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

Hi, it's Oliver Chen. We're thrilled to have Macy's CEO and CFO. What we're excited about is Macy's strengthened liquidity position, reopening momentum and agility and innovative plans for product marketing and loyalty program as well as impact. Macy's is an integral part of the United States, the retail industry at large, and it's also playing a proactive role in bringing the country together positively. Jeff Gennette was elected CEO of Macy's in March 2017 and assumed the role of Chairman in February 2018. And previously, he held the role of President of Macy's, Inc. from 2014 to 2017. We'd also love to warmly welcome Felicia Williams. She's Macy's recently appointed interim CFO. Prior to this, Ms. Williams was a Senior Vice President, Controller and Enterprise Risk Officer, and she's been with Macy's, Inc. since 2004. Before we begin, I'd like to introduce Mike McGuire, Macy's Vice President and Head of Investor Relations to read the safe harbor statement. I'll turn it to Mike.

Thank you, Oliver, and good morning, everyone. 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. With that, I'll turn it back to Oliver and Jeff.

Thanks so much, Mike. So Jeff, I'd love if you could give some opening remarks and then, Felicia, if you could provide additional color on your updated financials this morning. Jeff?

So thanks, Oliver, and thanks for hosting us during your retail conference. Thrilled to have Felicia Williams here with us as our interim CFO, and she's done an extraordinary job for us, and I know you're going to enjoy hearing from her today. So just some quick updates. So as you just described and Felicia will get into, we basically gave the financing of what we did with our increased liquidity. So that was announced yesterday, the whole package, so we'll get into that today. We also released our preliminary Q1 results this morning. So we'll talk about that. Just as an overall comment, the store reopenings are going well. And we're thrilled that both Bloomingdale's 59th Street as well as Macy's Herald Square open for curbside pickup tomorrow. That was a big milestone for us. And while all this is going on, our digital business continues very strong, and we have weathered the pandemic well and looking forward to the future. But before we get into business, I did want to acknowledge the pain and turmoil over the death of George Floyd and do want to pay his respects -- pay our respects to his family during his funeral that is going to be in about 1 hour. So with that, Oliver, I'd turn it back over to you. And I guess you want Felicia to go first on Q1.

Yes. Felicia, that would be great, the Q1 momentum. And also, the new financing that you announced was quite a nice positive as well.

Yes. I definitely agree on the latter. But -- well, first of all, thank you, Oliver, for having me. It's nice to meet you virtually, and I look forward to meeting you in person, hopefully, when things return to normal, which will hopefully be soon, right? So before I provide the detailed commentary, I remind you that our first quarter release and the Q1 commentary I am about to share excludes the impact of noncash asset impairment charges that will have a material impact on our final first quarter results. And we will be releasing these final first quarter results on July 1. So I'll turn to the first quarter performance. As we've discussed, it was a tough operating performance in the quarter because of the impact of COVID-19. Sales and operating income were in line with the ranges we provided in May. Specifically, our sales were down 45%. Our stores were down substantially to last year, and our digital business was down in the low single digits versus last year. I just wanted to remind you that we did expect some disruption in our digital business due to campus consolidation. And also, we -- when the pandemic started, we did turn off our initial digital marketing spend. But in the month of April, we opened our stores to fulfillment and curbside pickup. As we have said previously, our digital business was weaker in the month of March as the pandemic was cresting. And in the month of April, it was improving, and our May trend has been very strong. We will discuss and provide more commentary on our improving digital trend in a moment. So turning back to the quarter. Our credit revenue was $131 million, down $41 million to last year, with credit penetration versus last year being approximately the same at 46%. New accounts were down significantly in the first quarter versus last year, which is primarily a reflection of our stores not being open for the last 6 weeks of the quarter. As we've discussed previously, we've had -- we are anticipating bad debt and consumer credit tightening to have a negative impact on our credit portfolio and profit share as the year progresses. Our gross margin in the quarter was 17.1%, which includes an approximate $300 million inventory write-down, which was taken primarily on fashion merchandise. This is important to understand because the actual pricing and promotion activity associated with this inventory accrual will occur in the second quarter. Our SG&A expense came in at about $1.6 billion, down $514 million or down 24% year-over-year. Our first quarter gains from real estate was $16 million, and this is versus $43 million last year. Our Q1 net interest expense was $47 million, which was the same as it was last year. Our first quarter adjusted net loss of $630 million compare to an adjusted net income of $137 million during the same period in fiscal 2019. And finally, we ended the quarter with an adjusted diluted loss per share of $2.03, which includes the benefit -- the tax benefit resulting from the CARES Act. As we provide -- as we pivot, Oliver, to second quarter and beyond, we continue to expect to see a very gradual recovery. For gross margin in the second quarter, we expect that to be slightly tougher than Q1, then to improve sequentially every quarter thereafter. As it relates to SG&A expense, we expect to see significant cost savings as we progress through the year with SG&A being its leanest in dollar terms in the second quarter. Thus, we expect Q2 EBITDA to be in line with Q1 and gradually improve each quarter thereafter. We will, of course, continue to watch consumer behavior very closely. We will remain agile and adjust our plans accordingly. And you can imagine that we are modeling various different scenarios on a regular basis, probably daily, it feels like, Jeff, right? And we have modeled a gradual return to normal. However, we do not see a return to normalized trends until well into 2021 and possibly not until 2022. So I'll pause there and then -- yes.

