Macy's Q2 2026 Earnings Call Transcript

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Provided by Quartr
September 3, 2025

Key Takeaways

  • Positive Sentiment: Second quarter results: top line, bottom line, and core adjusted EBITDA exceeded guidance, delivering the strongest Macy’s Inc. comparable sales in 12 quarters.
  • Positive Sentiment: All major nameplates grew: Macy’s Inc. comps +1.9%, GoForward Macy’s +2.2%, Bloomingdale’s +5.7% (fourth straight quarter), and Bluemercury +1.2% (18th straight quarter).
  • Positive Sentiment: Customer experience improvements drove record net promoter scores at Macy’s and Bloomingdale’s, backed by positive feedback on store ambiance and service.
  • Positive Sentiment: Disciplined cost control yielded a $29 million reduction in SG&A, core adjusted EBITDA of $377 million (7.5%), and strengthened the balance sheet with $340 million of net debt reduction and $1.2 billion in share buyback capacity.
  • Negative Sentiment: Tariff uncertainties now forecast a 40–60 basis point gross margin headwind, trimming EPS by roughly $0.25–$0.40 and prompting a more cautious consumer outlook for the back half.
AI Generated. May Contain Errors.
Earnings Conference Call
Macy's Q2 2026
00:00 / 00:00

There are 7 speakers on the call.

Operator

Greetings and welcome to the Macy's Inc. second quarter 2025 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Pamela, you may now begin.

Speaker 1

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 Tom Edwards, our COO and CFO. Along with our second quarter 2025 press release, a Form 8-K has been filed with the Securities and Exchange Commission, and the 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 2024. All references to our prior expectations, outlook, or guidance refer to information provided on our May 28 earnings call. On today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings presentation and SEC filings available at www.macysinc.com/investors.

Speaker 1

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. GoForward Macy's Inc. comp sales include the approximately 350 Macy's GoForward locations and digital, and Bloomingdale's and Bluemercury nameplates inclusive of stores and digital. GoForward Macy's comp sales include the approximately 350 Macy's GoForward locations and Macy's digital. 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 SEC. Today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call.

Speaker 1

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

Speaker 2

Good morning, and thank you for joining us today. We're encouraged by recent quarterly performance and the execution of our Bold New Chapter strategy. We've made substantive enterprise-wide improvements to our business, yielding meaningful results. For the second quarter, top line, bottom line, and core adjusted EBITDA exceeded our guidance. Macy's Inc. and Macy's nameplate both had their strongest comparable sales in 12 quarters. Macy's GoForward comparable sales were positive, inclusive of growth in our Reimagined 125 locations and digital. Bloomingdale's achieved its fourth consecutive quarter of comparable sales growth and continued to gain market share, and Bluemercury achieved its 18th consecutive quarter of comparable sales gains. I want to thank our teams and our brand partners for helping us deliver improved product and omnichannel experiences for our customers. Turning to a more detailed view of the quarter, Macy's Inc.

Speaker 2

achieved comparable sales growth of 1.9%, and our GoForward businesses delivered comparable sales growth of 2.2%. Adjusted EPS of $0.41 was above our guidance range of $0.15 to $0.20, reflecting comparable sales growth, disciplined expense controls, and tariff mitigation actions. End-of-quarter inventories were down 0.8%, and we feel good about our composition headed into the fall season. Our second quarter results highlight the benefit of being a portfolio of nameplates that are multi-brand, multi-category, and multi-channel. This model provides sourcing optionality, economies of scale in negotiations, and product and price diversification. With our off-price to luxury offerings and strong financial position, we're leaning into areas of opportunity, chasing important trends, and providing more reasons for the customer to shop with us. Now let's discuss how each pillar of the Bold New Chapter strategy contributed to our results, beginning with strengthening and reimagining Macy's.

Speaker 2

Our goal for Macy's is simple: offer customers access to the brands and categories they're looking for at a great value with a compelling omnichannel shopping experience. Macy's achieved 1.2% comparable sales growth in the quarter. This was led by GoForward Macy's, which rose 1.5%, inclusive of the Reimagined 125 that were up 1.4%. Macy's off-price concept Backstage, along with Macy's Marketplace, were both strong contributors. These fill whitespace in our assortments and help us retain customers seeking more price and brand variety. Recent results illustrate that improvements in our Macy's omnichannel customer experience are resonating. We have shifted from being an operationally led to customer-led organization and are calibrating our assortments on both a brand and category basis. Highlighting our progress, Macy's delivered its strongest second quarter net promoter score on record. We view this as an important measure of customer sentiment and a leading indicator of future sales.

Speaker 2

I recently received a note from a customer who had just visited a store, and they said shopping at Macy's was such a pleasant surprise. The store was clean and organized, and most importantly, the employees were joyed to interact with. The service has improved tremendously over what it was just a few years ago. I will definitely recommend shopping there, and I will return to shop there myself. I read every customer note that I receive. Listening to feedback is one of the most important ways we can improve and grow our business. In addition to improving the shopping experience, we've also made strides in product curation. Our vendor relationships are strong, and we are viewed as a valued partner that helps broaden their reach and deliver against customer needs.

