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Macy's (M)

Q4 2010 Earnings Call

February 22, 2011 10:30 am ET


Karen Hoguet - Chief Financial Officer and Executive Vice President


Bernard Sosnick - Gilford Securities Inc.

Dana Telsey - Telsey Advisory Group

Michelle Clark - Morgan Stanley

Robert Wilson

Robert Drbul - Barclays Capital

Lizabeth Dunn - FBR Capital Markets & Co.

Adrianne Shapira - Goldman Sachs Group Inc.

Kenneth Stumphauzer - Sterne Agee & Leach Inc.

Wayne Hood - BMO Capital Markets U.S.

Jeffery Stein - Soleil Securities Group, Inc.

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Paul Swinand - Stephens Inc.

Deborah Weinswig - Citigroup Inc

Michael Shrekgast

David Glick - Buckingham Research Group, Inc.

Lorraine Hutchinson - BofA Merrill Lynch

Charles Grom - JP Morgan Chase & Co



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» Macy’s Inc. Q1 2010 Earnings Call Transcript
» Macy's Inc. Q4 2009 Earnings Call Transcript
» Macy's F3Q09 (Qtr End 10/31/09) Earnings Call Transcript

Good morning, and welcome to Macy's Incorporated Fourth Quarter Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Ms. Karen Hoguet. Please go ahead.

Karen Hoguet

Okay. Thank you very much, and good morning, and welcome to the Macy's conference call. I'm Karen Hoguet, CFO of the company.

Any transcription or other reproduction of the statements made on this call without our consent is prohibited. A replay of the call will be available on our website,, beginning approximately two hours after the call concludes. Please refer to the Investor Relations section of our website 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 Form 10-Q.

2010 was a great year for the company. It was the first full year of our new structure and the My Macy's strategy, and we are very pleased with our results. We are successfully establishing more of a growth culture and focusing more than ever on the customer. Since comp store sales growth is the best proxy for how the customer grades our performance, we are particularly happy with our performance on that metric this year.

The 4.6% annual comp store increase was our best performance in at least 15 years, and it also compared favorably to our key competitors. At this time last year, we expected comp store sales growth of 1% to 2% for 2010 and we obviously far exceeded that. That delta is important and enabled us to produce higher-than-expected earnings and cash flow.

The Macy's customers are reacting very favorably to our new strategy. I'd like to list four as being particularly important to driving sales. First is the My Macy's localization strategy. I hope that as you are in our stores across the country, you are seeing the evidence of our better meeting local needs for sizes, colors, vendors, et cetera. Sometimes, the contrast can be best seen when you walk our store and then compare it to the competition in the mall. We have made lots of progress but we believe there is so much more to achieve.

Number two is private brands and exclusive market brands. We had another great year with our private brands and exclusive market brands. And the penetration of private brand sales grew to 20% this year and the percentage of our business done in private, exclusive and limited distribution brands is now approximately 43%.

The third key strategy would be M.A.G.I.C. selling. This is our training program, which is designed to increase engagement with our customers on the selling floor, and it is supported by intense coaching. We have trained over 130,000 salesmen associates, which is something we have never done before. This is all part of the shift in our culture to being more customer centric.

People often ask what M.A.G.I.C. stands for. The M stands for meet and make a connection. The A, ask and listen. G, give options, give advice. I, inspire to buy and sell more. And the C, celebrate the purchase. This has been really powerful in helping our associates better engage with the customer, but we have a long way to go. In fact, all associates will be going through a refresher course this spring.

And the fourth key strategy driving our sales is our omnichannel offering. We still are only at the early stages of maximizing the opportunity from having strong websites and digital marketing capabilities.

Our Internet businesses grew far faster than expected this year, causing us to accelerate the expansion of a one of our distribution centers, as well as the start of construction of a fourth major fulfillment center. We continue to invest in this business, both at Macy's and at Bloomingdale's, given its potential for driving sales growth both online and in-store. And we were able to achieve these great sales results this year while also improving our profitability and generating significant cash flow.

Our operating income grew 32%, excluding asset impairment, store closing and division consolidation costs. And earnings per share grew 55% on that same basis and also excluding charges relating to the early retirement of debt. We ended the year with $1.5 billion of cash, having repurchased or paid off at maturity, $1.2 billion of debt and having contributed $825 million to our pension plan during the year. And our return on invested capital grew to 17.4% this year from 14.9% last year. It truly was a year of great progress on all dimensions and fortunately, there is lots more to come.

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