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

Good morning. My name is Brooke Roach, and I lead the apparel, accessories and brands research team at Goldman Sachs. Before we begin, I'd like to kick it off with a few disclosures. We are required to make certain disclosures in public appearances about Goldman Sachs' relationship with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership, we are prepared to read aloud disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to you as clients on our firm portals. Disclosures and updates to these disclosures are also available by ticker on the firm's public website at http://gs.com/research/hedge. Also the views stated by non-Goldman Sachs personnel do not necessarily reflect those of Goldman Sachs. With that out of the way, I'm very pleased to kick off our 28th Annual Global Retail Conference by welcoming the Macy's team. Macy's is one of the largest retailers in the U.S. with over $20 billion in sales and over 700 store locations across it's Macy's, Bloomingdale's, Bloomingdale's The Outlet, Bluemercury and Macy's Backstage banners. The company has been focused on transforming it's business through it's Polaris strategy. Here to discuss the business and opportunities ahead are Jeff Gennette, Chairman and CEO; and Adrian Mitchell, Chief Financial Officer. Welcome, and thank you for joining us.

Hey, Brooke.

Thanks for having us, Brooke.

Great. Maybe if we could kick it off with a question about the results. Jeff, Macy's results during the recovery have been better than expected, and you've called out the strength of your omnichannel capabilities as a major driver for that performance. What do you think it is about your model that sets you apart from your competitors and will position you well to succeed going forward?

So good morning, Brooke, and thanks for having us. So obviously, I think is we're leveraging the power of an omnichannel model, and we're deeply committed to kind of continuing to deliver this dynamic, seamless omnichannel experience. And we think that this ecosystem that we have with great physical stores in the best malls as well as we're starting with really productive off-mall locations as well as a best-in-class e-commerce site. And that offering is a powerful combination. And we just believe that stores and mobile and our website are just stronger together than anyone is alone. So most of our customers, that's how they want to engage with us. The bulk of our customers are omnichannel. It's about 60% -- almost 70%. So it really does start with a best-in-class digital experience that is, we really are focused on better function and better inspiration. We are proud to have the #2 website in our categories in the country, and that continues. It then goes with kind of this robust offering that we offer. It really starts with kind of the offering of categories. So when you look at apparel and beauty and accessories and home, and that's dress up to casual, which we certainly saw all the way through the pandemic, the change there. And it really is every day, it is special occasion. Then it goes to our brands. And we offer brands that are our private brands all the way to premium brands. And then you've heard us talk about price points and really going from off-price all the way to luxury. So those are kind of the elements. And through that, we've really been able to successfully reengage our core customer through the pandemic as well as the headline for us is being able to attract new customers with all these new brands and new categories. So we have momentum, and we're really driving that with more of a data-centric loyalty and personalization efforts. We're just getting better at that and then really working with the momentum that we have on pricing science as well as inventory management. So you mentioned Polaris, we believe that is working. And we really saw that in the first quarter where we went from a 16-point improvement from first quarter to the second quarter on the 2-year stack and beat expectations for the third consecutive quarter. And then just ultimately, we are really focused on profitable growth and market share gains in '22 and beyond.

Great. There's a lot to unpack there. But maybe we could talk a little bit about the recent consumer trends and the results that you mentioned between going from first quarter to second quarter and today. Macy's called out economic tailwinds as a driver of the business recovery last quarter, including jobs, stimulus, the child tax credit and as well as pent-up demand. As you think about the consumer demand environment going forward, how are you thinking about that as we get further away from stimulus payments? Do you think momentum will accelerate, decelerate or stay the same through the end of 2021? And then can you talk a little bit about how you're thinking about the initial overall consumer economic environment playing out beyond this initial recovery?

