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

Greetings, and welcome to the Macy's, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to turn the floor over to Caitlin Howe, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO, Tom Edwards, our COO and CFO. Along with our second quarter 2026 press release, a Form 8-K has been filed with the Securities and Exchange Commission. and a presentation has been posted on the Investors section of our website, macysinc.com and is being displayed live during today's webcast. Unless otherwise noted, the comparisons we provide will be versus 2025. All references to our prior expectations, outlook or guidance refer to information provided on our June 3, 2026 earnings call. On today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings presentation and SEC filings available on the Investor Relations section of our website. All references to comp sales throughout today's prepared remarks represent comparable owned plus licensed plus marketplace sales, unless otherwise noted. All reported nameplate comp sales results are on a go-forward basis. Go forward, Macy's, Inc. comp sales include the approximately 350 go-forward store locations and digital for Macy's, which represents the Macy's go-forward nameplate, and all stores and digital for Bloomingdale's and Bluemercury, which represent their respective nameplates. All forward-looking statements are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today. A detailed discussion of these factors and uncertainties is contained in our filings with the SEC. Today's call is being webcast on our website. A replay will be available approximately 2 hours after the conclusion of this call. With that, I'll turn it over to Tony.

Good morning, and thank you for joining us today. First, I'd like to welcome Caitlin, our new VP of Investor Relations, to the team. Over the coming months, we'll meet with many of you on the call today. We're so excited to have her on board. Now on to the results. We're encouraged by our strong performance in the second quarter, which reflects our continued momentum of the Bold New Chapter strategy. We delivered revenue growth comparable sales increases across all nameplates and channels and better-than-expected performance across all key financial metrics. These results reflect the substantive enterprise-wide improvements we are making in our business that are resonating with our customers. Combined with consistent execution of our Bold New Chapter initiatives, we are building a durable foundation that delivered second quarter results ahead of expectations. Macy's Inc. net sales, comparable sales, adjusted EBITDA and adjusted diluted EPS all exceeded our guidance. Macy's nameplate delivered its fifth consecutive quarter of positive comps, led by the reimagined 200. Bloomingdale's achieved double-digit comparable sales growth for the second consecutive quarter and its best second quarter sales volume on record. And Bluemercury delivered another quarter of solid comparable sales growth. Our talented colleagues are driving this performance, and I want to take a moment to recognize all of them. They are the heart of our customer-led focus, powering the bold new chapter. Through meaningful customer engagement and strong execution, our teams are making a difference every day and delivering tangible results. Now turning to a more detailed view of the quarter. Macy's, Inc. delivered comparable sales growth of 2.7%, our fifth consecutive quarter of comp sales growth. On a go-forward basis, our business continued to outperform with Macy's Inc. comparable sales rising 2.8%. Adjusted EPS of $0.63 reflects both higher sales as well as the net benefit of tariff refunds received in the quarter. When excluding the net tariff refund benefit, adjusted EPS was 14% above the prior year and above the high end of our guidance. Now let's discuss how each pillar of the strategy contributed to our results beginning with strengthening of reimagining Macy's. Macy's nameplate achieved positive 1.1% comparable sales, posting its fifth consecutive quarter of increases. This reflects a steady multiyear improvement. Macy's comp sales grew 230 basis points on a 2-year stack, driven by sustained progress enhanced brand offerings, product assortments and omnichannel shopping experience. Our reimagined stores continue to outperform in the second quarter, sustaining that lead over several years. Earlier this year, we expanded the program to 200 locations, which delivered comp growth of 1.9% in the second quarter. This performance reflects our customer-led focus and purposeful changes around staffing, events and local market strengths. The result is 5 consecutive quarters of reimagine comparable sales growth with increases in 9 of the last 10 quarters. Year after year, quarter after quarter, reimagined stores consistently performed higher on our Net Promoter Score, contributing to continued improvement in NPS for the entire Macy's fleet. Our total Macy's fleet NPS score is up 10 full points