Merryshine Jewelry, Moment, Faith, Forever.

macy\'s f1q08 (qtr end 5/3/08) earnings call transcript

by:Merryshine     2019-12-16
Macy\'s, Inc. (NYSE:M)
Etexecueskaren M at 10: 30 a. m. on May 14, 2008. Hoguet -
Executive vice president and chief financial officer of Augustine
Fat Bear Morrison
Lehman Brothers
Goldman Sachs-Stan
Sun Securities Weinswig Deborah-
Dunn-Citigroup
Cohen-Thomas Weisel
Bank of America stock exchange
US stock exchange
John Patrick Walsh
David Glick
Buckingham Research Group
Telsey Consulting Group
Miller, BMO Capital Market-
Warner-Lehman Brothers
Sang Ford Bernstein Kay Yin
LifeMichael Exstein, New York-
Sorin Credit BankJ. P.
Steve Chero, Morgan.
Jack\'s thesis on wealth management-
Flanagan root
WellingtonAnalyst at Michelle Clark
Good morning. welcome to Macy\'s.
First quarter earnings call.
I would now like to hand over the meeting to your host Karen hogter.
Please continue, madam. Karen M. HoguetGreat.
Thank you. good morning.
Welcome to Macy\'s.
Conference Call
I am Karen Hoguet, chief financial officer of the company.
Any transcription or other copying of statements made on this call is prohibited without our consent.
A replay of the phone will be provided on our website www. macysinc.
About two hours after the call.
Please refer to the investor relations section of our website for any non-
GAAP Financial indicators were discussed this morning.
Please remember that all the advance
There are risks and uncertainties in the outlook statements, and due to various factors affecting the company, these risks and uncertainties may lead to significant differences in the actual results of the company from the expectations and assumptions mentioned today, including the risks specified in form 10 recently submitted by the company-K and Form 10-Q.
Sales for the first quarter were $5. 75 billion. On a comp-
Our sales have fallen. 6%.
We are very pleased with our performance against our competitors this quarter.
We are pleased that the strategy we are implementing is correct and that our customers are responding well to our products.
However, as we all know, the overall economic environment is still challenging.
Geographically, we had the strongest sales in northeast and Texas this quarter, while sales on the West Coast and Florida were weaker.
In addition, our directto-
Customer business performance was strong in the first quarter.
According to the main business family, women\'s clothing is still the toughest category of the quarter, while the performance of the male and central core is relatively better, and what I would say is that the family is mixed.
Our most powerful business this quarter is men\'s wear, men\'s wear range, youth, cosmetics, fashion jewelry and watches, handbags, mattresses and household items.
As I mentioned earlier, the weakest category is the women ready --to-
Clothing and home textiles.
However, I should note that not all women\'s clothing is weak.
We continue to see more power in the contemporary and cowboy-based brands.
It sells more casual looks, especially value. driven pick-me-
Refresh the items in the customer\'s wardrobe.
Serious clothing and structured professional dress are not sold either, and while value seems important in this economic environment, very popular premium brands sell well.
I should also add that our private brands have performed well against other brands this quarter as they do represent the fashion that our customers can afford.
Gross profit margin for the quarter was 38.
6%, down 120 basis points from last year.
Due to weak sales and the need to classify in the consolidation division, we expect sales to decline.
At the end of the quarter, our inventory fell by 4%, indicating that we continue to maintain discipline in managing inventory levels.
S. dollar SG & A fell $10 million compared to last year, but sales rose 90 basis points.
However, included in SG & A, the costs of litigation that may be resolved in connection with the California class action on wages and hours are $23 million.
The final agreement and the court\'s approval are key to resolving the issue.
This raises SG & A by 40 basis points.
Therefore, excluding the settlement reserve, SG & A is $33 million lower than last year, which indicates our expense discipline.
However, sales of SG & A fell by 50 basis points due to the decline in sales.
We benefited from lower depreciation and amortization this quarter, $0. 315 billion this year and $0. 329 billion a year ago.
We also benefited from some early departures from the merger division this quarter.
We continue to work hard to cope with the weak sales environment.
What negatively impacted SG & A this quarter is the increased cost associated with our direct investmentto-
Revenue from customer infrastructure and our credit portfolio is lower than last year.
While we have sold our credit business to Citi, our economy is still affected by the profitability of the portfolio, although it is much lower than what we did not sell.
The key challenge for our credit portfolio is that bad debt remains high and we now face more bankruptcy risks.
We are working together with Citi to take steps to reduce risk.
Operating income before consolidated costs for the first quarter was $0. 117 billion.
