Macy's CEO Discusses Q3 2010 Results – Earnings Call Transcript
Macy’s, Inc. (
)
Q3 2010 Earnings Call Transcript
November 10, 2010 10:30 am ET
Executives
Karen Hoguet – CFO
Analysts
Deborah Weinswig – Citi
Charles Grom – JPMorgan
Lorraine Hutchinson – Bank of America-Merrill Lynch
Michelle Clark – Morgan Stanley
Bob Drbul – Barclays Capital
Liz Dunn – FBR
Wayne Hood – BMO Capital
Jeff Stein – Soleil Securities
Ken Stumphauzer – Sterne, Agee
Adrianne Shapira – Goldman Sachs
Robert Wilson – Tiburon Research Group
Mike Shrekgast – Longacre
David Glick – Buckingham Research
Presentation
Operator
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Macy's F3Q09 (Qtr End 10/31/09) Earnings Call Transcript
Good day and welcome to Macy’s Incorporated third quarter earnings release conference call. Today’s call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead, ma’am.
Karen Hoguet
Thank you. Good morning. I am Karen Hoguet, CFO of the company. A replay of the call will be available on our Web site, www.macysinc.com, beginning approximately two hours after the call concludes. Please refer to the Investor Relations section of our Web site for discussion and reconciliations of any non-GAAP financial measures discussed this morning.
Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company’s actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company’s most recently filed Form 10-K and 10-Q.
We were pleased with our results during the third quarter. While sales were a little bit softer than we had hoped in early October, with the unexpectedly warm weather, especially relative to last year, we exceeded our sales and profit plan for the quarter.
Given our confidence in our business trend, we utilized $500 million of excess cash to buyback debt with maturities between 2011 and 2016 during the quarter in the open market. That brings our total debt reduction this year to over $1.2 billion, including the $150 million we paid at maturity on November 1.
In this third quarter, our sales were $5.623 billion and on a comp store sales grew 3.9%. It was a good quarter overall for sales. We opened two Macy’s stores in California that had been Gottschalk stores, bringing out total Gottschalk versions up to four. These converted stores are performing very well.
As we look by family of business, the standout performances on the positive side in the quarter came from fashion watches, our I.N.C brand, cosmetics and fragrances, men’s, and luggage. Other private brands and exclusives also had a very good quarter. The weakest performances were in cold weather goods, traditional women sportswear, and tabletop.
Geographically, we performed best across the South, all the way from Florida to Southern California, where weather was less of an issue. Business, as you might imagine was weaker in the Northern climate zones, due in large part to the warm weather. The exception to this was the upper Midwest, the Chicago Minneapolis and Detroit areas which had a very strong performance for the third year in a row.
Macys.com also continued to grow rapidly in the third quarter. The growth in online sales can be attributed to a combination of better merchandising, new technologies like faceted navigation and quick view, and a constant focus on omnichannel tactics. Our digital marketing included the more aggressive use of social media and it’s very closely linked with the stores, providing a seamless experience for our customers.
Also our recent rollout of what we call, Search & Send, where we can satisfy customer demand for items that are either not carried in a particular store or that are out of stock, we can satisfy them using the dot-com inventory. This has been very successful, although, these sales are not counted in our online sales. As of the third quarter, the Search & Send technology was available to customers in all of our Macy’s stores.
Bloomingdale’s performed well in the quarter, with strong sales both in the stores and also online, in fact Bloomingdale sales trend has been comparing favorably to other upscale fashion retailers. The Santa Monica store opened in the quarter and opened very strong as did our first three outlet stores. The fourth outlet store is expected to open next week.
Gross margin in the third quarter was 40%, which is up 20 basis points from last year had the current accounting treatment been effect, but down 20 basis points from last year on a reported basis. This is as anticipated and consistent with our prior guidance of a flattish gross margin rate for the fall season, meaning the third and fourth quarters combined.
We ended the third quarter with inventory up 1.9%, and while higher than it has been the inventory level is still well below our Comp-store sales trend. We have focused on building fresh inventories in opportunity areas to help drive our fourth quarter sales.
SG&A in the quarter was $2.69 billion, only up 0.6% had the accounting treatment been effect last year and up 1.8% as reported. As a percent of sales SG&A was 36.9%, down a 120 basis points from last year compared to the adjusted number or down 160 basis points on a reported basis. This is also consistent with our guidance for the fall season.
Operating income in the third quarter was a $177 million more than double last year’s $88 million, before division consolidation costs, and as a percent of sales operating income in the quarter was 3.1% versus 1.7% last year before division consolidation costs.
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