since the initiation of the strategy underscoring the strength of our customer-first approach. As a reminder, the reimagined locations account for nearly 60% of our go-forward Macy's stores and 75% of our Macy's go-forward store sales. And are now delivering meaningful scale to our overall business. These stores represent a clear proof point of our ability to drive growth, and we're confident we can continue to expand these initiatives going forward. Our digital channel also contributed to positive comparable sales growth in the quarter. Results benefited from the halo of branded assortment improvements and a shift to fashion authority positioning. In addition, we saw continued growth in our Marketplace business, which provides complementary offerings and fills whitespace opportunity. Digital is a central component of our omni-channel approach. We're creating a seamless customer experience across all touch points and continue to enhance our digital offerings and connections across channels. Our new AI-powered conversational shopping assistant Ask Macy's was introduced last quarter on digital platforms as a starting point for discovery. We're now expanding this capability to our in-store colleagues to help deliver the best Macy's at every touch point. Turning to brand offerings. We're increasingly viewed as a valued partner to market brands, which are excited to work alongside our teams. Our strong balance sheet, large addressable market and loyal customer base are attractive differentiators that further strengthen our vendor relationships. In the quarter, we continued to make progress on our brand curation adding new brands and expanding distribution for others. One good example is Kiko Milano, a trendsetting Gen Z Italian beauty brand. Kiko Milano chose Macy's for its exclusive U.S. launch of their popular beauty line. We also introduced Happy Camp3r's Junior apparel line and further expanded the store distribution of Reis, Rod & Gun and BOSS, among others. Our multi-category model provides product and price optionality and diversification. It gives us the ability to lean into areas of opportunity and chase important trends, providing more reasons for customers to shop with us. In the second quarter, we continue to see outperformance in watches, dresses, boutiques, career sportswear, kids, handbags, fragrances and men's and women's shoes. We experienced softer trends in plus sizes, intimates and women's sleepwear. We did see improvement for our big ticket category compared to the prior quarter, but it remains soft versus the prior year. From a marketing and event perspective, we continue to engage with customers and leverage the strength of our brand as part of Macy's year of celebrations. This summer, we hosted our biggest Macy's 4th of July fireworks yet. Celebrating the event's 50th anniversary with Americas 250th. Over 11 million people tuned in to watch the live event setting a new record, up nearly 60% from last year. The star-studded event featured performances by NeoCon, Post Malone, Salt and Peppa, BebeRexha Rexia, Shabozi and Blake Shelton. We also leverage the reach of this national event to drive in-store traffic through local activations, celebration Saturdays and fireworks theme marketing. Summing up the Macy's nameplate we are pleased with our continued growth, reflecting the positive consumer response to our offerings and initiatives. Now turning to the second pillar of our bolder chapter strategy, accelerating and differentiating luxury. Bloomingdale's delivered another impressive quarter, achieving positive 11.3% comparable sales and the highest second quarter sales volume in its 154-year history. This performance was driven by growth in all channels, markets and categories and is a testament to the brand's progress as the omnichannel local leader in the markets we serve. In addition, Bloomingdale's performance highlights a significant step change with comp sales up almost 1,700 basis points on a 2-year stack. These results reflect Bloomingdale's differentiated and unique positioning from premium contemporary to luxury. We continue to raise the bar on our curation with a clear emphasis on discovery, newness and experiences. Looking at the second quarter category performance. We saw growth in all areas with outperformance in ready-to-wear, men's apparel, fine jewelry, fragrances, and tabletop. We grew our customer base and continue to expand the reach of our very important client program, which focuses on our highest spending customers. Bloomingdale's continues to deepen brand partnerships expanding the breadth of our offerings during the second quarter. We introduced several new brands, including Ulla Johnson, Proenza Schouler and Dries Van Noten. We also expanded distribution of James Perse, Chanel Fine jewelry and watches, Christian Louboutin and Prada shoes. Our compelling brand assortment evolution continues to engage existing customers and attract new ones, strengthening Bloomingdale's cultural relevance. Looking at the customer experience, there