Yes. So I think the one thing that I would say about all of that is that consumers have money to spend. And we're confident that even with all of the restrictions that might be coming with the new variants or what might be going on in COVID or changes in kind of back to work, what might be going on with supply chain that we're just confident that spending will continue. And all through this, we've just seized every opportunity to capitalize with our kind of the breadth of our offering with all of these changing consumer demand patterns, and just super proud of our team and how they've responded to that. And just that level of response, that level of agility is just going to be critical to us sustaining momentum whatever comes our way going into '22. So when you think about the second quarter, it exceeded the 2019 levels by nearly 2% and a comp increase of about 6%. So this is where we are really meeting the customers where they were reengaging, where they were starting to come back from the COVID. The dormancy of the -- of COVID, we were able to really shift into categories that they were starting to reengage with and that was the big accelerant in our business. So -- and we have that, as mentioned, this off-price to luxury opportunity to do that. So the first headline for us is really just what we're doing with new customers. So you saw from our results that we brought in almost like 4.6 million new customers in the first quarter. It was 5 million in the second quarter, 3.2 million of those 5 million were brand new to the Macy's brand, where the remainder were basically players that had not shopped with us for the previous 12 months but reengaged with us. So that is where we're at. To your questions about how are the potential headwinds mounting, we really showed that in our guidance. So when you look at kind of our high-end guidance for the balance of the year, that assumes that we're going to continue to have single-digit increases in our comps. That's going to be in line with 2019, and that would be in line with what we accomplished in both May and July. Obviously, June was a little stronger. That was high single digits. And the lower end of our guidance just anticipates that we're going to have more significant impact based on some of the headwinds like the Delta variants or really supply chain, which is, in my mind, more concerning. And just as a comment, we commented on it briefly in our call, but overall, in third quarter, we're still sitting within those sales expectations of the Macy's comps. Back-to-school has moderated a bit. The apparel areas happened. They're still positive, but there's other categories that are very strong. Like when you think about denim in general, young men's and women's sportswear, and then those just continue to be strong for us. So we are cautiously optimistic as we head into holiday of '21. We've got a great gift strategy. We've got a great brands ready to play with us. We believe that strong consumer demand is going to continue. As mentioned, Polaris is working. We're watching very carefully the supply chain, supply chain issues, particularly in the apparel categories and shoes. And then as we look forward to the last part of your question about 2022, we do expect consumer demand to remain elevated. We do expect continued traction from the Polaris strategy, some of which of those pillars are in their early innings. But we do expect that there's going to be the headwinds you mentioned. We're going to be lapping the stimulus package. We're going to be lapping the COVID reentry of customers in the second quarter. But we also think there's going to be tailwinds because of what's going on with the variance, some of the back-to-work patterns are going to shift into '22. And certainly, you've heard us talk about the strength of our international tourism business when that returns. So that is going to be a tailwind that's coming. Will that be in late '22 or will that come into '23? But that's worth 3 to 4 points of comp when that does return, particularly in our big urban doors that are big tourist magnets that, frankly, right now are suffering from lack of international tourism, lack of office workers and really are relying on the strength of the core customer who lives around those stores. So in '22, we are very focused on market share, using the headwinds that we have or using -- combating the headwinds we have with the tailwinds we expect.

Got it. That's really helpful. One of the things that's unique about the Macy's business is that you do scale all the way from off-price up to luxury. I was wondering if you could provide an update on what you're seeing across consumer behavior across each of these consumer pricing tiers in recent weeks.

