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

So good morning, and welcome to the 2021 Annual Meeting of the Shareholders for Macy's, Inc. I'm Jeff Gennette, the Chairman and Chief Executive Officer of the company. So thank you for joining us today. I hope that everyone [today is] healthy. We once again are holding the annual meeting virtually to enable participation by a broader number of shareholders, particularly in light of the COVID-19 pandemic. As is our custom, we will conduct the business portion of our meeting first and then provide a brief look at the company's 2020 performance and 2021 outlook, followed by questions and answers. 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 will address any unanswered questions on our corporate website shortly after the meeting. So it is now after 11:00 a.m. Eastern Daylight Time on May 21, 2021, 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, former Chairman and Chief Executive Officer of United Parcel Service, Inc; Frank Blake, former Chairman and Chief Executive Officer of the Home Depot, Inc.; Torrence Boone, Vice President, Global Client Partnerships, Alphabet Inc.; John Bryant, former Chairman, President and Chief Executive Officer of Kellogg Company; Deirdre Connelly, former President, North American Pharmaceuticals of GlaxoSmithKline; Leslie Hale, President and Chief Executive Officer of RLJ Lodging Trust; Bill Lenehan, Chief Executive Officer of Four Corners Property Trust, Inc; Sara Levinson, Co-Founder and Director of Katapult and Former Chairman and Chief Executive Officer of ClubMom, Inc.; Joyce Roche, 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. Now that I have introduced our members of the Board of Directors, I would like to thank each of you for your many contributions to the Board and its committees. The company appreciates all the time, energy and effort that you give throughout the entire year. In particular, I would like to recognize the contributions to Macy's by Joyce Roche. So Joyce is retiring after this meeting with approximately 15 years of service. Joyce has most recently served as the Chair of the Nominating and Corporate Governance Committee and was a member of the Audit Committee. Joyce has been a rock steady source of wisdom and direction during her tenure on the Board. She's been enormously helpful to Macy's, Inc., our Board, our management team and to me, personally. I would also like to introduce from management, Danielle Kirgan, our Chief Transformation and Human Resources Officer; John Harper, our Chief Operations Officer; Adrian Mitchell, our Chief Financial Officer; and Tony Spring, our Chairman and Chief Executive Officer of Bloomingdale's; and Elisa Garcia, our Chief Legal Officer and Secretary. So I'm now going to turn the meeting over to Elisa, who will handle the business portion of this meeting.

Thanks, Jeff. We're also joined here today by KPMG LLP, our independent auditors. The Board of Directors fixed March 25, 2021 as the record date for determining shareholders entitled to vote at this meeting. Broadridge Financial Solutions has finished me with 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, the transfer agent for common stock has furnished me with a list of the common stockholders of the company as of the close of business on the record date, March 25, 2021, and that list is available on the web portal. Tracy Oats, a representative of Broadridge Financial Solutions, has been designated as a judge of election by the Board of Directors. The judge of election has advised me that there is present a quorum of the outstanding stock entitled to vote.

Thank you, Elisa. So the meeting will now follow the order of items on the agenda and pursuant to the meeting rules as posted on the media web portal. So only shareholders of record as of March 25, 2021, are eligible to vote. There are 4 items before the shareholders for vote at this meeting. They are: number one, the election of 10 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 2022. Two, the ratification of the appointment of KPMG LLP as Macy's independent registered public accounting firm for the fiscal year ending January 29, 2022. Three, advisory vote to approve our named Executive Officer compensation. And four, the approval of Macy's, Inc. 2021 equity and incentive compensation plan.

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 there. If you already submitted your vote or submitted your vote by proxy and do not wish to change that vote, it's not necessary for you to take any further action now. The polls are open. [Voting]

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

Yes. And we certainly have a lot of votes. Well, we've been informed by the inspector of elections that the preliminary vote report shows that the nominees for election to the Board have been duly elected. The appointment of KPMG LLP as the independent accounting firm for the fiscal year ended January 29, 2022, is ratified. The compensation of the named executive officers has been approved by an advisory vote, and the Macy's 2021 equity and incentive compensation plan has also been approved. We will be reporting the final vote results in a Form 10-K to be filed within 4 business days of this meeting.