That's very, very helpful, and it's great to see that momentum. And Jeff, that's encouraging that your stores are performing better than anticipated. What do you attribute that to? And has there been a lot of regional differences? And e-commerce trends improving well at the same time are a nice positive as well.

Yes. They're -- so as we've reported, Oliver, we -- when you look at -- we expected stores to be down between 80% and 85%, which is really how we modeled it based on how other countries had opened up. And as you're hearing from all of retail in America, it's opened up much better than that. So we opened up -- our average is down about 50% as we opened, and it's pretty broad-based when you look at it. The first tranche of stores that we opened were May 4, and they opened around that number. Then, we opened another tranche on May 11. And really, this week, you're going to see us open with about 400 and -- a little over 400 stores will be fully opened. And each tranche that we're opening up is opening up a little better. And each week that they're open, they're getting a little bit better. So I would tell you that we're quite pleased with that. And as we also reported, to your question, the digital business, which has been quite strong, we're up 80% in the month of May -- or we're up 80% in the month of May. The trend of that modulates a little bit as those stores have been open about 2 weeks. You start to see a declivity in that rate. So we don't expect that 80% to hold as all stores open going into the back half of the year, but we expect it to continue strong. So I think the real lesson on this has been the beauty of omnichannel. And when you look at that, we'll get into kind of the composition of customers that are now shopping with us online, that it's different from what it was prior to the COVID crisis.

Yes, it's been challenging to plan inventories, to say the least. How have you thought about the inventories in store now and also thinking about the right level of freshness and newness as we enter the back half?

Well, what we've talked about is that we want to be at the right stock to sales parity going into the third quarter. So we are committed to having a very clean inventory. And so -- and Felicia, do you want to talk about receipts and what we're doing with that and…

Sure. Yes, yes. And so Oliver, with respect to our inventory levels and how we think about Q2 and Q3, just taking a step back. In the first quarter, our total company receipts were down about 30%, and we ended with comp inventory down 7.2%. That 7.2% does include the $300 million inventory markdown that I discussed earlier. But as we work to stimulate demand through increased marketing and promotion, utilization of our store fulfillment capabilities as well as aggressive management of our Q2 receipts, we anticipate, as Jeff said, Q2 inventory to be down significantly in that we will attain sales to stock parity. More specifically, we've been successful in simplifying the customer experience from a pricing standpoint. So for example, in Q2, we began taking our first permanent markdowns on spring fashion product. We expect that seasonal product categories like shorts and tees will have a slightly longer life cycle, and therefore, we will not clear our early seasonal product as quickly as we would have in the past. We have also been much more aggressive on aged merchandise as a result of our stores being closed due to COVID. So a really quick example. We are having success where we have converted our Last Act or clearance merchandise in men's, women's and kids apparel to common price points. So we will continue to respond to the customer and price our merchandise accordingly. And as a result of all these efforts, we expect to head into Q3 with not only clean inventories but, as important, with newness for our customers.