Yes. And I think, obviously, when you think about our strategy of off-price and luxury, it truly is just deeply rooted in customer behavior that we clearly see that our customer doesn't just spend in 1 tier of the market. And so how do we leverage that? Obviously, as a department store, the opportunity to get spend in multiple categories across different occasions and multiple price bands in getting higher customer lifetime value, profitable customer lifetime value is a big priority of ours. So what we've seen is that through the second quarter, we had strength across really all of our price tiers. And what we're seeing is they're definitely shopping, increasingly in digital, but also coming back to stores in a robust way. And you've heard us say that we have emerged from the pandemic as a stronger company. So let's just start with each of the tiers. Let's start with off-price first. So Backstage just continues to be a standout for us. It's been part of our strategy since 2015. We continue to get traction on that. We're now at almost 300 doors that have Backstages within the Macy's mall-based stores. And of the customers that cross-shop, about 80% of the customers that shop in stores are shopping in both Backstage as well as the full line part of the store. And those customers are spending 29% more. So those are customers that are very profitable customers for us. They're also younger and they're more diverse. The diversity of these customers is about 55%, which is about 8 points higher than the Macy's average. So we're seeing improving trends in Backstage. We've got good stock positions, including all the apparel categories. We're in really good shape in inventory there. When you go into the Macy's brand, I think it really is -- the hallmark there is really what we're doing with our loyalty programs. And since we added the Bronze, which is tender neutral, that now is -- we're now being able to see about 70% of those customers and being able to speak specifically to them through all of our personalization efforts. So when you look at that, all those players, those customers are spending up to 15% more in the second quarter versus 2019, and that was a 5-point improvement from where we were in the first quarter. As mentioned, 5 million new customers in the second quarter. That is a 30% increase from where we were in that same quarter 2 years ago, and they're just highly penetrating in center core beauty and soft home. We're also very focused -- you have heard me say, very focused on that new customer getting the second purchase. And what did the customers that we got that were new to the brand in the first quarter? How many of them spent in the second quarter? And we're increasing that percentage. Obviously, they came back for the Mother's Day, Father's Day, graduation time frames, which were all good. So we saw a real improvement there. And we'll continue to watch the 5 million new in the second quarter how they spend in the third quarter. So the Macy's brand at -- you think about Backstage being the $13, $14 average unit retail, the Macy's brand is about a $35 to $36 average unit retail. We're double digits up in AUR in both of those brands. And then we go into Bloomingdale's, which the average unit retail is just under $100 and really strong momentum there, both in-store and online. Their AUR during the second quarter was up 32%. So very strong because of the luxury offerings that we have. And they've really just seen improvements across all categories, double-digit growth in men's and women's shoes, sunglasses, handbags, fine jewelry, fragrances and home. The average customer spend was up 14% versus the second quarter of 2019, and the new customer count was up 20% from that same period in '19.

That's great color. You provided a lot of comments on some of the category preferences that you're seeing across your consumer there. Can you give us an update on what your thoughts might be on the apparel category mix going forward? How do your focus in destination businesses fit within that outlook? What initiatives are working well? And what's your outlook to gain wallet share?

So just as mentioned, I think we've got just really good financial health right now. And Polaris is designed really for significant flexibility depending on where the customer goes, and Polaris has really proved durable for us. And it's allowed us to kind of adapt and to just operate with much greater agility. So from that, we've been able to enter new categories and things like you've heard us talk about home fitness and pets and outdoor recreation. We've expanded categories, as you know, about toys or what we've done in active. And so to your question about the destination businesses, which there are 6 of them, they're powerful. We've got either #1, #2 or #3 market share in the country. So let's start with beauty. So beauty has been a standout for us. It's a place where we've gained share -- market share in the second quarter. That was really led by fragrances, which had a 65% increase versus the second quarter of '19. Fine jewelry, big standout for us. We've been on a growth role there for a number of years and a 40% increase to 2 years ago. Furniture, that's been a signature category for us for a while. That was up 12% versus '19. What you'll see is all of these are higher than the 6% comp that we had in the aggregate business. Then you get into those kind of pandemic signature businesses that were really affected by like men's tailored. So men's tailored, we still had a decrease to 2019, but we gained share versus our competitors. Dresses came back more strongly. So dresses, because of the breadth of offering from casual all the way to prom and social, we had a 10% increase in dresses in the second quarter versus '19. And then the last signature category is women's shoes. This is the one that's probably one of the most affected by the supply chain issues. And so we are late in some of the offerings that our customers expect from us. And so we did have a major improvement versus first quarter of about 17 points. But we are really -- we're constrained right now by some of the supply chain issues. So those would be kind of the signature categories. And then we like to talk about the new categories and the new brands, specifically focused on this under 40 customer, and really looking at how do we serve them better? How do we have on-ramp categories that get them into our brand? And so you think about some of the new launches that we've done. And now this was an apparel brand we launched in the second quarter, very successful both men's and women's. We launched at the same time. We've got Oak coming, which is a sustainable brand that's going to be in our textiles area. We just launched a sustainability cycle, which has been highly popular. Our big objective on this is to be a one-stop shop, particularly for the Millennial mom. And so that's really where the tie-in of the Toys "R" Us partnership came in as a non-ramp category. And then just kind of summing it all into 1 channel, really focused on digital and making sure that from both the under 40 as well as the core customer, that we have all the right offerings, inspiration and function. So as mentioned, #2 website. Within it, we launched in the first quarter, the contemporary [indiscernible] which has been quite popular. We're really focused now on expanding our prowess with live video shopping. And what you'll see later is what we're going to be doing in the beauty category with [indiscernible] So if you like fragrance finder in the first quarter of '22. We'll have a new skin care tool. We'll have a beauty adviser interface that's much more robust than what we have today. So kind of we're focused on all of those things to continue the momentum of the business.