Thank you, Elisa. So there being no further business to come before the meeting, the 2021 annual meeting of the shareholders of Macy's Inc. is now adjourned. So before we take your questions, I'd like to reflect back on our 2020 performance and speak to our Polaris growth plan. So some of my remarks should answer some of the strategy-related questions that we received in advance. So looking back, so 2020 was an unprecedented year that delivered a series of external challenges. Guided by our Polaris strategy, which we unveiled just 1 month before the pandemic hit America and supported by the investments we have made over the prior 3 years in our digital operations and store fleet, which included our Backstage expansion, we were able to meet those challenges head on, adapting and innovating through the challenges with great agility. In 2020, we accelerated our focus on digital extended our assortment and clarified and simplified our customer value equation. We rapidly adjusted our merchandise mix, reflecting consumers' increased embrace of categories like home, casual apparel, jewelry and fragrance. And we made changes in stores to make them safe and easy to navigate. We harnessed data analytics to sharpen our offers and outreach to customers. As a result, our business performed better-than-expected under the stresses bought on by the pandemic with sequential growth quarter-over-quarter during the year. And our fourth quarter results, exceeding the expectations we set earlier in the year. Our sales momentum and profitability were driven by our investments in advanced analytics and enhanced collaboration with our vendor partners to drive gross margin. We also maintained a persistent focus on managing SG&A more productively. Our experience in 2020 increases our conviction to take bolder actions to drive our business forward as a digitally led omnichannel retailer. Under the Polaris strategy, we have shifted a large proportion of our current and future capital to digital, supply chain and technology platforms to better integrate our digital and physical assets and deliver the most relevant shopping experiences. In part, enabled by these shifts, we expect that approximately $10 billion in sales will come from our digital channel by 2023. And we are also planning to continue our focus on managing SG&A, improving working capital efficiencies and modernizing our supply chain to support the omni shopping experience that the customers evolving expectations expected of us around fulfillment and speed. We ended 2020 with strong momentum, positioned to meet our customers' needs, and we are in a very good cash position. We generated free cash flow of $296 million in 2020, which we have continued to improve upon through the continued execution of our Polaris strategy. As a result, we ended the year with healthy liquidity, approximately $1.7 billion in cash and approximately $3 billion of untapped capacity in the revolving asset-backed facility that we closed in June. The Polaris strategy has proven to be a critical enabler of our performance in 2020. Early actions dictated by Polaris helped us broaden fashion offerings across categories and improve our digital experience. The cost control that we committed to last year was critical to weathering the pandemic. And when we needed to make hard choices for our investments, Polaris gave us the clarity to focus first on the areas most critical to future growth. As we discussed during our fourth quarter [Technical Difficulty] year 2020 earnings call, we recommitted to and redefined our Polaris strategy to accelerate growth while improving profitability and returning to growing cash flows. We redefined Polaris with a deep understanding of the Macy's and Bloomingdale's customers and how their shopping has evolved over the course of the pandemic. The 6 pillars that underpin the Polaris strategy are, winning with fashion and style, delivering clear value, excelling in digital shopping, repositioning our store fleet and enhancing omni experiences, modernizing our supply chain and technology infrastructure and enabling transformation through data analytics and a performance-driven operating model. During 2020 and in the first quarter of 2021, our Polaris strategy began to bear fruit. In 2020, we saw an increase of 45% in active Bronze memberships, our most -- our young and most diverse customer group. We also continued to flex our category mix to meet current and future customer demand, which drove success across the value spectrum from off-price to luxury. We also accelerated our focus on digital by improving the integration of our digital and physical assets, which drove improvements in our customer shopping experience across Macy's and Bloomingdale's websites, with Macy's brand digital platform seeing double-digit increases in site visits and higher conversion rates. Our fleet continues to have high-value, relevant and vibrant stores, mostly in A- and B-rated malls, which will remain a critical part of Macy's future. We have already invested considerably in the best of Macy's stores. And across the remaining fleet, we are committed to the 125 store closures that we announced in 2020. Approximately 60 have closed or will close soon, further reducing our footprint in C and D malls. Following the closure of all 125 stores, at least 85% of our sales -- of our sales will come from A and B mall stores. And we will ensure that through targeted, incremental investments, that all remaining Macy's represent the best of our brand. And we've improved the layout of our stores to make them easier to navigate. And by keeping our inventory levels clean, we have been able to remove the clutter to provide our customers a more streamlined shopping experience. The work we did to create safer, easier to shop experiences paid off in 2020, with improvements in our Net Promoter Score, driven largely by positive customer assessments of their safety while shopping. We continued to capitalize on the momentum in the first quarter of 2021 and exceeded our expectations on both the top and bottom line, delivering a comparable owned plus licensed sales decrease of 10% versus the first quarter of 2019, a trend improvement for the down 17.1% in the fourth quarter of 2020. Adjusted diluted EPS was $0.39, significantly outpacing our prior guidance and minus asset sale gains, this exceeded the first quarter of 2019. We came into 2021 in a healthier position. Our inventories were clean, our merchandise margin was improving, and we were more productive and efficient with our SG&A, and we're seeing our momentum build quarter-over-quarter. Our gross margin rate increased 40 basis points, with SG&A 17% lower than the first quarter of 2019. Given the strong performance in the quarter, our continued execution of Polaris and the encouraging trends we are seeing in the macro environment, we are raising our full year guidance. We now expect full year sales of $21.7 to $22.2 billion and adjusted EPS between $1.71 and $2.12. From a financial perspective, we're still targeting lower term run rate sales growth for Macy's, Inc. in the low single digits, with sales and profitability growing off of pandemic lows. Our plan is underpinned by a capital allocation strategy that enhances long-term financial stability and returns for our shareholders. And we are committed to returning to an investment-grade credit profile by paying down debt as it matures, enabling us to target our leverage ratio goal of less than 3x. I'm encouraged by the talent and focus of our teams across Macy's and Bloomingdale's, who are committed to our future growth. We have confidence that the macro environment will remain strong as we move through 2021. And clearly, we are not standing still. We are aggressively executing our Polaris strategy to ensure we can deliver sustainable, profitable growth this year and beyond. So we'd now like to open things up for shareholder questions and comments. So please enter your questions via the web portal. And as I already said, we'll attempt to answer as many questions as time allows, but only questions that are relevant to the meeting will be addressed. And any questions that we do not get to will be addressed on our company website, macysinc.com.

