Macy's Stock

Good morning, and welcome to this next session of the global -- of the Goldman Sachs Global Consumer and Retail Conference. My name is Brooke Roach, and I cover the apparel, softlines and brands sector here at GS, and I'm thrilled to introduce our next session with Macy's. Here with me today is Tony Spring, Chairman and CEO; and Tom Edwards, COO and CFO. Welcome, Tony and Tom.

Good morning. Thank you. Great to be here.

Thank you for joining us. Tony, it's been over 2 years since launching the Bold New Chapter strategy. Where has Macy's made the most progress? What has changed versus your expectation when the strategy launched? And what opportunities are still in earlier stages of execution?

Thanks for the question. First of all, great to be with all of you. The Bold New Chapter is working. So we're 2.5 years into the strategy. When we began, we talked to 60,000 customers at Macy's and really had a good understanding of what we needed to do to improve the quality of the business. It was make sure that we had compelling stores. So we closed underproductive stores. We started our Reimagine program. We started with 50 to make sure that we can get it right and learn, added another 75, added another 75.

The result 2.5 years later, 9 of 10 quarters, those reimagined stores have grown. We've now had 5 consecutive quarters of growth at Macy's, 6 quarters of beating our guidance on the Street, 2 quarters of net sales growth. We obviously accelerated and differentiated further Bloomingdale's and Bluemercury. Both those brands continue to grow. We're on 2 straight quarters of double-digit growth at Bloomingdale's and continuous growth at Bluemercury. We're still in the early innings of our strategy and work, which to me is more opportunity for the brands in the business.

We have the opportunity to continue to refine our assortments. We have the opportunity to continue to create a better experience, both physically and digitally for the customer. Since the start of the strategy, our Net Promoter Score at the Macy's stores are up 10 full points. So the experience for the customer is significantly better than it was at the start of the strategy. So I step back and say the Bold New Chapter was intended to grow the company. We're growing the company. The Bold New Chapter was intended to improve the quality of the customer experience.

The customer experience is far better today. The strategy was intended to accelerate the growth of our luxury brands. The luxury brands are growing and have unique positions in the marketplace. And the intent of the strategy was to improve our end-to-end operations. We're delivering packages faster, less expensively. We closed underproductive supply chain centers, opened a state-of-the-art center in China Grove. So all in all, a lot of progress, but a lot of opportunity still in front of us.

Great to hear. You mentioned the Reimagine 200 stores. Let's dive a little bit deeper into that. What changes have proven most impactful? And how much opportunity remains within those stores? And Tom, how should investors be thinking about the profitability trajectory of those stores relative to the broader fleet?

So going back to the beginning of the Reimagine program, we picked the first 50 stores, and we now have 3 cohorts of stores, 50, 75, 75 or the Reimagine 200. All cohorts are growing. And as I said, 8 of 9 quarters, we've had growth in those stores. But the Reimagine program was like a recipe. It was the ingredients that have to kind of all be done at the same time. We needed better merchandising. We needed a better merchandise presentation, storytelling. We needed to improve the fitting room experience. We needed more colleagues in our store. We added people to handbags, people to shoes, people to work in the fitting room.

We needed to make sure that our density on the floor was reflective of how we wanted the customer to shop within the stores. We needed to make sure that we had the right proportion of best, better, good. So we're a department store. We obviously want to have a range of price points. I would say more variety, less redundancy. But we had way too much of the same thing floor after floor, department after department. So when you ask me kind of to break apart what is the most important ingredient in the strategy, it's like asking me, which is my favorite child. I like all of it.

And when it all works together, you get the kind of Net Promoter Score improvement, you get the kind of continuous sales improvement, you get the kind of response where the vendors in the vendor community want to work with us and want to be a part of these stores. So I think the Reimagine program is a great case in point for the future of what Macy's stores can be. 60% of our store base now, 75% of our Macy's store business is in the Reimagine program.

And I'd add, when we look at the returns on investment, we're pleased first with the performance and investment returns start from growth. The reimagined stores are growing, as Tony noted, for 9 out of the last 10 quarters. And when we look at our investment, it's capital light. So we're investing in people. We're investing in fitting room and making sure that the flows is correct as well as events and marketing. And importantly, we've been learning and iterating as we move from the first 50 to the next 75 and adding up to 200.