Speaker 2

Our balance sheet, large addressable market, and loyal customer base are attractive differentiators, and market brands are excited to work alongside our teams. As one of their largest partners, we receive compelling product from the brands our customers are asking for, including Coach, Donna Karan, Levi's, and Ralph Lauren, just to name a few. As these brands thrive at Macy's, other brands are taking notice. We've been attracting new partners, including Abercrombie Kids, expanding our distribution of existing labels such as Sam Edelman, Hugo Boss, Good American, and we're continuing to update our private brand assortment. Turning to category performance, comparable sales of women's contemporary and career, as well as men's tailored clothing, outperformed. In addition, fine jewelry and watches, textiles, and mattresses continue to experience strong demand.

Speaker 2

The success of these categories illustrates the breadth of product and price points that we offer and our ability to cater to customers' evolving lifestyle needs. Rounding out the conversation on Macy's, our strategy of closing underperforming locations while investing in areas of opportunities will create a more focused and profitable store base. I believe we are positioned to deliver long-term growth in our Macy's GoForward business, inclusive of digital. This is driven by exceptional customer omnichannel experiences, improved selling, enhanced colleague development, and inspired merchandising, including more variety with reduced redundancies. The second pillar of the Bold New Chapter strategy is accelerating and differentiating luxury. In the second quarter, both Bloomingdale's and Bluemercury maintained their positive comparable sales trend. Bloomingdale's achieved a positive 5.7% comp and its highest second quarter sales and net promoter score on record.

Speaker 2

Our ambition is to be the leader in local markets that we serve, and our recent performance underscores that Bloomingdale's is gaining momentum. Our strong heritage of customer service and premium contemporary to luxury positioning is differentiated in the market, and we are able to offer the best of current trends in an accessible and compelling environment that has broad multigenerational appeal. During the second quarter, ready-to-wear, fine jewelry, fragrance, and tabletop performances were a few standouts. Bloomingdale's is also well known for its special and exclusive capsule collections and partnerships, which build brand heat and excitement and support increased visits to our stores and online. This summer, we had takeovers by contemporary brands Mother and Staud and introduced our latest limited edition Aqua collaboration, Aqua and Ava Filippi. This week, we're launching our fall campaign, which is called Just Imagine.

Speaker 2

The campaign celebrates creativity, art, and style and is supported by a robust lineup of activations, impressive visuals, and new and exciting and exclusive product. Looking ahead, we remain focused on growing Bloomingdale's through attracting new brands and partnerships, expanding distribution, growing digital, and increasing our national footprint through Bloomies small format stores and Bloomingdale's outlet locations. These initiatives help us to take additional share across categories, markets, and brands as we capitalize on disruption in the marketplace. Our other luxury concept, Bluemercury, achieved 1.2% comparable sales growth, representing its 18th consecutive quarter of gains. Results were driven by dermatological skincare and recent brand launches, including Byredo, Victoria Beckham Beauty, and Charlotte Tilbury. Our Bloomingdale's and Bluemercury customers are responding well to our aspirational to luxury positioning. We have proven growth strategies in place for both and are confident in the luxury category and its long-term potential.

Speaker 2

The third pillar of our Bold New Chapter strategy is simplifying and modernizing end-to-end operations. We have an always-on approach to profit improvement and are finding efficiencies through automation, resource optimization, and the streamlining of processes. Our end-to-end work gives us the ability to invest in our growth ambitions while delivering an improved return for our shareholders. Now let's discuss our view on the consumer. Our customer across nameplates has remained resilient through the first half of the year and quarter to date. However, given the uncertainty regarding the impact of tariffs on demand, we believe it's prudent to continue to incorporate a more choiceful consumer into our guidance for the remainder of the year. Our third quarter and full-year ranges assume we continue to reinvest most of the savings from closed stores and distribution centers in initiatives that support our long-term growth aspirations.

Speaker 2

In addition, reflecting the incremental tariffs that have been announced since our last earnings call, full-year guidance now incorporates a 40 to 60 basis point tariff impact to gross margin. This compares to our prior expectation of 20 to 40 basis points and equates to roughly $0.25 to $0.40 of EPS versus our prior expectation of $0.10 to $0.25. To conclude, I like where Macy's Inc. is positioned. Our first half and third quarter to date performance is encouraging, especially in our GoForward business, inclusive of Reimagined 125, Bloomingdale's, and Bluemercury. We've made meaningful positive changes to our product and to our omnichannel experiences across nameplates, and our customer is responding. At Macy's, we're testing, we're iterating, and we're refining our initiatives to drive relevant assortments, inspiring experiences, and compelling value for our customers.

Speaker 2

At Bloomingdale's, we're continuing to drive profitable growth through our unique positioning, our strong appeal to our customers and our partners, and we'll continue to capitalize on the disruption in the marketplace. At Bluemercury, our curated assortments and agnostic selling are both strong differentiators. This is all supported by the important work in end-to-end operations, where we've become increasingly nimble, leveraging knowledge and relationships to improve responsiveness and create more productive operations. Now, before turning the call over to our new Chief Operating Officer and Chief Financial Officer, Tom Edwards, I'd like to take a moment to welcome him to the team. Tom joins us following a successful career across a variety of publicly traded consumer discretionary companies. While many of you know him from his time as Chief Operating Officer and Chief Financial Officer at Capri, he has held senior positions at Brinker and Wyndham as well.

