Macy's, Inc. (M) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the Garden Haskett-hosted virtual fireside chat with Macy's CEO and CFO conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Chuck Grom. Please go ahead, sir.

Thanks, Michelle. Good morning, and thank you, operator. I appreciate everyone carving out some time during earnings season to join me and the Macy's team. A lot has changed over the past 2 months since we last heard from the company on February 25. And while it's been a scary and sad time, I think we're all optimistic that we're moving in the right direction. With that in mind, I'm honored to be doing the call today with Macy's CFO -- CEO, Jeff Gennette; and CFO, Paula Price. The structure of the call today will be some opening comments followed by a Q&A session. The key topics they plan to address today include: one, a review of the steps Macy's is taking in response to the COVID-19 outbreak; two, an update on the company's financial flexibility; three, looking forward, how and when Macy's will reopen their stores; four, how we should be thinking about back-to-school holiday and beyond; and five, a review more top of areas, including the CARES Act, CECL and a few other topics. Before I pass over to Jeff, Mike McGuire, Vice President and Head of Investor Relations, will review the safe harbor provision. Mike?

Thanks, Chuck. Good morning, everyone, and thanks for joining us. Please keep in mind that 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 those in such statements. A detailed discussion of these risks and uncertainties is contained in the company's filings with the Securities and Exchange Commission. Chuck?

I think I'm going to go next. This is Jeff.

Thanks a lot, Mike. Jeff, the floor is yours.

All right. So good morning, Chuck, and thanks for hosting us today. So I want to start by saying that I hope you and everyone on the line is safe and healthy. These are really unprecedented times for the country, the retail landscape and Macy's Inc. So we know that COVID-19 has impacted many people. These are our colleagues, our customers, vendors and communities, and we haven't lost sight of that. First and foremost, I do want to thank our colleagues who are listening. Throughout this crisis, our team has been working to keep the Macy's Inc. business operating, while all of our stores are closed to public. We do have a small team working day and night, and I appreciate all of their efforts in this unique challenge. I also want to thank our partners. We know that the actions that we take have a ripple effect on other companies, their companies. And we're fortunate to have strong relationships with our partners, and we are really committed to working through difficult decisions. And I appreciate their flexibility as we work through this together. We will emerge from this crisis with an even stronger commitment to our shared customers. So before we take questions, Chuck, I thought we would -- I would give some perspective on the actions that we've taken since the pandemic started and how we're looking at the reopening at our stores, and how our Polaris strategy that we launched on February 5, how that still fits into the picture. So first off, Macy's, Bloomingdale's and Bluemercury are strong brands with very loyal customers. We have a very well-developed digital business across all 3 brands that has been performing well. We entered the crisis with a healthy balance sheet, having heavily focused on debt reduction over the past few years. So that being said, our business model was not built to sustain the foreclosure of our stores for an extended period of time. So we're pulling every lever to keep the business stable and preserve cash while our stores are closed. So just a quick recap. So we've obviously frozen all of our capital expenditures, significantly reduced our operating expenses. We suspended our quarterly dividend. We furloughed the majority of our colleagues and reduced pay for all senior management. We've reduced our marketing spend. We have looked at the terms from all of our vendors and extended those. We do expect to open our stores on a staggered basis, with the first phase beginning next week. We've set the following criteria for determining when a store can reopen. First, it must meet state and local government ordinances and health conditions. Next, we're going to look at the ability of each store to drive sales and are reassessing the cash flow model on a store-by-store basis, and we can talk about that later. Then we will determine the best format for the store to reopen, either in its full format, a smaller section of the store that has -- that's open just for that store or with fulfillment only. The investment we made over the past 2 years in our customer service and fulfillment options, like BOPS, BOSS and At Your Service, will play an important role. We anticipate that most of our stores will open -- will ultimately open in their full formats, although with a reduction in staffing and operational hours. For the early openings, we're anticipating slow traffic, and we will be supplementing the in-store experience with curbside pickup for our customer. We will also enhance all of our health and safety measures for each of our stores. We did post a presentation to our Investors site this morning, where you can find more detail on our plan. Bloomingdale's stores will open on a similar schedule to Macy's stores, and Bluemercury has primarily store street locations or store front locations, so they will open on a slightly different schedule. Assuming the COVID-19 trends continues as we're seeing today, we anticipate that the majority of our stores will open over the next 6 to 8 weeks. Having studied the recovery rates and the consumer behavior in both Asian and European countries that are obviously ahead of the U.S. in the cycle, we do anticipate a gradual sales recovery in our brick-and-mortar stores. So before we take questions, I did want to also provide an update on the Polaris strategy that we launched back in February. There are some aspects of the strategy that are more relevant today than ever: loyalty, digital, cost management. In other aspects, we will reassess as the business stabilizes. It is too early to share specific changes to the plans, but we're committed to providing updates as we progress. So just to sum it up, this is an incredibly challenging situation that requires us to adjust our plans each day, but we are confident that we have a path through this. So Chuck, I'll just throw it over to you for questions.