We booked $87 million in departmental consolidation related expenses during the quarter, mainly related to severance and relocation.
In the first quarter of last year, the consolidation cost of our May Company was $36 million.
Interest payments for the quarter were $0. 136 billion, compared to $0. 125 billion last year.
The tax offer for the quarter was $47 million, which is higher than our current tax rate due to California\'s $10 million tax settlement.
Excluding the cost of the merger, our net loss is $4 million.
The average share for the quarter was 420.
9 million shares.
We did not buy back any shares this quarter.
So we lost $0.
01 a quarter does not include the legal settlement of $0 in addition to the division\'s consolidated expenses.
$03 per share, EPS per share will be $0. 02 per share.
Net cash from continuing operations was $21 million this year, $0. 37 billion last year, and $0. 391 billion for the whole year.
Cash used for continuing investment activities was $99 million, compared to $68 million last year, mainly due to disposal after last year
Hours and possibly related asset sales.
Capital expenditure and software capital expenditure were $0. 108 billion this year, down from $0. 15 billion last year.
We have $0. 366 billion in cash on our balance sheet.
We are still happy with our cash flow, which is strong even in this challenging economic environment.
In the first quarter, we completed the division merger and transitioned to the new regional structure of the former Macy\'s, North Macy\'s, Midwest and Northwest of Macy\'s.
This includes system transformation and the construction of our new organization.
We are very happy that we are able to find in-house, very strong talent in these new positions.
We have been busy communicating changes internally and with our supplier partners, and we are now working on training new regional and regional organizations.
It\'s incredible to pay more attention to localization and the positive energy of customer voice.
Looking ahead, we expect the economic environment to remain challenging, at least in the third quarter.
Our annual guidance-over-
The annual change in Comp store sales is still negative 1% to 1.
5%, but if we are to reach the cap on this range, we need to recover earlier and stronger.
Like you, we don\'t know when the environment will improve, so staying flexible is the key.
This means that our merchants must remain liquid and conservative when placing orders, and if our sales trends, we must also develop contingency plans ready to further reduce costs and capital expenditures without beginning to improve.
In this challenging era, our culture of discipline will be rewarded.
We expect the gross margin for the rest of the year to be better than the first quarter of last year, mainly because our inventory was purchased after our sales expectations were lowered, and also because we now have a departmental integration.
Our hope is that the gross profit margin will rise slightly for the rest of the year, but to some extent it will depend on the sales trend.
S. dollar SG & A is expected to increase for the rest of the year, even if the division merger saves $60 million in costs.
This is mainly with the lowerthan-
Expected credit income, investment in our direct business and expenses related to our stock --
Based on compensation.
We still expect about $1 in depreciation and amortization this year.
3 billion, interest spending is still between $0. 56 billion and $0. 58 billion, with an annual tax rate of 37%, although as you can see in the first quarter, the situation can change a lot in each quarter.
We expect an additional $63 million in departmental consolidation this year, bringing the total cost this year to approximately $0. 15 billion, in line with the guidance we gave when we announced it.
As you can see in the press release, we still expect annual EPS that do not include consolidation costs to be within the $1 range. 85 to $2. 15.
The bottom line is that in this very difficult economy we manage at least as much as any other fashion retailer.
We remain flexible so that we can respond quickly to changes in the environment.
At the same time, My Macy\'s localization program provides us with a way to turn positive energy into business.
In the fall, we also launched some interesting new merchandise sales and marketing programs on the deck, including Macy\'s 150 th birthday celebration and Macy\'s as Tommy Hilfiger\'s costume
At some point the economy will get better and we will have a good time.
When it is positioned.
Now, what questions can I answer? Question-and-
Answer session operator (
Operator instructions)
Let\'s go with Bear Stearns first, Christine Augustine.
Augustine-
Bear StearnsI is a little curious about your affirmation of $1. 85 to $2. 15;
Given the economy and uncertainty, why not just confirm to the low end and see what\'s going on this year?
I just want to know how confident you are at that high end. Karen M.
Hoguewell, I think as you have heard in terms of sales, Christine, we need to start seeing a better economy, perhaps a stronger recovery than many of us have imagined, to achieve a higher sales range.
If you don\'t reach the high end of the sales range, it will be more difficult to achieve the high end of the income range.
But that being said, it was only the first quarter.
Augustine-
Bear densa, could you please let us know your latest thoughts on debt due later this year? Karen M.
HoguetWe has $0. 65 billion in debt due on September/October and we are considering refinancing.