Speaker 2

Tom's experiences and financial acumen uniquely complement the hospitality-oriented work we're doing to support the Bold New Chapter strategy, our focus on building and strengthening brand partnerships, and our ability to deliver long-term growth. Tom, welcome.

Speaker 3

Thanks, Tony. I'm thrilled to be here, and I believe we have a tremendous opportunity ahead of us as momentum builds across the Bold New Chapter strategy. My first weeks here have reinforced my conviction in our ability to return to profitable growth and create significant value for our shareholders in the years to come. The enterprise-wide improvements we have made are resonating with our customers. The evidence of this is clear with our recent results, including our encouraging second quarter performance, which I'll now walk through. Macy's Inc. comparable sales of 1.9% were our strongest in 12 quarters, benefiting from positive results at each of our nameplates. Adjusted EPS of $0.41 was above the high end of our guidance on better-than-expected sales, gross margin, and SG&A. Looking at a detailed view of the second quarter, Macy's Inc. net sales were $4.8 billion, down 2.5% to last year.

Speaker 3

Roughly $170 million of the sales decline was attributable to the 64 non-GoForward stores that closed at the end of last year. Excluding the impact of these stores, sales grew 0.9%. Macy's Inc. achieved comparable sales growth of 1.9%, led by GoForward business comparable sales growth of 2.2%. By nameplate, Macy's net sales were down 3.8%. Macy's comparable sales were up 1.2%, with GoForward business comparable sales continuing to outperform, rising 1.5%. Reimagined 125 comparable sales rose 1.4%, with the first 50 and next 75 locations both achieving positive comparable sales results. Customers responded well to elevated merchandise, more effective staffing, and localized events, and we continue to see stronger Reimagined 125 performance in traffic, average order value, and net promoter scores relative to the broader fleet. In luxury, Bloomingdale's net sales were up 4.6%, and comparable sales rose 5.7%.

Speaker 3

In Bluemercury, net sales were up 3.3%, and comparable sales rose 1.2%. Turning to revenue, total revenue was $5 billion. Other revenue, which is comprised of credit card and Macy's Media Network, was $187 million. Net credit card revenue was $153 million, or $28 million higher than the prior year. Credit card revenue was driven by our healthy credit portfolio and the prudent management of net credit card losses. Macy's Media Network revenue was $34 million, flat to last year and in line with our internal expectations. Gross margin was $1.9 billion, or 39.7% of net sales compared to 40.5% last year, and was slightly better than our expectations. As discussed on our last earnings call, there were two unique factors impacting second quarter gross margin.

Speaker 3

First, we took proactive markdowns on remaining early spring product to maintain healthy inventories, and second, the flow through our product brought under the 145% tariffs primarily impacted the most recent quarter. Inventory was $4.3 billion, down 0.8% to last year. We are comfortable with our inventory composition for the fall season and have ample open to buy for the remainder of the year. SG&A expense of $1.9 billion declined $29 million from last year, reflecting the net impact of the benefit from our closed Macy's locations and ongoing cost containment efforts, partially offset by investments in our GoForward business, including the Reimagined 125 locations and Bloomingdale's. As a percent of total revenue, SG&A expense was 38.9% compared to 38.7% in the prior year. We are continuing to carefully manage our expenses and drive efficiencies throughout the organization. During the quarter, we recognized $16 million of asset sale gains.

Speaker 3

Adjusted EBITDA was $393 million, or 7.9% of total revenue. Core adjusted EBITDA, which is adjusted EBITDA excluding asset sale gains, was $377 million, or 7.5% of total revenue, above our guidance of 6.0% to 6.2%. Second quarter adjusted EPS of $0.41 was also above our guidance of $0.15 to $0.20. We continue to take a disciplined approach to our cash flow and balance sheet. Year-to-date operating cash flow was $255 million versus $137 million last year, and free cash flow was an outflow of $13 million versus an outflow of $244 million last year. Capital expenditures were $343 million, down from $432 million spent last year, and monetization proceeds were $75 million compared to $51 million last year. We returned $251 million to shareholders through $100 million of consistent quarterly cash dividends and $151 million of share repurchases, including $50 million of buybacks in the second quarter.

Speaker 3

This leaves approximately $1.2 billion remaining on our share buyback authorization, and we ended the quarter with $829 million of cash on our balance sheet. To further fortify our already strong balance sheet and provide additional flexibility, we recently completed a series of financing transactions to extend our debt maturities and modestly reduce leverage. This resulted in a net long-term debt reduction of approximately $340 million. With these transactions, we extended our material long-term debt maturities by three years and do not have any meaningful maturities due until 2030. Now I'd like to turn to our view of the consumer and guidance. The consumer has been resilient. We are pleased with second quarter results, and momentum has continued third quarter to date. However, the macro environment remains fluid. As such, we believe it is prudent to maintain our cautious view on the consumer for the remainder of the year.