All right. I've got a lot of them. So I hope you guys are ready. Thanks, Jeff. So you reviewed the actions you've taken with the physical stores since your decision on March 17 to temporary close. What's the status of the inventory in those stores? Have you been able to move inventory back to the DCs to fulfill recent online orders?

Yes. So just -- first off, I would just characterize our inventory was really in great shape entering the kind of the COVID crisis. We had a very strong February, and the inventory was very fresh and current. So we're in a good position to kind of satisfy future demand. So we certainly saw very strong demand online. It's different than the usual composition of our business, which I think all of our listeners are used to hearing. So beauty and home are quite strong. The apparel areas, particularly the dress parts of the apparel areas are less strong. And so that's been -- that demand has been fueled by inventory from our DCs. But then at the beginning of April, we opened up filling all of our digital -- or a great chunk of those digital sales from our store network. And so we started out with what we called CS where we fulfill out of a store and ship to a customer's home. And by this coming Monday, we'll have 466 locations up and running with that. We're currently at about 230. And our Digital business has been -- it was weaker in March, at the end of March as the pandemic was kind of cresting. The month of April, though, has been stronger than we expected. And in addition to CS, we've also opened up curbside pickup and we will, by Monday, have 100 locations where we have curbside up and running. So that's also been a portion of how we fulfill the demand. So as we reopen stores, what will that quality of the inventory look like? And clearly, we've got some evergreen content, which is like the replenishment goods, things that we -- that stay in the inventory regardless of season, and a big chunk of our inventory is that. But we have a lot of fashion inventory, too, that there is an update for. And we also know that we're not operating in -- by ourselves, we're operating in a very competitive landscape. So we're working really closely with our merchant partners and our vendor partners on what the price -- what we believe it's going to take to liquidate those spring fashion orders. And so we're working through that. We're also looking at what are we bringing in. And for the time frame, we're opening a bunch of stores, 68 stores on Monday. We have another chunk coming up on the 11th of May. That will be another 50 stores. As mentioned, we think we're going to have stores open over a 6 to 8-week period. So making sure that we're bringing in the right on order. And certainly, in all those replenishable categories as well as what does summer fashion look like. So our team is working through all that right now. We're also working through what we will return to vendors, what we'll pack and hold for next spring, so that we're not taking unneeded markdowns. So every family of business has a different plan, and we're working really closely with our partners. But ultimately, the consumer is going to decide and based on how many come back and what they choose to buy, we will react and we will be flexible to.

That's great. I guess just you spoke to how April has been better than March on the digital front. Just wondering if you can maybe just contextualize that for us in terms of the directional move. And then I guess there's been a lot of other retailers that have talked about digital being very strong in the month of April. Just curious, when you look at the basket composition, what product areas are you seeing consumers look to buy? And maybe which areas they're looking to not purchase?

Yes. So the home has been quite strong. Beauty, active wear, toys, games, anything where a customer is -- obviously, many of our customers -- most of our customers are homebound, and they're kind of looking around their home and they're seeing opportunities. And so that has just immediately -- you see it in the baking categories, bread makers. I mean people are getting back to cooking. And we see it high in textiles. We're actually selling furniture quite well online. And so that has been a -- that was unexpected. Beauty has been huge. So not just fragrance, but also a lot of treatment products. Anything activewear. So that has been from brands all the way to our private brands. And then toys and games for like family activities. So you see it in sleepwear, active and all extremely strong. Categories that have been very tough are things like dresses, very low demand. Men's clothing, men's dress shirts, very low demand. So the dressier it gets, the more career driven it is. The more casual it is in apparel, the better it's doing and the other category around it. Surprisingly, categories like handbags are doing quite well. And so based on all this, our teams are looking at by-moment data, what's going on in the balance of our competitors. We're making adjustments constantly to our website for both pricing and exposure. What we're doing with our e-mail campaigns. Because we've cut back so much of our marketing dollars for cash conservancy, we have a limited amount of search dollars but we're getting a much higher return rate on what we are spending, and our natural search is sky high. So that's the good news, is that our website is satisfying customer demands for what they are right now. And we're pretty pleased with how it's been going.