Yes. What do you think's appropriate, Jeff, in terms of making sure that you're promotionally appropriate and you're leveraging your loyalty program and you're being competitive from a value perspective as that's going to be important in the evolving recessionary environment we have?

Well, let's start with the value equation. So it's interesting what Felicia just talked about in terms of going to price points. So looking at all of our seasonal inventory and making sure that we have -- what's the sell-through got to be for the shelf life of it, when do we need to be out of it and what sell-throughs we're modeling to make sure we're at the right price points. So we're being aggressive to make sure we get there. Obviously, that changes based on where the competitive landscape goes. As more stores open, that inventory then is open to potentially how are the competitors pricing their seasonal goods. And we're watching sell-throughs, and that's really pushing that for us. We obviously have been looking at what the competitive pricing has been on the line all the way through the crisis. So I feel like the price point is working very well. Backstage, not surprising, is -- when a store reopens, it's performing better than the balance of the store. It's about 10 points higher in a store that's opened the Backstage performance versus the balance of the building. So we're watching that carefully. Our objective is -- as a fashion retailer, is to ensure that we have the right amount of freshness in the categories that customers want to transact. So what was interesting in looking at the online business during the crisis was some of those penetrations of FOBs to the overall company total was different. And yet, as we've started to reopen stores, it's gone back to kind of historical levels with the exception of women's sportswear. Women's sportswear remains depressed. We saw that online. It remains depressed in store. Doing very well in casual and active, not doing as well in the dresses and the suits and the dress-up categories.

That leads us to a broader question but a relevant one we're asking a lot of the teams. What are the top 3 permanent and/or surprising changes that you see happening from the crisis?

I'd say the first big one is just how comfortable everybody is of running our businesses virtually. And I think for a guy who believed his team needed to be there in the offices, and -- I'd tell you my perspective on that has changed dramatically. I'm seeing our team scrappy and agile and doing more with less and the efficiency of virtual meetings. And we're on Zoom right now. We use Microsoft Teams at Macy's and Bloomingdale's. And you -- I mean the connectivity is fantastic and the intimacy and what you're able to do with your teams and the agendas that we're working on. So I think operating in a virtual environment has been much better than we expected. And I think the big question is going to be what's the mix going to be like when people come back. From Sundays in the office, they might be working remote in other days. What do we look like when we're a hybrid between virtual and an office? And so we're thinking through that right now. And one of those areas of the company where that collaboration and creativity is sparked by being in person, what can you continue to do virtually? But we think that any brand is going to have to think through that in order to be the employer of choice. And so I would just -- I'm very heartened by all of what we've been able to do with kind of virtual leading. The other thing is -- so the second thing I'd say would be just -- and this may be evident, but just completely convinced that omnichannel -- that a company that has an absolute well-ironed, friction-free omnichannel strategy for their customer are the ones that are going to win. And so the opportunity to transact in all -- whenever and however they want, be it online, be it via mobile, be it the fulfillment options, have been -- are so critical. And I would tell you that through the COVID crisis, I think we found, as a nonessential retail, how important curbside would be and could be. And so obviously, watching what Best Buy and Target and others have done so expertly, what would that be like with a retailer that's predominantly apparel and accessories? And I think what we found is, first off, give the team a great deal of credit for how fast they developed it, and we went from -- basically getting it to 300 stores in like 17 days. And we're now virtually -- by this Friday, we'll be in virtually every single store in the Macy's, Bloomingdale's and Bluemercury chains. But that is a huge boost. Customers love it. They love the safety of it. They love the security of it. They love the speed of it. So when you think about omnichannel and that being another arrow in our quiver, very important. So I'd say just omnichannel and what -- how you're using stores for fulfillment options, how are we going to take what, I think it's clearly going to shift to a more digital business in the future, but then using your omnichannel -- the entire ecosystem to fulfill that in a customer-friendly way is really important. And the third thing I'd say is that Macy's and Bloomingdale's are resilient brands, and we've got customers that have written for us. We've got colleagues that are just fighting for us, and we -- as we have emerged from the pandemic and we started to open stores, it's amazing how happy and engaged our customers are. And when you look at the service scores, both online and in store, on the app, they're very happy to engage with us once again. There certainly have been hiccups. There's been longer lines at our call centers. There's been -- but we've worked through all that. And to be a resilient brand and come out of this, with the competitive cycle as it is, we're encouraged by that.

