M - NYSE

Greetings, and welcome to the Macy's, Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Thank you. Please go ahead.

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 fourth quarter 2024 press release, a Form 8-K has been filed with the SEC and a presentation has been posted on the Investor section of our website, macysinc.com, and is being displayed live during today's webcast. 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 December 11th earnings call or our January 13th sales and earnings press release, unless otherwise noted. On today's call, we will refer to certain non-GAAP financial measures. Reconciliations to these measures can be found in our earnings presentation and SEC filings available at www.macysinc.com/investors. 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. And go-forward, Macy's, Inc.'s comp sales include the approximately 350 Macy's go-forward locations in digital, and Bloomingdale's and Bluemercury nameplates inclusive of stores in digital. Go-forward Macy's comp sales includes the approximately 350 Macy's go-forward locations and Macy's digital. Lastly, to further year-over-year comparability, we are providing quarterly and annual 2024 sales contributions for store closures. 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. A detailed discussion of these factors and uncertainties is contained in our filings with the Securities and Exchange Commission. Today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call. With that, I'll turn it over to Tony.

Good morning, and thank you for joining us today to discuss our fourth quarter and fiscal 2024 results and our 2025 outlook. It's been one year since my first call as Macy's, Inc. CEO and the introduction of a Bold New Chapter strategy, our three-year plan designed to return the company to sustainable profitable growth. The Bold New Chapter is different from recent strategies as it firmly places our energy and focus on the needs of the roughly 40 million customers annually who shop our three iconic nameplates. It prioritizes an improved store environment and omnichannel customer experience as we reallocate capital from underproductive Macy's stores and focus our resources and investments on our go-forward business. In fiscal 2024, we realized substantive enterprise-wide improvements. These give us confidence in the long-term viability of the Bold New Chapter chapter. In light of year one progress, I want to extend my gratitude to all of Macy's, Inc.'s colleagues for embracing this important work and delivering a better experience for our customers. For the year, we improved Macy's, Inc.'s annual comps by 510 basis points to down 0.9% versus 2023. We posted four consecutive quarters of positive comps at Macy's First 50 locations. We returned to positive annual comps at Bloomingdale's, and had four consecutive years of positive comps at Bluemercury. We achieved record annual net promoter scores at Macy's and Bloomingdale's, rising 160 basis points and 90 basis points, respectively. We closed 64 of our approximately 150 non-go-forward Macy's stores ahead of our annual plan of 50 closures. We lowered CapEx by $111 million to $882 million, representing the second consecutive year of reduced spend. We generated $679 million of free cash, inclusive of $283 million of asset monetization proceeds, up 71% from last year. We ended the year with $1.3 billion of cash on our balance sheet, up $272 million from last year, and we returned $192 million to shareholders through cash dividends. We are pleased with our accomplishments, but recognize there is still more work to be done. Recent results give us confidence that we've made the right strategic shifts and investments to successfully improve the overall Macy's, Inc. customer experience. Now, we must scale these changes in order to achieve our long-term goals. For the fourth quarter, go-forward Macy's, Inc. had its strongest comp of the year at plus-0.6%. This along with positive Bloomingdale's and Bluemercury results drove total Macy's, Inc. to a 0.2% comp gain, its highest of the year and best in 11 quarters. We maintained a disciplined approach to margins and cost controls. As a result, fourth quarter adjusted EPS of $1.80 was above our most recent guidance range, primarily due to better-than-expected SG&A, credit card revenues and, to a lesser extent, improved shortage and asset sale gains. Now, let's discuss the fourth quarter performance and full year progress of each pillar of the Bold New Chapter strategy, starting with strengthening and reimagining Macy's. Total Macy's nameplate comps declined 0.9% in the fourth quarter, a 380 basis point improvement from the prior year. The First 50 locations achieved a positive 1.2% comp. At these locations, ready-to-wear, beauty and women's shoes outperformed the rest of the fleet by approximately 320 basis points on lower discount rates and higher initial tickets, reflecting positive response to our improved product assortment, visual presentation and staffing. Beyond the First 50, the incremental 100 doors that received enhanced women's shoes and handbag staffing in the fall continued to outperform locations without those investments. Performance of both the First 50 and the 100 test stores