Augustine-
Bear StearnsOkay, in the end, did you cut the price in advance on women\'s clothing?
Since some competitors have already announced this, I\'m just wondering if this is part of the erosion of gross margin? Karen M.
HoguetI I didn\'t know you would call so early.
All our price cuts are treated as a function of the sales rate, so if there is no sale, we will reduce the price in time and are very disciplined in keeping the inventory aging.
So it will be marked down if something is not sold.
I don\'t know if it\'s early or late relative to what you think.
Augustine-
Bear StearnsI is just thinking about some breaks that happened earlier, so I\'m just wondering if you have to follow suit. Karen M.
HoguetAgain, I don\'t know, we\'re really trying to focus our price cuts relative to what we sell and what we don\'t sell.
Augustine-
Bear StearnsOkay. Thank you.
We will work with Dana Cohen of Bank of America Securities.
We will go to the next question when we hear no response.
We went with Lehman Brothers to Robert Deble.
Hillary Morrison
Good morning, Lehman Brothers.
I\'m Hillary Morrison looking for Bob.
Karen, can you talk about you? -
Have you considered any type of input cost inflation in your annual guidance, and if so, can you tell us what you expect from this? Karen M.
HoguetWe began to see an increase in the cost of some raw materials, such as cashmere, leather, cotton, in addition to overall inflation, I don\'t think it will have a meaningful impact until 2009.
Hillary Morrison
Lehman Brothers, so can you also talk about your expectations for the level of the 07-year coupon day? This is included in your expectation of gross margin ---Karen M.
HoguetIt is almost the same.
Hillary Morrison
Great Lehman Brothers. Thanks.
We are going to Adrian Shapiro with Goldman Sachs.
Adrian Shapiro
Thank you, Goldman Sachs.
Karen, your comp performance is clearly impressive compared to your peers.
Maybe if you could give us a little bit more about transportation, fare trends and the color of the month, just wondering how it developed during the quarter and where it ended at the end of the quarter? Karen M.
Retail sales of HoguetAverage units continue to rise.
I don\'t have good traffic data because it\'s a traffic and conversion problem so I really don\'t know how to fix it but obviously if the AUR goes up and the total sales go down, fewer units will be sold.
As you consider on a monthly basis, as opposed to our expectations, and as opposed to last year, February and April are weaker.
Adrian Shapiro
Goldman Sachs sassokai, what\'s the point for the early days of Mother\'s Day since April? Karen M.
Hogti ti doesn\'t want to make too much money in a short period of time, but early ones may also start well.
Adrian Shapiro
This is very helpful, Goldman Sachs.
Then you just mentioned that if the situation has not improved, you have developed contingency plans in terms of expenses and capital expenditures.
Can you explain what these are and quantify it? Karen M.
Sorry, but not hogti.
I mean, in terms of where we will find our savings, it is already a matter of certainty.
Adrian Shapiro
Goldman Sachs. Any pull-
Back to my Messi project at that event? Karen M.
Absolutely not.
Adrian Shapiro
Finally, as you mentioned, the high end of the comp program obviously depends on a stronger recovery.
Can you tell us how you plan your inventory?
Obviously you did a great job in the second quarter, but if the high end of this range may be a bit picky, just give us an expectation of your inventory trend, how did you plan and where did you want to go when you entered the second half. Karen M.
As I mentioned just now, hogtville we are trying to maintain flexibility in stock sourcing, so we plan to move in a lower direction of guidance in terms of cost and inventory.
Adrian Shapiro
Goldman Sachs. Thank you.
We will travel to Jeff Stein with Soleil Securities. Jeff Stein -
Good morning, Karen. I’m wondering --
You \'ve talked a little bit about how your private label brand seems to go beyond the market brand, and I \'d also like to know, though in terms of profit, given that you are unable to get a price cut offer on a private label from your supplier, did your private label profit exceed the brand profit in the first quarter? Karen M.
HoguetJeff, I don\'t have this data in front of me.
Usually this is not a big problem. Jeff Stein -
Circus securitiessokay.
Can you talk about the catalogue in Bloomingdale and your decision to eliminate it, and how that might affect direct sales and profits? Maybe just discuss the reasons behind you and decide to eliminate the situation? Karen M. HoguetSure.
I mean, the key is Bloomingdale.
Com has huge potential, we think this is where we should invest in resources, not catalogues, and when we stop selling in 2009 it will have a slight impact on sales, no impact on profits. Jeff Stein -
Circus securitiessokay. Thank you.
We will work with Deborah Weinswig of Citigroup.
