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

Welcome to the Macy's, Inc. Annual Meeting. My name is Rafael, and I will be your operator. [Operator Instructions] I will now turn the call over to Jeff Gennette. You may begin.

Thank you, Rafael. So good morning and welcome to the 2020 Annual Shareholders Meeting of Macy's, Inc. I'm Jeff Gennette, the Chairman and Chief Executive Officer of the company. Thank you for joining us today. I hope that everyone joining the meeting is safe and healthy. So we have decided to hold the annual meeting virtually this year due to the public health impact of the coronavirus outbreak and to support the health and well-being of our partners, employees and shareholders. As is our custom, we will conduct the business portion of the meeting first and then provide a brief look at the company's 2019 performance and 2020 outlook. And we will follow that with a Q&A. So please submit your questions using the tool provided on the web portal. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible, and we'll address any unanswered questions on our corporate website shortly after the meeting. In keeping with the digital approach to this year's meeting, it is now shortly after 11:00 p.m. Eastern Daylight Time on May 15, 2020, and this meeting is officially called to order. I would now like to introduce the other members of the Board joining us this morning: David Abney, Chairman and Chief Executive Officer of United Parcel Service, Inc.: Frank Blake, former Chairman and Chief Executive Officer of The Home Depot; Torrence Boone, Vice President, Global Client Partnerships, Alphabet; John Bryant, former Chairman, President and Chief Executive Officer of The Kellogg Company; Deirdre Connelly, former President, North American Pharmaceuticals at GlaxoSmithKline; Leslie Hale, President and Chief Executive Officer of RLJ Lodging Trust; Bill Lenehan, Chief Executive Officer of Four Corners Property Trust; Sara Levinson, Co-Founder and Director of Katapult and former Chairman and Chief Executive Officer of ClubMom; Joyce Roché, former President and Chief Executive Officer of Girls Incorporated; Paul Varga, former Chairman and Chief Executive Officer of Brown-Forman Corporation; and Marna Whittington, former Chief Executive Officer of Allianz Global Investors Capital. I would also like to introduce Danielle Kirgan, our Chief Transformation and Human Resources Officer; John Harper, Chief Operations Officer; Paula Price, our Chief Financial Officer; and Elisa Garcia, our Chief Legal Officer and Secretary. I will now turn the meeting over to Elisa, who will handle the business portion of this meeting.

Thank you, Jeff. We're also joined today by KPMG LLP, our independent auditors. The Board of Directors fixed March 19, 2020, as the record date for determining shareholders entitled to vote at this meeting. Broadridge Financial Solutions has furnished me an affidavit as to the mailing of the notice regarding the availability of proxy materials or, if applicable, the proxy statement, Form 10-K and form of proxy. Computershare, transfer agent for the common stock, has furnished me with a certified list of the common stockholders of the company as of the close of business on March 19, 2020. That list is available on the web portal today. Tracy Oats, a representative of Broadridge Financial Solutions, has been designated as judge of election by the Board of Directors. The judge of election has advised that there is present a quorum of the outstanding stock entitled to vote.

Thank you, Elisa. So the meeting will follow the order of the items on the agenda and pursuant to the meeting rules as posted on the meeting web portal. Only shareholders of record as of March 19, 2020, are eligible to vote. There are 3 items before the shareholders for vote at this meeting. They are: number one, the election of 12 directors named in the proxy statement to the company's Board of Directors to serve for a 1-year term to expire at the Annual Shareholders Meeting in 2021; two, the ratification of the appointment of KPMG LLP as Macy's independent registered public accounting firm for the fiscal year ending January 30, 2021; and three, the advisory note to approve our named executive officer compensation.

If shareholders have a question regarding any of these proposals, please submit your question through the web portal now. We'll wait a moment or 2 to see if there are any questions on the proposal. Any shareholder who has not yet voted or wishes to change their vote, you may do so by clicking on the Voting button on the web portal and following the instructions from there. If you already submitted your vote or you voted by proxy and do not wish to change that vote, it's not necessary for you to take any further action. Your vote will be counted. [Voting]

So I now declare that the polls are closed. Elisa, once you have the votes, will you please announce them?

Yes. We have been informed by the inspector of election that the preliminary vote report shows that the nominees for election to the Board have been duly elected; the appointment of KPMG LLP as Macy's independent registered public accounting firm for the fiscal year ending January 30, 2021, is hereby ratified; and the compensation of the named executive officers has been approved by advisory vote. We'll be reporting the final vote results in a Form 8-K to be filed within 4 business days.