illustrate that when we invest in the customer experience, we can grow sales. While pleased with the customer response to the First 50 and 100 test store initiatives, another key component of the Bold New Chapter strategy is closing underproductive Macy's stores. These closures allow us to focus our resources and attention on our go-forward fleet. We are executing store closures methodically. Of the approximately 150 announced in February 2024 as a part of our strategy, we took advantage of favorable deal making to remove 64 underperforming stores from the Macy's base in fiscal 2024, contributing to annual asset sale gains of $144 million. Although the closed locations benefited 2024 sales, gross margin and EBITDA dollars, they are no longer as financially or operationally viable, especially when you compare their contribution to their monetization value. Merchandising, digital and marketing are also imperative to the Macy's nameplate success. For the year, the merchandising team continued its assortment matrix evolution, including the ongoing private brand enhancements, adding more relevant national brands, scaling other brands to additional doors and editing brands that are no longer serving our customer. Digital improved its site navigation, search engine optimization and introduced a more competitive pricing algorithm, leading to a return to positive comps in the fourth quarter. In marketing, we put the customer top of mind going to where they spend most of their time. During the fourth quarter, we reallocated marketing dollars to live events and top-rated programming, and increased the use of influencers. Throughout the year, we leaned into the iconic Macy's IP to allow for deeper and more integrated storytelling across our digital platforms and stores. Turning to the second pillar of our strategy, accelerating and differentiating luxury. In the fourth quarter both Bloomingdale's and Bluemercury continued their positive comp trends. This gives us further confidence in their organic growth profiles and store expansion opportunities. Bloomingdale's achieved a positive 6.5% comp, the strongest fourth quarter volume in its history. Our exclusive Wicked partnership garnered roughly 15 billion media impressions, which was 3 times higher than last year's holiday campaign. This along with "From Italy, With Love" program are prime examples of how our customers appreciate and respond to our unique product curation and differentiated brand DNA, which is aspirational, approachable and distinctive in the luxury landscape. For the year, we opened three Bloomingdale stores, including our first Bloomie's women's-only location, which has been very well received. Our team continues to be methodical in their approach to Bloomingdale's physical expansion, triangulating markets where there is strong existing demand. At Bluemercury, we achieved our 16 consecutive quarter of positive comps. The team leaned into the gift of self-care for the holiday, capturing demand for beauty trends including everyday well-being, clinical skincare and fragrance layering. In September, Bluemercury had kicked off its 25 anniversary celebration with the introduction of revamped website and updated store prototype. With each new and remodeled store, our team is elevating its service model and product mix curation to further establish Bluemercury as the authority in its space. For the year, we opened 17 new locations and remodeled seven. At the end of the year, roughly 15% of our Bluemercury store base has been updated. The third pillar of our strategy is simplifying and modernizing end-to-end operations. It's focused on creating a more efficient network that benefits the entire organization. In fiscal 2024, we meaningfully improved our ability to meet customer demand. We improved both the percentage of orders delivered in five days or less and replenishment in stocks by about 400 basis points and shorten the amount of days from when an order is placed to ship by roughly 1,100 basis points, all while maintaining strong inventory discipline, which enabled us to end the year with improved inventory composition and lower aged inventories. In fiscal 2024, we made progress on all three pillars of a Bold New Chapter strategy, but we are not yet where we need to be. In fiscal 2025, we will work to improve the business with greater focus and determination. As the business evolves and we implement changes to strengthen our performance, the annual metrics we're holding ourselves most accountable for the beginning this year are Macy's, Inc. go-forward comp sales and core adjusted EBITDA on dollar and percent of total revenue basis, as defined as adjusted EBITDA, excluding asset sale gains. These two metrics represent our future state and we believe are the best proxy to measure the fundamental improvements as we stabilize our business and move closer to profitable growth. As we focus on go-forward business performance, we are cognizant of the external environment and the ongoing myriad of unknowns. We remain committed to taking the necessary actions to meet our customers where they are and deliver an improved experience. We will continue to reduce CapEx while prioritizing investments that best support a healthier enterprise, improve