Deborah Weinswig-
Good Morning Karen, good performance in a tough quarter.
Can you talk to my Macy\'s about the support you get from the vendors, how did you work with them?
Also, what are you doing to share more information about sales trends with your suppliers? Karen M.
Let me take a step back on the supplier issue.
We had a meeting with over 750 major suppliers in New York a few weeks ago, trying to educate them about what we do at Macy\'s, because obviously, we would like their partnership to help us understand what we need to bring to these stores in terms of classification, and then make sure that vendors are able to deliver these services.
But frankly, in terms of the extent to which we reinvest our field organizations, we also want them to do so.
What I want to say is that people are very responsive.
Like us, they also realize the sales potential of this, which is good for both of us.
In addition to my Macy\'s, we have been working on a project to provide a simpler way for suppliers to get more information about their sales in our store, and this situation
The pilot will take place later this year.
Deborah Weinswig-
Will Citigroup be similar? -
There are a few retailers out there--
Basically, if the supplier wants it, it can provide visibility on sales rates and so on by store level.
Is that the way you\'re headed? Karen M.
Suspect HoguetI, Debbie.
I\'m not an expert there, but I suspect it is, and I suspect we will do better because we can see what everyone is doing today.
Deborah Weinswig-
Citigroup, yesterday released some press releases about the opening of some stores.
Could you please elaborate on the format of the 120,000 square feet mentioned? Is that an off-
Can we expect to be seen as a shopping center form for future growth tools? Karen M.
As you can imagine, there are not many regional shopping centers in this country.
There are more opportunities for these lifestyle centers that tend to support smaller doors, so I think our future growth will be more of these smaller forms of lifestyle centers.
Deborah Weinswig-
Citigroup pokay, then the last question, you talked a little bit about stopping the Bloomingdales catalogue, obviously there is a lot of investment in Internet strategy, obviously good returns, strong performance this quarter.
Can you talk about how you see progress continuing over the next few years? Karen M.
HoguetWell, as you know, we expect the number of direct businesses to reach $1 billion this year and we expect it to continue to grow significantly.
Deborah Weinswig-
Thank you very much. good luck.
We are going to Leeds Dunn with Thomas Wessel. Liz Dunn -
Thomas Weisel partner good morning.
I add my congratulation.
I guess, is there a way you can give us the scale of the credit income you see for the rest of the year, and the amount that Citi sees in terms of the increase in default loans? Karen M.
Sorry, this is not public data. Liz Dunn -
Thomas Weisel PartnersOkay.
Is there any regional trend to point out relative to this data? Karen M.
HoguetI didn\'t look at it locally so I don\'t know the answer. Liz Dunn -
Thomas Weisel PartnersOkay and then just a following
Last question about the opening of the store ---
Do you have any concerns about particularly weak market opening relative to the rest of the country?
Do you think the issues we are seeing related to the real estate market are short term?
Essentially, or if these issues last longer, are you satisfied with these vacancies? Karen M.
HoguetWe are very comfortable.
I mean, we obviously have done a lot of analysis on the sales potential of these markets, and frankly, these markets offer the highest growth potential. -
You know, Phoenix and Las Vegas are the fastest growing markets.
So we have a long-term
Long term prospects, and as always very self-disciplined in analyzing opportunities to ensure they get a good return on capital. Liz Dunn -
Thomas Weisel PartnersOkay, great. Thanks. Good luck.
We are going back to Dana Cohen at the securities Bank of America. Dana Cohen -
Banc, US stock exchange, can you hear me now? Karen M.
Thank you, Dana. Dana Cohen -
The Banc on the US stock exchange is very good.
Several questions;
The tax rate benefits are $0. 02? Karen M.
Hogarty believes this is the case.
I didn\'t actually calculate it, but yes. Dana Cohen -
Banc on the US stock exchange-
Because I can\'t get net income. Karen M.
HoguetI means that although the key to tax settlement is that it will be an issue that is going on every quarter, included in it when we provide you with guidance on this year\'s tax rate. Dana Cohen -
S. Securities bank Yes, this quarter is important just because it\'s a small quarter, so--Karen M.
HoguetAbsolutely. Dana Cohen -
S. Securities bank, then just help us think more about it on SG & a, because all you said about why SG & A dollar is going to rise in the next few quarters is the same in the first quarter, the pace of change, what\'s the difference between the first and second quarters, so that the dollar goes down to rise? Karen M.
HoguetWell again stressed that I provided guidance for the rest of the year, not just the second quarter.