Thank you, Elisa. There being no further business to come before the meeting, the 2020 Annual Meeting of shareholders of Macy's, Inc. is now adjourned. So before we take your question, I want to briefly touch on 2019 and the unprecedented environment we're currently in due to the COVID-19 pandemic. So taken as a whole, 2019 did not play out as we intended. While I'm proud of how the team executed a solid holiday 2019 season, our quarter-to-date performance was inconsistent. Macy's, Inc. full year comparable sales on an owned plus licensed basis declined by 0.8% -- or 0.7%. 2019 earnings per diluted share were $1.81 compared to $3.56 in 2018. And adjusted earnings were $2.91 per diluted share as compared to $4.18 in 2018. That said, we were pleased with the results of our 5 strategic initiatives, Growth 150, Backstage, Vendor Direct, Mobile and Destination Businesses. Each of these initiatives were positive contributors to our overall sales performance in the year, and these strategic initiatives continue to play an important role in our go-forward plans. Now let me switch -- shift gears to 2020. These are unprecedented times for the country, the retail landscape and Macy's, Inc. The COVID-19 pandemic has impacted everyone, our colleagues, customers, partners and communities. I want to give some perspective on the actions that we've taken since the pandemic started and how we're looking at our strategy going forward. Macy's, Bloomingdale's and Bluemercury are strong brands with very loyal customers. We have a well-developed digital business across all 3 brands that has been performing well. We entered the crisis with a healthy balance sheet, having focused heavily on debt reduction over the past few years. That being said, the COVID-19 pandemic has caused significant disruption to our business. We closed all of our stores on March 18, and we began reopening them on a staggered basis earlier this month. Our business model was not built to sustain the full closure of our stores for an extended period of time. We had to take quick and decisive action to keep the business stable and preserve cash. We froze our capital expenditures and 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 reduced our marketing spend. We canceled inventory orders, delayed receipts and temporarily extended our payment terms to 120 days. These were not easy decisions, but we know they were the right actions for our business as we needed to get our weekly cash burn rate down significantly. We also drew down our $1.5 billion credit facility to create additional runway, and a substantial majority of that is still available to us today. At the same time, we notified our banking partners early on of our plans to access additional financing. This process is underway, and we are confident that new financing will be in place well before we need it and that will allow us to improve our financial flexibility over both the short and long term. At our Investor Day in February, we launched our Polaris strategy. The 5 pillars of the strategy are: strengthen customer relationships, curate quality fashion, accelerate digital growth, optimize our store portfolio and reset the cost base. There are some aspects of the strategy that are more relevant today than ever: loyalty, digital and cost management. Other aspects, we will reassess as the business stabilizes. It is too early to share specific changes to the plans, but we are committed to providing updates as we progress. Assuming COVID-19 trends continue as we're seeing today, we anticipate that the majority of our stores will reopen over the next 4 or the next 6 to 8 weeks, and there will be enhanced health and safety measures in place in each store. Details of these standards are posted on our corporate website. And early signs are that our customers are responding positively to the actions that we've taken. Having studied the recovery rates and consumer behavior in Asian and European countries that are ahead of us in the cycle, we do anticipate a gradual sales recovery. While this is an incredibly challenging situation that requires us to adjust our plans each day, we are confident that we have a plan through this. And we are committed to providing frequent updates to our investors. Now we would like to open things up for shareholder questions and comments. Please enter your questions via the web portal. Please note that we will attempt to answer as many questions as time allows, but only questions that are relevant to the meeting will be addressed. Any questions that we do not get to will be addressed on our company website, macysinc.com. Okay, we'll open it up.

Jeff, the first -- here we go. The first question, Good morning. My name is Gloria Evenson, and I'm here about the underrealized potential of the Chicago State Street flagship store and how it can be of greater benefit to Macy's success. Overwhelmingly, the highest and best use of this store is when it is operated in style and named as Marshall Field's. Marshall Field's is greatly missed at State Street. To this day, even a brief mention of Marshall Field's or simply seeing the Marshall Field's logo evokes a flood of positive responses and irrepressible conversation. Macy's and Bloomingdale's do not compare. With Marshall Field's gone, many no longer feel the need for a special trip to State Street. The current crisis is challenging the very survival of the department store. When this is over, there will be fewer stores. When we can go out again, people want something they really look forward to going to. Restoring Marshall Field's at State Street would be a cause for celebration, causing shoppers, young and old, Chicagoans as well as tourists to return to State Street and drove. Marshall Field's back at State Street would grow Macy's value, goodwill and prestige. Macy's should and must restore Marshall Field's as a brand and experience at State Street.

