Okay, great. Thanks. It's Matthew Boss, Retailing, Department Stores and Specialty Softl ines at J.P. Morgan. Really happy to have this morning the team from Macy's. We have Chairman and CEO Tony Spring, as well as CFO and COO Adrian Mitchell. For Macy's fireside chat. And to kick off, maybe Tony, as we think about exiting the first year of your Bold New Chapter strategy, I guess what have been the key learnings so far? And what would you say would be the biggest surprise and maybe the biggest opportunity looking forward?
Sure. Thank you. Good morning, everyone. Let me just take a step back and make sure everybody knows the framework of our Bold New Chapter. So Macy's, Inc. is Macy's, Bloomingdale's, and Bluemercury. We have a strategy focused on three core objectives. First is strengthening the Macy's nameplate. Strengthening the Macy's nameplate includes making sure that we have the right portfolio. So that's monetizing and selling the least productive, least profitable stores, which is about 150. This year we're going to close 66 of those locations. It's getting the right merchandise assortment so that the customer has the right balance of market brands and private brands. We've been at work for the last 36 to 48 months really invigorating the private brand portfolio, and we're making sure that our market brands resonate with the consumer.
We're trying to make sure that the store experience is consistent with the expectations of the consumer. We talked to 60,000 consumers when we developed the strategy to make sure we understood where were we missing their expectations, and part of that was colleagues in the store, colleagues in the fitting room, making sure the selling experience was commensurate with what someone expected when they're paying full price, so we selected 50 stores to try to bring the strategy to life. That included the service experience, better merchandising, better visual presentation, less density on the floor, and three quarters into a three-year strategy, we're seeing results on the sales line. We're seeing improvement in the customer service scores, so we feel like the first 50 and the reinvigoration of the Macy's brand is off to a good start, but we know we have a lot of work to do.
The second part of the strategy was to make sure that we capitalized on the strength of Bloomingdale's and Bluemercury. So we're accelerating our luxury growth. The Bloomingdale's brand is coming off of record years, and we wanted to make sure that we're investing in the brand and expanding the brand. So we announced the expansion of the Bloomingdale's nameplate, and we're also making sure that we're supporting the brand to compete in a highly competitive environment. Bluemercury, 25th anniversary, opening up new stores, 15 quarters of a consecutive growth. We know it's our smallest brand, but has a continual growth opportunity. And the final piece is making sure that we're improving end-to-end operations. That's the third component of our strategy.
I'll let Adrian speak to how we're making sure we're getting products to customers on a timely basis, how we're taking cost out of the system, how we're investing more in the customer-facing initiatives.
Yeah, what's exciting about the end-to-end operations is really it's really the fuel and the funding for investing in the customer experience, and the scope of what we think about in end-to-end operations is really about taking complexity out of the retail operations, so that's about outsourcing, that's about process simplification, that's about automation, that's about applying predictive analytics and machine learning in different areas of our business to just get better effectiveness, and the results of that, as Tony pointed out, is we're able to drive cost savings, we're also able to drive greater effectiveness as we're improving the speed of our supply chain, as we're improving in stocks within our business, so it's an exciting pillar, there are a number of things that we're doing, but it's certainly making the customer experience better and giving us the funding to be able to invest in that experience.
Tony, as we think about the three-year playbook, as you laid out, you've obviously done a tremendous amount of work in year one, as you just said. Where does it go from here? Meaning, can you walk through the build? It sounds like the foundation has been put in place. Now you have the expansion of the number of doors, but also within the doors that have already been set. What happens second? Does it build? Is there any give back, in your opinion?
No, I don't see the give back. I think it's, you know, if you look at a ledger, the left column is bad and the right column is good. We are trying to get more on the right side of the ledger. And so we moved 50 stores over to the right side this year. We're going to move another 75 stores next year. So we'll have 125 stores in our reimagined program. We're going to accelerate Bloomingdale's and accelerate Bluemercury, so it'll be more on the right side. We're going to continue to take cost out of non-customer-facing initiatives, so we'll have more on the right side. I think this is a math equation and a customer experience equation. How do we make sure that we're constantly challenging ourselves to deliver a better experience for the customer?
I say to the team all the time, our business is basically simple. How do we give people a reason to shop at all of our three brands? If we weren't working for the company, would we shop at our brands for the given category? And I think it's a simple litmus test. I don't think we're there in every solitary measure. I'm really proud of the progress that the team is making. It's year almost one. We have a lot to be proud of that we've accomplished. We have a lot more to do.
What would you say? Are there any maybe more explicit examples? Like what does the customer see in a First 50 door that's now going to go to 125 and eventually chainwide? So what is the change in customer experience? What have you seen in terms of their response?