Depreciation is not beneficial in the second half of the year, and because of sales, the investment in direct business increases over the years, so when you only look at the dollar, this is a bigger factor. Dana Cohen -
S. Securities bank, so these will be major increments when you\'re through the year? Karen M.
HoguetYeah, there are also a lot of trivial things.
I mean, I think you guys sometimes ignore the huge amount of detail that is included in the SG & A number, but there are A lot of items in it.
But those are the biggest increments. Dana Cohen -
In terms of first quarter figures, operating profits excluding all projects fell by $68 million and were at Gross margin levels.
Is there any significant difference by division, or is it similar to what you said in terms of comp trends? Karen M.
As you know, the industry is very dependent on sales and frankly that\'s why we are happy with our negative 2.
6, because it does bode well for the rest of the year, as you think with respect to our peers.
Therefore, the difference in my profit margin will usually be as different as sales. Dana Cohen -
The Banc on the US stock exchange is very good. Thank you.
Next, we will meet Todd duvik of the US Securities bank. Todd Duvick -
Good morning, Karen.
There is a short question on the cash flow statement, a major shift a year ago, and it seems that the increase in accounts payable is a big problem, with a difference of almost $0. 45 billion year on year.
Can you please talk about some of the terms you are using with respect to the supplier and how those terms may have changed, or in--Karen M.
No HoguetIt--
The terms with the supplier have not changed at all.
In a way, it has to do with receipts for the first quarter of this year and receipts for last year, as it is a function of where annual payables are
Where and where the payables were at the end of April, so both are the same, but the terms have not changed. Todd Duvick -
Banc on the US stock exchange, I would like to see if you can give us a little guidance in the future on whether you expect any other major changes in cash flow, or compared to a year ago, how do you expect cash flow to remain the same? Karen M.
HoguetWe did not give guidance on cash flow. Todd Duvick -
Bank of America Securities, and finally with respect to the refinancing of debt you mentioned earlier, I think you can have a chance at any time ---
Are you going to take advantage of the debt capital market, or are you going to refinance with commercial paper closer to time? Karen M.
HoguetWell, the problem with refinancing will be the debt capital market.
Again, I don\'t know if we will do that, but that\'s what I mean by this sentence. Todd Duvick -
S. stock Exchange Bank is very good. Thank you.
We will be traveling with Berman capital to Steve kenklow.
Steve kenneslaus
As far as your inventory is concerned, Berman Capital is just a simple question;
Your inventory is down by 4%, but I\'m assuming you make it more balanced, you throw away a lot of women\'s goods, the women\'s clothing items you need, so, as we move forward this year you see the inventory you want to balance with sales and we should expect inventory to drop in the medium termsingle-
In the coming quarters, will the numbers continue to grow, or will they increase because of the consolidation effect? Karen M.
HoguetThere should not increase.
Steve, there is no weather forecast in front of me, but I will ---
Should not increase.
Steve kenneslaus
Berman capital OK, shouldn\'t that increase? Karen M. HoguetRight.
Steve kenneslaus
Can you comment on it because you said that textiles and home textiles are not doing well.
Can you talk about some of the exclusive brands that you bring, the Martha Stewart Collection, the new Tommy Hilfiger collection, how it works in the store? Karen M.
HoguetMartha Stewart actually did a very good job and obviously we started learning from the fall, which made the situation better this year and we felt very good about this product.
While it\'s too early for Tommy, it\'s going very well even in the weak clothing market.
Steve kenneslaus
Okay, okay.
Thank you very much.
We are going to go next to John Patrick Walsh with Wachovia.
John Patrick Walsh
Good morning, Karen.
I just want to know that historically, you used to finance your working capital construction through CP, and I want to know what your financing plan is when you look forward to the third quarter of this year.
Should we look for you to drop your revolver or is it possible to have a bigger, more permanent financing with other debts that are about to expire? Karen M.
The key, hogti believes, is that I mean, as you suggest, we will have higher financing needs in a short period of time.
We have access to A3P3 commercial newspapers to some extent, but it is clear that it is for this reason that we have working capital facilities and, therefore, there will be a lot of liquidity, and it\'s not entirely clear what we\'re going to do because we have to judge what the market was like.
John Patrick WalshWachoviaRight.
Also, when you look at your various stores, it\'s clear that you have some that are better than average and some that are lower than average.
I\'m just wondering if it\'s going to intensify in the current environment
The performance of some of your subordinates
In terms of considering some undercutting, execute the store and what impact this may have on you
Show shop? Karen M.
HoguetI believes that the key is that we have been paying attention to our shortcomings.
For those stores that should be closed and other stores that we think we can improve, this is the case with the show store.
