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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Presentation
Executive
Jeff Gennette

I will take you through our second quarter results and then we'll open up the line for Q&A. As you saw in our press release this morning, Macy's Inc delivered another quarter of comparable sales growth. We achieved a 0.3% increase in comparable sales on an owned plus licensed basis. Our earnings per share was $0.28, well below our expectation. As we communicated on our first quarter earnings call, we walked into the second quarter with elevated spring inventory.

The second quarter got off to a very slow start. As we moved deeper into the quarter, it became clear that inventory was a mounting problem due to a combination of factors, a miss on fashion in our key women's sportswear private brands, slow Sell-through of warm weather apparel and the accelerated decline in our international tourism business. We took the necessary markdowns to clear inventory. The unanticipated markdowns impacted our gross margin for the second quarter by almost one full point. We now enter the fall season with the right inventory level end mix to meet anticipated customer demand with improved freshness and liquidity to respond to end season fall trends.

We remain confident in our annual comparable sales guidance of flat to up 1%. That said, in light of our second quarter results, we are lowering adjusted earnings guidance by $0.20 for the full year. We now expect adjusted earnings per share in the range of $2.85 to $3.05 including asset sale gains or 260 to 280 minus asset sale gains. When I step back and look at the business more broadly, while we had our seasonal inventory challenges in the second quarter, there are many areas of the business that are performing well. Our brick and mortar business is healthier led by our Growth50 stores and Backstage expansion.

Our digital business delivered its 40th consecutive quarter of double-digit growth. We made good progress on our 2019 strategic initiatives. All are on track and expected to contribute to comparable sales growth in the back half of the year. So to quickly review them, growth 150, 100 additional Macy's stores are receiving the Growth treatment. Work on these stores will be complete and ahead of last year's Growth50 rollout well in advance of the holiday season. We continue to see strong performance from the original 50 Growth stores and expect a similar sales lift in the 100, ones that are now and where the work has been completed. These 150 stores make up approximately 50% of Macy's brick and mortar sales.

Backstage. In 2019, we're expanding Backstage to another 50 stores with 47 of them already complete. We now have more than 200 Backstage within a Macy's across the country. And it's encouraging to see that the Backstage locations within Macy's stores open for more than 12 months continue to comp mid single-digits. We are getting better at off-price every day. Our Backstage distribution center in Columbus, Ohio is now up and running. This DC operates on the Google Cloud