Speaker 3

As a result, our third quarter and full-year guidance assumes that current tariff rates remain in place and provides flexibility to respond to consumer demand and the competitive landscape. Guidance also assumes that Bold New Chapter initiatives continue to gain traction and reinvest most of the savings from closed stores and distribution centers to support our long-term growth. For the fiscal year, we have raised and narrowed our net sales and adjusted EPS guidance ranges. Our revised forecast assumes net sales of approximately $21.15 to $21.45 billion. As a reminder, fiscal 2024 store closures contributed roughly $700 million to net sales. Comparable sales to be down approximately 1.5% to down 0.5%, with Macy's Inc. GoForward comparable sales to be down roughly 1.5% to flat.

Speaker 3

Other revenue of $840 to $850 million, with an anticipated year-over-year improvement in both credit card revenues, which are expected to be $635 to $645 million, and Macy's Media Network, which is expected to be approximately $205 million. Gross margin as a percent of net sales to be roughly 60 to 100 basis points below the prior year. Assuming current tariffs remain in place, we estimate a combined tariff impact to gross margin of roughly 40 to 60 basis points versus our prior expectation of 20 to 40 basis points. This equates to a roughly $0.25 to $0.40 impact to EPS compared to our prior expectation for a $0.10 to $0.25 impact. Given the anticipated timing of receipts, we expect the additional impact to our gross margin rate and EPS to primarily flow through the fourth quarter.

Speaker 3

Our teams are working diligently to offset tariffs through mitigation actions that include shared cost negotiations, vendor discounts, and strategically raising tickets. SG&A to be down low single digits on a dollar basis to last year, in line with our prior guidance, or up 60 to 80 basis points as a percent of total revenue, with third quarter SG&A dollars down low single digits and fourth quarter dollars down low to mid-single digits. Adjusted EBITDA as a percent of total revenue of 7.4 to 7.9%, and core adjusted EBITDA of 7.0 to 7.5%. Interest expense of roughly $100 million, reflecting our recent financing transactions. Finally, we expect adjusted EPS of $1.70 to $2.05, which does not include potential future share buybacks. For the third quarter, we expect net sales of approximately $4.5 to $4.6 billion.

Speaker 3

As a reminder, last year's store closures contributed about $160 million to sales in the comparable period. Comparable sales of down approximately 1.5% to up 0.5%. Core adjusted EBITDA as a percent of total revenue of 3.3 to 3.7%, and adjusted EPS of a loss of $0.20 to a loss of $0.15, including asset sale gains of roughly $20 million. To sum up, we are pleased with recent results, which are a reflection of the Bold New Chapter strategy. We are well positioned to thoughtfully navigate the near term and deliver our long-term goals. Looking ahead, we will remain focused on the fundamentals and initiatives that provide meaningful value to our customers and to our shareholders, supported by our healthy balance sheet, which we have further strengthened, ample liquidity profile, disciplined approach to inventory management, and prudent capital allocation strategy.

Speaker 3

Now, I would like to turn the call back over to Tony.

Speaker 2

Thank you, Tom. In closing, we're encouraged by our second quarter results. Initiatives are resonating as we deliver an improved product and omnichannel experience. Looking to the back half, we're well positioned for the fall and holiday seasons. Our multi-brand, multi-category, and multi-nameplate model gives us the flexibility to respond to consumer demand in all environments. Longer term, we remain confident that the Bold New Chapter strategy will deliver sustainable, profitable growth and increased shareholder value. With that, operator, we're now ready for questions.

Operator

Thank you. The floor will now be open for questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Again, that's star one to register a question. Today's first question is coming from Matthew Boss of JP Morgan. Please go ahead.

Speaker 4

Great, thanks, and congrats on a nice quarter. Tony, could you maybe help rank order drivers of the sequential improvement that you saw in same-store sales and the progression that you saw during the quarter? Any change in momentum so far in the third quarter? Maybe just any perspective on the forecasted moderation that you've built into comps?

Speaker 2

Sure, thanks, Matt. Appreciate it. We had a strong quarter across the board. The first growth at Macy's Inc. and Macy's brand in 12 quarters. It was across many different categories of business, which is why we're so, I think, invigorated by seeing growth in women's apparel, men's, kids, home furnishings, parts of center core. The second quarter was strong with July, the strongest month of the quarter, and that carries into the beginning of the third quarter, which we obviously identified. That's driven by a healthy start to back to school, and I think an early read on some of the outerwear and colder weather categories, which, you know, you can't bank on what August represents, but it's nonetheless a good start.

Speaker 2

Gives us, I think, cautious optimism, meaning that we're celebrating the second quarter, good start to the third quarter, but we're being prudent in our guidance for the third quarter and the remainder of the year because we want to see how the tariff environment plays out in totality.

Speaker 4

Great caller. Best of luck.

Speaker 2

Thanks, Matt.

Operator

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

Speaker 5

Hi, good morning, everyone, and nice to see the progress. As you think about the store portfolio and what you saw from the Reimagined 125 stores, any learnings from those, and do you expand it to 200 stores, 250 stores? Lastly, on the gross margin with the incremental tariffs, how are you thinking on pricing for the different categories and brands, both private label and branded? Thank you.