So we're getting more effective and more efficient in what we invest in and make sure it's appropriate for the local market and what that store stands for in that market. So over that time, we've seen improvements, initial sales growth immediately continued year-over-year for the different cohorts and then profitability following that after the initial investments. But we're very pleased with the returns. We're looking to expand our reimagined fleet, where as a matter of fact, we're testing or bringing forward some pilots into this year to get a head start into the following year for 2027 and look forward to continue to build it out as a key part of the strategy for the Bold New Chapter.

Great to hear. Let's turn to Bloomingdale's, which has been a very successful area of the business recently. As we think about the outsized growth at the Bloomingdale's banner, what proportion of this is due to your own execution versus a function of broader competitive dynamics? Where do you see the greatest opportunity ahead? And can you deliver this even as competitors begin to strengthen?

First of all, I love Bloomingdale's. I grew up at Bloomingdale's, 35 years of my career at Bloomingdale's. It is a special brand. If we didn't own Bloomingdale's, I'd want to buy it. It's that good. They've had double-digit growth 2 quarters -- the last 2 quarters of '25, up over 9%. So really on 4 straight quarters of outstanding growth and performance. It starts first with the right strategy. So they have the right strategy. They cater to an advanced contemporary, a luxury consumer. Obviously, great merchandising skill in the company, great leadership, strong execution and a long culture of growth and imagination and innovation.

And then disruption in the marketplace certainly helps to fuel the growth that Bloomingdale's is having. But without the right leadership and strategy and structure and culture and execution, they wouldn't be able to capitalize on any level of disruption. Now we just launched this past week our Hotel Bloomingdale's campaign for the fall season. That's a partnership with the Ritz-Carlton and lots of exclusive product. If you haven't been to 59th Street or online, it's a great experience. It's a lot of fun. I think the one thing that Bloomingdale's brings to retail is a level of fun and imagination and curiosity that I think in that segment tends to be more serious.

And so they distinctly stand out in their competitive set, the range of brands that they offer, the amount of discovery that's a part of the shopping experience, and they're hungry. So even with the level of growth that we've had at Bloomingdale's, we continue to see Bloomingdale's as a growth engine for Macy's, Inc. That's organic growth, more points of distribution, more Bloomie's stores, more Bloomingdale's -- the outlet stores, more opportunity digitally, more opportunity physically. And when I look back now at the Bloomingdale's growth, sometimes you could say, wow, you've had a good performance in one category of business.

It's been broad-based. It's been in apparel. It's been in accessories. It's been in men's. It's been in home. It's been in physical retail. It's been in digital retail. It's been during the fashion season. It's been during the gifting time period. It's been in off-price, it's been in full price. It's been in marketplace, licensed business and owned business. So there isn't an element of their business right now that isn't growing, which is very exciting to see.

So when I take a step back and look at Bloomingdale's as a percent of the whole company, it's in the high teens. We recently provided more information on our nameplate breakouts and Bloomingdale's is a really important and growing part of the business. But we don't provide profitability, it is nicely profitable, and it's a key part of the Bold New Chapter algorithm for growing the top line and ultimately growing the bottom line.

That's great to hear. Let's discuss one of the debates that's coming out of earnings, which is traffic conversion and AUR. You've discussed healthy traffic trends and AUR growth, but conversion trends have been somewhat muted. What are you seeing in conversion today? And what initiatives do you believe can drive further improvement from here?

Let me take it first, and then I'll hand it over to Tom. We'll always talk over each other. So it's a sign of a healthy marriage. First, you have to step back and say the golden equation, right? We all know it in retail units, AUR, obviously, conversion and then whatever returns or cancellations come out. So it's hard sometimes to get all elements of the equation to go up at the same time. And there tends to be a reverse impact of as our AUR goes up, conversion tends to go down. And it makes sense. The more expensive the purchase, the more consideration that may go into it.

So I'd say we're on a learning journey on our golden equation. And we have the benefit of having Bloomingdale's and Bluemercury, which has a slightly lower conversion rate than Macy's does and has a higher AUR. We're also trying to become better students of the business. So you would say conversion should always be high. And then I'd say, except if you're advertising prom dresses in January. And you want to highlight prom dresses in January, so people buy prom dresses in March and April. And you probably want to have a very high conversion rate on something that you're trying to sell through in a day or 2.