That's great. One of the things that you touched on there was the exciting new partnership with Toys "R" Us and the initiatives that you have there, both in-store and online. First, can we talk a little bit about the store opportunity that you see with Toys "R" Us? What are your plans for the rollout of the Toys "R" Us? How much square footage might they get? Where do you think that will be allocated? And what do you think the opportunity is for sales over time in this business relative to Macy's current toy business?

Yes. So you heard me on the first quarter call talk about -- we're very excited about this partnership. And clearly, toys is a big -- it's a category that our customers associate with us, but it was a category in which we had very low share. And so -- and we really discovered that during the pandemic of our opportunity there by what we did with Vendor Direct. And so that was just a real standout in terms of sell-throughs and what the need was there. So that response really led us to, okay, how could we get more aggressive with it. Toys have been a very -- and have been a key component of our Backstage strategy and VDF. So what did we want to do in the full price? It's obviously a promotional category but at higher price points with much more brand relevance. So we really look to Toys "R" Us. I mean, they're clearly one of America's beloved brands. And so we looked at the opportunity as an on-ramp category for the under 40 customers. And so because we had a small share, I've been clear that we see a 5x opportunity in this. We're well on our way on that. It's an acquisition category for the customers that really lead to higher margin purchases. We've been really working with personalization that if they purchase in toys, what else are we seeding for them. We're getting them into other categories in our brand at higher margins. And just think about these millennial parents, most of them were Toys "R" Us kids. And so Toys "R" Us, at it's high, 25% of all toy purchases were in the Toys"R"Us brand. So it's been bad and around, but it's a good brand and the opportunity for us to engage with them. So let's talk about your question about where we're going to go with stores. Right now, it's a website. It's a big push on us. We made the flip. We're satisfying all that demand right now. We do and will be in 400 stores next year. We're currently working on your question about what does the square footage look like. Obviously, our flagships, it's going to be massive. Other stores, it's going to be significant. Very strong presence there. We're working very closely with the brands right now about what the content is going to look like and all the categories you would expect as well as opportunities for more private brand in there. So highly focused on this too. I think this is going to be a big opportunity for us, but also just to be able to serve these customers that come in for toys on all the other categories that we can serve.

One of the follow up questions that I have on that, is the business strategy of the toysrus.com fulfilled by Macy's? What drove this business model decision specifically? And as a broader question, do you think that this fulfilled by Macy's opportunity could be replicated with other brands over time to help scale Macy's distribution network in a much bigger way?