I think it's a balance between the areas. So I think we've always run a powerful fragrance and a beauty department, one where you really understand the brands we stand for and the kind of customer-assisted selling experience that we have. And then as you meander through the store, the experience was less consistent. Or as you kind of delve through our website, the experience was less consistent. So we've tried to focus on making sure that you have a more congruent experience category by category. Meaning if you are looking for a white polo shirt, it's easy to understand when you go into the men's department. If you're looking for a pair of jeans because the silhouette has changed, you have an easier time shopping. That could be more colleagues on the floor, which is definitely an integral part of our First 50 strategy, now 125.
It could be the density on the floor. If we've got the entire inventory delivery on the floor, sometimes it implies that why buy it at full price? Because it's going to get marked down. It could be the colleague assisting somebody in the fitting room because nobody wants to leave the fitting room once they're in the fitting room. They want somebody to help them. By the way, the inventory that gets tried on in the fitting room gets back to the sales floor that much quicker when you provide that level of assistance. It's also the storytelling. You know, we're in the idea business. So if we can't convey the solutions that we offer, if we're just simply an item at a price, we're going to drive people to the marketplace and people are going to go to the lowest common denominator.
While we have Backstage to compete in off-price and while we have a great digital business to compete on people who are looking for a particular item, I want to make sure we're giving our effort behind the idea of storytelling every chance we get.
Adrian, maybe could you elaborate on the improvement in the end-to-end operations and just how you look to achieve your longer-term enterprise growth targets?
Yeah, absolutely. You know, our long-term financial targets is profitable growth, but it really starts with the experience, as Tony described. So we're quite maniacal about our NPS scores and all the different components around that experience, whether it's colleagues available, whether it's in stock, those sorts of things. Maybe I can share a couple of examples to bring it to life. One of the things that we hear from our customers is that speed of delivery is quite important. So there's a new metric we introduced this year, which was the number of digital orders that are delivered in five days or less. So what we've done over the last year and a half is we've put in automation in our fulfillment facilities, which has allowed us to process those orders faster. It has allowed us to operate under lower cost structures, so lower cost per package.
And what we've been able to see is that we're delivering orders five days or less 10 percentage points higher than we were a year ago. And so that impacts the customer experience in a positive way, but we're doing it much cheaper than we did a year ago. Another dimension, as we looked at the consumer research, was this notion of in stocks. The point in time that we most disappoint customers in our stores is when they can't find the style, the color, or the size that they're looking for that they got excited about when they came to the store. And so we've put metrics in place. We've changed some things within our supply chain operations, and our percentage of in stocks this year for our replenishment items is about 10 percentage points higher than it was a year ago.
So just being very disciplined about what matters to the customer, where we have points where we may disappoint the customer, and attacking it in a way that allows us to be less complex, but still have real impact in the business.
Tony, if we take a step back, so merchant background, I spent a long time in the department store industry and coming off of a career at Bloomingdale's. So if we think about what you're trying and the vision that you're moving forward with, how do you think about relevancy of department stores and what are you attempting to do to make Macy's different?
Look, I've been in the business for a couple of years now, and I have heard the department store bandied about as being irrelevant and not going to have the best years, and I challenge myself and I challenge our team, forget the nomenclature or moniker that we're given. Imagine we're simply in a business where we can sell any category we want. We can add more inventory. We can add more staffing. We can add more marketing, and if the business ebbs and flows, that is almost undoubtedly does, we can go after those things as they occur. So if the men's business is great, let's get more inventory, more people, and more marketing behind men's. If there's a new silhouette in denim, let's make sure that people think of Macy's first when we're conveying or developing our strategy for any given quarter, any given season.
I think we're really trying to turn the page, as the Bold chapter describes, on how we operate the business. It's, yes, how we're in stock on a more consistent basis. It's how do we make sure that we're challenging ourselves to bring in more new brands. How do we make sure that we're not overly dependent on brands that kind of brought us to the party, but maybe aren't as relevant as they once were? How do we make sure that we are introducing new ideas each season so people think of us not just as a special occasion store, but also as an everyday store? How do we acknowledge the fact that in an online world, people can compare price all the time? Our value has to be clear. It has to be simple. It has to be present.
How do we make sure that every merchandise area plays in our business strategy? We can't just have a couple of areas that are doing well and others that are resting on their laurels. So I just say we are self-aware and we are determined. We are humble, but we are ambitious. I think the team is going through a cultural transformation as we make sure that our best days are to come and that we are not only proud of our heritage, but we're looking to make sure that we give people a reason to buy at each of our brands today.
Yeah, that's really well said. And Adrian, to that point on the team, so I know in the past number of years you've restructured a number of parts of the team, the processes, the go-to-market strategy. Maybe if you could just walk through some of the changes that's positioned the company for the foundation for growth moving forward.
