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

Jeff, maybe to kick off, could you just give us an update on the state of the business, maybe what's happening with the consumer as the end of the pandemic comes into view? And do you feel that you're appropriately positioned relative to your competitors to capture demand as the consumer recovers?

So good morning, Matt. Just to first off say, Adrian and I are excited to be here with you this morning. And just to start out, I think we're very excited about what we're seeing right now with the consumer and what's going on in the macro environment. So the momentum that Macy's, Inc. banner brands had in the fourth quarter is continuing into the first quarter. And clearly, on the Macy's main banner, the flexibility of our Polaris strategy is really giving us all the room to respond to the current environment and this new and existing customer. So just -- so a couple of headlines, and we can dig into some detail later. But let's start with the consumer. So we're definitely seeing benefits from the stimulus package. That was in full force over the past 6 weeks. And certainly, the vaccine, which is starting to take root, and as we were discussing before this call, you're seeing that really take root at different rates at different parts of the country. And what I'd say about it is to kind of think about our existing customer base, our core customer, they're getting stronger, and we're certainly seeing an increased spend as they're reengaging with the brand. And when I look at my core, it's that core credit card loyalty base, but their spend, and we're -- most everything that we'll talk about is in comparison to 2019, just to have a true compare. But the average space -- the average spend of this loyalty base is up about 7% versus 2019. Now that number is still down, but the spend, the ones that are reengaged are spending up. And when I'm looking at it is that new customers are coming in. So one of the things that we're seeing in the new customers is about a 19% increase in new customers compared to 2019. So good news there, and we'll talk about that later. The second thing I'd say is just that we certainly see opportunity to capture market share. And we really see that in the digital space. So you heard us on the fourth quarter call, we kind of threw down the gauntlet to say, hey, we believe we can be -- we can get to $10 billion by 2023. We certainly have that in our sights. We're the #2 online site in the categories that we serve, and we've got ambition there. We also see with the competitive closures that we definitely see an opportunity to take share in targeted categories at both Macy's and Bloomingdale's. And what we'll talk about is that customers are responding to fashion, they're responding to new brands, new categories. The third thing I'd say is just that our fundamentals continue to improve. So gross margin continues to improve. We're doing that through improved pricing analytics. Our stock-to-sales ratio is still really healthy. We're getting fast -- we talked about the faster turnover that we got in the back half of 2020. That continues. That pace of improvement continues into the first quarter. And then the lower SG&A rate, looking at real expense discipline. And as we get sales above plan, making sure that we're really judicious about what expense we put against that. So that all said, what we are looking at right now is what's happening with the remaining kind of threads of the stimulus package as the vaccine ramps up and as customers start to reengage. So we don't know where we are right now, and kind of the end of the pandemic cycle, what that looks like. So we remain taking a measured view to the back half of the year.

Jeff, on that note, so -- and tying back to the health of your current customer base, as you cited, have you noticed differences in performance between maybe higher income customers relative to middle or lower income customers, maybe as you look at Macy's relative to Bloomingdale's performance?

Yes. Let me talk about the customers and kind of the buckets that we look at them at. So we look at our kind of our existing, our new -- and I'll talk about those. So we're definitely having success in acquiring new customers and watching what's going on with their behavior. And as mentioned, that momentum is -- and I'll talk about that in a moment. The core customers, which is really our Star Rewards loyalty members, they definitely paused spending during the pandemic, and they're starting to come back. So their -- as mentioned, their spend is up 7%. And the amount of them that are reengaging, we've had about a 10-point swing from where we were in the fourth quarter to where we are quarter-to-date first quarter. Then we have this tranche of customers that are part of our loyalty program but are not part of the -- they're basically -- it's tender neutral. And those are the Bronze customers. And that's the piece that's just really healthy right now. And they're the most diverse. It's the youngest tier of our customers. We're getting about 500,000 to 700,000 new Bronze members each month. About 38% of them are below 40. So we've had -- we now have about 12 million Bronze customers. That's up 20% from year-end. And we're really pleased with their spend because it's about 13% higher than it was in 2019. And that's a 3-point improvement from where we were there -- that trend was in the fourth quarter. And then what we talked about in the fourth quarter were all these new customers are coming into the brand. So we welcomed 7 million new customers in the fourth quarter. And that was the first quarter in 2020 that we had an increase from the previous year. As we look at the first quarter of 2021 versus '19, that's increasing. So right now, we've got about a -- it's about a 14% increase in new customers coming into the brand and about an 8% up spent to what they spent in 2019. So most of that is coming in through MCOM. About 46% is coming in through BCOM and MCOM, and that's a 75% improvement from where we were in 2019. They're younger. And as mentioned, they're spending about 8% more than they did in '19. So what I'm seeing is that when you look at the new customers and the existing customers, different trajectories, existing customers getting healthier, the ones that are reengaging are spending more, and more of them are coming back into the fold, and we're accelerating the amount of new customers we're bringing into the brands.