Yes. So when we made the flip in the last 2 weeks of August, it's just -- we've seen our toy business double as a result of just that flip. So right now, we own the inventory, and we're acting as kind of the marketplace for the brand. And it certainly helps round out our customer experience as a department store. To your question about are there other opportunities, we're always looking for opportunities to expand relationships with our brand partners. So Nata Dvir, who is our Chief Merchant and all of her teams are spending a lot of time right now working on that to identify mutual growth opportunities with brands or new categories, be it them online or in omni, in most cases, they will be both. So lots of opportunity for us to be able to do that in the future. So I think the Toys "R" Us model is a good indication of how we're approaching new opportunities for the future.

Adrian, last quarter, you increased your long-term adjusted EBITDA target to low double digits beginning next year. Can you talk to the biggest contributing pieces to this target versus the margins that were achieved pre-pandemic?

Absolutely. And thank you, Brooke. Well, I would start by saying that a key dimension of our Polaris strategy is margin expansion that we know is a major driver of shareholder value. And so we spend a lot of time identifying and actioning several strategies that support our view of really sustainably delivering low double-digit EBITDA target over time. Now let me share with you some of the things that we're just very methodically approaching in terms of achieving that goal. The first is really starting with merchandise margin, and we extend merchandise margins significantly versus 2019 in the first 2 quarters of this year. And we'll continue to win by improving the mix of higher margin products like apparel, but also by providing a great product that our customers will quickly buy at regular price. We've made headway with our pricing fronts. Yes, there's still -- we're still very much in the mid-innings with these initiatives, and we still plan to deploy a number of things to drive our full price sell-throughs as well as increase our aiming waters. Now the results that we're seeing from merchandise margin are real and gives us a lot of confidence that our strategies will lead to higher, more sustainable margins that will ultimately offset some of the delivery expense headwinds as we continue to increase our digital penetration. Now in terms of delivery expense, which is also part of our gross margin, we're currently pursuing a lot of strategies to mitigate the impact of digital penetration and also the increase in delivery expenses that it ramps. So we know that we have a lot of work to do in this area. We're working diligently to accelerate many of those initiatives, particularly as we approach the coming year. But the kinds of things that we're doing is we're working on increasing the percentage of orders that our customers think about our stores. We're exploring ways to accomplish this through better inventory placement using our data science as well as providing convenient same-day and next-day pickup options for our customers at their nearby stores. We also believe that better inventory placement will just simply reduce the distance that packages have to travel to get to our customers. And we also believe that we can reduce just a number of packages our customers receive in any given order by simply reducing the amount of split shipments that we're currently experiencing in our system today. And we're also obviously looking at our best offers, looking at our loyalty program, looking at our credit card holders to make sure that we're rewarding those customers for productive and profitable shopping behavior. Kind of the last piece that we spent a lot of time thinking through is really our SG&A, and we're very pleased with the accomplishments that we've seen today. We started, for example, with adjusting our cost base in 2020, and this has continued to be a big focus for us. So as we kind of think about 3 key levers around SG&A, the first really is a permanent cost savings from Polaris in 2020. So compared to 2019, we're currently benefiting from about $900 million of annualized run rate Polaris savings which came out of the restructuring last year. And what we're focused on now is really ensuring that we don't add those costs back into our business. The second piece is just labor shortages. We expect this will continue to be a productivity driver this year and in the relative near term relative to pre-pandemic levels. Yet the level of labor shortages we've experienced in the first half is really not sustainable, but we do believe that there will be learnings and some productivity gains there as we look ahead. And lastly, the key -- one of the key things I'm pretty excited about is the generation of new income starts that will help us offset SG&A expenses, particularly Macy's media network where these types of innovations or the types of innovations that we really want to sail. And as we think about Macy's media network, we expect that to contribute about $75 million in revenues this year. And the expectation is that this also would include an expansion to Bloomingdale's, which we just completed, which expands it's exciting media opportunity to our luxury vendors. So these are the kinds of actions that will support a sustainable low double-digit EBITDA margin for Macy's going forward.