And your expectation is very different for that conversion than maybe for the more deliberate purchase, big ticket, fine jewelry, things that maybe are going to require a few visits for you to inspect and understand better. So we're pleased with our level of traffic. Traffic in aggregate is growing. It's flat in the stores. We're seeing the conversion rate be the single biggest challenge that we have as the AUR goes up, but we feel like we understand exactly how to work with the client and understand the differences that I was describing in conversion. And ultimately, we can deliver a better growth pattern because the customer is happier with their purchases.

And I'd add, when we look at AUR, it is up because of the really the foundations of our business model. We're adding better brands, the best brands and laddering up and improving the customer experience. So it's not as much a pricing discussion as a brand matrix and fashion authority discussion. The other piece I'd just emphasize that Tony talked about is that this is all part of our healthy model. The higher AUR driven by our base strategy, slightly lower expected conversion, but a higher basket size, and we've been seeing this dynamic over a year.

So it is not a new phenomenon. It is one from the initial start of it. And the last point I'd make is around AUR. That higher AUR is not a direct translation to higher gross margin. It supports it over the long term that drives sell-throughs and engagement, but it also comes with some higher costs. So as we move through the business, we look to drive top line growth, drive overall margin dollars along with it and manage our overall system moving forward.

Let's round out the discussion on AUR with a question that we're asking all companies at our conference, which is on AUR. Do you expect your prices in AUR to be higher, lower or the same in the second half of this year versus the rate delivered in the first half?

The AUR has grown really since the inception of our Bold New Chapter strategy at all 3 brands. It's, again, as Tom said, a reflection of the quality of the assortment. I think the 9% growth we had in the second quarter will start to moderate as we kind of come around the back half of the year and up against the impact of some of the tariff inflation that's in pricing. But as a department store, we have the benefit of being able to have best, better, good and be able to be appropriately sharp on pricing and at the same time, make sure that we have a wide aperture of offerings for the consumer because someone's indulgence might be someone else's desire to save.

Very clear. Let's shift to the credit business. How are you thinking about the near-term drivers and long-term growth opportunity within that credit and loyalty ecosystem?

We feel good about our credit business, but it needs to be put in a broader context. It's part of the Macy's overall ecosystem. We serve over 40 million customers. We have visibility to over 70% of transactions for those customers. They are in our loyalty program. The majority in our loyalty program also have a credit card. So it is an intimate and integral part of the overall system, and we see it growing with the business. We've seen very strong performance over the past year and then into Q1 and Q2, continued growth, and it's really a reflection of a couple of different things.

The credit portfolio health within the credit card is strong. We have low net credit losses, and we've seen that improve even in the current economic environment. That was a driver of Q1 results. And then we have just a base engagement with our stores and with digital, bringing on new accounts and encouraging usage as part of the overall system. So as we look forward, we look to grow the credit business as part of the overall growth of the company because it's connected directly.

Rounding out some of the discussion on the strategy, let's talk a little bit about your stores. You've made substantial progress repositioning that store fleet through closures, reimagine investment and selective growth initiatives. How are you thinking about the long-term role of stores within the Macy's ecosystem? And what does the store base look like 2 to 3 years from now?

We've talked about at the beginning of the strategy, approximately 350 go-forward stores would make sense for the Macy's brand. And I think we're sticking with that approximate number. We've closed about 85 stores through the first 2 years of the strategy. Our closure announcements happened at the end of the fiscal year. The improvement in the store is the improvement in the business. So I think as we all kind of came out of that post-pandemic period, we realized the importance again of omnichannel of the customer not being one channel or another channel, people will choose what they think is appropriate for their life and that moment.

And there are times when you're going to want to be in stores and you're going to want to meet with your girlfriends and have lunch and shop the store. There are other times you need something quickly and you're going to use same-day delivery and you're going to go on the app and you're going to buy it and hopefully, we're going to get it to you in time. But that omni customer is so valuable to us that we're highly focused on people that are both physically and digitally engaged that we understand their life patterns and are able to better through the use of information, browse behavior, better support the shopping experience at all 3 of our brands.