And on the piece of recovery, so I know you recently spoke to seeing some strength in swimsuits, luggage, dresses. Correct me if I'm wrong. This is -- these are new categories that you hadn't really been seeing movements in. So maybe what changes are you seeing from the consumer as we hopefully exit this pandemic soon? What categories are you anticipating might lead from here? And how are you working with your wholesale partners to scale inventory for the back half of the year, if we do see this recovery?

Yes. Let me take that in like 3 buckets. The first one is, what has been good for us that just continues? What's emerging, to your question about swimsuits? And then what are -- what is the new stuff that's on the horizon? So let's start with what has been strong, and digital just remains very strong. So as we were up 24% in 2020, that momentum is accelerating as we get into the first quarter of 2021. And so just all good things in digital right now. So new customers are coming in through digital. That performance continues on the path to $10 billion. As mentioned, the stats, up 75% to 2 years ago through March. Unique visits are up 22%. The real -- the one that we're excited about is conversion is up 8% from where it was in the first quarter of 2019. And that really is on the back of just what we're doing with function as well as site, animation and inspiration. So we really have worked on search relevancy. We've made enhancements to what we're doing with personalization. We're certainly really working on the checkout experience and simplifying that. This new payments option, so what we did with Klarna, that continues to build momentum. We just launched that on Bloomingdale's, the Bloomingdale's app. And we're really focused on simplifying our pricing and our promotional messaging. And we're improving our communication around returns, which was a gap in our online experience in the past. So the categories that continue that we did really well with in 2020, home store continues. We thought when we were kind of rounded the bend a little on the pandemic as it started to get -- it started to really heat up mid-March, but like the last 3 weeks, when you look at what's going on in the home store, still strong, so furniture, textiles. I'll talk about luggage in a moment. But just confidence that we're going to continue through '21. What we added last year was when you looked at all what we were doing with new categories in home, those continue well. Fine jewelry continues strong. Fragrance has continued strong. Sleepwear, based on private brands, which is at least over half of that business, continues strong. Watches was a standout from just opening price all the way to luxury and watches. So happy with that. Sunglasses continues strong. Again, opening price to like brands like Chanel, lots of AUR improvement there. And then luxury handbags, both at Macy's, but predominantly Bloomingdale's, this has been -- anything in luxury in the bag area has been great. LV, Chanel, Dior, all the players with AUR up about 12%. So those are the ones that were strong in '20. We were seeing seeds of that. We talked about that on the fourth quarter call. They continue. I expect that to continue. The pieces of the business, to your question about swim, or what I call the improved trend categories, let's start with denim because denim is beginning. And there's lots of new bodies, new types that are starting. The customer is clearly signaling across all price ranges and brands. So our current trend in denim is up 40% to where we were in 2019. And again, opening price to premium, Levi is a standout. Both men's, women's and kids are strong. Dresses, which was so challenged in 2020, is definitely seats of improvement there. So starting with kind of prom. You've got young women that are now able to put kind of a prom date on the calendar, and they're coming to our stores and websites. You've got mother of the bride, so you definitely have wedding dates that you're starting to see pop up on the people's calendars, and you're seeing them over the bride category. And then just people that are going out more. And so you see that in kind of casual day dresses. One of the biggest improvements is luggage. And so really dormant in 2020. And you just feel customers are getting ready to travel. And you see that about the activities that they're most -- they're not international travel. They're getting into a car or they're getting to a plane and they're going somewhere. They're visiting relatives that they haven't seen in 1.5 years. And we're seeing that in our luggage business. And that's from regular price of Bloomingdale's to promotional sets that we start at Macy's and what we do in Backstage. The kids area is emerging. So we clearly saw that in Easter in just the dress-up categories, but then also in some of the sportswear areas. As you mentioned, early reads on warm weather categories. So it started in swim. When people were thinking about traveling, we saw real seats there. But now we're seeing it in kind of the wear now categories of like shorts and tees. When you get into kind of the sportswear areas, which is starting to get improvement, both in men's and women's, brands like Polo or Polo Ralph Lauren are fantastic and fully aligned with that vendor. When you look at some of the shoe categories like sandals, in some of the categories like Birkenstock and Steve Madden and Kors, all of those have been very strong for us. And then when you look at sneakers in our partnership with Finish Line, all those have been great. So that's the second bucket. And then there's kind of the emerging opportunities that we see and as a department store that we can go after aggressively with the liquidity that we have and as customers signal interest. So we did a lot of that in 2020. We went after new categories, things like baby gear, outdoor recreation, fitness, hair care, gourmet foods. We really went after those and expanded, went after like hundreds of new brands, lots of new SKUs. And brands like -- in 2020, brands like Casper; 2021, brands like Karl Lagerfeld, all things are contributing to what the customer is expecting next. So we're -- as we see this, when you look at the vaccine rollout, the recovery of the economy, we expect the ramp-up of some of these categories that had been really sleepy. And when you think about people's -- as they engage and kind of their -- the events coming up, we're going to see the dressy and occasion-based areas of the business start to improve for us. And we're doing that with leaner inventories and really being very careful with receipt control, keeping liquidity at all times. Inventory allocation is just -- it's a passion right now, making sure we're getting the right place, the right time for our customers. And then just getting the goods to the right price and be much more aggressive about ensuring that we're getting what we need out of a regular price sell-through. A regular price sell-through is way up. And our AUR is up about 7% when you look at the beginning of the first quarter versus where it was in 2019. So we've got the liquidity that we need to react to the customer. We've got these businesses that are coming back. And we're going to keep going with the ones that we started seeing some improvement in the fourth quarter.