Speaker 2

Thanks, Dana. Let me take the first part, and then I'll have Tom cover the second. In terms of the Reimagined 125 stores, we had a strong quarter, and it was both in the first 50 and in the next 75. Positive performance in both. The performance is a combination of what we've talked about. It's the additional staffing where the customer was asking for it. It's in the fitting rooms. It's these ambassadors and key families of businesses. It's better storytelling, visual merchandising dedicated to each of these stores. I think finally, the piece we probably haven't talked about enough, it's local empowerment. While we're going to get 70 or 75% right, we're asking those local leaders to put their stamp on what's necessary to deliver for the customer.

Speaker 2

That's why we had best net promoter score on record in the second quarter, with the Reimagined 125 stores' net promoter score even stronger. I think as it relates to tariffs, we are taking a surgical approach. We're going to have price increases. We've had some price increases. We're also negotiating with the marketplace. It's not a one-size-fits-all. We've tried to be really thoughtful about what categories can bear the cost and the increases and where we've had to negotiate a little bit harder. Tom, what would you add?

Speaker 3

Tony, I'd just add a little background on the tariffs, Dana. We previously had a guidance in of a 20 to 40 basis point impact, which was $0.10 to $0.25, and have increased it to 40 to 60 basis points, which is $0.25 to $0.40. That is net of mitigation factors, such as partnering with our suppliers and vendors and diversifying our countries of origin. We expect the majority of the incremental impact to impact Q4, given our timing of receipts. As Tony mentioned, we're adjusting prices, but as appropriate, not broad-based, and we're really assessing it with our partners in an effort to remain competitive. I believe that we are really well positioned to navigate through this time, given our business model of multi-brand, multi-channel, multi-category, and multi-price point.

Speaker 2

Thanks, Dana.

Operator

Thank you. The next question is coming from Blake Anderson of Jefferies. Please go ahead.

Speaker 6

Good morning. Congrats on the nice results. I wanted to just build on the last question earlier about the quarter to date and second half. Tony, if you think about now versus maybe three months ago when we last spoke to you, are you still embedding essentially the same level of uncertainty and caution for the consumer, or are you able to say you feel a little bit better about the consumer? I'm just curious how maybe the tone has changed, especially in light of the pending tariff increases still coming through and then Tom just mentioning you're adjusting prices. Thank you.

Speaker 2

Thanks, Blake. We still view the consumer as choiceful, but we also view the consumer as resilient. I think the beat in the second quarter says what we thought at the end of the first quarter, the consumer was more resilient. We've seen that continue into the beginning of the fall season. That being said, we want to be prudent in our guidance and make sure we see the full impact of the tariffs across a broad spectrum of categories and retail and other things kind of play out before we, I think, understand the true impact of this change in the way pricing is going to occur in the marketplace. We feel good about our customer. You know, she's buying newness. He's buying fashion. They're interested in the new brands and the changes in the assortment. We're seeing it across each of our nameplates.

Speaker 2

The last thing I would add is that we have a customer base at Macy's that's approximately 50+% over $100,000 household income. While we have exposure to lower income levels, it's not nearly what it was. Obviously, we talk to an even more affluent consumer at the Bloomingdale's brand. I think as you go by income level, you certainly see a healthier performance in the higher tiers of income. Thanks, Blake.

Speaker 6

Great. Thank you so much.

Operator

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

Speaker 6

Hi, Tony and Tom. Private brands have been an exciting initiative. What's ahead in terms of catalysts there and trying to drive differentiation versus the competitive landscape? As we think about your third quarter guidance, what's assumed in terms of the negative 1.5% comp relative to the plus 0.5%? Lastly, as we think more longer term, what comp do you need to leverage your fixed expenses in terms of a longer-term comp to generate margin expansion overall? Thank you.

Speaker 2

Thanks, Oliver. Let me take the first part, and I'll have Tom address the last. As you noted, we've been reimagining private brands for the last two and a half years. We're in the process of working through the home assortment this year and pleased with some of the initial response. We did a partnership with Alex Freberg with On 34th, which resonated well with the consumer. I think leaning into Pomme Royale as a show and as a way to kind of add relevancy to the Macy's private brands was a good move. We have our fashion show with INC celebrating its 40th anniversary a week from Friday with Christian Siriano, another way to add relevancy and interest to our private brand portfolio. We're pleased with the launch of State of Day, excited by the growth in Style & Co.

Speaker 2

There's broad-based improvement, I think, in the private brand portfolio. The best is still to come because our penetration of private brands is still well below our 20% high watermark. We know that that's an opportunity for us to grow sales and expand differentiation and improve margins. I think relative to Q3, we've just continued to say we're going to take a prudent approach to our guide, making sure we understand the fullness of the impact to the environment and the consumer. So far, Q2, the beginning of the fall season, we see a resilient consumer who's interested in newness and fashion. Tom, what would you add on Oliver's question on improved comps necessary?