Let's shift to some topical discussion questions here. Last week, you reported 2Q results, and you noted that consumers remain resilient and engaged. What are you seeing in the consumer and promotional environment today? How is back-to-school trending? And how do you expect the backdrop to evolve through the second half of 2026? And maybe within this question, we can ask a question we're asking all companies, which is, do you expect the health of the consumer to be better, the same or worse in the back half than the front half? And similar, do you expect the consumer to be similar, better or worse in '27 versus [ '26? ]

I've never been good at multiple choice questions. So I would simply say the consumer remains resilient. I never thought I would use that word as often as I've used that word. They're definitely choiceful. When you say the consumer, what consumer you're talking about, our most loyal and frequent consumer is highly engaged, is shopping as you would expect with great consistency and passion. I said the interest really remains around fashion and newness. The good news is there's a lot of new fashion for fall. Everybody needs to go out and start shopping because if you don't own leather, if you don't own suede, if you don't own a structured bag, if you don't own animal, if you don't have something, there's just, I think, newness across the entire store.

The variation, I think, within boots is fun. So we're excited about the fall season. That being said, it's going to be choppy. I think there is no straight line unless you could tell me there won't be an inflation increase in the remainder of the year. We won't have a rate increase tomorrow. We won't have oil prices where they are today. So there's way too much uncertainty, macroeconomic, geopolitical, weather, things we can't control. Our team, though, is solely focused on the quality of our assortment, taking care of the customer, making sure we're determined to try to continue to bring in newness, let the inventory continue to flow and make sure that as the customer votes on product, which they do every single day, we take the appropriate steps, whether it's marking down the things that don't work or reordering the things that do work.

I love being a department store in this environment. We are able to hedge against everything. If the structured business is soft, we can buy into the casual business. The casual business is soft, we can buy into the suiting business. The suiting business is soft, we can lean into the men's business. We've come through a cycle of where the big ticket business based on interest rates has been a little softer. All of a sudden, business has kind of gotten a little bit better. We went back to pre-tariff pricing. So we're seeing customers lean right back in and buy furniture, mattresses, other accessories for the home. So this is a great business environment where you don't have a straight line, where you don't have a clear understanding of what categories are going to be strong and what categories are going to be a little softer. Our multi-category business is well positioned for an environment like this.

And I'd add that we're entering the fall with a very good inventory position. In Q2, we're up 2.5% in line with our sales growth. And as Tony noted, we're coming into the fall with newness and fashion and really ready to deliver for the customer and be there for them in their more resilient mode.

Tony, you mentioned several drivers of fall fashion. And on the call, you also talked about a couple of other structural drivers of fashion, whether that's GLP-1s or just fashion shifts that continue to be a cycle. Do you think that those tailwinds are going to build as we move into 2027? Or do you think that this is a fall '26 phenomenon?

I think it builds. Look at how well dressed the room is. I mean we have kind of all gone back to the office. People realize they couldn't wear their sweats and their comfy clothes to the office 3, 4, 5 days a week, whatever days a week they're in the office. Then you add to the kind of dress-up environment component. And I don't care whether you put a blazer with a pair of jeans or you're wearing suit separates or you're wearing a full suit or you're wearing a dress, it's an opportunity for a multi-category business that really owns the classification categories to be well positioned.

Now you throw on top of that the beginning early impact of GLP-1s. And don't ask me the specifics because I can't tell you. All I can see is that the plus-size business is very soft and that most other areas of apparel are healthy. And I think you're seeing people as they go through a period of time on GLP-1s, losing enough weight, what happens? People want to get a new wardrobe. And you don't get a new wardrobe just for the summer. Then you need a new wardrobe for the fall, then you need a new wardrobe for the winter, then you need a new coat, then you need a new swimsuit. So we see this as a -- we're on the early cycle of GLP-1s. It's only affecting so far the top tier, maybe the coasts and Miami. So the opportunity is meaningful, I think, as we go forward.

Only the top tier. So you're seeing more of that in Bloomingdale's than at Macy's?

We're seeing more of it in Bloomingdale's. We're certainly seeing more of it in our more expensive components of the business, the more -- the higher ticket AUR product. Again, we've got great anecdotal stories of women kind of coming in, having lost 30, 40, 50 pounds and treating themselves. And then it's very emotional, going through an experience like that where they maybe have never been at that weight in their life, and they're worried about, can I do this? Is this appropriate to buy this much for myself?