Mr. Gennette. The first question is, when will you reinstate the dividend?

So let's just say, our first 2 priorities with respect to our strong cash position is, one, to invest to grow the business, the sales in the business and the profitability of the business. The second one, as I just mentioned, is really to delayer our -- and delever our balance sheet. And then after that, we will review the conversation with dividends with our Board of Directors.

The next question is, what has been the lost shareholder value of the monetization of real estate due to the procrastination that has taken place over the last 3 years?

Yes, we haven't been procrastinating. And what I'd say is that our real estate strategy always goes hand-in-hand with our retail strategy. So we certainly have extracted value over the past 5 years. We've closed a number of stores and sold those assets. As mentioned, we still have 60 locations still to close. And we will be, again, 85% of our brick-and-mortar business will then remain in our A and B malls. We also through -- we've been doing development activities with excess parking lot space. We've been working with outparcels. Over the past 5 years, we've monetized $2 billion in cash based on asset sale gains. And that's really enabled us to invest in the business. It's helped us strengthen our balance sheet. It's an extremely important part of our strategy. And maybe 2 recent examples that give you some texture about the way we look at our real estate. I think that Herald Square is our latest example. This one is a bet on New York, and we've been planning it for the past 4 years. It's currently going through the EULA process, and if the foundation of it is an unencumbered asset, is that it's a highly productive, highly profitable, valuable store to us. So we have found the best and most appropriate way to monetize that. And I would ask you to go to the website, where you can learn more about it and see all about what we're planning to do with Herald Square. The second example I'd give you is that we currently have a proposal out to a lot of national and regional developers on properties that we've identified that can be monetized in different ways. Some, it might be just excess parking lot space like we've done in the past to create value. Some might be co-development, some of it might be mixed-use opportunities. So we're not standing still with our real estate. And I think our history bears that out.

The next question is, have you focused enough on growing and scaling Bluemercury when compared to Ulta's trajectory? Should Macy's spin-off Bluemercury or Bloomingdale's and sell it to return shareholder value?