Jeff, that does lead us to speak about digital and e-commerce and what's happening there. What does the road map look like? Whether that be vendor-managed inventories, updates to your mobile app and how curbside pickup fits into the picture, how would you speak to those priorities, particularly as this has accelerated so sharply?

Yes. So Oliver, let's just talk about it. When I think about current, it's just those foundational elements that we need to make sure we're totally getting right, the -- what we're doing with search, what we're doing with personalization, just looking at the content of your PDP pages and making sure that every one of them is -- you're getting credit for all the most important elements. What do your click-through rates look like? What do your sell-through rates look like? Seamless checkout, that's going to be a big objective. And so continuing to push that. Again, when I look at fulfillment and this option of -- so right now, when you look at about 9% of our digital demand was being fulfilled out of BOPS and BOSS in 2019, that's dramatically going to go up as a result of curbside now as a part of it. So what does that mean in terms of your inventory placement, to your earlier question? What does that mean in terms of split shipments of the fulfillment costs? And so thinking through all of that, about the way you're using inventory to ensure that you got it for the customer when she and he want it, important. And then obviously, mobile. So we made a big deal on mobile, so continuing to improve that. So that's in the short term and really how we're connecting that in store and that offline and online experience. For longer term, it really is, again, building on those fundamentals. So expanding same-day delivery, that's going to be very important. The contactless returns to stores and through curbside, instant credit for returns, so that's something that's been a big call-out from our customers. And then really, what do we want to do with just our sweet spot, which is if our sweet spot is -- on the Macy's brand is kind of the nexus between fashion and value and celebration, how do we do that through our digital assets? How are digital assets better curators through personalization? How do we fund some of that through monetization? So the net of this is that we want to have the best-in-class omni experience, and we're really clear-eyed about where our gaps are and where our friction is. But we've got the gas pedal on to make sure that from digital to app to in-store, that the entire omni journey is as seamless as it can be for our customer. We're finding that through the COVID crisis, that you had -- it was interesting, when you look at the mix of our business online is a much higher penetration of it were new customers, customers that weren't using our loyalty program. And I'll talk about the loyalty program in a second, but the loyalty program was not as penetrated. What we find is that our loyalty program, the big users of it are also big store shoppers. But we had a lot of new customers that were coming into the brand and they were younger and they were more diverse. And so now how do we make them an omni customer? Because we know that is a much more powerful customer for us. They use multiple touch points. They're going to be a more profitable customer. So that's our journey right now, is how do we take advantage of some of these additional eyeballs we've gotten on to our site as a result of the crisis. So when I look at that -- we'll just give you a composite of this. If you look at the month of May, our business was up the 80% I talked about. If you looked at our 3 loyalty tiers of really the Silver, Gold and Platinum, which were ones we were giving value to, they're about -- they were up 30%. But the Bronze layer, which is tender neutral and which they're getting some value, that was up 115%. And then new customers that were coming in was up like 120%. So good numbers and it all kind of spins to a loyalty program -- when we launched Loyalty 3.0 in February of 2020, before the crisis, we recognize that -- that kind of tender-neutral customer who is an occasional shopper at Macy's, how could we give them value? So we -- that's when we introduced the Bronze layer. Glad we did that. Now we have those customers, we have these new customers. We just got online. How do we bring them to an omnichannel value opportunity and let them take full advantage of it? Because they'll be better customers if they do.