are several initiatives to support our loyal customer base. First, we are expanding our widely popular in-store events, holding hundreds of events across the majority of our stores during the quarter. In addition, we launched Bloomingdale's own AI-powered conversational shopping assistant for digital, which enhances how customers engage with the brand and discover products. This rollout also highlights the power of leveraging enterprise-wide capabilities across Macy's Inc. to enhance the customer experience across nameplates. Summing up Bloomingdale's, we are encouraged by the brand momentum and the ongoing growth potential. Our strategic initiatives position us to continue to gain market share across brands, categories and regions. Turning to Bluemercury. We're pleased to welcome Alex Choueiri as the new CEO. Alex brings extensive experience in beauty, luxury strategy and retail to our team and joins an exciting time to help guide Bluemercury's next phase of growth. Bluemercury delivered another quarter of solid comparable sales with growth of 6.2% and Results were driven by our in-store marketing campaign, summer party, which drove strong customer engagement. From a product perspective, growth was led by dermatological skincare, makeup fragrances, including brands such as SkinCeuticals, Victoria Beckham Beauty, La Mer and Jo Malone. Both new and remodeled stores continue to perform well. The final pillar of our strategy is simplifying and modernizing end-to-end operations which was recently expanded to incorporate optimizing and scaling enterprise-wide organizational excellence. We are focused on harnessing the extensive reach and capabilities of Macy's, Inc. to support revenue growth, improve customer experiences and execute our strategies even more effectively. These efforts include supply chain efficiencies with additional savings expected in the second half of the year and included in our outlook. We're also actively advancing our AI and automation capabilities in areas such as the customer journey, inventory management and localization while ensuring that the human connection remains central to our customers and to our colleagues. Now I'd like to discuss our thoughts on the consumer upcoming events and guidance. Our consumers remained resilient and engaged in the second quarter, responding positively newness across our product offerings and our lineup of marketing and events. Across nameplates, we continue to skew towards middle and upper-income consumers where performance remained stronger. For the third quarter, we are delivering a strong slate of events. For Macy's, this includes our fall fashion campaign celebrate American designers. This week, we launched our exclusive capsule collections featuring 6 of the most influential voices in American fashion including icons, Tommy Hilfiger, Donna Karan and Michael Kors; and the New Guard, Edvin-Thomson, SallulaPoint and Jonathan Cone. We're also building up to our marquee event of the year, our 100th Macy's Thanksgiving Day Parade. We have already kicked off the 100-day countdown with a compelling set of activations designed to engage consumers and generate excitement leading up to the parade. At Bloomingdale's, we just launched our fall campaign named Hotel Bloomingdale's. This features exclusive products and immersive brand activations, and includes a special partnership with the Ritz Carton hotels. We're excited for this collaboration, which brings together 2 iconic brands that share a commitment to exceptional service and elevated experiences. Turning to guidance. Today, we are raising our full year outlook, reflecting our better results and confidence in the Bold New Chapter strategy as well as a pass-through of a portion of our tariff refunds. Consistent with our past practice, we are taking a prudent approach that provides the flexibility to respond to potential changes in the competitive landscape and consumer demand. Regarding tariff refunds, we received the majority in the second quarter and are taking a balanced approach to deploy the benefits. We are flowing through a portion to the bottom line and reinvesting the remainder to support the Bold New Chapter strategy and our long-term growth ambition. We will continue to ensure we deliver for our customer. In closing, I'm encouraged by our results. This performance reinforces our confidence that the Bold New Chapter continues to gain momentum. Our initiatives are resonating highlighted by 6 consecutive quarters of better-than-expected results, 5 consecutive quarters of comparable sales growth and 2 consecutive quarters of net sales growth. This reflects the strength across Macy's, Bloomingdale's and Bluemercury, and underscores the benefits of being a multi-brand, multi-category and multichannel retailer, serving customers from off-price to luxury. Combined with a strong financial position, we are building a durable foundation that positions the company to deliver sustainable, long-term, profitable growth. With that, let me turn it over to Tom.