So beauty is very important to our customers, and it's a key tenet of our overall strategy. We're quite pleased with our Bluemercury performance. And this is what it does for us. It's a great incubator. It's a great opportunity for us to test, at scale, new ideas. One of the things that's really helped in Bluemercury, in helping us think through our overall beauty strategy across Macy's and Bloomingdale's, is that it's a customer-centric model. And it gave us the opportunity to build those ideas into the balance of a very strong beauty business. Also Bluemercury, as you may know, we have store within stores within Macy's. And we've just turned over the management of Bluemercury to Tony Spring, who runs our Bloomingdale's brand as Marla Beck, who is the founder of Bluemercury, is transitioning to a new venture. So she will be with us until the end of June, and we're currently pursuing a new CEO that will report directly to Tony. To the Bloomingdale's question, metals is a very important piece of our overall portfolio. And it provides us great access to higher price points. You know our strategy is going from off-price to luxury. It's a great test platform for innovation, for sharing. They also are doing quite well. They had an 11-point trend improvement from the fourth quarter. They are on the vanguard of all the strength that we're seeing in the luxury business, and we learn a lot. And we also have a number of customers that shop between the brands.

The next question is, I was curious at a time when cost-cutting is necessary. Why would Macy's close their Cincinnati headquarters and remain in the high-tax, high-cost city of New York?

So let me just say that our big goal as a company is that we want to be fast, we have to be agile, and we certainly want to be fit to compete. So before the pandemic, we made the decision that we were going to consolidate 3 campuses and our downtown Cincinnati location was one of those. And that was to make us more efficient. And so as we talk about making a decision to -- then we decided one of those campuses was our campus in San Francisco, which is where our digital and part of our tech team was. So we wanted to get our tech team together, so we consolidated [ sent ] them back to Atlanta, and we took our digital team, and we brought it to New York City. And that was the right decision for us. When you think about our business, the heart of that is in New York City. It's in the fashion industry. It's where the largest concentration of our corporate colleagues are. And now our digital team, which has been in now in New York City for about a year, is now embedded with our merchants and our marketers. The other thing that we have found is that New York -- the New York area is a tremendous talent pool. And we've been able to source amazing talent that is now working on our digital strategies, which is propelling our growth. So we've had great success getting that team up and running. So it's given us better coordination. It's given us increased collaboration. It's also given this team, with merchants along with them, much better access to our vendors, which are all mostly based in New York City. Now as to Cincinnati, we took those team members that were on 7 West 7th, and we've moved into progress place, which is in Springdale, Ohio, which is a suburb of Cincinnati. And that's really helping us -- gives us the opportunity to potentially monetize that downtown real estate. It gets our teams together. So that's what you've seen us do. And then as we think about kind of what goes on with our corporate colleagues post-pandemic, we're working on that right now about what that hybrid model is going to be. We want to be an employment brand of choice, and how we use our real estate, our office real estate to address the needs of our corporate colleagues is going to be very important for us to work through as our teams come back from the pandemic.

The next question is, what is Macy's response to the defection of major national brands in Macy's dominant categories to other channels of distribution, such as beauty brands to Ulta or PdH to Kohl's?

So Macy's and Bloomingdale's, we offer a curated mix of fashion and style across dozens of categories. And this is ever-changing. And I just would characterize our teams at having great relationships with our vendors. And we are strengthening our partnerships with great brands. And one of the things that I believe and that our brands believe is that we're the best expression of their brands outside of their own stores and their own websites. We really want to create these immersive experiences, both online, on our app and in our stores. So our merchant teams spend a lot of time with our vendors. And when you look at our top 10 vendors, I am very pleased with the status of our partnerships and our aligned goals to grow profitable growth. And in fact, when you kind of think many of these brands are -- the opposite of your question, are reducing their distribution with other players to go stronger with Macy's, Inc. Because we've identified mutual growth opportunities as we recognize that we share a common customer. And that can be in exclusive content, and it's just how we are going to grow together as an omnichannel brand together. So we're very confident that we can continue to attract new brands and categories. We're particularly focused right now on the under-40 consumer. And to that, we have been adding, all the way through the pandemic, all the way through 2021, hundreds of new brands, thousands of new products. We've got new hybrid models in order to do that, Vendor Direct on our website, leased models as well as the traditional owned models.

The next question is, will Macy's expand into new geographic markets? There are many good-sized towns in the U.S. that are losing department stores that traditionally -- but still traditionally utilized the malls.