Yes. It's great timing, and you really worked quickly to modernize that program. It's very helpful, your comments around gradual recovery and also how holiday season is so crucial. What do you think is happening with the consumer? And what's helping inform your view? And how you're planning inventory? And what is a difficult situation to forecast?

Yes. I can't tell you it's an easy situation to forecast because we -- I will tell you the stores have reopened better, and digital has been better. There's a couple of key markets though that we haven't fully opened yet. So when you look at the big urban coastal markets, they're the ones that were most affected by the pandemic. They opened really -- when you think about phase 2 in New York City, that doesn't open for another almost, what was that, 2 weeks from yesterday.

2 weeks.

So we'll see how they perform. Our hope is that it opens like the rest of the country has. We have seen -- as I mentioned earlier, it's been pretty uniform across -- from our neighborhood stores all the way to our flagships. So we're expecting that from our metro markets, but we're planning conservatively if that doesn't happen. We also are looking at the economic news. So if the unemployment continues to improve, that's obviously good. We're also looking at what happens to the pandemic, is there a resurgence. We're also wondering all over, what is it like for Black Friday in America in brick-based retail. What is that like? What is it like on the last 10 days before Christmas or 5 days? Does that -- do customers exhibit different behavior because they feel that digital is either safer or it's easier? So those are all elements that are kind of -- what Felicia talked about earlier in terms of factored into kind of our scenarios. So -- but the headline is that we expect gradual recovery. We expect the third quarter to be -- or the fourth quarter to be much like the third quarter. And if it's -- our inventories are going to be in good shape for us. Again, as a fashion retailer, we wanted to make sure that all of our seasonal content from first and summer inventories are well taken care by the time we hit back-to-school and that what we're bringing in is all freshness that we are seeing from customer-wanted categories as well as being able to read customer behavior in the moment because there's a lot of inventory out there that we can take advantage of.

Well, a hot topic and our next panel is about the future of retail real estate. A hot topic is you've been proactive about store closures and closing stores as well as plans to close stores. What does the crisis do in terms of your framework for thinking about that and the footprint that you should have? It's a partnership with you and the mall operators, and you're an important part of these major centers as well. So I would love your thoughts there.

Yes. So I'll take the mall angle of that, and I'd love Felicia to talk about just the overall portfolio and how we're looking at that. You want to go first?

Yes, I'll go first. So Oliver, as you know, at this point, we have about 97 remaining neighborhood doors, and we anticipate reopening all the doors and that they will generate positive cash despite this pandemic. But there is still, as you can imagine, too much uncertainty around all the conditions that Jeff just mentioned. And so it's too soon to commit to a definitive level of store closing. I can tell you that we are monitoring the performance of all of our stores in this environment because everything has to be considered, and it's on the table. And we are very closely adjusting our plans. And as we see more results, we'll have more information about the level of store closures going forward.

And then, Oliver, I think the -- when you look at the malls that we're in, there's obviously 1,200 malls in the nation. And we remain in -- about 500 of those is our number right now. That's like full-line stores right now. And so as Felicia just mentioned, we've identified about 100 of those that are neighborhoods that we will close. And so we'll debate on -- we might accelerate the timetable. We'll make all those decisions as we get closer in. But when you look at the remaining 400 stores, that's about 80% -- let's call it, 85% of our overall business. And when you look at the bulk of those stores, they're in A Green Street malls. And so these are the malls -- it's like -- 51% of our stores and 65% of our sales are in all A malls of Green Street. And they're the best malls in the country. They will stay -- definitely, in my perspective, will stand the test of time. We've got highly motivated REIT developers that I think are best in class, and they're looking at remixing the tenant mix of these malls. They're making them more interesting destinations. They're reducing their dependency on apparel and accessories. They're increasing entertainment and food, things like pharmacy. Anytime they're able to do that, you're seeing big changes in the mall traffic. We benefit from that as well. We're investing in these stores, as you know, through our Growth door strategy. So again, we're very connected with our mall developers. And we know where they're putting their development and their dollars, and they know what we're doing with that. And we have a shared customer that we want to make sure we're taking care of.