Absolutely. I mean, you know, it really starts with that customer experience, but as we begin to break it apart, we're really looking at how our different nameplates are actually making a difference for the customers that they serve. When you think about, for example, in our Macy's format, one of the things that we wanted to do, as Tony pointed out, is really experimentation grounded in the insights that we learn from the customer, so we have a set of pilot stores called our First 50 stores where we're changing the assortment. We're changing the experience. We're adding and investing in payroll in those stores to be able to address the customer experience dimensions that really matter to that customer, and what we've seen through the course of the year is that the customer responds.
If there's one thing that's been the most surprising to us as a management team is when we get it right for the customer, they immediately respond with their checkbook or their credit card. And so what's been really encouraging in these pilot stores is as we've changed the experience, we've seen record levels of Net Promoter Scores. We've seen significant progress on the components of NPS, and we've seen a mall-based store comp positive consistently throughout the entire fiscal year of 2024. But as you know, we talk a lot about there's still more to come. We've learned a lot in this year about what else we can continue to change and improve the business going forward. And that's just one example.
Tony, your luxury nameplates have been a standout. Maybe could you speak to performance and opportunity at Bloomingdale's and Bluemercury?
Sure. Bloomingdale's is in the perfect position, I think, in the marketplace. I think carrying a good assortment of luxury brands, but having a great aspirational assortment. I think the zeitgeist right now is modern and contemporary and offering a range of brands and price points. And Bloomingdale's is so well positioned, not only because it's 152 years young, but because it's continuing to reimagine itself on a daily basis. I think Olivier and Denise, leading the company with a terrific team around them, focus on making sure that we're distinguishing Bloomingdale's every single season. So coming off of the fall season, you had Italy with Love in the month of September and October. No other department store retailer had a campaign that was dedicated to distinguishing their ideas in a clever and distinctive way.
So that was 300 exclusive products, 100 partners and brands, adding new brands to the assortment. Going into the holiday season, we all know Wicked was a success as a movie. Bloomingdale's was the department store that was partnering with them. Again, exclusive products, trying to add imagination, energy, and experience to the department store model. So I'm very excited about the Bloomingdale's business because I think not only is the growth happening now, but there's so much more growth opportunity when you look at the brand essentially having less than 40 full-line stores. We've now got four Bloomie's stores out in play. It gives us the opportunity to expand with small format. We've got fewer outlet stores than any of our competitive set. We're going to expand the outlet business and make sure that we're capturing the value component of that business model.
On the Bluemercury side, you're in the 25th anniversary of the brand. We have the opportunity, I think, to expand stores, to go into new geographies, to expand the digital business. They're leaning into other categories. So previously, predominantly a skincare business, now making sure that we're rounding out the model to have a healthy fragrance business and a healthy color business to kind of complement that. We've got a brand new team at Bluemercury who comes with passion, experience, great collaborative skills. And they're determined to make sure that there is a place for Bluemercury for that neighborhood skincare efficacy, great agnostic selling and service experience. I think it's interesting when you look at Bloomingdale's, Macy's, and Bluemercury in the beauty space, we have by far the best total service experience.
We still believe that when you are buying your skincare regimen, when you're buying beauty, you should have assisted selling. You should get what's right for your skin. I think between our three brands, we represent a great partner to the beauty industry. It's a message we've been reinforcing as we say, this is right for Bluemercury, this is right for Bloomingdale's, this is right for Macy's. We can be a great point of distribution for your brand or business.
So maybe as we put a number of these different initiatives together, Q4 and holiday you reported or pre-announced yesterday would represent your third straight consecutive quarter of improvement in same-store sales. Could you speak to holiday, maybe some of the highlights, the puts and takes, and how you see that it all came together?
Yeah, I think the holiday season is always going to be an important ingredient in the overall business, not only based on its percentage of sales and profit to the year, but I think also because we see more new customers during the holiday season. So we obviously spent the entire year improving the quality of our model. And so it was great to be able to showcase those improvements to the customer in Q4 . It was certainly ups and downs as we kind of went through the quarter. We know we had warmer weather to start the quarter. We have colder weather to end the quarter. We had a presidential election right in the middle of it. Some people were really happy. Some people weren't as happy. But in the end, we just want to make sure that we are delivering a better experience for the customer.
I think that in any given season, just like in holiday, we had winners and we had areas where we weren't as pleased with the performance. We pick ourselves kind of back up and we make the improvements and get ready for Valentine's Day and for the spring season. So I'm cautiously optimistic that the year was one of great learning. We will come in at or slightly below our revenue forecast. We will come in on our earnings guidance and we'll be positioned to grow in 2025 and make sure that we are, again, adding more to the right side of the ledger, giving people more of a reason to choose Macy's, Bloomingdale's, or Bluemercury when they're thinking about making their purchases for themselves or for their loved ones.