So Macy's and Bloomingdale's and Bluemercury, we're investing in our omnichannel strategy, which is behind your question. I think one of the things that we know is that where you have a ZIP code that has brick-and-mortar or a store that the digital sales are 2 to 3x higher than those ZIP codes where you don't have customer shopping in stores. So the role of stores is also evolving. So that it's being used for -- if customers start on digital, they're using stores in different ways. They're using it for Buy Online, Pick-Up in Store. Curbside pickup is a huge new addition to our portfolio. Same Day Delivery is becoming more important. So when we think about our overall brick-and-mortar fleet, of the existing ones, we've got 3 priorities. The first one is how we're going to rightsize that portfolio to the best malls in America. And that was when you think about the 125 that we've got 65 more stores to go, till we get to around the number that we're staring at. We also -- the second opportunity is making sure that we are really investing in omnichannel and the supply chain that is required for customers to -- however they want to fulfill the products that they're interested in, that they've got the portal to do that. And then the third thing, which is the other part of your question, is we're testing productivity and profitability for brick-and-mortar that is off-mall. And so we're playing right now with 3 markets. We call them ecosystems, and we're looking at Dallas, Atlanta and the D.C. metro area. And we're doing that both on the Bloomingdale's as well as the Macy's brand. Again, we're off-price to luxury. So the opportunity here is to say, if you know the relationship between having a store and what it does to digital and what digital does to store and you've got this great little ecosystem that goes on, how do we make sure that we are touching customers in stores where they're not comfortable going to a mall or a mall [Technical Difficulty]. So we're starting to play. We've added the Market by Macy's, which is full price and Backstage, which is off-price. In Bloomies or Bloomingdale's, we'll have a concept called Bloomies, which is full price, and they've got Bloomingdale's, the outlet. We're looking on the Macy's side for 3 markets to see what happens. And we want to make sure that the full market has an impact, that we see a difference in change in the customer behavior. We see that through their customer lifetime value. And so we're testing that. We're testing that now. And we're not ready to say anything other than it's being tested. And we hope to give everybody positive results. But we're looking at the 4-wall returns of those decisions. We're looking at the total market share. We're looking at the customer lifetime value. We're looking at those 3 markets. If we have something that looks like it can be scaled, we will take that on in the future. But right now, it's a small piece of our strategy, and we'll keep everybody posted on how we're doing with it.

The next question is, how does Macy's, as a corporation, determine which organizations receive corporate donations? And what action is the company's Board taking, so that the company and its executives maintain political neutrality in its contributions?

So let me just start with -- that giving back is one of Macy's core values. And we do that through contributions, but we also do that through our volunteer hours. Our gigantic colleague fleet, and they're just -- their just complete interest in giving back to their community. And we look at this at a local or regional and a national level. And what's our strategy to serve communities where we live and work? So our colleagues drive a lot of that. And they have direct opportunity to make those connections to the local communities through their donations. As to the second part of your question, there's a very small amount of political contributions that Macy's, Inc. gives out annually. And those -- you can find those on the Corporate Governance section of the Macy's, Inc. corporate website. So please look there.

Next question is, moving forward post-pandemic, what are your plans to revitalize sales in the stores? And what is the assortment strategy to attract and retain a new, younger customer base?