profitability, have a strong ROI and benefit our stakeholders. At Macy's, our focus is on go-forward growth through a smaller more productive store fleet. In early February, we overlaid successful initiatives from the First 50 locations to an additional 75 stores for a total 125 reimagined Macy's locations. The additional 75 stores have continued emphasis on customer experience and they build on our year one learnings. The 125 reimagined locations represent 36% of the Macy's go-forward store base compared to just 14% of the base with initiatives at the beginning of last year. As we scale these initiatives, we're actively negotiating deals for the next tranche of non-go-forward closures as well. Our investments in stores and customer service are most valuable when paired with a compelling assortment. Fiscal 2025 represents the first full year that Macy's nameplate has bought under the cost accounting method, which brings more transparency into item level profitability, including the cost of goods and discounts, and should result in better buying and execution. Our teams are in market and working closely with our brand partners to increase variety and reduce redundancy. We are applying learnings across private brand reimagination to deliver more compelling assortments, complemented by an established footprint of contemporary brands like Avec Les Filles, En Saison and Free People, as well as new brands like Good American and [Theory] (ph). In addition, we continue to improve our private brands and leverage our online marketplace to test and discover new opportunities. Beyond merchandising, we also intend to better balance top- and bottom-of-funnel marketing. We'll invest in branding that complements performance marketing and further strengthen our messaging, while capitalizing on peak periods that are synonymous with Macy's, including key holidays. The Macy's Thanksgiving Day Parade is a perfect example. The 2024 parade reached 32 million viewers. It was our most-watched parade ever, the #1 program in the holiday season, and one of the largest entertainment specials of the entire year. We recently signed a new 10-year rights deal with NBC to unlock exciting content opportunities for both the parade and the Fourth of July fireworks. Proceeds of our new rights deal, which is multiples of our prior agreement, will help us fund growth while maintaining our strong balance sheet. Turning to luxury, Bloomingdale's recently introduced its White Lotus and AQUA collaboration. The exclusive apparel and accessories collection is inspired by the hit series and is already sold out of several items. This builds on the success of the [Wicked] (ph) and AQUA collaboration during the holidays. These collaborations speak to how Bloomingdale has its finger on the pulse of unique cultural moments, underscores its relevancy in the marketplace and its appeal to a multi-generational customer. Bloomingdale's also recently launched their Flamingo Estate carousel at 59th Street and online. It features curated lifestyle products from the brand and special events like product customizations. Both White Lotus and Flamingo Estate stay true to Bloomingdale's heritage, serve as strong traffic drivers and put even more eyes on the brand. In addition to private label and pop ups, Bloomingdale's continues to be a powerful partner to major brands in the marketplace. Throughout the spring, Bloomingdale's has activations planned with contemporary brands like Alice and Olivia, MOTHER and FARM Rio just to name a few. It will also be the first US department store to launch Coach's viral Coachtopia concept and has the global lead on Maison Francis Kurkdjian's [newer scent] (ph), Kurky. Bloomingdale's is also actively introducing new points of distribution across its network with brands like Aquazzura, SKIMS and Reformation. At Bluemercury, we are also pursuing new brand partnerships and opportunities to expand sales growth and continue to be encouraged by the performance of our new and remodeled locations. And in end-to-end operations, our state-of-the-art China Grove distribution facility is on track to open mid-2025. First announced in 2022, this 1.4 million square foot facility will leverage automation and streamline inventory fulfillment and management across all of our nameplates, creating greater supply chain efficiencies at a lower cost. To summarize, with one year of the Bold New Chapter complete, we are in a better position exiting 2024 than when we entered and believe that the recent results illustrate that this is the right strategy to return Macy's, Inc. to profitable growth. We're taking a prudent approach to our outlook, reflecting the external uncertainties that both we and the consumer are facing. We will closely monitor sell-throughs, thoughtfully make adjustments that reflect our demand throughout the year. At the same time, we will further scale changes across all three pillars in order to achieve our long-term ambition. And finally, we will continue to take a balanced approach to our capital allocation strategy, including returning value to shareholders through resuming share buybacks and consistent dividends all with solid free cash flow generation. And with that, let me pass it over to Adrian.