Jeff, if you draw on some of these learnings that you've spoken to over the past year during the pandemic, and I know you've made pivots to the Polaris strategy, I mean, if we think larger picture, what do you see as the key differentiation for the Macy's concept moving forward? Or maybe said differently, what makes the consumer choose Macy's at brick and mortar or online as their destination? What specific areas do you think Macy's exits the pandemic is a top destination, if you had to rank it?

Yes. What I'd say is it's really 2 things. The first one is really what we represent in terms of fashion and style. And you've heard me say that our opportunity is kind of off-price to luxury as a department store. We toggle that, and the consumer is there with us. So off-price just -- it was one of those major successes for us all the way before the pandemic through the pandemic and now postpandemic. So when you look at Backstage, it's just -- it's performing exceptionally well. It was about 20 points better than what most of our Backstage, as you know, were in Macy's stores, and it was about 20 points better than the balance of the store. Based on that, we're adding more than we had initially anticipated. We're adding 45 new store with in-stores in 2021. We're also now going back to adding freestanding Backstage stores that we started back in 2015. When you look at the middle bucket, which is kind of our mix between private brands, national brands and emerging brands that I talked about earlier, so just that are -- the mix of dressing and casual where we're -- what we stand for in terms of trend and being able to go after that aggressively. And then the third bucket about luxury. So luxury price points at Macy's and brands all the way through Bloomingdale's, Bluemercury, we believe we're uniquely positioned. So fashion and style would be the first half of the equation. And the second half would really just be our prowess and our ambition with being a digitally led omnichannel retailer. So this opportunity to have that whole flywheel about where you're getting lots of new customers coming in through digital, you've given them lots of reasons to transact with you there. If they want to -- for the convenience and speed of having that fulfilled in the store, they're going into a store. If they want inspiration, they want to engage one of our great colleagues, they want to see new concepts, new brands, they do that in a store right now. So our opportunity is to make that flywheel as tight as possible and make that customer journey as frictionless as possible. And we see all of our issues and what we have to mow down, and we're very focused on making sure that's improved. So in online, making sure that our search and our browse is really fast, making sure that we're better storytellers. If you go onto our website and you go into the new contemporary shop, I think we just launched that like on Monday, you'll get a sense of really where we see the site going over time. And then in stores, how are we going to engage this new customer that we're getting online? And what does that look like for an under 40 customer, which we're very focused on? And how do we merchandise the floor? What are we doing with cleaner assortments, less clutter and a better experience? So that's really -- so it's fashion and style, and a digitally led omnichannel retailer, which I think the banner brands can all compete on successfully.