Very helpful. You've been agile in managing costs and thinking about really prioritizing liquidity and your capital position. How should we think about fixed versus variable costs? And what you're thinking on a longer-term basis? As well as there's questions about how clients should model cash burn as well?

Felicia?

Yes. So Jeff, you want me to start that, yes. So Oliver, coming out of this pandemic, at least for the foreseeable future, we will be a smaller company, and we clearly need to rightsize our cost base to properly align with that new reality. The pandemic has provided us an opportunity to be even more aggressive than we had historically been about reimagining and resizing our cost base and to really think about our expenses through a different lens. Having said that, we are taking a zero-based need-driven approach where nearly all costs, all costs have been on the table and we are examining all of our costs. So there are some instances where that means we are evaluating what we previously have considered a fixed expense. And we're also ensuring that our stores, call center, logistics labor is as productive as possible. Now we recognize that we have, in some cases, limited levers to pull when it comes to things like rent or utilities or contractual obligations. However, ultimately, we believe our efforts to drive more efficient expense utilization will more closely align our expense base with our long-term sales growth.

Yes. Related question is, more generally, it's a dynamic period, but capital allocation. And how do those priorities interplay with the money that you've raised and the better position you're in, balanced against a lot of this uncertainty?

Yes. Let me take that on. It's just that when you think about what we did and what we announced yesterday, it was we got -- we basically raised $4.5 billion worth of opportunities that gave us all the liquidity that we're going to need. And so -- and when we started with the pandemic, you saw quickly that we made all the changes to kind of get our cash burn rate down to as low a level as possible. We drew down our credit revolver, which was $1.5 billion at the time. And we knew that, that would give us the runway in order to do this deal really carefully. That's probably the best way to describe because, at the end of the day, we wanted to make sure that it satisfied all of our needs to run the Polaris strategy as we outlined in the February Investor Day. We wanted to make sure that we were able to take care of our debt maturities that came -- became available -- became due in the beginning of January of '21 and '22. We wanted to make sure that we had all the liquidity to run our business, and we wanted to make sure that we had sufficient cushion. So we set out to do that goal, and it was a complicated deal for us. So if you think about it on the ABL or the credit line and you think about the bond deal, they each have particular parts to it. But it really gave us the runway, when we accomplish that, to be able to give us all the liquidity that we need for the future, which was our objective. So to kind of go through some of those deals, I think that -- let's start with the bond deal. So that was one that was -- we had a lot of unencumbered assets. We obviously had our inventory. And we also had -- when you think about our real estate portfolio, we had a lot of unencumbered assets. And so we had much to choose from. And we knew that, that particular piece of the deal, we wanted to be in the $1 billion-plus range. So we wanted to basically get -- unencumbered assets would be in the $2 billion-plus range. And so we looked at 3 different buckets that fuel that. The first one that we wanted to look at was our distribution centers that are very hot, they're very liquid. These are 10 distribution centers, where about half of our direct-to-store freight moves through. And about half of when you look at our digital demand is going through these particular centers, so about -- the capacity of about 1.4 million units a day. So that was about 25%. 25% were 3 iconic properties that we have been investing in. So we've been investing in -- when you think about -- they were State Street, downtown Brooklyn as well as Union Square. And we put about $250 million of our capital into those stores because they're vital retail destinations, in addition to having development around them that we ceded our rights there. And then the third thing, which is about 50% of the portfolio, was we looked across our entire mall portfolio. We went back to that Green Street measurement of kind of A+++ to A- malls. And we picked 35 of them between the Bloomingdale's banner and the Macy's banner, and they were included. So we are very pleased with the reaction to that. We had a tremendous amount of interest. We were able to tighten the pricing. We were able to expand that bond offering. So that was that. When you look at the credit line, that ABL now secured by our inventory basically took -- and we were able with that -- with those moneys to retire our old credit facility. We now have a $3 billion-plus credit line. And we're very pleased with how our bankers basically jumped on that, and our banks basically doubled their positioned in many cases and pleased with the level there. So when you look at that $3 billion-plus and the $1.3 billion, we got about 4 -- almost $4.5 billion, which gives us all the liquidity to address the issues or the opportunities that I described earlier.