So I love our colleagues and their interest in -- and again, it's why we feel so strongly about people and the connection between humanity and technology. This is not just an AI agent that's going to help you after you've gone through a life-changing experience like this. This is also the quality of our colleagues going hand-in-hand with our customers and making sure they feel comfortable with their purchases. If they get something wrong, we'll take it back. But making sure they feel great about what they've walked out with.

Very clear. Tony, you described a lot of opportunities that are driving the business into the back half. But as we look at your second half outlook, you're starting to come up against more difficult comparisons. And you've also guided a little bit more conservatively than the trend results that you've recently put up. How are you thinking about the sustainability of that recent very strong momentum that you've put up as comparisons become more challenging? What gives you confidence that can drive growth? And Tom, is there anything in the guide that we should know?

So I guess probably the middle name now is prudent. Prudent, meaning sensible, thoughtful, well informed. We're not going to get ahead of our skis. You made the right comment, Brooke. We're up against our strongest comp in the third quarter last year, 3.2% with all the brands growing. Guide is not a ceiling. So we have the opportunity to do better. The quarter is unfolding as we expected. I already talked about the fact that we feel really good about our inventory position.

We feel good about the fall trends. I think both brands, Macy's launched the American Designer campaign with 3 of the kind of iconic guard between Donna Karan and Michael Kors and Tommy Hilfiger and then 3 new designers in our partnership with the CFDA and FIT and just seeing what the customers' reaction has been is exciting. So we look at it as being, yes, we're going to always guide thoughtfully and make sure that it's within our team's ability to deliver that and beyond. And at the same time, we're going to just stay focused on satisfying the customer.

And with regard to the guide, I'd point out a couple of different things. The first is we're pleased to raise it. So for the full year, we raised both the top line and the bottom line, and this is coming off of the Q1 where we raised the top line and the bottom line as well. So coming into the year at an EPS of $1.90 to $2.10, and we're now at $2.15 to $2.35. So pleased that we're seeing continued momentum, which gives us the confidence to do that. And then within that, when we look at the back half, our back half guide is in line on an underlying basis with what we thought when we talked to you last quarter. So our outlook is unchanged. We just had -- we had a better Q2, and we're looking at the same compares as we head into the back half. So again, confident in the business.

I said to Tom after earnings, I said, did we raise the top line? Did we raise the bottom line? Did we buy back stock? Did we raise our dividend? Yes was the answer to all those questions. But we must not have conveyed it as powerfully as he just did.

Very clear, very clear. Tom, let's dive a little bit deeper into the gross margin opportunity. You've discussed opportunities around assortment refinement, inventory productivity and right price sell-through. Which of these initiatives represents the largest remaining opportunity to improve gross margin? And which is more near in versus longer dated?

Sure. I'd be happy to help with that. In Q2, our underlying gross margin increased about 10 basis points, and it was driven by assortment and all the items you mentioned. As we look at the back half of the year, we expect to see the base business continuing to perform. And those underlying trends continue with our assortment, our reimagined stores, Bloomingdale's performance, all supporting our gross margin. We also expect to see supply chain savings, which will be benefiting us more in Q4 than Q3. So that's allowing us in our guide to raise our gross margin for the year.

So we have an always-on savings approach, and we're seeing the benefits of that. When we look longer term, there are really many things. First is the assortment. We can expand private brand. We have supply chain initiatives as well as other savings opportunities through the business. But we're really looking to right now to grow gross margin in the back half and then grow it over time along with the top line. And I'd also point out, while it's not gross margin on SG&A, we levered SG&A in the second quarter with sales growth. So with a low single-digit comp, we're able to lever the P&L. We saw that in Q1 as well and look forward to continuing to drive results, top line and bottom line to drive long-term profitable growth.

One of the other updates that we heard from you in 2Q was your decision to reinvest the tariff refunds. And Tony, you talked about reinvesting some of those into brand marketing, reimagine expansion, value investments, including some price and other Bold New Chapter initiatives. Do you expect these investments to have a comp uplift in the back half of this year or early next? And then Tom, maybe piggybacking off of that, can you unpack in more detail how we should be thinking about cycling these on a net basis for margins and for sales into 2027?