And maybe as we pivot and think about -- you spoke about home before and the continuation of the home trend that you saw over the past year. So I think home, as a percentage of sales, exited or basically came out of 2020 in the low 20s percentage. 2019, I think it was more in the mid-teens.

Right.

So maybe what's the right mix for home longer term? And are there other categories that you think really presents an opportunity for Macy's, as we think about the mix of business maybe prepandemic and now going forward?

Yes. So think about home store kind of settling in between the percentages you're quoting. So you think about what it was in 2020. It's not going to be that highly penetrated, and it's not going to be as low as what we were in '19. So definitely, based on our success in a lot of new categories that we added when we pivoted through the pandemic, those are here to stay, and we're going to continue to build on those. And so expect that. When you look at -- we got great growth in big ticket and in textiles through the pandemic. We've also got it in housewares and in tabletop and in home decor. Soft home had an amazing double-digit year in 2021 -- or in 2020. We definitely expect growth again in 2021. As mentioned, things like luggage will continue. So the other thing that we found through the pandemic was just new ways for us to get. Because home is -- traditionally has less gross margin than the apparel areas. And so what we -- the opportunity to go through vendor direct, find more efficient ways for us to get at customer demand, deliver that in a very efficient way and do so in a way that maximizes our profitability. So we're really -- we've been very focused on that. So I would expect home to kind of settle in the 18% range of our business, to answer your question directly. There's other new categories that are coming in. So some -- you're going to see a bump-up in the apparel areas based on where they were in '20, maybe not as high as they were in '19. I think center core and cosmetics are going to continue at the same penetration rate they're at. And we've got a lot of new categories coming in. So when you think about the new categories we brought in, I expect those to continue to grow with us. And that would be like food, toys, health and wellness, categories like that.

And then maybe to switch gears to brick and mortar. So on the store front, Jeff, what inning do you see the store fleet transformation? And as we think about real estate monetization, closing on productive doors, and I know now you've talked about opening an off-mall format, where do you see the most opportunity to unlock profitability and drive growth?

So Matt, I'm going to kick those questions over to Adrian.

Okay.

Good morning, Matt. It's a pleasure to be with you today. Let me start with the premise that, as you know, our stores remain an important part of our omnichannel ecosystem. So to your point about where we are, some initiatives are a bit further along, and other initiatives are a bit in earlier innings. But as a bit of context, we know from our work that the digital sales per capita are 2 to 3x higher in markets where we have stores versus markets where we don't. At the same time, we also recognize that the role of stores is fundamentally changing post the pandemic, as you kind of alluded to earlier. And particularly, it's changing in ways around services as we think about buy online, pick up in store, curbside pickup and same-day delivery. So with that context, we'd say that our store fleet transformation activities are really focused on 4 things. Those 4 priorities include rightsizing the number of stores, making omnichannel investments in those remaining stores, testing the potential productivity and profitability of our smaller format, off-mall format in a number of markets, and also monetizing our real estate assets wherever possible. So as we think about rightsizing our fleet, we remain committed to closing 125 neighborhood doors. And we have about 60 locations that are still left to be closed. So this really allows us to concentrate our store locations in the most productive A and B malls. And after closure, we would expect to generate about 75% or 85% of our store sales from those stores. Now for the remaining A and B malls, we plan to make targeting and -- targeted investments that are really designed to bring those stores really up to brand standard. So we plan to spend a large portion of our store investment capital to enhance convenient omni experiences, including making curbside pickup faster and increasing the volume abidance that are available for BOPS pickup in those stores. Now to your point earlier about kind of our off-mall and how we think about that, we're excited about the off-mall test that we have in the Dallas-Fort Worth market. We certainly are in the early innings here as our teams are quickly testing ideas and reading KPIs and really learning what we can improve [ and the point ] the next iteration of improvements against these stores. And here, we're really solving for what's the optimal number and mix of brick-and-mortar assets in the local market in ways that are designed to attract a broader demographic of customers, including those younger customers that Jeff talked about, and increase our market share profitably across both channels and banners from our off-price format from Backstage and outlets to our luxury format with Bloomingdale's. So getting this mix right of on-mall and off-mall properties with the optimal mix of luxury and full price and off-price is really critical to our success in building this local market omnichannel ecosystem. On the last point about monetization, retail monetization -- real estate monetization has been and continues to be a valuable contributor to our cash flow and to our earnings. And so for this year, we'd signal on the earnings call in February that we're guiding towards $60 million to $90 million of asset sale gains. And as we look forward, we do believe that we'll continue to be able to sustainably harvest that value not only from just the sale of our closed stores, but also the development activities, including things like monetizing out process that we owe -- that we own within our fleet.