Thank you, Tony, and good morning, everyone. Today, I'm going to review our fourth quarter 2024 results in more detail and provide guidance for 2025. Fourth quarter net sales were roughly $7.8 billion versus $8.1 billion last year, in line with our most recent guidance. As a reminder, the 53rd week contributed $252 million to the prior year. Total enterprise comps were up 0.2%, the highest quarterly results since the first quarter of 2022. Macy's, Inc. go-forward comps rose 0.6%. By nameplate, Macy's net sales, which include all Macy's locations and digital, were down 5.3%, while comps were down 0.9%. Macy's go-forward business comps were down 0.5% and First 50 comps were up 1.2%. At our luxury nameplates, Bloomingdale's net sales were up 2% and comps rose 6.5%. Bluemercury net sales were up 2.4% and comps rose 6.2%. Other revenues were $239 million. Net credit card revenues of $175 million were ahead of our guidance due to better-than-expected profit share, primarily from favorable net credit losses. Macy's media network revenues were $64 million, up 7%, reflecting continued growth in advertisers and campaign counts. Gross margin rate of 35.7% was at the high-end of our guidance and 80 basis points below last year. The change relative to the prior-year gross margin rate was impacted by Macy's nameplate conversion to cost accounting, and this is the last quarter with a comparability impact. Merchandise margin benefited from favorable year-over-year shortage trends, which were offset by product mix. Year-end inventories were up 2.5% year-over-year. Roughly half of increase was due to the previously mentioned conversion to cost accounting, with the remainder reflecting the timing of spring receipts. Relative to our guidance, year-end inventories also reflect higher in-transit inventory as we moved product through the network faster. Entering fiscal 2025, we are pleased with the level and composition of our inventories having more newness and less aged product. We have worked hard to create a flexible supply chain that allows us to mitigate the impact from potential disruptions to global trade and tariff activity. SG&A expenses were $2.4 billion. As a percent of total revenue, SG&A was 29.7%, 100 basis points higher than last year, reflecting lower year-over-year total revenue. For the quarter, we recognize asset sale gains of $41 million, contributing roughly $0.11 to adjusted EPS. For the year, we had asset sale gains of $144 million, a $0.39 EPS benefit and asset sale proceeds of $283 million. Results were above the high-end of our original outlook for the year. Fourth quarter adjusted EBITDA as a percent of total revenue was 11.3% and adjusted EPS was $1.80, which was above our guidance range. For the full year, operating cash flow was $1.3 billion. We grew free cash flow by 71% to $679 million, inclusive of monetization proceeds. When excluding monetization proceeds, free cash flow of $396 million rose 27% from the prior year. We invested $882 million back into the business through capital expenditures, continuing our trend of reducing annual capital spend on a dollar and percent of net sales basis. And we returned $192 million to shareholders through quarterly cash dividends, totaling approximately $0.69 per share, reflecting a 5% annual per share increase. Our capital allocation priorities center around generating solid free cash flow and include maintaining a healthy balance sheet, including driving working capital efficiencies, strategically investing in growth initiatives, while lowering year-over-year capital expenditures and returning capital to shareholders through a predictable dividend and share buybacks. This year, we plan to utilize a portion of our remaining $1.4 billion open-ended share repurchase authorization, market conditions permitting. We finished the year with an adjusted-debt-to-adjusted-EBITDA ratio of 2.5 times. As we look ahead, we will target a ratio of 2.5 times or below, in-line with investment-grade metrics. This provides us with greater balance sheet and capital allocation flexibility as we harvest the financial benefits of enterprise-wide investments made over the past few years. We enter the second year of the Bold New Chapter strategy a healthier, yet smaller enterprise, highly focused on advancing our long-term growth profile. The top- and bottom-line annual metrics we are holding ourselves most accountable to are Macy's, Inc. go-forward business comps and core adjusted EBITDA on a dollar basis and as a percent of total revenue. As Tony mentioned, we are cognizant of the complex external environment that we're operating in. At the same time, we do not expect quarterly results to be linear, which is a reflection of year two initiatives gaining traction, comparability impacts and the timing of asset sale gains. As a result, we must be realistic and prudent in our guidance. For the year, we expect Macy's, Inc. net sales of $21 billion to $21.4 billion. Please keep in mind that fiscal 2024 store closures contributed roughly $700 million of net sales, equating to about $170 million in each of the first and second quarters, $160 million in the third quarter and $200 million in the fourth quarter. We expect improvements in our 125 reimagined Macy's locations in digital to be offset by the roughly 225 go-forward Macy's locations that have not yet received initiatives, and the stores we plan to close in 2025 and beyond. Macy's, Inc. comps to be down 2% to down 0.5%, with the easiest comparison in the second quarter. Macy's, Inc. go-forward comps to be down roughly 2% to roughly flat. Other revenues of $835 million to $845 million, up roughly 75 basis points as a percent of net sales. Credit card revenues are expected to contribute roughly 55 basis points of the improvement, reflecting the stabilization of net credit losses and a strong credit portfolio. This will be supported by initiatives designed to increase credit card usage. Gross margin as a percent of net sales to be roughly 10 basis points to 40 basis points higher than fiscal 2024. Rate improvement will be driven by the expectation for continued improvements in our merchandise assortments, benefiting from product mix and disciplined inventory management, which are expected to support healthier sell-throughs. SG&A to be down low-single-digits on a dollar basis, but as a percent of total revenue, to be about 100 basis points above last year due to lower total revenue. Please keep in mind that we plan to reinvest savings from store closures in customer-facing growth initiatives that enhance the omnichannel shopping experience across nameplates and colleague benefits, including compensation. And for the year, we anticipate higher depreciation and amortization, primarily due to heightened levels of capitalized software investments made over the past few years, which are amortized over a four- to five-year period. Asset sale gains of approximately $90 million and asset sale monetization proceeds of approximately $175 million for the year. Adjusted EBITDA as a percent of total revenue of 8.4% to 8.6%. Core adjusted EBITDA as a percent of total revenue of 8% to 8.2% versus 8% in fiscal 2024. Adjusted diluted EPS of $2.05 to $2.25, which does not contemplate the impact of planned share buybacks. And we anticipate capital expenditures of approximately $800 million. We will continue to harvest financial returns from prior investments and find further capital expenditure efficiencies across the enterprise. Turning to the first quarter, our guidance takes into account the unusual external circumstances of the quarter thus far and the assumption that pressure will continue for the remainder of the quarter. For the quarter, we expect net sales of $4.4 billion to $4.5 billion, Macy's, Inc. comps to be down 4.5% to down 2.5%, core adjusted EBITDA as a percent of total revenue to be 6.4% to 6.6% versus 7.3% last year, and adjusted EPS of $0.12 to $0.15. To recap, we believe the fourth quarter and fiscal 2024 results demonstrate the progress we are making with our initiatives. While there are external factors that are beyond our control, which are impacting both our business and the consumer, we are planning our business conservatively, thoughtfully responding to the unknowns as they arise, controlling what we can control and building on our recent momentum. With that, I'll now pass it back to Tony.