So I guess you feel pretty good about the currency of inventory absent, obviously, the stores being closed based on some of the category performance thus far?

That's exactly right. So I mean, we're -- there's a lot of fashion that we have to work through. So there is a lot of markdowns that we need to take that we're going to have to work through. But because we went in clean, we have less to deal with, but we still have a lot to deal with. So just to make sure that's clear.

Yes. Sure. Okay. Got you. And then just have you used the time with stores being closed to maybe accelerate any remodel activity, updates to the backstage? Or have you guys been in sort of cash preservation mode?

Definitely cash preservation mode. We've done nothing on any remodels. We do have skeleton crews that are in each of our stores to protect the facility. And so we have pretty mighty teams, but in some stores they have like 4 or 5 people, tops. And so we're not doing any construction, we're -- we have suspended all that. So -- obviously for cash preservation but also for the safety of colleagues, could we do that work and do it safely. So we've done no work that way over the past 1.5 months.

Makes sense. Obviously, you put the majority of your workforce on furlough in the beginning of April. Just curious if your team leaders have been in contact with them. And I guess, the follow-up, how do you feel about your ability to fully retain some of these individuals when you reopen? There's just been some concerns when you do the math on the people that are actually receiving unemployment. I mean, in some cases, that current income is actually greater than what they were making formerly. So there's just some concerns about some companies that have put their employees on furlough to get them back when you are ready to open, which is basically starting now?

Yes. So first part of your question, Chuck, we have -- we definitely have remained in contact with our furloughed colleagues in as much to find out how they're doing. It's amazing how many of our colleagues are touched by -- they have a family member that has the virus, they have a friend. So just making sure that everybody is in good health and we stay connected with them. So we definitely make it a point to check in with them regularly. And then to your second question about -- we're going to start -- the wind-back is going to be slow. And so we're going to merge out of this as a smaller company, and we don't quite know what the ramp back looks like. I mean, I'm really pleased with the digital business, but we're conservative in what we expect in the brick-and-mortar business as it comes back. And so we're looking at it, when we're kind of staffing it in the very beginning at those first stores that open, we're looking at less than 20% of the business even with personalized marketing and calling customers and a lot of customers want to come back. And even with the fulfillment that is going on in the curbside pickup, we expect pretty modest sales in the beginning. And as we look at what happens -- what's happened in other countries, that will slowly build. And so frankly, we've been looking at, okay, what's the decision process of bringing the right colleagues back at the right time. And we've obviously started all those calls for the stores that we're going to open on Monday. And we're going to have -- for the budget that we have and for the business we expect, we're going to have really energized colleagues coming back. We've had no issue of -- so far, at least, of seeing those colleagues peel off to other companies yet. We've had some, but not an issue in terms of being able to staff, certainly in the beginning stages of where we expect the business to be.

That's good. And then before we move on to some of the financial flexibility stuff, I want to get to -- you talked about April again being a little bit better. I was just wondering if you think you've seen any positive impact from the stimulus checks that were direct deposited in the middle of the month.

Yes. It's hard to parse through what that is. I've heard that, and what I can tell you is that our April business definitely has gone through a big growth spurt, which is good from where it was. So each week, it gets better. So the first week of April, to the second to the third to the week we're in right now, very strong. So maybe there was some, but I can't attribute it to the stimulus checks. What I can tell you is that the business has gotten better since they were just -- since they were deposited.

Okay. That's great to hear. So moving on, you've talked about the steps you've taken to start to improve your financial flexibility. But I wanted to just ask a few follow-ups, and maybe Paula can chime in. The original CapEx budget for the year stood, I believe, $1 billion. Can you remind us the components of that between maintenance, technology, remodels? And I guess how should we be thinking about your ability to flex down CapEx in 2020?