And Adrian, maybe now to shift over to the digital side. So you've laid out $10 billion digital sales target by 2023. I think that equates to more than 40% of channel mix. Could you just -- you provided a slide that I know I've had a lot of questions on. I'm sure you have had a lot of follow-ups on -- or maybe just talk about the profitability of the digital channel today, maybe both at the gross margin line and at the operating margin level.

Yes, of course. I'd start by saying that we're actively pursuing a lot of the initiatives to improve margins. And the way we think about it is that we're improving our merchandise margins, our gross margins and our contribution margins really in both channels. Now as I reflect on the illustration from the February call that we've had a number of conversations about, we really signaled that this is critical because we expect the rate of digital sales growth to far outpace the rate of comp store sales growth as we look at our longer-term outlook, which will ultimately result in increased digital penetration that must be done profitably for the enterprise. Now at the merchandise margin level, our margins are relatively comparable across both the stores channel and the digital channel. Yet as we look at gross margin, gross margin differs by channel, and that's largely driven by the delivery expense impact on the digital channel. So reducing delivery expense while also improving inventory productivity are really key elements of our Polaris strategy. Now as it relates to reducing delivery expense for our digital orders, we're in the midst of really developing and deploying and testing a number of different initiatives. So we do plan to increase the percentage of orders, digital orders picked up by our customers at the store because that's really our lowest cost delivery method. We'll also want to reduce the distance that packages travel to get to our customers by improving demand forecasting and inventory allocation and placement across the network. Now this requires leveraging our investments in predictive analytics and technology, but there's a clear benefit of actualizing lower parcel cost for packages traveling shorter distances. So that's a real focus for us. We're also focused on reducing the number of packages per order, which is not only more profitable for Macy's, but also a better experience for our customers and a better solution for the environment. And finally, we plan to link our best shipping offers more directly to our loyalty program and our proprietary credit card to really reward our high spend customers. Now in terms of the next tranche around channel-specific expenses below the gross margin line, which includes our selling costs, our location-specific real estate expenses and our logistics expenses, what we've observed, looking back at the 2019 economics and looking at our business over a number of years, the digital channel is clearly advantaged. The operating costs incurred within the digital channel are primarily variable in nature. While stores channel has more fixed cost in this part of the P&L. We know that our lower payroll benefits as well as our lower real estate cost in the digital channel really helps offset the pressure from the delivery expenses above the gross margin line. So that results in a higher contribution margin for the digital channel relative to the stores channel as the larger expenses, like real estate and in-store labor costs, actually touch the stores channel. Now we do recognize that we have a lot to do to improve our merchandise margins, our gross margins and our contribution margins in both channels, and we know that we can enhance the profitability of the enterprise as we increase digital sales penetration. So by pursuing these initiatives, we can profitably grow Macy's, Inc. based on our digitally led omnichannel strategy.

And maybe to stay with gross margin, Adrian, could you just talk through the assumptions embedded in your 37% forecast? And what are you seeing from a competitive pricing and promotional front relative to maybe prepandemic?

Yes, absolutely. So as I mentioned earlier, we're actively pursuing the actions necessary to increase our merchandise margin and our gross margin in both channels. So as we increase digital sales penetration, we'll experience a structural decrease in the blended gross margin because our digital gross margin includes the net delivery expense above the gross margin line. Now at the same time, we're expanding our assortment into new categories like toys and leaning into those categories like home, where we believe we have an opportunity to grow market share, as Jeff described a bit earlier. Yet these categories generate lower margins relative to our apparel business, which we expect to also recover in the coming years. Now as these categories grow and become a larger part of our business, we expect to experience a lower blended gross margin rate across both channels. Now on the flip side, the offsets here are the recovery of our apparel sales having higher margins and the actions we're taking to improve pricing and promotion activities designed to increase our gross margin dollars and our gross margin rate. Now for pricing and promotions, we're scaling predictive analytics to identify offers that customers simply no longer respond to and to identify those opportunities really at scale for the entire assortment. So in 2020, as an example, we saw significant improvement from our test here from executing our promotional and pricing strategies. So for example, during holiday, we were focused on increasing full price sell-through and protecting margins by reducing the promotional point-of-sale rates based on the elasticities that we have done around our analytics at the department, vendor and product class level. And we really benefited. We saw higher AURs, we saw stronger regular price sell-throughs, and we also saw higher margins. We also launched a new POS tracking grid that really enables our merchants to manage our promotional events with significantly less manual effort and also helping them improve their real-time decision-making. And even with permanent markdowns, as we think about the cadence in launching our new markdown tool, it's enabled us to think about markdowns at a location-specific level at scale. So we're generating less unnecessary markdowns and more gross margin dollars during the season. So as we look forward, we are being conservative with our buys, which is other dimension around inventory productivity. It allows us to increase our sales-to-stock performance, which, combined with our more surgical approach to pricing and promotions, really allows us to improve our gross margin. So this really means that we're able to maximize sales and drive higher profitability in the business as we do that.