Okay. That's a big question. So let me start with the customer first. So everything in our strategy starts with the customer. So we're actually very pleased with the direction that we're going with our customers. We look at our core customers, and then we look at new customers. And new customers, we just reported a nice number. I wanted to quote that. So we added 4.6 million total new customers to the Macy's brand in the first quarter of 2021, and that was a 23% increase versus that same number from 2019. We build from the momentum that started in the fourth quarter on that. I mentioned in my opening comments that we added in this quarter that we just finished, 1.7 million new Bronze customers. Now a Bronze customer is somebody that's not part of our credit portfolio, but they get the benefits of being a Macy's customer, and many of them convert into the Macy's Star Rewards program based on the values that they get. As they move up, they get better values. And what we're finding in these new customers and particularly the Bronze customers, is that they're younger, more diverse, definitely a higher penetration of under 40. We've also -- what you read is that we basically added Klarna, which is an installment pay and customers like that a great deal. We brought that in the fourth quarter. We've now expanded that to Bloomingdale's and Macy's in stores, on the app as well as on our site. And that's bringing in new customers. In fact, 45% of the Klarna users are under 40. So customer franchise is getting healthier. When you look at the assortment strategy, let's just talk about that. Certainly what was working for us through the pandemic just continues to be strong. So I'd just think about businesses like fragrance and fine jewelry and big ticket. When you look at things that are starting to emerge, as particularly as the vaccinations take hold, and you've got certain parts of the country that are opening up faster, we're seeing that in our dressy businesses. We're seeing that in our dress sandals. We're seeing it in all of our women's dress business as well as like prom dresses and things that people wear out. So that is getting better. We certainly have made strides on adding younger and more diverse customers. And we look at those on-ramps, what are those categories where -- that we really want to be really strong and to get more of those under-40 customers. And we certainly have identified beauty, and we have identified shoes, Denim, we're about to go into a Denim cycle, and a lot of new customers are looking for that. What we love about Denim is that new Denim shapes and styles, that drives new tops and new accessories and new footwear. That's good for us. When you think about the under-40 customer, many of them are new parents, so being more relevant in kids led us to being much more relevant in toys. So that we've gone after those categories aggressively. When you think about firsts, which is where new -- under-40 customers transact with us, like they're getting married. We're now the #2 provider for all-fine jewelry in America. So -- and that's a very strong business for us. So we're focused on that. Loungewear is a big category for us. We're also looking at -- what are those brands that people are searching for that we don't have at Macy's or Bloomingdales? And how do we get those? And so when you look at the launch of what we've done with under-40 brands, 2 that -- like Cotton On, big, big opportunity for us, Casper, a millennial kind of mattress brand of choice. So in assortment, we're definitely focused on taking care of our core customers and being attractive for this new customer that we're bringing into our brand, mostly starting through digital, by giving them lots of options for stores as well. So let's talk about digital. I think this is a big engine for the company. It really is -- the majority of our new customers are coming to us through digital. And we enjoy for just years of investment in this. I mean this is not something that we just started with in the pandemic. We've been investing in digital for really over 10 years. And when you look at it in our product categories, where the number -- in 2020, we were the #2 website in the country behind the big one, and we held our share. So it's one of the largest platforms in retail because we invested early and we consistently are investing. And what you saw based on the pandemic is that we've seen a hard pivot of customers, particularly our core older customer. It's much more comfortable transacting in digital as well as this new customer that's coming into our brand. So we have big ambitions, and we made decisions to make sure we threw down the gauntlet and said we're going to hit $10 billion by 2023 across our banners. So we're very aggressive about that. And that involves some foundational work. So we've replatformed search. We've redesigned all of our product display pages. We're really getting into precise delivery. It's also coupled with differentiated experiences like virtual try-on, live video shopping, that's going to be a big one. You think about our vendors and our colleagues that can now have virtual selling that goes on with customers wherever the customer is, from the beach, on vacation or from their office or the comfort of their home. I'd just challenge everybody to go to or I'd invite everybody to go to our contemporary sitelet that we just launched on macys.com. We are committed to making the customer experience better every day. And when you look at that, when you look at our Net Promoter Score, it was really -- it's quite high. So very happy with our digital assets. Number two, market share, even with stores closed, [ see it ] year-to-date or in the first quarter, our conversion is up 9% on digital, and our unique visits are up 22% to 2019. So we are going to continue to focus on digital. We've got opportunities that we're going after aggressively. And this is our -- a big chunk of our future, coupled with stores. So one other thing I'm really excited about is that the customers are getting more comfortable coming back to malls and stores. And I think when they come back, and they haven't seen us for a while in many cases, they're going to see a more curated assortment. They're going to see less clutter. They're going to feel very satisfied about their own health and safety. They're going to get better service. They're going to see a different level of gifting. And we're really clear that the role of the store is to provide discovery. It's got to be convenient. So if you want to buy something online and pick it up in a store, you want to have that option. You want to get better service. You want to make sure that it's an engaging opportunity. So that's what we're focused on with stores.

The next question is, why should the leaders of the company receive such large benefits and incentives when the frontline employees are not afforded the same benefits, rewards or incentives?

I think when we are -- I want to be the employment brand of choice. And so when you think about Macy's and Bloomingdale's, we clearly prioritize and take care our frontline colleagues. And this is -- we're never going to be done with this. We're constantly making adjustments to our strategy at a regional level, at a corporate level. We're always looking at this one. So that involves, in many cases, like when you think about what we did for our front-line colleagues in 2020. Hero pay bonuses for everything that our teams were going through, increasing wages in stores in all of our DCs and in our credit facilities and centers. One of the things that we did, which was very popular, was we had a number of our colleagues that were on commission. But with customer, that count dropping and sales dropping for them, we took many of them off-commission, and we wanted to guarantee them what their pay had been in the past, so that they weren't disadvantaged by having the store count, the customer count be lower. One of the things I'm most proud of is that we are going to achieve greater than 99% pay equity across gender and race really by the end of the summer. And that is something that, again, we're never done, but it's something that as an employment brand, we want to make sure we have pay equity across every single touchpoint. Then we have our incentive approach, which basically rewards colleagues from frontline as well as to our corporate teams. And that's -- so that we're aligned on our opportunities to drive business results. And this is one of our big values. So we call it Path to Growth. And these payouts happen each quarter, and they have no cap. So when our business is doing well, our front-line colleagues benefit from that. So now our corporate colleagues, they're eligible for that type of incentive once a year. But when I think about a quarterly incentive for all of our frontline, and that's in call centers, that's in our warehouses and that's in our stores, they get the great benefit of our business returning. So when you think about fall season of 2020, 94% of our colleagues got the benefit of a Path to Growth additional incentive.