Thank you, Tony, and good morning, everyone. In the second quarter, the Bold New Chapter continued to deliver strong financial and operational results. Our strategies are gaining traction, driving top and bottom line performance. These results are made possible by the skillful execution and customer focus of our dedicated colleagues and teams across the company. Looking at a detailed view of the quarter, beginning with Macy's, Inc. net sales grew 1.1% to $4.9 billion compared to $4.8 billion last year. Net sales grew 1.9%, adjusting for a roughly $35 million impact from the 14 store closures at the end of last year. Comparable sales on a reported basis rose 2.7% on top of 1.9% growth last year and go-forward comps grew 2.8%. By nameplate, Macy's comparable sales rose 1.1%. We continue to be encouraged by the performance of the reimagined locations, which grew 1.9%. Bloomingdale's comparable sales were up 11.3% and Bluemercury comparable sales increased 6.2%. The Total revenue rose 1.2% to $5.1 billion. On a go-forward basis, total revenue increased 2% to $4.9 billion. Other revenue, which includes credit card and Macy's media network, was $193 million, up 3% versus last year. Within that, credit card revenue was $156 million, up 2%, supported by a healthy credit portfolio and stable net credit card losses. Macy's Media Network revenue was $37 million, up 9%, reflecting partner engagement on our advertising platform. Gross margin was $2 billion, or 41.5% of net sales compared to 39.7% last year. Excluding both the net tariff refund benefit and the incremental impact of ongoing tariffs and fuel, our underlying gross margin rate increased approximately 10 basis points versus last year. Underlying gross margin expansion was driven by favorable brand mix as well as the continued benefits of reimagined expansion, partially offset by [indiscernible] Ongoing tariff and fuel costs impacted the quarter by approximately 10 basis points which was favorable to our prior estimate of 20 to 40 basis points, driven by lower tariffs. Our SG&A rate was 38.7%, an improvement from 38.9% last year reflecting leverage on higher sales. SG&A dollars of $1.96 billion were 1% above prior year of $1.944 billion, reflecting higher variable costs driven by sales growth as well as investments in bold new chapter initiatives, partially offset by our always-on approach to expense savings. Adjusted EBITDA was $457 million or 9% of total revenue compared to $373 million or 7.5% of total revenue last year. Adjusted EPS of $0.63 compared to prior year second quarter of $0.35. Second quarter results included a roughly $0.23 net tariff refund benefit. Excluding the net tariff refund benefit, adjusted EPS would have been up 14% versus prior year and above the high end of our guidance. Our disciplined approach to cash flow generation and balance sheet management continues to support our strong financial position. During the first half, operating cash flow was an inflow of $586 million versus $255 million last year. Free cash flow was an inflow of $262 million versus an outflow of $88 million last year. End of quarter inventory dollars were up 2.5% compared to last year in line with our expectations and comp sales growth. We believe the composition and level of inventories are well positioned heading into the fall season with a good balance of newness and evergreen product. In the first half of 2026, we returned $201 million to shareholders through $101 million of quarterly cash dividends and $100 million of share repurchases, including $50 million during the second quarter. This leaves approximately $1 billion remaining on our buyback authorization. Capital expenditures were $324 million compared to $343 million in the prior year. Monetization proceeds were $35 million compared to $75 million last year. And we ended the quarter with $1.3 billion of cash on our balance sheet compared to $829 million last year. Now I would like to provide some additional perspective on our end-to-end initiatives and efforts to optimize and scale enterprise-wide organizational excellence. Two examples of these efforts highlight our focus on building efficiency and improving the customer experience. The first relates to delivering products to our customers. We made significant enhancements over the past years. And this fall, we will continue to improve service times, provide more transparency around order status and reduce costs. In addition, the ramp-up at China Grove continues to progress, and over time, we believe the automation improvements will support faster, more reliable service for customers and a more scalable operating model. Another example of our end-to-end initiatives is focused on inventory replenishment, a critical area centered on having the right product in the right place at the right time. We are adding an AI forecast overlay capability to replenishment, moving from pilot to broader execution, to improve in-stocks and deploy our inventory more efficiently. In total, we expect to realize supply chain efficiencies in the second half of 2026, which will benefit gross margin. Looking further ahead, we are confident we can build on these and other initiatives to drive revenue, improve the customer experience and reduce costs. Before moving to detailed guidance, I would like to discuss our tariff and fuel outlook for the year. Second quarter tariff impacts were lower than anticipated. For the second half of 2026, we now anticipate tariffs being a tailwind compared to the prior year. For fuel and transportation costs, we are factoring the current outlook based on what we know today. We now forecast the full year combined tariff and fuel gross margin net headwind of 5 to 15 basis points, compared to prior guidance of 20 to 30 basis points. Turning to tariff refund. In the second quarter, we received $98 million of proceeds and $18 million following quarter end, for a total of $116 million. We have now received all of our expected refunds. We are taking a balanced approach to deploying the proceeds to both the bottom line and for reinvestment. From an EPS perspective, we are flowing through approximately $0.05 to the bottom line, representing about $20 million. We are using the remaining funds to invest in Macy's brand building, accelerate reimagined store pilots to support 2027 program expansion, strengthen our value proposition and mitigate the uncertainty of fuel headwinds. Now moving to guidance. For the full year, we are raising our outlook on the top and bottom lines. From a sales perspective, we are flowing through the entire second quarter outperformance and are maintaining second half sales consistent with our prior outlook. Our EPS assumptions reflect our better results and confidence in the bold new chapter strategy as well as a pass-through of a portion of our tariff refunds. Consistent with our past practice, we are taking a thoughtful approach to quarterly and annual guidance allowing us to respond to changes in the macroeconomic and geopolitical environment. Looking at detailed third quarter guidance, we expect net sales of $4.65 billion to $4.7 billion. Last year's store closures contributed about $30 million to sales in the comparable period. Comparable sales of down 0.5% to up 0.5%. Adjusted EBITDA as a percent of total revenue of 3.7% to 4.0% and adjusted diluted EPS of a loss of $0.19 to $0.23. It is important to note that our outlook includes disciplined reinvestment of tariff refunds, which nets to approximately $0.18 of EPS in the second half of 2026. For more details, please see Slide 23 of our earnings presentation. For the full year, we increased net sales to $21.675 billion to $21.25 billion. Store closures contributed roughly $145 million to net sales in the prior year. Comparable sales of up 1.0 to up 1.5%, other revenue of $920 million. Gross margin as a percent of net sales of 38.5% to 38.7%, SG&A up 1.5% to 2.25% on a dollar basis compared to last year. Adjusted EBITDA as a percent of total revenue of 7.8% to 8.0%, interest expense of roughly $90 million and have increased our adjusted diluted EPS to $2.15 to $2.35. In summary, we are pleased with second quarter performance as we continue to deliver and execute the bold new chapter strategy. We are well positioned to navigate the near-term environment, and we remain focused on executing our strategic initiatives to deliver long-term profitable growth. This is supported by our healthy balance sheet and disciplined approach to investment and capital allocation. Now let me turn the call back to Tony for closing remarks.