So this is nothing new.
When we spend the year, we will look at the results.
We have closed down-
But I don\'t think it\'s in the show store. -
There are rumors that we are going to announce a major store closure plan that I didn\'t think.
John Patrick WalshWachoviaOkay.
Thank you very much.
We will go to David Glick with the Buckingham Research team. David Glick -
Good morning, Karen.
I was wondering if you could give us some extra color during the department merge process.
Obviously you are in good shape in the first quarter.
I think the system has turned over.
I\'m just wondering if you can give us more colors, the steps you take to ease the confusion in the departments that will now manage more stores, and how the new planning and distribution system was introduced. Karen M.
Hogarty believes that the key is that integration is progressing smoothly.
Last weekend, we integrated systems across all three departments, and the system team we worked with these departments did a fantastic job without any glitches.
So we are very happy about that, and from the perspective of people, organizations, new organizations have been integrated together, and as I said, almost all of the work has been filled internally, high quality talents, so we also feel very good about this one.
The key to reducing the risk of any disruption is actually the structure of My Macy\'s, and we are pleased that we will be able to mitigate any disruption there. David Glick -
Buckingham Research GroupThanks a lot.
Only one follow upup question;
When you enter the second quarter you start to meet the time of last year, and in terms of restoring some of the coupon days you plan to cut, you slightly reverse the route, I want to know what you think about the future comparison because we are facing the period a year ago. Karen M.
HoguetWell, there is no change in the promotion this year, so I don\'t know how it will affect us. David Glick -
The Buckingham research team, great.
Thank you very much, Karen. Good luck.
Operator we will travel to Dana Telsey with Telsey Consulting Group. Dana Telsey -
Good morning, Karen.
Can you talk about the private label plan?
Martha Stewart is successful, I believe it\'s 19% business. -
What do you think is going on?
You just announced the international opportunity last week, what is your idea.
Finally, from a real estate perspective, re-modeling and how this has evolved. Thank you. Karen M.
As far as private brands are concerned, as I mentioned earlier, they did a good job, with a 19% share last year.
When I answered a question about Martha a few minutes ago, the question continued to perform very well.
This is not a private brand.
That\'s what we call exclusive, but it\'s done very well.
As far as the international statement is concerned, as you may imagine, we have received many inbound inquiries about opportunities for international expansion, and we have accepted Dan Edelman, he is an experienced opportunity to spend all his time studying Bloomingdale and Macy\'s.
To be frank, Kerry, I, others will spend less time on this and let Dan really learn.
That doesn\'t mean I expect any major international announcements to happen soon.
Our focus now is entirely on establishing comp store sales in this country, but we should not take advantage of international opportunities in the next four or five years. Dana Telsey -
Thank you. Karen M.
HoguetAnd your last question, I\'m not sure if I understand it, related to re-modeling? Dana Telsey -
Consulting Group Real Estate--
How is the shop decorated?
I think half of your $0. 5 billion is spent on remodeling?
How many more stores do you need to do on re-modeling, what is--
Even if the economy is not very good, do you get the expected sales benefits?
Do you see the expected sales gains from re-modeling? Karen M.
The remodeling of HoguetThe will always, forever, always be an ongoing solution.
All we need to do is constantly reallocate the space to fit the trend and make the store look better, fresher and more.
So this will last forever.
At least last year, the returns we received were consistent with what we expected when we approved the capital.
We tend to do this once a year, so I haven\'t seen it in the last few months, but I suspect these stores will continue to do well. Dana Telsey -
Thank you.
We are going to Wayne Hood with BMO Capital. Wayne Hood -
Good morning, Karen.
There are a few things-
You mentioned the early sales, the sales started very well, it will make you more optimistic, but at the same time you will see the notice and so on, you have some very steep price cuts for the whole stock and collection etc, so I just wanted to know--
It\'s better, but there\'s a price to do it now, so is it really better not to have these promotions, or how should I look at these? Karen M.
The promotion is comparable to a year ago. Wayne Hood -
BMO Capital Market, so you get 40% to 60% off the whole series-Karen M.
No matter what you see, there is not much difference, as you know, we are very active in cleaning up things that are not sold.
I mean, the choice is old stock, so frankly you have no choice but to throw away the goods.
But I think we managed well and did not increase the promotion.
Without that, we would get sales. Wayne Hood -
BMO Capital Market.
The second problem is financing.
Would you consider doing bigger deals in the summer and, depending on the situation that interest rates may be higher next year, advance some due dates due next year? Or are you going to do a refinancing project that you have expired this year without moving forward? Karen M.