Sure, Chuck. We're taking a more flexible approach to our capital planning so that we can really apply what we've been learning during this crisis to how we prioritize. Our goal is to, of course, operate more efficiently and much faster. And as Jeff mentioned, we froze our capital budget as a result of the pandemic and so we anticipate taking our capital budget down this year to about, I'd say, half of what we announced at Investor Day. Because we can now anticipate being a smaller company, at least in the immediate future, given the reductions in revenues. And so we'll prioritize our digital and customer-facing technology spend, so that we can reduce the friction in the customer journey as well as capital that will help us operate the business more efficiently. So I think about it that way.

Okay. Great. And then just from a cash burn perspective, probably more of an issue looking back than it is going to be looking for now you're going to begin to reopen stores. But we've estimated roughly a weekly cash burn of about $40 million, and that's pre any additional financing that you may or may not do. Paula, does that number seem about right in terms of the cash burn rate?

Well, what I would say, Chuck, is that we've been pleased with our cash preservation efforts, which have been fairly intense. In fact, we have close to the full $1.5 billion revolver still in hand at this moment, because we continue to take the difficult but necessary steps to ensure that we maintain cash sufficiency during this unprecedented time. And because of our quick actions to limit spend, combined with our digital business coming on quite strong in the month of April, as you noted, we're currently not burning much cash at all, net-net. In fact, it's been below your $40 million estimate during -- on average during the course of the time. We know that, that will change, though, in the coming months once the payment terms that we have extended come due. But importantly, we've been able to extend our cash runway so that, that gives us time to make the right financing decisions for the future of the company.

Okay. And so as part of that, when you think about your cost structure, particularly on the SG&A side, but maybe also in the COGS side, too. I guess what are the greatest sources that you guys can pull from or compress down to flex your cash burn rates?

So the way I think about it is, we have been certainly assessing our cost structure line-by-line and business-by-business, and we have been able to flex our expenses greatly in this current environment. So if you look at cost of goods sold, pre-COVID, it was nearly all variables. So merchant and distribution center costs are in SG&A, unlike some of our peers, but private brand costs are in cost of goods sold. And also, as we've discussed on previous earnings calls, our delivery expense is highly variable, and it moves, of course, with our digital business. If we look at SG&A expense pre-COVID, a majority of it was fixed. Compensation was the largest of the expense, but benefits, marketing, property-related costs also comprise a significant portion of SG&A. But now at this unique moment in time, essentially all of SG&A is variable to the extent possible. And so as you can imagine, much of the marketing expenses has been dialed back with some expense remaining to support the ongoing e-commerce business. And we've been in ongoing dialogue with our landlords, and we've been able to delay rent payments in some cases. But again, we've gone line-by-line and reduced the expenses that were not critical to maintaining operations while the stores are closed. And we've been quite successful in terms of flexing down the expenses as a result.

Okay. And so is there anything else beyond the furloughs and reduced -- I guess, potentially reduced rent and pushing out payables? Any other steps that you've taken to sort of get more efficient on the burn side?

Line by line, I would say that we look -- we have a small group of people, including myself and a few others, that look daily at all of the cash that is going out the door, and we make a decision in terms of what cash goes out and what doesn't. So anything that is not essential at this moment, given that the stores are closed, everything from, obviously, compensation all the way down the P&L, we have taken a really strong view on and really been very careful to preserve our cash.

Okay. Last one on this -- on the financing front. There's clearly been some reports out there that you're looking to raise some debt. I think there's a Bloomberg report of around $5 billion. And I know you're not ready to talk about those details yet, but you historically have been very conservative. You own some very good real estate. I guess just any thoughts on that front that you're willing to share at this point in time.