Thanks, Tom. In closing, the second quarter is another proof point for the bold new chapter and our ability to deliver growth. Our strategy is gaining traction, and we're excited to continue to scale the initiatives that are resonating so well with the customers. Looking at the back half, we are well positioned for the fall and holiday seasons. And longer term, we're focused on building on our progress, delivering for our customers and increasing shareholder value. And with that, operator, we're now ready for questions.

[Operator Instructions] Today's first question is coming from Blake Anderson of Jefferies.

A nice quarter. So I wanted to start off with -- it sounded like you held the second half sales expectations mostly despite the Q2 outperformance. Can you provide any color on the quarter-to-date comp versus the flat guide at the midpoint, which implies a step down? How much of this is recent run rate versus maybe prudence for the macro or a tougher compare? Any color you can provide there or other puts and takes for Q3 comp would be helpful.

Sure. Thanks, Blake. I appreciate the question. We had a strong first quarter, second quarter. You saw that we beat guidance in both, and we raised for the year each time. We look at the third quarter as being the strongest comp that we're up against for the year, 3.2%. So there's actually a slight acceleration on a stack basis. That being said, there is nothing unusual unfolding about the quarter. We sat here right after Memorial Day in the first quarter. We sat here right after liberating now in the second quarter, I feel exactly the same way. We have the right strategy, the right team, the right culture, the right execution, we're really well prepared. And if you go back a year ago, we were scrambling with tariffs and reforecasting the business and canceling orders and repricing merchandise. We are focused solely on the customer and the quality of the experience. So I think we have opportunity to obviously deliver beyond what we've guided. Tom?

And Tony, I'd add that, Blake, we've raised our guidance now 2 quarters in a row. We started out the year at 190 to 210, had a $0.10 in Q1 and now an additional $0.15. And that really highlights the confidence we have in our business and in the bold new chapter. And your insight into the second half is exactly correct. When you take out all the puts and takes, our second half expectations are exactly in line with what we had in the prior quarter. So we think that's important as we're moving forward and look forward to talking more about that as we continue the call.

Great. And if I could ask as a follow-up, I wanted to unpack AUR a bit more. There are some moving factors there. You've made a lot of progress on accelerating AUR. How do we think about the AUR sustainability into the second half? How much runway do you have left for premiumizing brand mix and then maybe lower promotions despite what sounds like more price investments across the industry and perhaps with your tariff refunds as well.