HoguetI could not comment.
Obviously, we also recognize the need for refinancing in the future, so we will consider market opportunities and decide how to do it. Wayne Hood -
BMO Capital Market.
My last question is related to Liz\'s question about credit. -
Given the problems credit card providers have had in Florida and California, they have started tightening underwriting there, you know, borrowing limits and so on.
You have such a big exposure there. -
To what extent will Citigroup\'s policy of possible tightening in these markets slow sales growth in these accounts? Karen M.
HoguetThere will obviously take some action, for example, to slightly lower the approval rate, but at this point we don\'t see this as a risk to the sales line. Wayne Hood -
The BMO capital market is assuming that the default ratio and default ratio will peak later
Half a year? Karen M.
That\'s what Hogarty thinks. Wayne Hood -
BMO Capital Market.
This is all I have. Thanks, Karen.
We will travel to Eric Miller with Lehman Brothers. Eric Miller -
Good morning, Lehman Brothers.
Thank you, Karen.
My question has actually been answered around the financing strategy. Thank you.
We are going to Utta Werner with Bernstein. Uta Werner -
Good morning, Karen.
I would like to know if you have any expectations for a tax refund check and to what extent you might see the benefits later this year? Karen M.
HoguetWe has no expectation of seeing the benefits.
We want to do this, but actually, I don\'t think we\'ll see a big part of those checks. Uta Werner -
Okay, Sanford Bernstein.
You mentioned earlier that you had a meeting with your 750 major suppliers.
In this difficult environment, what are your assessments of the health status of these suppliers?
As the economic environment continues to be tough, will you be able to work comfortably with them for the rest of the year? Karen M.
HoguetWe are confident that we will be able to work with suppliers so I don\'t--
This is not my concern. Uta Werner -
Okay, Sanford Bernstein.
Thank you very much, Karen.
We will be nextKai Yin]
With New York life. Kai Yin -
Thanks to life in New York
Almost all my questions have been answered. Thanks. Operator(
Operator instructions)
We will work with Michael Exstein of Credit Suisse.
Michael aikestan
Good morning.
Give you a few simple questions. -
Do you see any changes in the days of the week or other similar shopping patterns? Number one --
Second, several of your competitors have to deal with the inventory a little bit later than all of you, and I was wondering what competitive things you saw outside.
Finally, follow up on some real estate issues, are there any offset closures for the four stores you announced in the Southwest, or do you just increase the net exposure of the area? Thank you. Karen M.
Michael, I haven\'t heard of anything we \'ve experienced there so I don\'t know, but I haven\'t heard of it.
As far as our competitors who handle our inventory are concerned, we do not see an impact on us.
Usually, when the retailer ends
It has been counted and the price reduction has started, which doesn\'t have much impact on us, so I\'m not too worried.
In terms of stores in the northwest, these are incremental increases.
We\'re going to Charles Grom with J. P. Morgan. Charles Grom -J. P. MorganThanks.
Karen, earlier you mentioned how you expected the gross profit margin for the rest of the year to increase over the first quarter.
Does this mean that you expect the GPM to rise or perform better than in the first quarter? Karen M.
What we\'re talking about is that it has something to do with the sales trend, but we hope they will go up a little bit. Charles Grom -J. P.
Are you saying that the overall base point of the cable is up or slightly flat? Karen M.
That\'s what I said.
This is related to sales trends, so the two are linked together. Charles Grom -J. P.
Morganok, so if you\'re closer to the high end of the comp series than we expected? Karen M.
HoguetI will not be specific. Charles Grom -J. P.
Morganok, then I would like to know, given the news that we have heard from some of the other top executives, can you give us a little bit about Bloom\'s performance in this quarter
In terms of comps, high-end luxury retailers? Karen M.
Like another high
The final retailer, Bloomingdale, has a tougher quarter than before ---
Still doing better than Macy\'s, but worse than they have been. Charles Grom -J. P.
Morgan, okay, fair enough.
The last question;
What\'s interesting is you guys--
I think, just like starting to call home a better region in August, so this quarter was mixed.
I would like to know if this is due to some of the more difficult comparisons you are facing, or are there some product errors, or is this just some general weakness in some discretionary categories? Karen M.
Hogti believes that the big ticket to go home continues to strengthen, especially the mattress.
In the ticket area, I said the things at home are strong.
Textiles are weak, so I will still say that in general, the home is OK. Charles Grom -J. P. MorganOkay. Thanks.