Thank you, Adrian. As we navigate the fluid nature of our business, we're highly focused on delivering a better experience for the consumer. We'll continue to make the appropriate investments that support our long-term growth ambitions, while returning value to shareholders. And with that, operator, we're now ready for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Today's first question is coming from Matthew Boss of JPMorgan. Please go ahead.

Great. Thanks. So, maybe, Tony, on 2025 or Bold New Chapter 2, could you walk through areas of strength relative to same-store sales constraints that you're embedding in the down 2% to down 0.5%, maybe relative to initial expectations for the return to growth? And then, Adrian, if you could elaborate on drivers of the SG&A rate pressure in the 2025 guide? And just what revenue growth multi-year is needed to hold or expand margin?

Thanks, Matt. Good morning. We enter 2025 far stronger than we entered 2024. So, I think we look at the first year of the Bold New Chapter as being one of progress: first 50 stores growth all four quarters, closing 64 underproductive stores, growth at Bloomingdale's and Bluemercury, making progress on our delivery and speed of delivery and end-to-end operations. And I think that is the kind of the progress point for year two. We added 75 more stores, we're at 125 stores in the reimagined environment. We lean into more growth both in number of stores at Bloomingdale's and Bluemercury and organic growth. And we continue to invest and leverage the benefits of our previous capital investments in end-to-end operation with better speed of delivery, less cost in delivering to the consumer. And so, I view it as being confidence in the strategy, caution in the environment. And the things that hold us back are the untouched stores that remain within the fleet. You still have over 150 stores, whatever it is, 175 stores that we've not touched as a part of the program. And so, those stores are not going to see the progress that we're seeing in the rest of the fleet. But we had digital growth in the fourth quarter. We had Macy's go-forward enterprise perform better in the quarter. Overall, Macy's, Inc. up as a comp in the quarter, best in 11 quarters. And I think if we were in an environment where they were operating in, I would be even more bullish on our potential, but I think prudency is important at this point in time.

Matt, good morning. Let me touch on your two questions around gross margin as well as around SG&A, and then I'll just kind of close out with overall how we're looking at the year just to build on Tony's comments. As it relates to gross margin, for us, it's all about inventory control, particularly in this environment of uncertainty. And we're really looking at it from three different dimensions. One is around from an assortment perspective, making sure that we're increasing the variety of items that customers actually want to buy, and this is through the manifestation of new brand introductions and things of that sort. We're also reducing redundant styles across brands. So, the assortment piece is an important dimension. As we think about inventory planning, we're investing in newness to drive full price sell-throughs. We're managing the appropriate level of aged inventory to reduce liquidations. We have a lot of progress on this dimension in 2024. And we're continuing to drive better allocation, which is driving better in-stocks. From a supply chain standpoint, speed is really important, particularly with replenishment items, but we're also scaling this year our hold-and-flow capabilities to better allocate supply to demand at the store location. Now, with regards to your question around SG&A, the key thing I would say here is that we're reinvesting the savings from closing stores back into the customer experience. And as you saw in 2024, many, many proof points of investing in the customer experience in terms of driving growth for our business. We're offsetting that by the actions that we're taking with regards to end-to-end operations. We're simplifying our business. We're adding in automation. We're eliminating unnecessary work, just a number of things to really make sure that we're continuing to be very disciplined on SG&A. But as we take a bit of a step back to the question that you posed to Tony and I, our guidance really simply reflects for the year the heightened uncertainty in the environment, while giving us the flexibility to navigate that environment and still meet our results.

Great. Best of luck.

Thank you.

Thank you, Matt.

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

Good morning, and thank you for taking our question. Tony, Adrian, as you think about the opportunity for Macy's, Inc. to return to positive comps over the course of the next few quarters, how are you thinking about engaging various customer demographics? And then, on recent trends, can you talk to the trends you've been seeing and what you would view as transitory or recapturable, and what might be a function of something that might persist? Thank you.