Jeff, what's ahead as you do think about real estate? You've been creative and agile and tactical and have different visions for repurposement. So how should we think ahead strategically with some of your marquee assets, such as Herald Square and others?

Yes. So I would tell you that Herald Square remains unencumbered. So that's what we -- it's our most valuable real estate asset by a long shot, and we still believe the best value of that is the co-development plan that we were working towards, so the opportunity to create mid building an office tower. And so -- and we're continuing even through the COVID crisis to work with our state and our city partners in continuing to work through those details. There's an opportunity for us to help improve the local Herald Square and Greeley square. There's the MTA opportunities because this is a terminus of so many lines. This is an amazing piece of transportation for Metro New York, so we have a responsibility with that. We're also looking very carefully at what the governor is doing with Penn Station and that development. And so this opportunity to kind of -- when you think about a revitalized Herald Square, a revitalized Penn Station, what -- the imagination on that is quite high and the opportunity to create this unbelievable amount of value for all parties. So that's how we're continuing to approach Herald Square. Nothing to announce right now, but we're continuing in that same kind of vein. And then when you look at all the other unencumbered assets that we have via distribution centers or the other real estate that we haven't tapped into, we know we have opportunities in the future to use that to secure bonds or whatever it might be. Your -- the other part of your point of what does it mean in terms of do we sell those, we've been clear that as we monetize these assets, it's based on what's the value of retail, what's the value of this real estate, how do we look at that, what's going to happen with the cash flow of these stores over time, looking at that in terms of the value of the real estate, what does it mean in terms of the overall portfolio. And you've seen that we've monetized a lot of our real estate over time and prior to COVID used that to pay down a lot of our previous debt. So we still have a view of where it makes sense for us to monetize our assets, we will.

Yes. On to a different topic. I mean women's apparel has not been an easy category. And clearly, people are wearing less pants and less dresses in this environment. What do you think will happen with that transformation -- I'm wearing pants, but what do you think will happen with that transformation of what has been historically a really important part of the business and how you see that evolving? And then another broad question is just how do you -- what are you thinking about your operating margins long term and the biggest buckets of opportunity that we should focus on as we think about Macy's for the long term?

So Felicia, I'm going to let you take the operating margin question. And let me start by addressing the -- look, I think that this will play out. I think that when you think about the female consumer in America, she has -- is a veteran shopper, and I don't think that changes. I do think that -- the earlier conversation we have about the relationship to work. What happens with virtual versus office? What does -- does that change your wardrobe? Does that change your perspective on that? But I think the lure of having appropriate fashion from our customer all the way from mass or off-price to luxury is still incredibly potent. And while it looks, in certain categories, grim right now, I don't think that's forever. I do believe people are going to go back to weddings. I do believe people are going to go to -- I do think that the ability to look your best and be able to express your individuality through fashion is as relevant today as it has ever been. And it's just going to be a question of how that sits out in trend over the next number of months. And so we will see where that plays out. I do think there are certain categories that are -- have emerged during this when I think about -- during the crisis when I look at the beauty category. There are categories that we have gotten into as a result of COVID that we weren't -- we didn't have a lot of traction in before that are really potent now. So when you look at fragrance, when you look at hair, when you look at nails, there are tangential businesses that can become quite big and important. And as a department store, we have the opportunity to go after those, either through vendor direct with very limited economic downside to it or to own them fully because that's what our customers care about across the entire omni journey.