Speaker 3

Sure. Thanks, Tony and Oliver. In terms of SG&A, I think there's an opportunity longer term to leverage our SG&A. In terms of the comps, I won't give a specific number, Oliver, but I'm looking at the quarter and what we've done here is deliver $30 million of savings in SG&A net, while reinvesting some in the business and generating top line growth. That's the type of characteristic and outlook that I think will move going forward and enable us to really leverage it. Importantly, grow the top line, which I think is key longer term to leveraging sales growth. In terms of gross margin, and I want to build on the private label comment again, we also have an opportunity longer term to expand our gross margin. Expanding private brands, which are historically around 20% of sales and now in the lower teens, will help drive gross margin.

Speaker 3

They typically have a higher margin. Our initiatives, which are helping to better serve customers and getting better merchandise assortments out there, as well as other end-to-end efficiencies, will also help on the gross margin side. I really see opportunities on both gross margin and SG&A as the initiatives for Bold New Chapter continue to resonate.

Speaker 2

Thank you. Best regards. Thanks, Oliver.

Operator

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

Speaker 6

Perfect. Thanks so much for taking the question and congrats on a nice quarter. Maybe for Tom, just on the SG&A improvement on that rate versus your last full-year guidance, can you just talk about where you're finding more savings, maybe both in the quarter and also for the back half? I think it assumes a little bit more reduction in the back half than you've delivered in the first. Just curious about that. Maybe for Tony, I'm just curious about that acceleration in the Bloomingdale's comp, if you could unpack that a little bit more sequentially. Thanks so much.

Speaker 3

Thanks, Alex. Looking at SG&A, as Tony mentioned, we have an always-on approach to profit improvement, and that gives us the room to invest in our growth while delivering improved returns and ultimately levering the P&L. SG&A was down nearly $30 million in the quarter, and that was across benefits from the store closures that we implemented last year. It was continued end-to-end savings benefits as those initiatives pay dividends and will continue to do so over the next several years. Also, just making sure we're very conscious in managing costs on an ongoing basis. You are correct in the second half, we expect SG&A dollars to continue to be down in Q3, down low single digits, and in Q4, down low to mid-single digits. This is really a reflection of those continued savings in both store and end-to-end and otherwise.

Speaker 3

It's a little more weighted to Q4 given the timing of store closures and other benefits. I would point out this is a net number because we are still reinvesting in the business to drive the top line and enjoying the benefits of Bold New Chapter initiatives, which are resonating and driving a difference in performance where we are implementing those.

Speaker 2

Alex, I would say the Bloomingdale's business just continues to build momentum. They have a terrific strategy, a strong leadership team, and great continuity in the focus in a market that is somewhat disrupted. They've had additional brand additions, which have been a part of their growth. They've grown their digital business, which is a part of their growth. They've done some wonderful collaborations with their private brands and market brands, which has been a part of their growth. They're adding Bloomies locations and Bloomingdale's outlet locations. We see plenty of runway for the Bloomingdale's business. I think it's uniquely positioned in this aspirational to luxury positioning where that advanced contemporary customer, which is such a growing part of the business, it's right in the sweet spot of what Bloomingdale's does best in the marketplace.

Speaker 6

Thanks so much. Good luck.

Speaker 2

Thanks, Alex.

Operator

Thank you. The next question is coming from Chuck Graham of Gordon Haskett. Please go ahead.

Speaker 6

Hey, guys. This is Ryan Boldron here for Chuck. I wanted to ask a little bit about the traffic compensation, traffic versus ticket, both on an owned basis and an OLM basis. Also, broadly speaking, what are you seeing in the marketplace a little more in terms of pricing, in terms of pricing on, in terms of tariffs from Kiers, and then what you're doing about that in response? Thanks very much.

Speaker 2

Ryan, let me take the first part, and then I'll let Tom take the second part. Our improvement in business was broad-based, as I said, by category and was also driven by improvement in traffic, improvement in average order value, and like we've said, improvement in customer experience. The one pocket that was a little softer was unit demand. Obviously, I think that's partly reflecting the consumer being choiceful and partly reflecting the beginning impacts of some pricing. I think we've bought it that way. We've got a good composition of inventory across a broad base of categories, and I think are well prepared for the fall season. I like our inventory position being down 0.8% going into the fall season, having open to buy, and having the strength of a marketplace as well as our licensed businesses to support even more growth beyond what we've bought.

Speaker 2

Tom, what would you add relative to what you're seeing in the marketplace for tariffs?

Speaker 3

I'd just emphasize, Tony, your comment on beginning to see the impact. We have built in a more prudent outlook in the second half with a more choiceful consumer depending on tariff impact overall. We are in the early stages of seeing that as they are beginning to flow through. We are going to monitor it really carefully and adjust prices as appropriate, again, not do a broad-based approach and make sure we assess it down to a really granular level with our partners and remain competitive.

Speaker 2

I think to close, we have room in what we have guided to be able to be competitive, to be able to hold on to market share without buying the business. I think that's the balance, how we satisfy the customer and how we return value to shareholders. Thanks for the question, Ryan.

Operator

Thank you. The next question is coming from Pamela Quintiliano of Citigroup. Please go ahead.

Speaker 5

Thanks. It's Tracy Kogan filling in for Paul. I just wanted to follow up on the last question. I know you said you're just starting to see some price increases, and I was wondering how that is falling out between your own private brands and national brands. Are you seeing already some increases in both? I'm just wondering, since you have seen some increases as of now, how has the elasticity been looking relative to what you expected? Is it kind of, are the unit changes in line with what you would expect so far? Thanks.

