Macy's Inc M
Q4 2011 Earnings Call Transcript

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Transcript Call Date 02/21/2012

Operator: Good morning and welcome to Macy’s conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to your host Karen Hoguet.

Karen M. Hoguet - CFO: Thank you. Good morning. I am Karen Hoguet, CFO of Macy's Inc. and on behalf of our Company I'd like to welcome you to our conference call scheduled to discuss our fourth quarter earnings.

Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website www.macysinc.com 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.

2011 was another record year for Macy's Inc. We are very proud of our team and the momentum we have built up. Our sales grew approximately 5% in comp stores for the second year in a row, while increasing the profitability of the Company. This results from the combination of great strategies and terrific execution which has helped us to gain market share. Our EBITDA rate as a percent of sales increased 80 basis points in 2011 on top of last year's 100 basis point increase.

We have strategies to increase it further to the 14% to 15% targeted level, while continuing to invest in driving top line sales. We also increased our return on invested capital by 230 basis points in 2011 almost reaching 20% and our return to investment grade ratings in all agencies speaks to the strength of our balance sheet, our performance and the sustainability of our strategies. It is great to be entering the New Year with so much positive energy throughout our organization. I will outline the key aspects of our fourth quarter and the full year 2011 performance and then, discuss some of our key assumptions for 2012.

Sales in the fourth quarter were $8.724 billion, up 5.5% over last year and on a comp store basis, our sales in the quarter grew 5.2%. Sales in the fourth quarter exceeded our expectations reflecting a very strong holiday performance. Our sales performance continued to be balanced. We were pleased with our performance at Macy's as well as Bloomingdale, online and in stores. In fact, all regions across the country produced sales growth this year for both the quarter and the full year. All year along our southern regions across the country performed best and that continued in the fourth quarter, and the northeast also had strong sales growth in the fourth quarter.

By family of business we saw strengths during the quarter in so many categories including cosmetics and fragrances, shoes, handbags, watches, Men's, textiles, housewares and furniture. And the areas with a most notable weakness in the quarter were the cold weather merchandise areas, juniors and traditional casual women's apparel. Average unit retail in the quarter was up 9%, while transactions were up approximately 1% and units per transaction down approximately 4%.

Transcript Call Date 02/21/2012

Operator: Deborah Weinswig, Citi.

Deborah Weinswig - Citi: Karen congratulations on a great 2011.

Karen M. Hoguet - CFO: Thanks, Deb.

Deborah Weinswig - Citi: In terms of store to door right now, how many stores are on that program, what's the pace that would still be ramping and what's the opportunity available?

Karen M. Hoguet - CFO: 23 stores were available this fall for us to be able to shift from a different store to the customer directly and in 2012 that number by the fall season should reach approximately 290. Obviously, big success this fall and we think it's going to be a big opportunity for continued growth.

Deborah Weinswig - Citi: Then in store obviously MAGIC Selling training has been a huge success. Can you talk about online customer service?

Karen M. Hoguet - CFO: Actually for the fourth quarter of this year that was a very big priority, but frankly, we had been disappointed with some of the service issues the year before and we think we did a much better job. The customer service scores improved significantly and so we'll continue to work both in making the sites easier to navigate and also make sure that we have the customer service backed up when there are questions or issues that come up.

Deborah Weinswig - Citi: Then last question, it sounds like the holiday season overall exceeded your plan. What were the key drivers?

Karen M. Hoguet - CFO: Well, it always starts with the sales line and when you can achieve sales growth over 5% that's always obviously a great thing. We invested in certain ways to achieve that sales growth in the selling floor and some of the support functions in our stores in marketing and obviously, also the investment in store fulfillment and it clearly all paid off in terms of the sales that we got.

Operator: Liz Dunn, Macquarie Research.

Liz Dunn - Macquarie Research: Congratulations on a great year. I guess in terms of getting to the 14% to 15% EBITDA margin. Can you talk about, I'm assuming most of that will come from leverage on continued strong sales and then in terms of your 3.5% comp growth for 2012, can you talk about how price will play into that?

Karen M. Hoguet - CFO: In terms of how we're going to get to the 14% to 15%, you're right, a lot of that will be leveraged from sales growth. We've also working to reduce the expense where we can in areas that obviously won't impact the sales that we're generating. Also we see opportunities for gross margin rate as we go forward, both from markdown optimization that we've been working and also as we are able to improve the inventory turns through our omnichannel strategy that should help gross margin rate over time as well, not in 2012 necessarily but as we go further out, so we feel good about that.

Liz Dunn - Macquarie Research: Then looking at the direct to consumer business, I think you said about $2 billion is what you are looking for 2012 or is that just over $2 billion, because that looks like with the growth that you had for 2011, that would suggest a little bit of a slowdown in the growth rate. Can you help us think about that…?

Karen M. Hoguet - CFO: No, we do expect it to be more than $2 billion and hopefully it will continue to grow at the pace that it is. Obviously, it's a pretty high rate to continue, but we do expect it to be more than the $2 billion.

Operator: Steve Kernkraut, Berman Capital.

Executives

Karen M. Hoguet : CFO

Analysts

Dana Telsey : Telsey Advisory Group
Deborah Weinswig : Citi
Michelle Clark : Morgan Stanley
Matthew Boss : JPMorgan Securities
Liz Dunn : Macquarie Research
Charles Grom : Deutsche Bank Research
Joan Payson : Barclays Capital
Steve Kernkraut : Berman Capital
Lorraine Hutchinson : Bank of America Merrill Lynch
Jeffrey Stein : Northcoast Research
Paul Swinand : Morningstar
Adrianne Shapira : Goldman Sachs
David Glick : Buckingham Research Group
Paul Lejuez : Nomura Securities

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Macy's Inc MQ4 2011 Earnings Call Transcript

Macy's Inc M
Q4 2011 Earnings Call Transcript