And what about recommerce, Jeff, because you've been a leader testing that? And I know it's an area we're focused on, and the partnership with thredUP?

I think it's very important. And I think that the customer -- again, when you think about this Gen Z customer and you think about their value structure and you ask them about D&I and you ask them about sustainability, it's off the charts when you compare it to the other generations that came before them. And so this is not an issue that we're -- this is not a fad. This is going to stay with us. And so I've really enjoyed our relationship with thredUP. When I tell you about what sells, the brands -- the better the brand, the better they sell. So if you've got a -- and particularly, depending on where it's positioned in a Macy's -- and I know there's a lot of my other competitors that have this as well. But the positioning of it and where it is has really helped sell through. The way we curate it, brands have really sold. And when we get the brands that you would expect would come into thredUP, those sell-throughs are lightning. They're really strong.

Yes. And Felicia, just longer-term operating margin drivers?

Yes, sure. Yes, sure. And Oliver, I'll just start by saying I believe that one of Macy's competitive advantages is being a flexible omnichannel retailer. And so if you think about our operating margin opportunity over the long term, I'll give you an example of some of the things we have been talking about. And so as you know, a BOPS sale is more profitable than a shipped sale. Say shipped sale 3 times fast. But if the higher the BOPS -- higher BOPS should increase our margins, right? But we're talking about scale. And so in the short term, I don't see a meaningful impact on our margins. But over the long term, you'll begin to see that shift and begin to impact our margins differently. And if you think about it from a working capital perspective, it's hard for us to, at this moment, quantify the long-term benefit of, say, the opportunity to do a BOPS transaction or a curbside transaction. Or if you think about the curbside transaction, we're missing the opportunity for a radiated sale. And so at some point, we would need our curbside sales to exceed the benefit that we derive from a radiated sale before we can really talk about meaningful lower inventories. And so as I think about the operating margin going forward, our ability to get the profitable mix in our channels right through these BOPS transactions and curbside transactions is all part of the modeling -- and the questions and the investment that you brought up earlier and that Jeff mentioned is all part of our long-term modeling strategy. And we do see opportunity, and part of that opportunity is driven by our ability to be flexible in both arenas.

Yes. That's very helpful. Our last question, Jeff, is about Macy's and the relationship with vendors. What do you see as the key priorities there in terms of managing for speed and yet being very sensitive to all the needs of the vendors and partnering for the right level of exclusivity to drive differentiation? And if you had any closing remarks?

So the -- look, we're as close to our vendors as we ever have been. I think that -- I think the thing that binds us is the fact that we have a shared customer. And so you've heard me say before, Oliver, and I believe this, that Macy's and Bloomingdale's can be the best expression of their brands outside of their own websites and their own stores. So that cements us in a common pursuit. We have an objective to be able to give the best fashion to our customers. Our customer comes to Macy's and Bloomingdale's for great fashion, and our brands provide that. So we work very closely with them on it. When you think about our opportunity to get at SG&A synergies and look at supply chain opportunities and development opportunities, how do we get that content faster, those are conversations that in many of our top vendors, we have really accelerated our negotiations and conversations. And many of them, they're leading and in many other cases, we're leading, but we're all aligned that our opportunity to service customer better is going to -- we're going to have to be more agile and we're going to have to take on the top priorities that are going to give them -- this customer great fashion products at great values faster and to be able to respond to trends. And so very, very happy with the progress that we've made, and we're not -- this -- we've got long-standing relationships with these vendors. It's one of our core capabilities, and it's one of our highest priorities to continue with those.

Well, thank you for your time. It's pretty evident the flexibility and speed that you're operating and all the positive things you're doing for the future of retail with partnerships and differentiation. Thank you again.

Thanks, Oliver.

Thanks, Oliver.

Audience, we have panel at noon on the future of real estate with Starwood and Steiner. So we hope you'll join us. And thanks, audience, for joining as well. Goodbye, everybody.