Yes. So in terms of how we're thinking about the possible debt deal coming up, as Jeff mentioned earlier, we entered this crisis with our balance sheet in good shape, not only from a debt perspective where we've been consistently and voluntarily paying down debt for some time, but also from an asset perspective. And so this combination will serve us well as we are in the process of securing additional financing. And again, our intense cash preservation actions allowed us to sufficiently slow down the cash burn so that we could extend our runway and take the time needed to consider all of the options for our next financing deal and make some optimal choices. So we have substantial assets that can be used as collateral, most significantly inventory. But we also have real estate that is largely unencumbered. And again, before entering this crisis, our balance sheet was in better shape and improving compared to others in our sector. So these are differentiating factors for Macy's. And we're well into the financing process. We gave our relationship banks an early indication that we will be coming to market some time ago so that they would be expecting us and preparing for us. And so we've been engaged in this process for a while, thoughtfully evaluating our options to maximize flexibility not only in the short term but in the long term. And so what we're putting together is expected to position us well for our future needs as and if they arise. And so we've identified our lead banks, and we're all confident that we'll have a deal closed and funded well in advance of when we will have need for any additional liquidity.

Okay. That's great. So just to kind of switch gears away from that. So Jeff, as you begin to open up stores, can you speak to the steps that you're taking, and some of this is in your slide deck this morning that I'm looking at right now, just to protect your customers, protect your employees as they start to come back into your stores? Because obviously, that's going to be a big barrier for some, especially in the beginning.

Yes. Yes, I think you're absolutely right. I think this is going to be a -- how do we build confidence that it's a safe environment for both colleagues and consumers. So we've been obsessing about that to make sure that we're going to get it right and looking at everything our competition is doing. So if there's one small advantage of being a nonessential retailer, as you're able to see what the essential retailer in business and how they're responding to it. So there's a lot of good practices out there that we have looked at. I think the first thing about the timing of this is really what is going on with what the state and local governments are saying about those specific markets. And we don't make a move without ensuring that they're saying that the market is safe to open for our class of retail. And so -- and as mentioned, in the states that we're opening of the 68 stores, those states have all given kind of the all clear for our class of retail. And so we're going to take advantage of that and open on Monday in a staggered way, as I mentioned. So when we -- so that's the kind of top side, is where are we with the -- what is the government saying and making sure that we're in lockstep with that at a local level as well. We want to make sure that we're working with our mall partners and are they opening those malls, what's going on with the balance of retail, is this a -- is this particular mall a place that customers are -- that it's open fully. And so those are also considerations that we do. So once you've made that decision, then you kind of look at, okay, the individual stores. So the first thing we look at is the cash flow and the economics of opening, I think, by location basis. And so how many dollars do we expect that we'd bring in? And again, we're expecting about 1/5 of what it would normally be and we'll see if that's right or not. Again, we're looking at a lot of countries. We're looking at what our competitors have said that are essential. And so that's -- we're going to learn so much from the first 68 stores that are going to influence all the other later stages of what we open. But we look at it at a by-location basis. And if there is enough cash flow to cover the expenses, we're building then all the activities in that store. So what we need for fulfillment, what we need for health and safety, what we need for whatever area of the store that is open. So different requirements in beauty, different requirements in jewelry, what it needs to be in home store, making sure that all of our facilities are always constantly being cleaned, all hard surfaces, what do we do with apparel, on fitting rooms, on returns, curbside At Your Service. So those are all elements that we look at and that takes cost. We look at the cost of doing that well to keep everybody safe. And then how many dollars are we going to bring in, in that store in that particular day. So that brings up kind of 3 decision trees. If it's -- if you've got good cash flow to cover those expenses at the rate we expect, then we might open the full store. There may be an area of the store that we open, if it's on the bubble or we might just do only fulfillment. So we would do At Your Service, which is the service station that we have at the #1 doors of every one of our stores and -- or we might do just curbside pickup. I do believe that all of our stores will open at some point, and it's just a question of as that customer comes back. So it might be 20% of regular business in the first week, it might go to 25% the second week, we do expect a slow build. So we're making decisions for every one of our buildings. And we're just going to stay flexible. However, the customer is reacting, whatever we hear in our competitors. And that can be the way we staff, the way that we want the customer to feel like they're entering a safe environment. We want the colleagues to be able to feel that way and communicate that to our customers. So we're doing everything we think we need to do to be ready. And I'm sure there's things that we have forgotten or there's things that will change. And we're going to be incredibly focused on making all those adjustments.

So just to clarify, the 68 stores in Georgia, South Carolina, Oklahoma, Texas and Tennessee, I believe, those -- some of those will be partial openings, some will be curbside? Okay. That's it. And then -- sorry, go ahead.

