're seeing sequential improvement in F50. We're seeing sequential improvement in the other go forward stores that have not received the investments yet.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

So the way that we approach this is, we want all boats to rise as part of a bold new chapter. We've distorted investments in things like First 50 and digital. And we definitely are seeing a lot of that those investments now begin to harvest. So when we think about the high end of the range, what we're encouraged by with the sequential improvement is really the momentum that we're seeing building. And as you know, these things work together and create more than the sum of the parts.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

So we're actually quite encouraged by that. When we think about the first 50 to all stores, as Tony mentioned, these are capital light investments. And we're encouraged by what we're able to very quickly replicate a portion of these changes from the F-fifty to 100 stores. We wanted to understand how replicable, how quickly the impact would show up and how do we do this at a level of scale as we think about our go forward business into next year. Now as we think about 2025, we're going to continue to manage a healthy balance sheet.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We want to make sure that we have the appropriate deal making. We're monetizing underperforming stores as well as rightsizing our supply chain network. So we see opportunities for further monetization, but we'll share more about what that looks like on our Q4 earnings call. As we talked about earlier, we're focused on the fundamentals. That's the top line, that's the bottom line, that's the margin profile.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

But we recognize that in the discretionary environment, we have to be thoughtful about how we're competing for share of wallet relative to our competition and navigating that as we progress. But look, we're encouraged. We still have a road ahead. But as we think about when we entered the year, we talked about investment, we talked about learning, we talked about experimentation. As we exit the year, we've gotten a lot done.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

We've learned a ton. There's more opportunities we're going to lean into, but the proof points are much clearer to us now than it was 9 or 10 months ago.

[Antony Spring, CEO & Chairman at Macy’s]

I'd only add that the penetration, Mike, of the categories that are performing best goes up in the Q4. So some of the guidance in the Q4 is also related to the penetration of those businesses. Some is improvement, some is related to the penetration and that also has an impact on the margin forecast as well.

[Michael Binetti, Senior Managing Director at Evercore ISI]

Okay. Thanks a lot guys.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thanks Mike.

[Operator]

Thank you. The next question is coming from Bob Drbul of Guggenheim. Please go ahead.

[Robert Drbul, Senior Managing Director, Equity Research at Guggenheim Securities, LLC]

Hi, good morning. Two questions for me. The first one just in the shoe and handbag locations, can you just talk, do you have the brands you need? Are you getting new brands? Is it a labor support?

[Robert Drbul, Senior Managing Director, Equity Research at Guggenheim Securities, LLC]

Can you just expand a bit more in terms of the initiative and some of those trends? And then the second question is on inventory levels. Just you said I think you said you're going to end the year flattish and you made some adjustments on sort of order books going forward. How far out are you making adjustments to your order book? And as you think about 2025, where there might be needs to make adjustments?

[Robert Drbul, Senior Managing Director, Equity Research at Guggenheim Securities, LLC]

Thanks.

[Antony Spring, CEO & Chairman at Macy’s]

Let me take the couple of questions and then Adrian can add anything I missed. The changes in the 100 stores between the shoe and handbags are predominantly about people. So we're certainly making changes to assortments. We are reducing the duplication within those stores to try to make shopping easier for the consumer. But the lion's share of the impact that we're seeing is by having somebody to run to get the back and get shoes from to the floor and to unlock the handbags that are not easily accessible by the customer.

[Antony Spring, CEO & Chairman at Macy’s]

And so I think that's given us some cautious optimism that there is more that we can do as we are able to actually impact more of the menu inclusive of the assortment in those stores. As it relates to inventory levels, we are already without making significant adjustments to our order books for 2025 at the forecast of flat to slightly down on a restated basis. So I don't think that inventory will be our issue going into 2025. I think we want to continue to see the green shoots we're seeing in our revenue performance continue so that we have the opportunity to, as we said, expand First50, get past the kind of private brand reinvention, expand on some of the brands that we've added this year to more locations and get greater consistency between the performance we're seeing in the other go forward stores.

[Robert Drbul, Senior Managing Director, Equity Research at Guggenheim Securities, LLC]

Thank you.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thanks, Bob.

[Operator]

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

[Paul Lejuez, Managing Director at Citi]

Hey, thanks guys. Curious if promotions have been running higher in the quarter to date period. And if so, how much of the higher sales do you attribute to the higher promotions year over year? And then second, just thinking about the 65 closings by the end of the year, what do you typically see in your ecom business in markets where you close stores? Is that a comp drag?

[Paul Lejuez, Managing Director at Citi]

And as you look out to next year, is that a comp driver because you see some sales transfer? Thanks.

[Antony Spring, CEO & Chairman at Macy’s]

Hey, Paul, thanks for the question. I'll take the first part. I'll let Adrian take the last part. Quarter to date, the promotions are approximately comparable to last year. So an interesting factor is that our discount rate is year over year about the same as it was.