And with that, so as we think about 37% gross margin this year, and I think the multiyear laid out was mid-30s, maybe just what's the bridge between 37% this year, mid-30s longer term?

Yes. Well, the gross margin outlook we shared in the Q4 earnings call was simply meant to be a range for our targeted gross margin that we believe is sustainable over time. And as we mentioned earlier, this targeted gross margin reflects the increase in digital sales penetration on one end and the increased category mix towards some of the lower margin items that both are really offset by the deliberate actions we're taking to increase merchandise margins and reduce delivery expense. So we're excited about the progress that we're making with simpler -- that we're making with our simpler pricing strategies and the things that we're doing to minimize promotions and markdowns. Now when we look at our digitally led omnichannel strategy, we're also focused on delivery speed and inventory efficiencies that will really drive customer convenience and savings for Macy's. Now to sustain this high level of gross margin in the mid-30s, we're really building the analytics, the processes and the tools necessary to really increase inventory productivity over a sustained period of time. And we are well on our way on this. So just to give you a little bit of color, we were very pleased with the inventory productivity in the back half of 2020 where we saw an inventory turn improvement of 18%, which really gave us a lot of momentum going into Q1. Even when you look at Q4 inventory turn, that improved 19% and really enabled us to really end the year in inventory down about 27%. But as we look forward, we're incredibly focused on maintaining a healthy sales-to-stock ratio, driven by inventory productivity initiatives, and just also better balancing receipts to sales instead of overbuying. So while we've made good progress last year, we are still looking for additional opportunities to improve inventory turn from our current levels, build on the momentum from last year and make sure that we remain disciplined in optimizing our promotional and markdown practices, as we talked about a bit earlier.

And maybe to switch to the expense front, what areas within SG&A are you prioritizing as demand improves? And how are you balancing permanent efficiencies that maybe you uncovered during the pandemic relative to opportunities to reinvest?

Yes. Yes. As you pointed out, we made -- we achieved significant cost savings during the pandemic, particularly as we looked at our February and July restructurings, and we really believe that a lot of those savings have been permanent in nature. The savings that remain for us from our Polaris targets are expected to really come from store productivity, the optimization of our distribution center operations as well as our marketing productivity through our continued editing of our media mix and our focus on higher ROI optimization activities. So as sales recover and our business grows, we'll certainly benefit from the increased sales leverage on the SG&A expense line because we've been incredibly disciplined about how we're managing SG&A. At the same time, we're also scaling our Macy's media network, serving really as an income stream to offset some of those SG&A expenses, particularly around the marketing line. So we're focused on improving the productivity in our stores. Our spend will also focus on enhancing marketing personalization, which is so much more efficient than broad-based promotions. We're going to be increasing our marketing spend. We're going to be reducing the unnecessary promotions, which really minimizes the excess activities that our store colleagues are asked to do as we think about continuing to drive efficiencies in that SG&A line. We're also generating this new income stream that I mentioned earlier for SG&A. And as we think about this new income stream, which is the Macy's media network, we started this back in August of last year, it generated $35 million of new income for us in 2020. We continue to ramp that up quickly and expect about $60 million of income in 2021. So in terms of the Macy's media network, we're really pleased with the performance. Vendors love it. Our customers are responding really well to it. And it really just helps keep -- helps us really manage our SG&A much more efficiently.

And then, Adrian, on the capital allocation front, as we think about priorities for cash now moving forward, paying down debt, reinstating the dividend, buybacks, what's the best way to think about priorities for cash from here?