There will be -- all of them have curbside. So we're doing curbside at any store that we open. And then in other stores, they'll all have At Your Service. And then it's just a question of whatever the -- we have neighborhood stores. If you think about stores that are doing less volume in general, and when you think about what that would be at 20%, it may not make sense for us to open up the full building in the first couple of weeks. But that might make more sense later. And then you have the -- what are you doing with the inventory. So when you have a draw because of a lot of the value that were going to be with a lot of that spring seasonal inventory that we talked about earlier, that, over time, will be a draw for customers. So we're ready with -- we've anticipated those buying patterns, and we're ready with lots of different staffing models to ensure again that we're safe and it's a healthy environment for colleagues and customers.

Okay. And you've referenced the 20% sales recovery a few times and it was in your release -- or in the article in the journal this morning. I guess I'd be curious like what you're basing that off of. Is that something that you believe you saw or we've seen in Asia and Europe? Can you just expand upon that?

Yes. So it's really looking at what it was and -- so we certainly have a lot of partners that have retail in all these countries and tapping into that, what's been said and what they've been public about, as well as looking at what currently the essential retail that is -- how they are responding. Now they're -- a lot of them that are responding, they've got very good strong traffic based on essential content. But to hear what their business has been in nonessential categories, like Macy's carries, has been helpful as well. So we put a line in the sand to say, hey, we think it's about between 15% and 20% depending on these buildings. But again, we're going to learn -- our model is going to be different after Monday. I can just tell you that right now. The second we're able to turn on, hey, we've got the mall behind us, we've got -- and the local media is talking about it. We're obviously doing a big play on that. We're making sure that all of our e-mails are in sync. We're inviting back all of our best customers. We'll see how they respond. And based on that, we'll be a lot smarter. So I'm going to know a lot more about Tuesday of next week.

Okay. Good. Well, maybe we should do another call. From conversations you've had, I guess, how much of the rest of the mall do you anticipate will be open in those locations? Do you have any sense from talking to Simon and other partners?

Yes. I think Simon has been -- is a great partner, and I think they are -- we're working really closely. And I think all of our big mall REITs are doing that. I think it's more of a question on some of the B and the C malls and how they're going to be. So we've had communication with all of them. I think that the anchors are going to be open. I think a lot of the specialty in the middle is going to be open. I think they're going through the same exercise that we are. So when you think about the ability to operate a store and do you -- you have to make a choice about are you going to have -- is your staffing levels going to exceed your cash flow for that particular building. And so I think every one of -- every retailer is looking at that right now. And again, I think they, in the beginning stages, will have an idea of what that is, and they will make adjustments based on what traffic comes in or what they hear about. So we're -- I have a pretty good sense of what it looks like for the big major malls and the smaller malls, we're doing all that reconnaissance right now. And so as we open them next Monday, we know where the mall is going to be, and I think we have a general idea of the percent of retail that will be fully open at that point.

Okay. Good to know. And then I guess from a product mix perspective, you touched on what's been successful in the month of April from a -- on a digital perspective. Would you anticipate that cascading to how your business will recover in your stores? Or do you think you'll see some areas of strength that have been softer in the coming weeks? Just I guess the question is, there's a lot of places and how to anticipate it.

Yes. I think these -- my sense on this, Chuck, is that the apparel area will start to rise again as a penetration, both in men's, women's, kid's. And so I think you're going to see -- because there's going to be great deals out there. So we do -- this fashion does have a shelf life. And so we want to make sure that we're threw it at the right -- now some of it is more seasonless. It might be fashion inventory, but you can imagine, with kind of warmer falls, that you can hold the retail -- or the out date, let's say, can be delayed and you can hold the retail all the way through the sell-through expectation. And obviously, we've got a big engine with digital that can take some of that excess inventory at the door level and satisfy customer demand. So we're watching that one very carefully. But if I was snapping the line right now about the penetration of business, it's going to look very different as we come out of COVID versus what it is right now in digital. So I still think that there's categories like wellness and active and beauty that are going to be more penetrated. I think that might be a lasting effect coming out of this. But I think the categories that I was mentioning earlier that are so depressed will start to come back as we open up stores and the deals are evident to the customer.