Adrian, to that point, could you speak to inventory levels exiting holiday and into 2025?
You know, as you know, inventory is something that's been a real priority for us for several years. And you know, as we get to the Q4 Earnings Call, we'll be able to talk a lot about our progress. But you know, there are a number of disciplines that's really important to us. Number one is not bringing liability from one season into the next season. And that has served us quite well. Aged inventory does not work well in the fashion business. But also the composition of our inventory is important. As Tony spoke about, bringing in new brands, bringing in newness into each season is quite critical.
And then there's this other dimension that we've added over the course of the last year, which is also placement as well, making sure that we're matching supply and demand by channel, by individual store at a style, color, size level. And so we're making a lot of progress. We continue to be focused on inventory disciplines and improving our inventory position, but also making sure that we're positioning that inventory in a way that's best positioned to sell.
I just want to add, all inventory is not created equal. So we talked a lot the last couple of days about the importance of continuative inventory, about having fashion at the beginning of the selling cycle, making sure that we're set up for holidays like Valentine's Day and Mother's Day and Father's Day and the holiday season. I think sometimes we look at inventory levels and get overly obsessed about something being up a couple of points or down a couple of points. What we need to be focused on, as Adrian said, is looking at risk-oriented inventory and making sure we're dealing with it on a timely basis because the first markdown is going to be the best. And we need to make sure that we clear through product that doesn't get better with age. But I want to be in stock.
If I wasn't in stock last year, that means we need to have more inventory this year. If we have inventory on consignment and I don't have the level of risk, I want to make sure that we're betting aggressively enough on areas where we have more opportunity.
Maybe to that point, and we've talked a lot about the micro, but on the macro, what's your view on the consumer into 2025? And to that point, how are you planning inventory? And did you see anything different from the consumer during holiday that potentially changes your view as we move into 2025 as you think about planning?
I think we're seeing more of the same. You know, I think depending on the demographic of the consumer, I think the upper-end consumer is quite healthy and only is being cautious when they see the market kind of go down temporarily or they're anticipating interest rate cuts and they don't see it. I think the lower and middle-tier customer remains concerned about grocery prices, the cost of heating their home, the cost of housing, and those things I think are going to remain pressured as we go through the year. We still have more opportunity to control our destiny, and I think that it's like weather. I think it is a reason. It can't be an excuse, and so the macroeconomic environment isn't going to be rosy for Bloomingdale's or Macy's or Bluemercury. It doesn't mean we can't do more business.
And I think that's where, when we lean in on the brands that we believe in and bet as partners, I think. Remember, Macy's or Bloomingdale's is a big partner to the brands that we work with. How do we develop the joint business plans that say we believe in this opportunity, this market, this category? We can bet bigger. How do we look at the things that we were out of stock on last year? How do we look at the things that people were looking for last year, maybe that weren't a part of our assortment? So in my mind, there are always opportunities that we missed without looking at other things to call an excuse and trying to lead into those opportunities and make the next year better. I think 2024 was a transition and investment year, just like we talked about.
I think we go into 2025 much more prepared to be able to return the overall enterprise to growth. We start with Bloomingdale's and Bluemercury in a much healthier position and Macy's having between First 50, the digital business growing, 75 more stores in the First 50 program, better prepared to grow again.
That's great. Maybe just to close out, as we think about the balance sheet, could you walk through balance sheet, liquidity, where we're at today, and priorities for capital allocation?
So our waterfall has not changed, but I think the complexion of the waterfall and the context has actually evolved over the last several years. So first and foremost, a healthy balance sheet is critical because the value creation engine of our retail business is the ability to invest in profitable growth. So that's an important dimension. The second dimension is being able to invest in growth initiatives that actually spur a lot of what we've talked about here today, which is serving the customer well, taking market share, and getting this business back to growth in a way that's much more relevant than what it has been. And then the third dimension is obviously excess cash back to shareholders. But if you look at kind of where we are, we've evolved from an investment period to a harvest period.
So, for example, in 2022, we spent about $1.3 billion in capital spending. A year later in 2023, we spent just under a billion. This year, we're forecasted to spend just under $900 million at 895. So we're now in this harvest mode where we've actually made some important investments in technology, in digital, in marketplace, in different elements of our business, but now we need to reap those rewards. We need to get those returns. So we're very maniacal about tracking the initiatives, making sure the clear owners are tracking their metrics, making sure that we're learning from things that may deviate from what we expect, and making sure that we unlock those returns. So as we look ahead, we'll have a much more balanced view of our capital allocation waterfall. We've brought down our capital spending over the last three years. We're very maniacal also about inventory productivity.
We think there's some working capital opportunities we could also lean into, which gives us a bit more appreciation and free cash flow to be able to distribute quite differently.
This was great. All great color and best of luck.
Thank you.
Thank you.