Thanks, Brooke. Good to talk to you. I think that these times it's good to remind everybody just the power of the Macy's, Inc. portfolio. You've got three iconic nameplates between Macy's, Bloomingdale's and Bluemercury. You've got 40 million active customers. You've got a multi-category business that allows us incredible agility and flexibility and liquidity to kind of move to where the customer is going. You've got great partnerships in the marketplace because we are -- yes, benefit from private brand. We've got a lot of market brands. And so, we represent a major partner or the biggest partner to some of the biggest names in the industry. So, I think it's moments like this where you say from off-price to luxury, our portfolio is well positioned to navigate an uncertain environment. The five generations of customers that shop our stores is an advantage, not a weakness. And you've got a lot of money obviously in the baby boomer population. At some point, we expect that transfer of wealth to the next generations of customers. We are the primary destination for prom season. We are a great destination for the first suit for work. So, it's our opportunity, I think, to leverage the strength of what a portfolio business like Macy's, Inc. can provide, build on the progress of the first year of the Bold New Chapter strategy, while being well aware that we're operating in an uncertain climate and that our ability to use the liquidity that we have and the strength of our partnerships can position us to take a challenging environment and turn it into an opportunistic opportunity for this company.

Good morning, Brooke, and thanks for your question. Let me start with your question around short-term trends and then talk a bit about the build over the course of the year that you're asking about. As we entered the first quarter, we just simply recognized as many that have mentioned that we're just -- as Tony commented, we're just in an uncertain environment. There's a lot of changes that we're seeing day to day happening with tariffs. We recognize the inflationary pressure. And obviously, there were some unexpected factors in the early part of the quarter with the fires and cold weather that impacted results for the business. But for the first quarter, we expect that pressure to continue, and we're really focused on what we can control. The good news is that the investments that we're making in the customer experience are working. And what we're doing now is scaling those initiatives to a larger portion of our business. And so, we do expect as we progress throughout the year to actually see momentum build even in this uncertain environment. As you know, we're making changes in an additional 75 Macy's stores. We're pleased with the luxury momentum where we're adding new locations, new points of distribution, new brand launches. The quality of our assortment continues to improve as we're increasing variety and eliminating redundancy. We have marketing moments that are still ahead of us as we approach holiday, whether that be Mother's Day or Father's Day or Fourth of July. And the execution continues to get better, replenishing faster. We continue to see year-over-year improvements in our in-stocks. So, we're really being very prudent and disciplined. And again, this year is just an uncertain environment at this point and just very much reflected in our guidance.

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

Thank you, Brooke.

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

Hi. Thanks for taking our questions. So, sort of follow-up to Brooke's question, I know you just talked about some of the factors impacting Q1, but maybe you can talk about just the overall consumer health that's embedded for the remainder of the guide? And then, same question on promotional levels. I'm curious what sort of promotional levels you have embedded in the guide? Thanks.

Thanks, Ashley. Good to be with you. The consumer health, in our opinion, remains very similar to what we saw in the latter part of 2024: under pressure, navigating food prices and the cost of housing and the stubborn inflation rate, and yet wanting to indulge at times on things that make him or her happy. And I think that we are in that retail therapy business, a place of escapism, an opportunity to get away from all of the political noise that happens every day. And we have to lean into that. And so, I don't think the consumer is going to feel a sense of relief in the short-term. I'm not an economist. I can't tell you how long it will go on. I challenge our teams every day to think about what do we control, how do we make what we're doing more compelling for the customer, whether that's the flow of newness, whether that's the launch of new marketing campaigns, whether that's expanding, as we said, our partnership with the NBC with the fireworks and the parade, and other tentpole events that will come in the future. The excitement that exists at Bloomingdale's between White Lotus and the partnership with Wicked in the fourth quarter and the launch of Coachtopia, there is so much energy that we are putting into the business because we know people are feeling a sense of concern and fatigue. In terms of the promotional environment, I just -- I'm in this business too long that I think when has it not been a promotional environment. I like our inventory position. We're up a couple of points, maybe 1.5 point, 2 points more than I'd like to be, but relative to the competitive set, we look awfully darn good. And I think the composition of our inventory is much better going into the months now as we warm up. So, we've had some unpleasant weather in January and the beginning of February. I think the weather now turns in our favor. And as a team, we have to lean into that opportunity.