Yes, Blake, I think we have opportunity to continue to increase our AUR. It may not be at the rate that it's been for the last 12 months. But we can premiumize however the right word it is, our assortments across all 3 brands. The customer continues to respond most favorably to newness to trends, to the expansion of brands to additional points of distribution. I think you heard on the call, the comments about brand expansions at both Macy's and Bloomingdale's. So that naturally is going to have a positive benefit to our -- but I think the other piece is making sure that we're not undershooting the customers' expectations. So there is an interest in buying certain products and certain brands. And when we have them, we can convert that to a higher AUR. We are using a portion of the tariff refund to sharpen our pricing in a couple of categories, furniture and Fine joy being 2 of them, where we want to make sure we're capturing our fair share of the business.

And I'd add like that AUR is really part of our broader model building a healthier business. We saw AUR up in the quarter around 9%. And it's driven, as Tony mentioned, by more relevant brands, refined assortment, a better omnichannel experience. And our traffic is very steady and very significant and predictable. We do see a slight offset in conversion, but our overall basket size has been higher and AUR trends growing. It's been a multiyear effort. So we see this continuing over time and a big part of our model going forward.

The next question is coming from Alex Straton of Morgan Stanley.

Congrats on a nice quarter. Tom, I just wanted to clarify quickly just on the updated full year guidance. It's clear that your back half sales assumptions are the same as last quarter. But excluding tariffs, has your back half margin outlook evolved at all across growth or SG&A? And then I just have one quick follow-up

Sure. Our back half margins are consistent with our prior outlook. So we do anticipate on the gross margin side expansion, and this is a little more weighted to Q4 in the prepared remarks, I referenced some supply chain activities and other initiatives that are improving our cost structure as well as delivering importantly for the customer and providing better service and better transparency as well as some AI initiatives that are helping us to forecast better and put the right inventory in the right place at the right time for areas like replenishment. So we see that coming to fruition in our highest volume quarter in Q4. For SG&A, excluding the other puts and takes related to refunds, we they always noted that our investments would be made more in the third quarter. So we see higher SG&A investments in and that was part of our initial guide for the year as well as in Q4, and that's part of supporting our bold new chapter. That's more reimagined stores. We expanded to reimagine 200 supporting Bloomingdale's, continued growth and other initiatives like digital. So the answer -- the net is it is the same as it was before, and it's really investments to support the bold new chapter of delivering for our customer.

Perfect. That's super clear. Maybe turning to reimagine, do you have any details that you can share around how the oldest reimagine cohort, the first 50 is performing today. I'm just curious, as those stores mature? Are you seeing the comp uplift strengthen? Is it holding steady? Or is it moderating? I'd just love to understand how those stores are performing.

Sure. Alex, it's Tony. What we'd say is that all cohorts of stores are growing. And since we don't break out the individual year cohorts, I can't offer anything more specific than that. I think what's exciting is that all cohorts are growing and that the stores continued to benefit from the investment in staffing, the better assortments, the better execution and the improvements in our customer experience. I mean 10 points of Net Promoter Score growth and actually the reimagined stores are higher over the 2.5 years of the program, I think, underscores the reaction the customer is giving us to the changes we're making in the Macy's store experience. And our confidence in the reimagined program is one of the reasons why as part of the tariff spend back we allocated a portion to pilot some additional stores at the end of this year, which will allow us to get a head start as we expand the program in 2027.

The next question is coming from Matthew Boss of JPMorgan.

Congrats on a nice quarter. so Tony, could you elaborate on the strategies that are gaining traction and the comments that you made earlier. So specifically at the Macy's banner, you lapped the inflection to positive low single-digit comps a year ago. You showed acceleration on a 2-year stack this quarter, and Bloomingdale's posted both their best 1- and 2-year comps this quarter. So what initiatives or strategies at the Macy's banner, where do you see opportunity remaining? And what inning do you see this market share momentum at Bloomingdale's in today?