[Antony Spring, CEO & Chairman at Macy’s]

The difference when you get into the impact to margin is the mix of business and then the liquidations that may be necessary on aged inventory. So we have a small proportion that is aged inventory more so within the mix of business that we're selling. And again, the impact of not selling as much cold weather product. And hopefully, again, we see even colder weather kind of come in the latter part of the quarter and that only help us get a stronger margin performance. But I actually feel pretty good about the regular price shelter we're seeing and the overall discount rate given the promotional environment we're operating in.

[Antony Spring, CEO & Chairman at Macy’s]

But as you know, Macy's is a promotional department store to start with. There isn't a lot of room on the calendar to be able to add a lot of value. We think it's one of the reasons why in an environment like this, when people give gifts, they come to brands and stores like Macy's. And so I think we have opportunity to be able to deliver our guidance for the quarter and position ourselves for improvement in 2025.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Good morning, Paul. Let me talk a bit about the closures. The thing to keep in mind with the closures is that these are underperforming stores. And so these are places where the economics are not as favorable. These are places where customers are shifted away from those centers to shop.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And these are stores that are just incredibly difficult to run. So I'll just start with that fundamental premise. Very few of the stores are actually in single store markets. And the reason that's important is because in an omni business, we continue to see that when we have a physical presence and a digital presence, by far, we have the best economics and the best sales per customer, sales per capita, however way you look at it, sales per customer, we actually see the best economics there. Given that the vast, vast, vast majority of the closures are in markets that have other buildings, other Macy's buildings within that market, we think that the impact on comp is going to be limited.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And we look back 10 years at closures to really try to understand it. But most importantly, we're taking a different approach to retaining any customer in the market. So whether it's a digital only customer, an omni customer, a store only customer, we have a very specific strategy that we've already been working on developing to retain as many of the customers by introducing them to other stores with unique communication, etcetera, etcetera. So we're encouraged. We recognize that it's important to get to a healthy fleet.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

And so that's our focus because that healthy platform, omnichannel platform is what's going to be able to drive profitable growth going forward.

[Paul Lejuez, Managing Director at Citi]

Thank you.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thanks, Paul.

[Antony Spring, CEO & Chairman at Macy’s]

Thank you.

[Operator]

Thank you. The next question is coming from Alex Drayton of Morgan Stanley. Please go ahead.

[Alex Straton, Analyst at Morgan Stanley]

Thanks a lot. Maybe first for Adrienne, can you just elaborate on why digital was a pressure point in the Q3 relative to stores and maybe how that should change into the Q4 and beyond? And then for Tony, just big picture, understanding you're not giving any formal guidance for next year, but as you think about 2025, just curious what's strategically top of mind for you that's perhaps different from this year? Thanks a lot.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Good morning, Alex, and thanks for your question. Look, we have we've really been challenged in our digital business for a number of years. And as we had new talent come into the organization, we really focused on how do we fundamentally improve the digital experience and the omni experience that's contributed by digital. What we're very encouraged by are the material initiatives that were introduced, particularly in late summer, kind of August time framing to October, whether it's SEO enhancements, new category pages, better layout, greater stability, greater upload speed, we look at a variety of operating and customer facing metrics. We're seeing a number of things that are better.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Conversion is better, traffic is better, experience is better, CSAT scores are better, NPS scores are better. And so from our perspective, and we've spoken about this in earlier conversations, we needed to invest in a better shopping experience for our customers. From the research that Tony and myself and the team navigated a year, year and a half ago as we're building the strategy, something as simple as quality search results, we really underperformed on. Something as simple as in stock speed of delivery and all those different dimensions we've improved on this year and the sequential improvement we're seeing in digital gives us a lot of encouragement that the changes that we're making both operationally and on the customer facing side is really getting traction because the customer is noticing and actually spending. Yes.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

I'd only add and actually spending. Yes.

[Antony Spring, CEO & Chairman at Macy’s]

I'd only

[Antony Spring, CEO & Chairman at Macy’s]

add, Alex, that digital also includes our merchant organization and our marketing organization. And I think the work together across the 3 pyramids is as strong as I've seen it in my time with the company. So I think that also is a good segue into what I feel good about in 2025, again, without getting into our guidance and the particular specifics of how many of what. But think about it this way. The delivery expense that we just went through that's behind us.

[Antony Spring, CEO & Chairman at Macy’s]

Cost accounting conversion that's behind us. The private brand reinvention without home that's behind us. We're not in a year of testing, we're in a year of scaling. You have the opportunity to have more new brands. As people begin to visit and see the changed experience as they begin to see the site experience be more about product than just about price, we have more opportunity for growth.

