Macy's, Inc. (NYSE:M) Q2 2019 Earnings Conference Call Transcript

Aug 14, 2019 • 09:30 am ET

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Macy's, Inc. (NYSE:M) Q2 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you.

[Operator Instructions]

We will take our first question from Matthew Boss with JPMorgan.

Analyst
Matthew Boss

Thanks. So, Jeff, you're seeing comp lift from Growth50 stores and Backstage, you cited comps up mid single-digits, your six Destination Businesses and also commented that the consumer spending remains healthy today despite some of the cross-currents. I guess higher level, what's preventing better aggregate comps today at Macy's and if consumer spending were to take a step down in the back half of the year or into next year, what's your confidence in sustaining positive comps?

Executive
Jeff Gennette

So, Matt. We -- I think you hit the headlines about what is good in our business right now. The one you didn't mention was the Digital overall is quite strong really led by Mobile. But when you look at the -- the other pieces of the business that are a challenge right now ready to wear, particularly ready to wear sportswear and some of the soft home categories definitely depressed the -- the strength of those winning categories to the comps that we're quoting.

So, when you look at the quarter-to-quarter, definitely got off to a slow start and you see the combination of factors that we're quoting on that, that led us to the decision that we're, we expected strong sell-through, stronger sell-throughs and seasonal product, that didn't happen as we worked all the way through May and into early June. So we made the decision mid-June to take the appropriate markdowns, so that we entered the fall season with the right inventory levels on all of our spring and summer, and we were able to flow all of our fall products that we have a lot of confidence, they're going to get us ready for the fall. So we now have our inventory in line, we took the medicine, it did affect our overall gross margin by a full point in the second quarter. Now, let me take you through why we're confident about the -- about the back half of the year. So first off, we're entering the back half of the year with a comp of up 0.5%. We've guided the full year at flat to up 1%, we just to -- to mention what Paula just said, we do expect that the fourth quarter is going to be meaningfully better than the third quarter. Third quarter last year we -- was our strongest quarter and that mostly was buoyed by the cold weather that we had in the month of October. The month of October was a very strong month for us. But on the flip side, as you remember from the fourth quarter of last year, we're cycling all the disruption that we saw and then the -- the fire, as well as, the promotional event change that we made. And what we quoted last year was that, it was about a 70 basis point degradation to the fourth quarter comp. So we're lapping that. So the holiday 2019, we are very