Our next question is, I am interested to know what Macy's is doing to attract young talent to management? I think the company has a major opportunity to grab market share, and it can only be done by appealing to millennials. Therefore, it needs to be led by millennials.

So we're very focused on bringing in and retaining the best talent. And I'd start with, our leadership reflects the diversity of our customers. And so when you look at 40% of our directors and above are under the age of 40. And that same population, 25% of them are ethnically diverse, more than 60% of them are female, and all of them are passionate about the customer. I'm proud of the fact that our turnover is down, and our colleague engagement is record high. We're doing a good job on this score.

The next question is, what action is Board taking to bring down executive compensation at par with peer companies in Europe and Japan?

So this is a discipline that our Board has, and the comp committee approves executive comp. We have an independent consultant to the comp committee, [ Samwore Brassie ]. And they look at all of our peers that are based on industry and size that leads us to commensurate benchmarks. There is a very robust, formal process to really access these internal pay levels with consistency and fairness. They review the market surveys, and they pay ranges to ensure pay is [Technical Difficulty] and fair.

The next question is, how would you rate the effectiveness of the Polaris strategy? And what could Macy's learn from other retailers' strategies that could be adapted at Macy's to accelerate performance?

So the Polaris strategy was launched during the pandemic. And I would tell you that I think our business is healthier today than when we went into the pandemic. And Polaris is an enduring strategy. It's not a one and done. And I think it just starts with -- really what the Polaris strategy serves is what is our competitive moat, how we define when we get it right and what we're aspiring to, that we will drive lots of happy customers and great shareholder value? And that is that we stand for fashion and style, and we do [Technical Difficulty] omnichannel retailer. And that's off-price to luxury, that's off-line to online. And so the Polaris strategy has 6 pillars, and those guide us. So as I mentioned earlier, one of those pillars is about digital. And we made that hard pivot to digital during the pandemic and through down the gauntlet to say, we can be $10 billion. When you look at everything that we're doing with -- and that drove basically, what do we need to do in stores? What do we need to do in the supply chain? In order to enable those investments, we needed to aggressively get our cost base down. And in order to accomplish all that, we had to have the best talent. So I'm very confident in our strategy. I'm confident in our team. We are, I believe, we will be a very strong retailer of choice, and I think we're starting with momentum. So that momentum that we had in fourth quarter continued into first quarter. And it's coming into the second quarter with us. Our overall goal through Polaris is to sustain top and bottom line growth.

Our next question is, when does Macy's plan to be fully profitable after taxes?

So let me just start with, pleased with the pace of the recovery. And when you look at the stimulus, what those macro tailwinds you look at -- and that's kind of burned off a little bit. But now you've got what's going on with people emerging because of the vaccination, and you've got the Polaris strategy that's starting to take hold. So we've got a clear line of sight to sustainable top and bottom line growth. And proud to say that both fourth quarter and first quarter were both profitable quarters for us after tax. So we have momentum. And we're really strongly looking at 2019 sales levels, and we're getting closer to those levels and closer than we previously expected. So we're focused on achieving long-term financial targets. And that -- just to remind everybody, that comparable owned plus licensed sales to really get growth in the low-single digits, to hit a gross margin rate that's kind of stabilizing in the mid-30s and to get an adjusted EBITDA margin rate that's moving into the high-single digits. So we're cautiously optimistic on the medium to long-term outlook. And we're just very focused on growing our business profitably.

Next question is, when does Macy's plan to be fully profitable after taxes? I'm sorry, that's a repeat. What is Macy's plan to make a comeback on the stock market?

So obviously, if you look at our stock price today, it's a significant increase since the low of the pandemic. So if you look at kind of calendar year 2021, our stock is up about 60%. And as mentioned, I think Polaris, along with the tailwinds of the macro economy have sustained us. And we're very focused on -- by our commitment to Polaris, to really continue focusing on getting longer-term financial stability and creating more value for our shareholders.