Speaker 2

Thanks for the question, Tracy. Yeah, I think it's the early innings on how the consumer is responding to the changes in the marketplace. I think the good news is there's a level of resiliency, there's a level of interest in newness and fashion. We are not bought completely into the fall season. We have the leverage points of marketplace and our licensed businesses. I would say that in some cases where tickets were higher or costs were higher, we bought fewer units. In other cases, we remain consistent with units, and in other cases, we didn't buy as much of a brand or category. I think this is just such a wonderful example of being a multi-brand, multi-category, multi-channel, and multi-price point. I want to say again, multi-price point, because when you can go from off-price to luxury, you're not reliant on one thing.

Speaker 2

If something wasn't competitive, if we felt it was too big a reach for the consumer, we didn't buy it or buy as much. I think that's one of those moments where being this modern marketplace or department store is an absolute advantage in this environment.

Speaker 3

Tracy, I'd just build on that. Regardless of the external environment, our Bold New Chapter initiatives are really positioned to support performance. What we saw in the second quarter was performance and improvement in traffic. People are buying more and coming in, and it's really due to those base initiatives, which are going to continue through the second half regardless of what's happening elsewhere.

Speaker 5

Gotcha. Thanks so much.

Speaker 2

Thank you.

Operator

Thank you. Our next question is coming from Michael Benetti of Evercore ISI. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking our question here. First one, just on adding to the Bloomingdale's question from earlier, nice to see the comp there. We've seen continued pressures and even bankruptcies in the luxury market here lately. Just maybe speak to what you're seeing in that market and where you're seeing the accelerating opportunities to gain share there, as that category seems to be getting a little tougher, nicely counterintuitive there, I suppose. Tom, how much did tariffs impact the second quarter? Finally, I see it looks like you lowered the back half credit growth rate a little bit, maybe 11% to 15%, 20% in the first half. Just any comment on, you made a comment on the health of the portfolio there. I'm just curious what you're baking in on the deceleration as we think about the run rate into next year. Thanks.

Speaker 2

Let me start with Bloomingdale's and I'll let Tom cover the tariffs and the credit portfolio, which is healthy, and he can speak to that. Look, we see the Bloomingdale's business has been terrific, and this is now four straight quarters of growth. They are taking market share. They are adding additional brands. We are seeing broad-based growth across ready-to-wear, denim, men's, home, kids, beauty, fragrances. I think that this brand has done a terrific job. When you think of kind of continuity of leadership, continuity of strategy, continuity of partnerships in the market, paying our bills, strong balance sheet, the strong corporate support of Macy's Inc., Bloomingdale's is positioned for continuous growth. I think we have the additional opportunities of obviously brand expansions, digital growth, additional door expansions with Bloomie's and off-price. The Bloomingdale's off-price business continues to grow, had a really good quarter.

Speaker 2

I don't look at the marketplace as defining Bloomingdale's opportunity. I look at Bloomingdale's defining Bloomingdale's opportunity.

Speaker 3

Nice. Mike, regarding tariffs and credit, tariffs in the second quarter, we had provided a prior full-year guidance of 20 to 40 basis points or $0.10 to $0.25. That was a little bit more in the second quarter. We saw some of the higher tariffs coming in at the 145% level. We did see a GM impact related to that, and our gross margin rate was also a little lower than last year. Q1 we moved through inventory and really put us in a great position to start the fall and the back half of the year with a really clean inventory position. I would point out that our gross margin was better than our expectations in the second quarter. All that considered, we're doing better than we expected and coming into the second half in a great position.

Speaker 3

From a credit portfolio perspective, really pleased with the growth, the significant growth, $28 million in revenue in the second quarter, and we expect to see continued strong results. It's really due to the credit portfolio strength and how we're underwriting and managing that and really linking up with our store colleagues and across the business to support that, which is an integral part of the overall Macy's ecosystem.

Speaker 2

Thanks a lot, guys. Appreciate it. Thank you, Mike.

Operator

Thank you. Our next question is coming from Paul Carney of Barclays. Please go ahead.

Speaker 6

Hey, good morning. Thanks for taking my question. On tariffs, how should we think about that impact as we look into next year? How much do you anticipate being able to mitigate? Should we anticipate a step up in mitigation in the spring season and then over time? Thank you.

Speaker 2

Let me take the first part, and then I'll let Tom add his color. I think it's a little early to be forecasting tariffs in 2026. We don't know the magnitude of tariffs. We don't know what tariffs that currently are in place are going to hold. We're certainly going to have more opportunities to mitigate. We could have mitigated the second quarter better than we currently did. I think it's early to comment on the tariff situation in 2026. I think what we are focused on as a team is how we continue to build on this momentum that is growing for Macy's Inc. How do we make sure that the things that we control, that we're continuing to improve upon, whether that's customer experience, newness in our assortments, variety within our pricing, better balance between our owned, licensed, and marketplace businesses, off-price, full-price businesses?

Speaker 2

I think those things we can continue to do a better job than we've done. We've got credit in the second quarter for the improvements that we've made, but we have plenty of room to continue to grow.