That's really helpful. I'd like to spend the next few minutes diving into each of those components. And maybe we can start with some of the factors of gross margin. One of the questions that we're asking all companies is what they're thinking about digital penetration into 2022 relative to what we saw in both 2020 and 2021. Could you share your thoughts on that? Do you think it will be higher, lower or the same?

Yes, it's a great question. Let me start by saying our experience in 2020 really increased our conviction to take bolder actions to drive our omnichannel business forward with the digital channel playing a more meaningful role in our customer shopping experience. Now we know that many of our customers start their journey in the digital channel, particularly those younger customers. And we knew that our active customer count was declining pre-pandemic and also as knowledge that we could not grow our business without more customers and getting those customers to visit with us more and spend more with us. So we really prioritized customer acquisition and felt that digital was the fastest and most efficient path for us to achieve this. Now as Jeff mentioned earlier, we've seen great success this year with new customers coming in through the digital channel, which has accounted for about 40% to 50% of new customers in the last 2 quarters. Now we're focused on achieving our $10 billion in digital sales by 2023. And with that in mind, the expectation of digital penetration as we think about 2021 and our guidance, we expect digital penetration for this year to be at about 35%. Now our Polaris strategy reflects that we believe that the appropriate level of capital is needed to commit to our ongoing investments in the online experience, which overall will support our omnichannel capabilities. So as we strengthen our foundation, we have the opportunity to build more meaningful experiences to explore new sales channels by deepening our competitive modeling categories and best position our brands for our customers, both digitally and in our stores and more omnichannel. Now over the next couple of years, we expect our capital spend to increase to support this. So we, this year, are committed to spending about $650 million, but we expect to increase debt to about $1 billion annually over the next several years. So our investments will continue to be heavily focused on strengthening omnichannel with investments that are appropriately supporting our omnichannel capabilities, but these investments include digital shopping experiences, data and analytics, technology infrastructure and efficient fulfillment capabilities, which support digital growth, omnichannel growth and the profitable growth of our business.

One of the most focused topics today is pricing and promotions. And part of the adjusted EBITDA target that you've put out there, it includes some pricing optimization strategies. You've had great gains in gross margin so far this year. Can you help us parse through what's sustainable and truly attributable to the company-specific initiatives versus what might be more transitory in nature? And as you look forward, how should we be thinking about promotions into 2022? Do you think they'll be higher or lower versus '19? And how will inflation factor into this?