The next question is, after seeing pictures of the condition of your stores posted on cnbc.com, I'd like to know what excuse is there for this?

First, let me just say that I'm very proud of the way that Macy's and Bloomingdale's and the Bluemercury stores look and how they're operating today. I mean my personal -- I worked in stores for many years, and I know firsthand, the pride that our colleagues take in the maintenance and the presentation and the service with their guests. So let's just take a couple of pictures and put it against the facts. So if you look at the first quarter and you look at what we call the Net Promoter Score, we've had -- it's like over 80,000 customers have weighed in. And when you look at Macy's and the scores we're getting, it's 6 points in total over where we were in the first quarter of 2019. And when you look at clean, neat and easy-to-shop, it's up 15 full points. So we've got thousands of customers that are rating us high for health and safety, lots that are saying about the great environment and the colleagues that they're experiencing, the improved layouts and the easier navigation they're experiencing. They're talking about the reduced clutter. And I think that the pace of our store recovery, it's faster than we expected, and it's in environments that -- there's always going to be opportunities, but on balance, I think we're making improvements.

The next question is, why is there no Asian representation on your Board? It's 2021, and I feel that your Board needs to be more diverse to accommodate diverse perspectives and reach people of every background. This should be a business mandate, and it's good for business and good for shareholders.

Yes. It is a business mandate. And I think that if you look at our history and you look at where we are today, we have a record that we're proud of. Diversity inclusion is the highest priority of Macy's, Inc. And I would start with my board, the diversity of the Macy's Board is a great strength, and it's always been a focus. Our Board right now is 40% women. It's 30% racially and ethnically diverse. The tenure is 1.5 to 25 years. It's a great, wide range of viewpoints and backgrounds. And we're always looking for qualified Board members and diversity, that focus on it is top of our list. And that diversity focus, it doesn't stop or end in the boardroom. We look at it across our entire colleague population because we serve the most diverse set of Americans, and it's getting more diverse. We also look at it in the context of the suppliers that support our business. And I just look at -- I'd ask you to go to it and look at our human capital report for more of our commitment to colleague diversity. It's all in there, and we've got a good track record. We're not done, but we're definitely working on this.

We have a couple of questions left. The next one is, does the company plan to offer a clothing subscription service similar to Stitch Fix or [ Novi Trunk ]?

Yes. So we tested the subscription service at Bloomingdale's. And we learned a lot. And obviously, as a digitally-led omnichannel retailer, and we're talking about things like virtual selling and that's part of our strategy, we want to win with fashion and style. Personalization, loyalty, all are a part of that. So we're very focused on the personalization. We're very focused on how we're going to monetize all of our opportunities. We're going to do that through virtual selling. Virtual try-on, we started that in the beauty business. Live video shopping is -- has been going live at Bloomingdale's. We're bringing that into the Macy's brand. And one of the things that I think that you can't replace and it and that it is the strength of an omnichannel retailer is all of our amazing colleague talent that really can help customers with their style options, against these huge menus of fashion. And so I think we have the best -- we're in the stages of growth on this, but it's very important for us. And so continue to see growth from us there.

The next question is, as a shareholder, I am disappointed that the stock price hasn't performed very well against its peer group. Has the company felt any pressure from shareholders to split up the assets in a sum of the parts scenario?

Yes. So just to understand that we are very focused on shareholder value and executing Polaris is the conduit for that. We're a digitally-led omnichannel retailer. And we're investing in stores to support omnichannel and having a very connected omnichannel experience, the efficiency at pickup, the speed of ship to home, the ease of returns, as well as the touch and feel of in-store shopping. As I mentioned before, digital sales are 2 to 3x higher in markets where we have stores. So we're very set on Polaris.

And for the last question that is not duplicative that we've received is, with the Equality Act in the news, what is Macy's supportive LGBTQ rights in the country? That's our last question.

So I think I'm proud of is that if you look at the HRC in our score, we're at 100% and has been for a number of years. So this is a topic that we lead and when you look at -- it's a piece of pride for the company on this score. We're very strong.

That concludes our Q&A.

So I'd like to just thank everybody for joining us for the Macy's, Inc. Annual Meeting of Shareholders. And I'd like to wish you continued health and safety for each of you in your loved ones. And this concludes our meeting officially. So thank you, everybody.