Okay. That's good to know. I know this isn't a fair question, but I'm going to ask it anyways. What should tell you on how long you think it's going to take for consumers to sort of return to maybe close to normal levels, say, 90 days ago? I guess, in other words, what's your best guess on what you think mall traffic could look like over the next few years? And I guess maybe you can -- you could bring in what you've learned from some of your partners overseas. I'm just curious on that front.

Yes. I think when you talk to the -- our partners overseas, all of them would tell you that their business is still off 30% to 50% in the brick-and-mortar location. And let's say that many of them are 5 to 6 weeks ahead of us from kind of the bounce back, put China aside for a second. And so -- and I do think that there is a -- to answer the first part of your question, I think that if there is a vaccination and there's a full -- that's a game changer, clearly. And I think that between now and that, there is going to be a level of change with the consumer with all social distancing and protecting themselves. And a lot of question about is there going to be a second wave of this, and how are we as a country going to respond to that. So I think there's just so many variables that are dictated by the path of the virus that we don't know. And I think that we've got pretty good ideas based on these other countries about the way that it plays out that we can look at. But are the states going to be different, and if they are going to be different, I think we're going to know soon enough.

Okay. And then just last one from me on the store front, and we get this question a lot and I know you have, too. Just any thoughts on how the pandemic has impacted your store goal of exiting 125 locations at all? In other words, do you think you would need to bump that up over time? Or do you still feel comfortable with that 125 number?

Yes. So I think we're obviously looking at that right now. And to your last part of your question and the previous one about what does retail have to look like in a kind of a post-pandemic landscape. And so we are -- what I know is that it's going to change the landscape -- the competitive landscape as well. So it's not just a Macy's question, it's what happens to all of our competitors. And what shakes out over -- and how do we have to think about our portfolio against that potential demand. And so we're trying to anticipate. So we had the Polaris strategy and we basically said we were going to close 125 doors over a period of time, that still makes sense for us. Do we accelerate that? We're still debating that. Are there more doors that go into that? We're debating that. But we're also looking at it from the lens of what happens with the landscape. And all of those competitors that are facing the exact same challenges, and is there going to be less of them and how do we have to think about that. We believe our brand is vibrant. We do believe we're going to get appropriate liquidity financing, and we have an opportunity to serve these customers. So how do we think about that and -- in our decisions about store closures. So we're evaluating all that as another element in our decision.

Okay. Makes sense. Coming to the end of the 45 minutes or so, but I have about a handful more. Looking at the balance -- the rest of the year, sort of beyond the next couple of months. Just curious how much flexibility that you currently have to reduce back-to-school orders.

Yes. So look, there's a -- I'm sure you have, I know you talked to all of our wholesale partners and how everybody is looking at holiday and what are they doing with -- I know what we're doing with our private brands and how they're looking at what the demand is going to look like, and so with back-to-school being a haircut from that. So what I'd tell you is that we are being conservative. We do expect that the ramp back in brick-and-mortar is going to be gradual. So we don't want to get ahead of our skis in terms of over-ordering content. So we do think that the holiday time frame is the opportunity to certainly be the best quarter of 2020. And so we're planning accordingly, but we're not planning as aggressively as we were once thinking about the holiday season. So we're definitely expected to be smaller in volume. And so we're planning our receipts accordingly. So I think that with respect to our business, a big chunk of it is replenishment. And so the demand seeks its own level, so there's no concern there. We've definitely made all the cutbacks in second and third quarters and our fourth quarter placements to be more conservative, as I've described. We want to make sure that we walk into whatever the sales scenario is. And as you would expect, we have a lot of different vectors about does it go down this path, does it go down that. We have like 4 different paths that we're looking at our business and how the customer comes back from this. And we've got triggers that make -- where we make decisions with vendors and categories of what we greenlight or what we don't. So we're working with all of our vendors on that where we've either canceled, we've paired back, we've put it on hold with that trigger date so that we don't get ahead of ourselves with bringing too much inventory in. And we're able to respond to customer demand as it comes back. So that said, the fourth quarter is a big quarter for Macy's. We have a disproportionately higher penetration in fourth quarter than most of our peer set and -- because we're a gifting headquarters. So when I look at some of the heavy gifting categories that we're strong in, that, I expect, is going to be stronger than some of the categories that I think will be more challenged. So when I look at home and I look at beauty, those are categories that we're more bullish on. So I think it really depends on the area of the business. And ultimately, it depends on how we see the customer coming back, because we do feel like we work through our own brands and our market brand partners on different scenarios that will keep us in line with that, whatever that demand is.