Yes. So improving gross margins has been a key focus for us. It's one of our key value drivers within our business. And we're very pleased with our gross margin of 40.6% in the second quarter, which was an improvement of about 180 basis points relative to 2019. Now we've expanded our gross margin rate over the course of the year. And we have succeeded doing this largely through delivering clear value to our customers and using data analytics to inform our pricing, promotion and markdown activities. Now if the changes we're making are real, and we believe that they are working, so let me just kind of go through some of those. Lower inventory levels in combination with the execution of our data science initiatives are really driving our results. We specifically have spoken about our POS pricing test and our location level pricing test. When I think about our location-level pricing, we've been able to scale that to about 500 apartments in the second quarter. As I think about our POS pricing test, we're focused on optimizing our [indiscernible] that not only drive sales but also drive our margin profile. Now in many cases, this means fewer discounts as we actually look at our operations looking ahead. Now these 2 initiatives have continued to benefit us. We saw this in the first quarter. We continue to see this in the second quarter. But most importantly, it's also helped us offset the cost at results from our increased digital penetration as our delivery expense creates a bit of a headwind as you saw in the second quarter. Now even though we're benefiting from the recovery, we do believe the decisions that we're making now with data and analytics are really driving our gross margin outcomes that you've seen this year. And we're trying to continue this, this year and post recovery, to maintain our healthy margin profile. Now one of the ways we have to do that is we expect to have lower levels of inventory for the remainder of this year, and we also have to make sure we're sustaining our stock-to-sales ratio at a healthy level going forward. The second key thing here is from a promotional standpoint. This year's promotional levels have been lower than historical levels, and we've been thoughtful about the categories that need promotion, and we'll continue to do so while we're actually very focused on higher AURs and full price sell-throughs. So there's just a number of initiatives that we're testing, that we're scaling that we're working through in order to further build confidence and drive momentum as it relates to our margins. And some of the things that we're looking at that are still ahead of us include rolling out a promotional effectiveness tool this fall, which will really give us the ability to better hindsight what promotions are most effective. We're looking also this fall at a competitive price rating tool that ensures that we're delivering value to our customers every day. And next year, we're looking to roll out a promotional planning tool that will facilitate more effective timing of our POS events and help us better analyze what's working and where we can make improvements. Now as it relates to delivery expense, which is the third piece, we know that we have headwinds here. And we also know that we have real work to do, but we're still committed to being very focused on leveraging our activities upstream and downstream, which provides a seamless experience for our customer. And we recognize that things like surcharges which to this year will begin in November are things that we have to kind of work against in order to mitigate those expenses. So working very hard to make sure that we're achieving our gross margin goals and sustain those goals over the long term. Now as it relates to your question on the inflation, we're not concerned about inflationary pressures in the back half of this year. Yet we're still looking at the upcoming spring season where there is a possibility there could be increased pricing pressure not only from inflation but also from promotions as well. So on this particular topic, I'd close by saying that the difference between our brand from where we were a year ago is just the degree of sophistication and the use of data science that we're trying, allocation to our promotional ladders and across all of our different departments and all by different content.

That's really helpful. Sorry, Jeff, did you have something to say there? Okay. One other things I want to make sure that we have a chance to chat about a little bit is the supply chain. It's been top of mind for investors as the industry navigates production facility closures in Southeast Asia, bottlenecks at the port and freight and shipping delays. Can you talk a little bit about what you're seeing here? And what's your biggest lever to mitigate the supply chain pressure? Is it increasing the lead times, shifting production, airfreight or other? And do you think that your inventories will grow faster or slower than sales in the second half?

Yes. So we're comfortable with our ability to satisfy our inventory needs in the near term and to drive profitability with faster stuff to reduce our POSs, our POS promotions. We saw in the second quarter that we brought in about $1 billion of receipts over our plan, which speaks to the financial health and just the flexibility that we've had in terms of managing demand throughout the year thus far. Now our focus is on the entire supply chain from overseas to our distribution centers to our stores, and we're being proactive as we prepare for mid-November in order to ensure we have a successful holiday season. Now to your point about the supply chain disruption, we expect to see some impact across some categories, as Jeff mentioned earlier. We're not concerned about beauty, about soft home, about jewelry, which really positions us well for gifting as we get into the fourth quarter. We are more cautious about apparel, whether it be ready to wear, whether it be men's, whether it be kids, which also includes some of our private brands. That's where we're actually quite cautious. We believe that the most significant lever we have to manage, the supply chain challenges is really our strong vendor relationships, which help us support -- which help support the actions that we're taking with regards to the supply chain. We're working closely also with Ocean Carrier partners to maximize our capacity and where possible to minimize disruptions. But the kinds of actions we're taking are consistent with what we've been taking for most of the year, replacing earlier ship dates not only for holiday but for spring season. We're adding an additional lead times into our planning. We're confirming orders with vendors much earlier. There are contingency plans that we have in the late receipt hit our distribution centers. And so we're continuing to find creative ways to mitigate the disruption as much as we can. Now as it relates to inventory in the second half, we've not really provided any additional perspective beyond the guidance that we provided. So we continue to feel that our guidance is appropriate, and we continue to perform within that range.