Yes, it's a really good question, Matt. As we manage our capital structure, we're intensely focused on creating as much operating flexibility as we can while we're supporting profitable growth. We just spoke a bit to this earlier with regards to having the liquidity to go after sales and categories that our customers are asking for. But at the same time, we were very pleased with the level of cash that we ended 2020 with. We had about $1.7 billion of cash, and that liquidity just simply provides us a tremendous amount of flexibility. Now in order to maintain this level of operating flexibility, we've determined that our capital allocation priorities have to be focused on first investing in the growth initiatives in order to grow market share; and secondly, reducing our debt by paying down debt as it matures. Now the combination of these enables us to improve the health of our business while accelerating growth, improving margins and generating more cash for the business, which ultimately increases investor returns. Now in terms of our growth initiatives, we've talked about several of the Polaris initiatives that we believe will strengthen our business in the near term, in the medium term and in the long term, and we are just relentlessly focused on an orientation around modernizing our customer shopping experience. So a lot of our investments, the vast majority of our investments are in digital, supply chain and technology initiatives, including predictive analytics that are applied to different parts of our retail operations from inventory allocation and demand forecasting, all the way to promotional optimization and personalization. And that's what's really necessary for us to increase our competitiveness in the marketplace. And those are the types of investments that we believe generate the highest return for every dollar of capital spent today. Now at the same time, we are delevering our balance sheet. So we expect to repay debt as it matures in the upcoming years. This includes the $530 million that we paid in January of this calendar year and the nearly $300 million of debt due in January of 2022. Now an aspect of delevering for us was also derisking the business by lowering the debt maturity towers over the next 4 years, which was reflected last month when we completed our $500 million 8-year secured -- 8-year unsecured notes that we issued last month. So look, as we strengthen the balance sheet, we're really targeting to get to investment-grade performance levels, which we define as less than 3x leverage ratio and more than 6.5x interest coverage. And in parallel, we'll certainly continue to have constructive dialogue with the rating agencies as our operating performance and metrics improve. Now as it relates to your last point around dividends, we're committed to getting back to reissuing dividends at the appropriate time. Yet before we do that, we plan to achieve a higher and sustainable level of sales, margin and cash flow. So we'll continue to monitor our progress, and with Board approval, address the dividend and share repurchase decisions at the appropriate time.

And then the last prepared question from my end is just as we think about on the revenue front, $25 billion to $26 billion revenues in 2019, what revenue base do you need or do you feel comfortable that you could reach that high single-digit EBITDA margin?

Matt, I'll take that one. So as we've stated, the Polaris strategy is a long-term vision. And so ultimately, we're definitely targeting to return to 2019 sales levels and grow beyond that over time. You know the Macy's and Bloomingdale's, they're -- just they're broad brands, and our customers trust us to deliver. So what we saw through the pandemic with new brands, new categories that we offer to customers, we're going to continue to accelerate. We're definitely focused on becoming more of a digitally led omnichannel retailer. We threw down the gauntlet on the $10 billion. We had clear line of sight to that and beyond. Importantly, we're very focused on achieving low single-digit top line growth that leads to this sustainable profitability. And as a result, we're planning to achieve prepandemic EBITDA margins even on these lower sales levels. So as we evolve through the pandemic, we're going to be able to answer your question more clearly as the timing of the achievement of getting the high single digits.

Great. That's all I had. Jeff, Adrian, there's one that I have had e-mail of probably 5, 6x throughout the presentation because some of the points that you touched on. So I'll read that one, and then we'll close it there. So the question is, it sounds like both existing customers, Platinum and Bronze and new customers, all up relative to last quarter. Could we make the conclusion that the sales decline in the first quarter has improved relative to the fourth quarter, which was in the negative high teens? Or if not, are there pieces of the business that have worsened sequentially? Or just any pieces to think about relative to the new customers in the sales decline that we saw in the fourth quarter relative to maybe what we're seeing today.

Yes. Let me answer that. So you can make the assumption that the business is better than it was in the fourth quarter in the same comparison stack. And just to kind of reiterate, we're definitely getting more business out of the new customer. We're getting more business out of the Bronze customer. And the business is still down with the -- when you look at kind of the core proprietary base of Silver, Gold, Platinum, but that trend is improving. And the ones that are reengaging are spending more than they did during the stacked comparison.

That's great. With that, Jeff, Adrian, thank you for the time, all the transparency. Congrats on the sequential improvement, and good luck. And hopefully, you're right on the pace of recovery and the continued improvement for everybody.

Thanks, Matt. [indiscernible]

Thanks again.