Well, Gloria, thank you for your question. And I remain passionate that the State Street location is an opportunity for the citizens of Chicago and for the Macy's brand. So let me just start addressing some of your questions. First off, we have no plans to change names, and we will keep it as Macy's. But what I really am excited about with respect to this location is the current development that we're doing in partnership with Brookfield. We think this is going to help us maintain a fantastic retail environment while bringing new vibrancy to the area through the mixed-use development of the upper floors. And in fact, the upper floors are going to start to be occupied in the June time frame. So while the work is being performed, we've been very committed to maintaining and protecting the great features of this building. So the Tiffany ceiling, the Burnham fountain, which is being returned this summer, we have been spending capital on this building to improve all the functionality of it, to get new features in it, new brands. We also just are in the middle of cleaning and repairing the exterior of the building. So I hope you've seen the State Street side, and we're now working on the Washington Street side. So we'll be complete with this facade work by the end of -- really, by the end of 2021. We're also very committed to continuing with the traditions of State Street, so the Great Tree lighting in the Walnut Room. And we're also encouraged by what's going on with the Washington Wabash side that is really helping increase traffic and vibrancy to this location. So we're committed to Macy's State Street, and we appreciate your continued support.

Next question. "Good morning, Mr. Gennette, members of the Board and fellow shareholders. My name is Tim Dewane. I'm here on behalf of the School Sisters of Notre Dame, Central Pacific Province. We are long-time shareholders in Macy's. Macy's relies on integrity and respect with important partners, including garment factories and the low-wage workers who make the apparel that our customers know and love. At the outset of COVID-19 pandemic, many companies canceled purchase orders and contracts with factories who made their apparel because they had the legal right to do so. While this might seem like a cost-savings measure in the short term, it can have dire consequences for the workers that make the apparel who have little, if any, safety net to help them during these challenging times. A growing number of companies like adidas, H&M, Marks & Spencer, Nike, Target, Under Armour and VF Corp. committed to pay in full for orders completed and in production. 2 of Macy's corporate values are integrity and respect. The company describes respect as building strong and trustful relationships between one another, between our colleagues and the company and with our partners and stakeholders. Mr. Gennette, what is our company's policy towards its suppliers and any orders in process? Has Macy's paid suppliers for completed orders and those in production? If not, in reflection of our values of integrity and respect, will you make a clear public commitment to pay in full all orders in production and completed orders? Thank you for consideration of this question."

So Mr. Dewane, I appreciate your question. And so just to kind of reiterate what we went through as a result of the unprecedented pandemic that COVID presented for ourselves. And so we did cancel a number of orders based on where we expected business to be as we start to reopen stores. We certainly are honoring and will honor all of our commitments on orders that have been received by Macy's, Inc., Bloomingdale's, Macy's as well as Bluemercury. And we have -- we did extend the terms there and have been working with all of our partners so that they understand that. We've been working very carefully with our -- all of our manufacturing partners as well as our private brand suppliers on what orders we will bring in as we start to open up. And as we see -- our dot-com business has been quite strong. So that has been a piece of our business, but it doesn't cover the store closure, all the business that we've lost as a result of that. So we are -- anything that we have received, we are paying in full with extended terms. And anything that was on order, we are being selective about what we bring in based on the anticipated slower demand as customers come back gradually to our stores.

Next question, "How much debt do you think Macy's will need to survive? And how much of that do you think you will actually be able to obtain?"

So what I would say is that when you think about the refinancing and what we are looking to do, first thing, I just want to remind everybody is that we entered the crisis with a strong balance sheet. It was in good shape. And that was not only from a debt perspective, but where we have been consistently paying down on, but also that from an asset perspective. So when you look at the combination, this has served us well in how we have been able to -- we're in the process of getting additional financing. So in getting all of the actions that we took to reduce our cash burn rate, the opportunity there was to give us all of the time that would be required for us to get the appropriate financing that not only would give us flexibility in the short term but also long term. And because of our unencumbered assets, our inventory, much of our real estate, we're in a good position to execute this refinancing deal. So stay tuned. We're working on that very hard right now, and we have full confidence that we're going to be able to execute this refinancing deal. And we have the liquidity right now to sustain us all the way through this period.

Great. Jeff, as of right now, we're going to end -- we don't have any more questions. We're going to end with 2 comments that I will read you, the first one being, "Jeff, thank you for your leadership, suspending your pay and doing the right thing in closing the stores. This is a new world. I wish you and Macy's the very best in the future. Please make sure you take care of yourself in the process." Brian Blue. He's a former colleague. And then the last comment, which is in line with this one as well, "Mr. Chairman, the Carpenter Union Pension Funds, with a collective ownership position of 143,406 shares of the company's common stock. As long-term investors, we simply would like to express our support for the management team and the Board during these very challenging times due to the COVID-19 pandemic. The high caliber of the individuals who comprise the management team and the Board will serve the company well as you navigate through these difficult times. Thank you."

Thank you for those comments. And as there's no other questions or comments, I want to thank everyone for joining us for the Macy's, Inc. Annual Shareholder Meeting. I want to wish first continued health and safety for each of you and your loved ones. And this now concludes our Annual Shareholders Meeting. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Have a great day.