[Antony Spring, CEO & Chairman at Macy’s]

We know we'll have more first fifty locations. How many we'll talk about on the Q4 call. And we're also excited about continuing to expand Bloomingdale's and Blue Mercury. Both are contributing to the corporate results and both have opportunity for significant growth.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

If I could just add one additional thing, Alex. From a capital allocation standpoint, we've really been pivoting into this notion of harvesting our investments. And so to Tony's point, a lot of these investments are beginning now to really yield fruit. So if you kind of look at the history, back in 2022, we invested about $1,300,000,000 of capital to really improve the fundamentals of this business. Last year, we invested $993,000,000 This year, we're projected to invest $895,000,000 So we talked very clearly when we implemented our capital allocation strategy that this business needed investment.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Some of it was CapEx investment. And this past year, the investment has been capital right investments. So as all this is coming together, harvesting and really focusing on scaling next year, as Tony described, is what excites us as we think about 2025.

[Alex Straton, Analyst at Morgan Stanley]

Thanks a lot.

[Alex Straton, Analyst at Morgan Stanley]

Good luck.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you, Alex.

[Operator]

Thank you. The next question is coming from Jay Sole of UBS. Please go ahead.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. Maybe Tony, could you just talk about the furniture business a little bit and how much of a drag that is on overall comps? And then at the same time, maybe a little bit more color on handbags. You mentioned you're seeing some improvement there.

[Jay Sole, Managing Director at UBS Group]

And then lastly, could you give us a little update what you've seen since Cyber Monday in the trends in the business and what you expect for the post in January sort of post the holiday season? How do you expect comp trends to develop once you get through the peak season? Thank you.

[Antony Spring, CEO & Chairman at Macy’s]

Thanks, Jay. The furniture business is softer than the mattress business. Overall, the big ticket business is stable, but certainly a better trend in mattresses than we're seeing in furniture. I think as others in the big ticket business have reported, until we get to a slightly lower interest rate environment, that business is probably going to still be under pressure. We have a new team in big ticket who's working feverishly on our assortment.

[Antony Spring, CEO & Chairman at Macy’s]

I'm pleased with some of the progress, but longer lead times on the big ticket business in terms of furniture. So that will be an opportunity for us as we get into the latter part of 2025. As it relates to handbags, we mentioned on the call, Bloomingdale's business really seeing some nice strength now in handbags being driven by newness as well as some historic traditional brands, people like Coach and Tory Burch and Longchamp, really seeing some nice business and beginning to see that also on the Macy's side as well. The crystal ball of what happens after the holidays and the nature of the consumer in an environment where is inflation a little higher or a little lower. We saw the reports a little higher now this morning.

[Antony Spring, CEO & Chairman at Macy’s]

But I think the consumer has shown post the election a real interest in shopping. And so we are only quantifying it. We're not talking about post cyber, we're talking about on a quarter to date basis. But I see a consumer that although remaining choiceful and looking for value who is interested in shopping, Christmas, Hanukkah, Kwanzaa, everything is still going to come. And I see people interested in a variety of categories, which bodes well, I think, for all three of our nameplates.

[Jay Sole, Managing Director at UBS Group]

Got it. Okay. Thank you so much.

[Antony Spring, CEO & Chairman at Macy’s]

Thanks, Jay.

[Adrian Mitchell, Executive VP, COO & CFO at Macy’s]

Thank you.

[Operator]

There are no further questions at this time. I'd like to turn it back over to Mr. Tony Spring for closing comments.

[Antony Spring, CEO & Chairman at Macy’s]

Just want to thank everybody for your questions and your time this morning. We have a good solid trend coming out of the Q3 with the start of the Q4 and we will work hard as a total team to deliver on the remainder of 2024 as we look at the opportunities in 2025. I want to wish you and your families a very happy holiday season. All the best and talk to you in the New Year.

[Operator]

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

Participants

Executives

• Antony Spring, CEO & Chairman
• Adrian Mitchell, Executive VP, COO & CFO

Analysts

• Pamela Quintiliano, Vice President - Investor Relations at Macy’s
• Matthew Boss, Equity Research Analyst at JPMorgan Chase
• Brooke Roach, Analyst at Goldman Sachs
• Blake Anderson, Vice President at Jefferies & Company Inc
• Dana Telsey, CEO and Chief Research Officer at Telsey Advisory Group
• Oliver Chen, Managing Director - Retail, Luxury, New Platforms Sector Head at TD Cowen
• Michael Binetti, Senior Managing Director at Evercore ISI
• Robert Drbul, Senior Managing Director, Equity Research at Guggenheim Securities, LLC
• Paul Lejuez, Managing Director at Citi
• Alex Straton, Analyst at Morgan Stanley
• Jay Sole, Managing Director at UBS Group