Sure. Thanks for the question, Matt. It starts with product. So we're in the early innings, third inning, fourth inning, in terms of the improvement in the quality of our assortments. That's the right balance of best better good. That's a part of the AUR growth that we're seeing at both Macy's and Bloomingdale's, luxury on the Bloomingdale side, contemporary on the Macy's side. It's the respect and treatment of product in our stores. So it's a better flow of inventory. It's better presentation and storytelling. You see today on both of our websites, the American designer campaign at Macy's focused on trends, focused on newness. You see the launch of Hotel Bloomingdale's focused on trends focused on newness, both stores, brands doing activation events in the stores in the course of September. I believe the focus continues to be making sure we have relevant assortments, making sure we're rooting out the redundancy within our assortments, improving the variety and making sure that top of funnel, we are spending enough time from social to CRM, to audio and video on how we communicate our enthusiasm for fashion of the season. As I mentioned on the call, newness and fashion and trends are selling. We're excited about suede, brown, the boot assortment, animal prints, new treatments in denim. There is so much to convey to the consumer. And we just got to make sure that we balance that with the other messages that we're communicating throughout the season.

And Tom, maybe multiyear or just the bottom line opportunity tied to Tony's top line answer there. Could you speak to gross margin drivers from here? And what comp is needed to leverage SG&A on a multiyear basis?

Well, Matt, thanks for the question. And I'd say in the first couple of quarters, we have levered SG&A held it flat and it's slightly lower on a percent of sales basis in Q2. And with low single-digit comp growth. And that's the area I'd point to with a model of low single-digit growth on the top line. mid-single digit in the middle and a little lower -- higher growth at the bottom when we look at EPS. So that's, I believe, the model that we have talked about and can continue to deliver and it's the one that we actually have delivered. So in the first half of the year, we've grown the top line and the bottom line. And last year, in fiscal '25, excluding the tariffs on a go-forward basis, we grew both the top line and the bottom line. So we're committed to deliver long-term profitable growth. And I'd say and can point to that we are doing that.

I'd just add, inventory is in a healthy position. We see opportunities for margin expansion as we get to the end of the year and we go into next year and controlling SG&A below the rate of inflation. I think if we have the low single-digit comp growth, we can lever and we can deliver greater profitability for our shareholders.

The next question is coming from Brooke Roach from Goldman Sachs.

Tony, with the success of the reimagined format at the Macy's banner, how are you thinking about the pacing of expanding that to the remainder of the fleet and additional investments in reimagine ahead?

Thanks, Brooke. We're excited about the reimagined performance, 9 of 10 quarters of growth, continued outperformance versus the rest of the fleet. I think as I said before, it's this great recipe of great product and a better experience, more people in the stores and adding in local empowerment has made the difference in continuing to grow and comp the comp across all cohorts of stores. We saved the fourth quarter call for the expansion of the store fleet, but you can based on our piloting of additional store initiatives in the fourth quarter that we're going to be adding more reimagined stores next year, and the aim will be to reimagine all of our go-forward fleet. We said that at the beginning of the bold new chapter that there were approximately 350 go-forward stores. We began with 50. We added 75, we added another 75. So I think you have pretty much our cadence of expansion. But we'll leave that for the fourth quarter call.

And Brooke, I'd add that we take a very disciplined approach to rolling out initiatives and delivering ROI. And our imagine stores are working. They are delivering results and very pleased. They are capital light as well. So our investments are in associates in eventing and in bringing in new brands and assortments, and these investments are driving growth. Importantly, we're learning and iterating as we've moved along. So our investments are becoming even more efficient as we go from one cohort to the next, and we look forward to continuing to build on that.

Great. And then just a follow-up for Tom. Can you unpack the proportion of the reinvestment of tariff dollars is being put into price versus the other buckets? And then how should we be thinking about the baseline margin rate from which you can grow into 2027 as you cycle these refunds and reinvestments into next year from a margin rate perspective?

Sure, Brooke. Happy to help with that. So on the reinvestment piece, the majority of our reinvestments are in the bold new chapter strategy and supporting our long-term growth. There is a portion, as Tony mentioned, that's supporting our value proposition for some very selective and surgical areas such as big ticket and fine jewelry. But the other areas are brand marketing, particularly for Macy's, for top of the funnel to build out our brand, to do our reimagined pilots and of course, we're holding a little back just due to the realities of the situation and dynamics of the external environment related with fuel. But the longer term is what we are focused on. And then as we look at 2027, these initiatives are designed to give us a head start and continue the momentum and traction of the bold new chapter. So I don't look at it so much as lapping as so much as helping us maintain and build on the momentum of our strategies.