That's really helpful. As we think about that inventory line for a minute longer, on your last conference call, you talked a little bit about normalization in inventory levels into mid-2022, but still at very healthier levels than where Macy's was at pre-pandemic. Can you talk to the level of inventory turn that you expect across your business into next year? The data and digital initiatives that are enabling that lower level of inventory and how you're going to be able to drive those stronger sales on that inventory level?

Yes. The pandemic taught us that we could be successful operating our business with less inventory and still achieve higher sales, including full price sell-throughs and higher AURs. And our inventory strategy remains very focused on chasing sales and being very disciplined in our buying behaviors, which just simply results in having a healthier stock-to-sales ratio. Now we're pleased with our inventory down 14% in the second quarter compared to the second quarter of 2019 versus our top line sales up nearly 2%. But part of the inventory decline is driven by the supply chain disruptions, which we anticipate in and proactively took actions to navigate with vendors. But that said, our ability to chase inventory and manage our sales-to-stock ratio is really what's driving our higher full price sell-through, which were up 500 basis points compared to 2019 and also our inventory turn improvement, which for the trailing 12 months is up about 15% as we approached -- exited the second quarter. So we continue to reduce the amount of business that are marked down, sales inventory relative to where we were previously. And this is a very consistent trend that we saw from the first quarter. Now that being said, we do think supply and demand will converge in mid to late 2022. But until then, we expect inventory levels to remain relatively to need. And as we think about the drivers of inventory efficiency, we think about controlling the volume of buy. That's one of the key pieces that we're focused on, and we're using analytics to identify opportunities to improve self-reviews and work closely with our brand partners to really understand inventory availability on a daily basis. We're also leveraging data science to identify opportunities to improve our sell-throughs and also working closely with our brand partners to understand inventory availability as we look at the fall season, spring season and look throughout the months ahead. The third is just disciplined execution. And in order for us to achieve full price sell-throughs, we have to leverage the data analytics we've been using. We have to get the most out of the local level pricing, the POS pricing test that we've executed. And also with the tools that we're bringing online this fall and next year, continue to really make sure that we're executing well with those tools. Now when we did all of this model, it maximized our merchandising margin and maximized our gross margin. We have much more efficiency in our stores and our supply chain, and it really supports our EBITDA margin expansion that we spoke about earlier.

I was wondering if we could pivot to the store portfolio for a moment. During the pandemic, the company saw strong success in some of those local suburban stores that had previously been underperformers. And in contrast, last quarter, you talked to strong performance of the growth stores. How are you thinking about the Macy's fleet overall as we reenter the new normal?

Yes. As Jeff shared earlier, we do believe that the Macy's omnichannel ecosystem that includes a strong store fleet of our best malls and off-mall locations and that are fully integrated with online and mobile platforms is the right estimation for Macy's. We announced the 125 doors for closure over multiple years, and that was right before the pandemic hit in 2020. And prior to the pandemic, a lot of these locations were some of our least productive locations. And while today, we closed about 60 of those locations, we're continuing to assess the right balance of stores within our markets as we develop this ecosystem in order to focus on the actions that help us accelerate market share growth. Now through the pandemic, we've seen our downtown locations lag behind our other doors. And to give you some context, the downtown doors account for about 10% of a Macy's store sales in the second quarter of 2019 and underperformed our remaining doors by nearly double digits over the second quarter. So how many stores we ultimately close and what the time table will be remains to be determined as we look at the appropriate mix and size of those stores in order to help us grow market share. Now our expectation is that we will exit the recovery as a stronger company than when we entered, and we want to ensure that our store base appropriately reflects that.

Jeff, Adrian, we're about out of time, and I want to thank you so much for joining us today to kick off our 28th Annual Goldman Sachs Global Retailing Conference. Jeff, do you have any closing comments?

Just that what Adrian said, we're a stronger company coming out of the pandemic. We're super focused on market share gains and on the omnichannel customer opportunities that we have.

Great. Thank you so much for joining us, and have a great day.

Thank you, Brooke.