We\'re going next to Steve [Cirro]
Asset management with Corning. Steve Cirro -
Corning Asset Management is the store you plan to open this year, owned or leased? Karen M.
HoguetThose is not a store. we are open and announced yesterday.
These will be open in the next few years. Steve Cirro -
But what new facilities are you going to open this year? Karen M.
HoguetYou know something, I don\'t know the answer to this question, which are owned and which are--
I doubt they all do, but I\'m not sure. Steve Cirro -
Entrusted Asset Management for sale-
Would you think this is a way of financing? Karen M.
HoguetWe will consider anything other than from a financing point of view, which is usually bad for the company. Steve Cirro -
Okay, thank you. Operator(
Operator instructions)
Let\'s go next to Jack [Darfick]with [Holden]. Jack Treatize -
Thank you. It’s Jack [Treatize].
I was wondering if you could comment. -
You mentioned that your private label brand performs better than most other brands, most suppliers.
Is it the full price-
Is it markdown? Karen M.
Yes, yes.
I mean, it\'s a combination. Jack Treatize -
Mark at the beginning-
Cut prices by or for the second time? Karen M. HoguetBoth. Jack Treatize -
If you can comment on any future, at least for this fiscal year, can you foresee any future consolidation costs or any future restructuring costs? Karen M.
HoguetWell, we have talked about the $0. 15 billion we will have this year, of which $87 million has been booked, so the rest will be booked in the next few quarters. Jack Treatize -HoldenOkay. Thank you.
We will be traveling with Bear Stearns to Christine Augustine.
Augustine-
On the merger of My Macy\'s department store and division and on this brand new structure, how long will you hold on, do you think at this point, will you monitor it before potentially adding it to the entire chain? Karen M.
I don\'t know, Christine.
One of the problems is that the new planning structure will not have an impact on classification until early next year.
So we have to look at it when we leave.
Augustine-
StearnsOkay bear, so you might--
I mean, maybe 2010 at the earliest, right?
I think, because you have to spend all the time in 09 years. Karen M.
I can\'t comment, you know.
We have to see.
This is a logical answer, but we may win faster and feel more optimistic.
Augustine-
Well, I can follow the bear hard fat.
Discuss this with Susan, but I just--
I know on your website that you already have the number of your stores and the footage as of March 1.
I was just wondering if there was--
If something else happens for the rest of the store count and footage. Karen M.
Hogti ti doesn\'t think so, but I will definitely have Susan call you.
Augustine-
Bear StearnsOkay. I can follow-
Consistent with her at this point. Thank you. Karen M. HoguetYou bet. Operator(
Operator instructions)
We went with Wellington to Mark Flanagan. Mark Flanagan -
WellingtonKaren, back to financing, can you talk about your own goals from a rating perspective?
You have seen some migration.
Related to this, you may have any strategy or idea to improve your chances of entering the debt financing market over time, such as you can provide guidance on credit metrics, etc? Karen M.
HoguetI thinks the key is that, as you know, being an investment-grade company is very important to us and we made a big stock purchase last year --
Back in the statement, we have actually worked with these agencies in advance to make sure that our rating is aaa so that we can downgrade a rating and still be an investment rating if there is a recession.
But as far as the rating we want is concerned, nothing has changed.
We like Triple B so if something like that happens again this year, we can maintain the downgrade and still be an investment level.
In terms of credit metrics, the key is to reach the ratio that allows this to happen. Mark Flanagan -
Are you willing to provide what you think? Karen M.
I mean, we can talk again about Moody\'s and S & P and the specific adjustments they made, etc, but we can do that at some point.
Similarly, if we can achieve the goal we set, that is, in the range of 2% to 3%, with the increase of the EBITDA rate, the comp growth rate of 14% to 15%, each credit ratio will beMark Flanagan -
Thank you.
We went to Michelle Clark with Morgan Stanley.
Analyst at Michelle Clark
Karen, Morgan Stanley. It’s actually [Chi Li]
Call Michelle.
Clarification--
When providing guidance for FY08, I believe people expect to buy-
Support will resume in 2008.
Can you please tell us what positive impact the guidance you get from the purchasebacks? Karen M. HoguetI can’t.
I mean, you know, it was just one of the factors that was considered at the time.
Analyst at Michelle Clark
Morgan StanleyThank you.
Operator, no other problem, I want to transfer the phone back to Ms.
Any other or closing comments. Karen M.
HoguetGreat, well, thank you all for your interest in Macy\'s, and we look forward to continuing to talk to you guys this year. Take care.
The operator who finished the call today.
Thank you again for your participation.
Have a good day.
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