Okay. Great. Just a couple for Paula. Credit revenue, obviously, a big component of your EBIT. I'm just wondering how concerned you are about the compression potentially on that line item from higher bad debt, the adoption of CECL and just lower natural payments on the card. And then as a follow-up to that, there's been a few restaurants that have called out the benefits from the CARES Act. Just wondering does any of that cascade to your P&L?

Sure. I'll start with the credit revenue piece. And credit revenue is an integral part of our business, as I always like to point out. And as we've said before, the implementation of CECL is not expected to impact us in the near term given the nature of our Citi partnership. Because we don't own our receivables, our profit share, which is what fuels a good portion of our credit revenue, cannot go negative. But the portfolio is impacted by consumer credit behavior, and this does include higher bad debt, which is one of the components of our profit share calculation. Just to give a little bit of context. In the Great Recession of 2008, 2009, credit revenue dropped to a low of $323 million in 2009. So we are mindful of the potential impact, and we know that we must look for ways to mitigate the macroeconomic effects on our company and on our customers. I don't know if you want to add anything, Jeff. Go ahead.

No, I just wanted to comment on the CARES. So obviously, from day 1, we've been working with all of our partners, be it government leaders or NRF, RILA, on how Macy's can take advantage of any of the opportunities in that. And I would tell you, at this point, there's some tax opportunities that we're taking advantage of. But as it relates to overall lending, we're -- based on the timing of this, and there's still some -- we're a fallen angel. So looking at how we qualify for which pieces and the timing of that, we are pursuing the primary markets first, recognizing that while we have a runway with our liquidity and we've reduced our cash burn rate to the levels that Paula laid out, we want to make sure that we have all of our financing in place with cushion to spare. So we are going at it right now through the primary markets, and continuing to look at what the CARES Act could provide for us in the future. Chuck, you there?

Yes, I'm there, sorry. Final question from me and probably more on a personal level, if anything. Just wondering if you guys are going to continue to plan to sponsor the Fourth of July fireworks, Thanksgiving Parade. Obviously, a couple very big events and something that everybody on this call probably enjoyed watching over the years.

Yes. Well, I hope you all watch it. I think one of the misnomers about both the parade and the fireworks is that they lose money for us. So obviously, we -- this is part of our DNA and we have very strong partners. And so we've worked at this to not lose money. And I think if ever there was an opportunity for the company to give thanks to America, it's going to be with the Fourth of July fireworks. So I work with Mayor de Blasio there to commit that we were going to do it again in New York City. And what we really debated was how do we do this safely. Last thing we want to do is have a celebration that brings people together when it's not safe to do so. So we're working through all those details right now about how to sponsor this. Most of what the -- of the Fourth of July is a television event. So certainly, it's good television, but then how do we have anticipate what the live portion of it is and how do we orchestrate that. So we haven't fully -- we've got a lot of options. We're working through that. I would certainly tell you that the way we're thinking about the parade right now is that we're going to have one. We have like 3.5 million people that line the streets of New York City. That could be problematic. And so what we need to do to control that and having all of our local law enforcement along with us. So we're working through that. And then thematically, that we're working through what the country is going through and how we want to change the narrative of the parade to be reflective of that. So do expect some changes in that, that I think are needful. But we're committed to both of these events.

Okay. That's great to hear. Mike, I think our 45 minutes is up. Jeff, I don't know if you had any final remarks or comments?

No, just, Chuck, I really appreciate the opportunity to speak with you and you hosting this -- I don't know, this fireside chat. I don't know if we have a fire nearby, but that's what I've been told it is. And just to say, it's -- everybody knows it's a challenging time for the country and retail, and Macy's certainly. And -- but we have a path to get through this, and we're committed to it. I'm committed to be as a steward of these 2, really 3 great brands, of finding our way through this. So can't wait to serve customers and more of them in the future.

Great. Actually, I want to thank Jeff and Paula for their time, sharing their insights. It's great to hear stores are opening back up, and we look forward to hearing more about progress on your first quarter call in a few weeks. Thanks everybody for joining, and thank you.

Thanks, Chuck.

Thank, Chuck. Bye-bye.

Bye.