Ashley, the only other thing I would add to Tony's comments is there is an important correlation between inventory and promotionality. And as we entered the new fiscal year, we felt pretty good about our inventory position. Just to kind of build on some of the comments that Tony referenced, on comp sales up in the fourth quarter versus prior year, our inventories were up about 2.5%, but half of that increase was actually driven by the conversion to cost accounting for Macy's last year. We also had higher in-transit inventory because of the progress that we've made on the speed of the supply chain. And to Tony's point, with the composition of inventory we have, we have more newness and less aged inventory than we did last year. So, we're quite encouraged from that perspective. In terms of navigating the uncertainty, we're working very closely with our partners with regards to known and unknown variables and really trying to get visibility to opportunities as they emerge. We have a little bit more visibility as it relates to private brands, because we're working directly with factories, but we've been able to kind of manage and navigate some of those knowns, but we're really operating in an environment with some knowns and many unknowns.

Great. Thanks so much.

Thank you.

Thank you.

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

Hi, Tony and Adrian. On the Macy's go-forward comps, how did those trends relative to your expectations and the main deltas in terms of the categories, or what were the main differences relative to what you expected? And related, on the categories, it sounded like you had good momentum in ready-to-wear and beauty. What's assumed in terms of the category dynamics throughout the year? And any strengths and weaknesses and/or opportunities to improve there, especially as we think about your private brands and driving differentiation versus competition? Thank you.

Thanks, Oliver. On the trends in the business, I think we talked about the differential that we saw in ready-to-wear and in handbags and in women's shoes, particularly in the First 50 stores where we had investments at Macy's. So, we've planned ourselves to be able to capture share in ready-to-wear and continue to see the response in the expanded now 125 stores in those categories where we've added additional staffing, additional marketing and visual inspiration. We, obviously, talked about at Bloomingdale's, the ready-to-wear and advanced contemporary business being particularly strong, seeing growth in really the DNA of Bloomingdale's and it's just a great moment for them to have had in the fourth quarter, the best quarter in the history of the company. The softness in the business, I think, the home business, in general, being pressured by the interest rates and housing starts and competitive landscape. And so, we're doing a lot of work to refresh our home business at Macy's. We have -- that was the last piece of our private brand refresh, which will launch mid-2025. So, we still have more work to do. But I think, again, the benefit of being a multi-category retailer is that we're going to be able to pivot. We've got a lot of liquidity built into the business and be able to kind of watch the customer signals and be able to invest into those areas of opportunity. Marketplace had a nice growth in 2024. We plan it for additional growth in 2025. And we know that comes with no inventory risk and the opportunity to take the signals that we also see in marketplace businesses and lean into the opportunity to expand those into our stores as well.

Good morning, Oliver. Just to speak to your distinction between the go-forward comps and the total Inc. comps, I think this is an important dimension. Our destination is the go-forward business. And so, it was important for us to articulate the difference in terms of our reporting this year between total Inc. comps and go-forward Inc. comps. As you saw in the fourth quarter, our go-forward Inc. comps outperformed total Inc. comps and that's really because of the composition of stores that have not received some of the changes and the closure stores. So, as we look ahead, we really want to focus The Street really on the go-forward Inc. comp because that's really the destination that we're focused on. And so, when you look at total Inc. comps this year, you have 225 Macy's go-forward stores that have still not received the growth changes in addition to a remaining approximately 85 non-go-forward stores that last year experienced mid- to high-single-digit declines year-over-year. So, this is something that we'll speak to as we progress through the year so that you can understand the performance of our core go-forward business. But we're pleased with the progress thus far and have a bit more work to do as we lean into 2025.

Okay. Just finally, you mentioned and we discussed a lot of the first quarter pressure. The assumption is, it could just continue to have pressure throughout the year. Is that true? Or what's the dynamic of which factors may or may not be transitory? And then, as you think about high-, middle-, lower-income, are you seeing anything in terms of greater pressure at the low-end where we continue to see these themes of bifurcation at other companies? Thanks a lot.

Yeah, Oliver, I think there's an impact to all levels of consumers. And so, we come off of a position of strength on our luxury brands, but I think the affluent customer that's shopping Macy's is just as uncertain and is confused and concerned by what's transpiring. So, our outlook tries to take into account the pieces that we know and the things that we don't know. Our first quarter inventories are in good shape. There'll be no impact from the pending tariffs. As we look at the remainder of the year, we're taking a case-by-case basis and trying to react in real time as we learn more. The second quarter, we're up against a softer quarter. So, as you look at the kind of flow of the non-linear nature of our growth expectations, we have opportunity to perform better in the second quarter than we do in the first quarter. And a lot of the initiatives that we're rolling out will benefit more of the back half of the year than the front half of the year. That's just the nature of implementing new programs. So, I think the guidance assumes a level of uncertainty. The first quarter assumes more uncertainty and is consistent, I think, with how many are looking at the current environment that we're operating in.