Speaker 3

I just added and emphasize that right now we don't have total clarity on levels of tariffs in 2026, and there is, on the other hand, more time to address. The key takeaway would be we're really well positioned to navigate it. Our teams are doing an amazing job currently, and we'll certainly talk more about it as we get towards the end of the year and provide guidance for next year as we normally do on our fourth quarter call.

Speaker 6

Thank you.

Speaker 2

Thanks, Paul.

Operator

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

Speaker 6

Great. Thank you so much. This has come up a couple of times in the call, but Tony, I want to ask about the investments that you're making. Obviously, you sound very pleased with the investments you're making in service, especially across Macy's Inc., but also the SG&A leverage you're delivering. How do you find the right balance between leverage and growth? Are there opportunities that you see to maybe grow SG&A dollars more that could maybe get that comp growth rate a couple hundred basis points higher? How do you think about what to invest in versus what to maybe allow to flow through to the bottom line?

Speaker 2

Thanks, Jay, for the question. Let me take the first part, and I'm sure Tom would like to add some color as well. I think what you describe is how you balance your strategy. I think as the leader, we have to do a good job of managing a portfolio of investments. That means some things we're going to put more money into. I'm a big believer in colleagues on the floor. Those customer-facing initiatives are really important to changing the character of the department store experience. We see it in letters on a daily basis on what we're doing to change the experience for the customer in our stores. We need to add more stores next year. We'll talk about that on the fourth quarter call in terms of how many more stores. We're obviously doing that also in our digital experience.

Speaker 2

I invite you to look at Macys.com today versus just three months ago. We're providing a richer, product-driven, trend-driven storytelling experience. To your challenge, our job is to satisfy the customer and in turn satisfy the shareholder. We have to make sure we're delivering a better experience, investing to grow the comp sales, and then leverage our structure so that we're delivering more on the bottom line. Tom, what would you add?

Speaker 3

I'd add that we are always on savings, and we have a large pipeline of savings from continued store closures, as we previously announced, and end-to-end initiatives, and just managing the business to be more efficient on a daily basis. As we do that, we're reviewing initiatives, we're testing, we're learning, we're improving. There is a process here, Jay, as we move forward to make sure we're doing things that are impactful and creating a return for shareholders. As part of that, that's really the balance: generating savings, reinvesting some, and really getting to the point where we are leveraging based on driving sales growth, which we saw in this quarter across all of our banners, and we're really pleased with that result, generating $30 million in SG&A savings versus the prior year.

Speaker 2

Got it. Thank you so much.

Speaker 3

Thanks, Jay.

Operator

Thank you. Our next question is coming from Janet Kloppenberg of JJK Research Associates. Please go ahead.

Speaker 6

Good morning, Tony and Tom, and congratulations on a wonderful quarter. I have too many questions, so I'm going to get yelled at. Do you have any thoughts on what the incremental markdowns that you've carried into the second quarter, what influence that had on the comp performance, which was, of course, excellent? I also was wondering, I know it's early, Tom, but have you seen any pushback from the consumer on the incremental pricing that you've delivered? For instance, I know that Levi's has raised their prices. I am wondering about the wrap-around of the tariffs into the first and second quarter of next year. We're hearing that from a lot of your competitors, and I wondered about that. Thank you so much.

Speaker 2

Thanks, Janet. The question on markdowns impacting the comps in the second quarter, I would say there's some, it's a minor part of the improvement in our performance in the second quarter. The areas that had the strongest growth were not the areas that had the biggest markdowns or liabilities coming into the second quarter. We took those markdowns. The composition of our inventory is clean. I like the early read of August and what the customer is buying because that is not markdown related. It's newness related. It's back to school related. It's early fall product and winter weight categories. All of that is very positive. You mentioned the Levi's business. I mentioned on the call, Levi's continues to be a terrific business for us in all areas of the business, and they're great partners.

Speaker 2

We're getting top-tier products from them, and it's the fashion in Levi's that is really selling best for us. I think it underscores the customer is more concerned about value than they are about the price point. Is there a reason for something to be more expensive? That might be true in a piece of outerwear. That might be much harder to get on a t-shirt.

Speaker 6

Thank you.

Speaker 3

Thank you. With regard to tariffs, Janet, I think it's a little early to talk about the Q1, Q2 for next year. We'll have a little more clarity on it in terms of the tariff levels. We do have more time to mitigate, and we'll certainly be talking more about that on our Q4 call. As I mentioned before, I think we're really well positioned to navigate through it and have been navigating through it across all our teams really effectively.

Speaker 6

What about the pricing and early indication from the consumer?

Speaker 3

I would just state that the consumer has been resilient, and we've seen that in Q2, and we've seen it at the beginning of Q3. We are to be more prudent in the second half, forecasting a little more choiceful consumer, but what we've seen so far is resiliency.

Speaker 6

Thank you very much. Good luck.

Speaker 2

Thank you, Janet. Appreciate it.

Operator

Thank you. At this time, I would like to turn the floor back over to Mr. Spring for closing comments.

Speaker 2

Thank you all for joining us today. We look forward to providing an update on our progress on our next earnings call. Have a great day, everyone.

Operator

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

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