Okay. Thank you. Best regards.

Thank you.

Thank you, Oliver.

Thank you. [Operator Instructions] Our next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.

Hi, good morning, everyone. As you think about the private label portion of the business, how are you thinking about that penetration this year? I know it's been an important part for you. And what are you thinking about -- I think you had talked about some of the underperforming categories that you would focus on private label. How do you see that and how you're thinking about pricing overall? And then, Adrian, as you think about the store portfolio, how many closures do you expect in 2025? And is that 150 number of store closures, any more further perspective on that going forward? Thank you.

Good morning, Dana. Private brand has been an area where we have worked hard to reimagine the entire portfolio. We've now touched more than 20 brands. We'll have by the middle of 2025 addressed all of the home furnishing brands. And it remains, I would say, a work in progress. Our private label penetration is down now at an all-time low. So, the opportunity to rebuild the business is advantageous from a long-term margin accretion perspective, but also I think is good in this particular moment in time and that it protects us or isolates us -- insulates us a little bit from some of the tariff uncertainty. I feel good about the work on some of the brands. You look at a brand like Style & Co or State of Day, or the strength of a brand like Hotel, those brands have done exceptionally well over time and are big volume and represent leaders within their families of business. There are other brands that are more nascent or needing more work and reimagination. And so, I was with the private brand team yesterday kind of walking through fall 2025. It looks spectacular. And the challenge we always have in the business is things look great when you see them six months early and then they hit the floor and the world has changed and you never know. But I was really pleased with what the team showed me yesterday. I think it looks tasty. I think there's great value in the brands. It's not about the lowest price, but it's about great looking product, great design. And I take my hat off to the team because they've really worked hard to be learning from the market brand environment, leaning into white space and not have just duplicative product in private brand that's at a lower price. And I think it will position us well for the long-term.

Good morning, Dana. Let me speak to the store portfolio. We have not shared the number of closures this year. But rest assured, we remain committed to closing approximately 150 stores by the end of next fiscal year, fiscal 2026. The reality is we continue to see that these stores are not financially and operationally viable, especially relative to the monetization opportunity that we've recognized and demonstrated last year. And frankly, Dana, we're off to a solid start. When you look at what we were able to close and monetize last year, we exceeded our own expectations that we actually shared with The Street. We also are very pleased with the momentum on the monetization side of those closures. We spoke to the range of opportunity of sales proceeds to come into the business. We really are pleased with what we saw last year, but we're just giving ourselves the flexibility over the course of this fiscal year and next fiscal year to really be patient given the strength of our balance sheet. And as those proceeds come in, we'll invest in growth initiatives and returning capital to shareholders, but we're very pleased with the progress and we remain committed to what we said we're going to do.

Thank you.

Thank you, Dana.

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

Thanks. It's Tracy Kogan filling in for Paul. I was hoping you guys could give a little more detail on the credit trends you saw in 4Q, but also if you've seen any notable changes in either payment rates or losses quarter-to-date? Thanks.

I can go ahead and take that, Tracy, and good morning. Give my best to Paul as well. What we saw in 2024 was a stabilization of credit card revenues. What we expect in 2025 is a return to growth. And so, as you think about what we experienced in the fourth quarter and really in the back half of the year was credit card revenue growth that was ahead of our expectations. Now, we've been focused on a number of initiatives in 2024 that's going to be paying dividends in 2025 because we've seen the traction in the back half of last year. We're very focused last year in maintaining a healthy credit portfolio as demonstrated by the underwriting we're working on with our partners as well as the FICO scores. And that demonstration of a healthy portfolio has really stabilized net credit losses given the health of the file that we currently have. But we have a number of other initiatives designed to increase card usage at Bloomingdale's and at Macy's, as well as some [indiscernible] transactions. We've been increasing year-over-year application growth, which is something we have not seen in quite a number of years. And also, with the increase in APR early last year, we're definitely seeing the flow-through of those benefits in the back half of last year into this year. So, those are kind of the combination of factors that's really driving the credit card business, which we're pleased with the progress thus far, but we recognize that there's more that can be done as well, and we'll continue to lean in there.

Great. Thank you. So, no meaningful changes quarter-to-date?

No meaningful changes quarter-to-date. We expect this year to be a return to growth as reflected in our guide.

Got it. Thank you.

Thank you, Tracy.

Thank you. At this time, there are no further questions. I would like to turn the floor back over to Mr. Tony Spring for closing comments.

Thank you, operator, and thank you all for attending the call this morning. We look forward to continuing to update you on our progress on the Bold New Chapter and our opportunity to take you to stores, if appropriate, and look forward to updating you on the first quarter call. Have a good morning, everyone.