So just to take a step back, when we got the tariff refunds, Tom and I really tried to look at '25 and say, what were the changes that we made in '25 based on the impact of tariffs? And they were a lot of the things that we chose to reinvest in now in the fall of '26. So we had taken down some of the Macy's brand marketing. We had not planned to do as many pilots for '27 on the next series of reimagined stores. We had obviously taken up some of our pricing. So we wanted to get sharper on certain categories. I think we mentioned furniture and fine jewelry as being 2 of the categories.

And then obviously, we had reduced our earnings per share. And so we wanted to give back a small portion to the investment community. So what I found was a balanced capital allocation approach to a onetime benefit from tariffs that is anniversarable. And that, I think, is what we are challenged with to make sure we're investing for the long term, to make sure that we're taking care of all of our stakeholders to making sure we're really thinking about the future of this company beyond any onetime bogey or benefit.

And I'd emphasize that it's a long-term focus. The single largest item is investment in top-of-the-funnel marketing to support the Macy's brand, and that has a long-term impact. We're piloting reimagined stores, so we get a faster start to 2027. So it's not so much a lapping, but just continuing and building on the momentum of the business. And where we have invested in price, I would say that there's no outsized investment in any one area and nor is it the largest. So we don't feel like with all the levers we have to drive the top line that that's something that is a meaningful lapping item.

But it does sound like some of those price investments in big ticket and furniture are starting to make a difference in how your consumer is perceiving the brand.

Yes. I think those places where the tariff impact was greatest are having the best response to any pricing adjustments and those 2 areas were ones that both in big ticket because of the tariffs, and I think, frankly, in jewelry because of the cost of gold right now and also the balance of mined versus lab-grown diamonds, we really want to make sure that we were sharp on pricing. Those were 2 areas where we saw the most sensitivity from the consumer. So -- but again, it's not rolling back prices across the board. We really have a clear strategy about best, better, good range of prices in all categories between our Backstage and our clearance business, our off-prices at Bloomingdale's and our full prices, we should have enough optionality for the consumer to choose from without having to create onetime events.

Very clear. That's great. Another question on margins that we're asking all companies at our conference this year is whether or not you expect to see more operating margin tailwinds or headwinds in 2027 versus 2026. Can you contextualize what those large drivers are?

I'd say for us, our controllable items are really our best, better assortments and moving those forward, building out private brands and then the savings components, which we have a very clear line of sight to. So I think those are both tailwinds and things that we have seen impacting and supporting the business going forward. And I'd just emphasize that the Bold New Chapter strategy is drive the top line and let it flow through the P&L to drive earnings growth. We look forward to continuing to deliver that.

Very clear. Another driver of margins is -- that we are debating is AI. And one question that we have for you that we're asking all companies is, do you expect a significant increase in efficiency as a result of AI in '27 versus 2026? And what part of the business changes the most as a result of AI over the next year?

Sure. We look at AI much more broadly than just efficiency. And we look at it as an integral part of helping the Bold New Chapter and accelerating it, and it's driving revenue. It's improving our customer experience, and it's increasing our organizational effectiveness. So how we are working together and how we are delivering across the enterprise. We saw that in some of the examples noted in this quarter's prepared remarks and discussions where we've rolled out an AI conversational assistant to Macy's first to online, then the stores, then the Bloomingdale's.

Our customer is more engaged when they use it and buy more. That's a win for all of us. We're also using AI to help make better decisions in how we allocate inventory within our supply chain, and we're levering it in other areas as well. But it is an assistant. It is not the be-all and end-all. And I'd also note that we're very careful from an ROI perspective to make sure that there are returns for these projects because there is a cost that comes with AI. So we're balancing it carefully, Brooke.

There's also governance. And I think there's a balance between making sure we have a number of pilots out there that don't move beyond proof of concept and then strategic big bets. And I think Tom and the team have done a great job of making sure that we have both.

Great to hear. Let's put all this together and talk about EBITDA margin. As you think about the medium-term EBITDA margin range of the business, what is that? And what are the key levers to get there? What levers do you also have to protect against a very dynamic macro backdrop where we are seeing some volatility in things like freight and fuel.

Sure. Well, this year, we've raised our EBITDA as part of our guidance. And we have support over the longer term in both the gross margin. We talked about assortment, private brands, our supply chain savings and just all the initiatives in stores and online that are helping support it. And in SG&A, always on savings, which has delivered results in the past, and we'll continue to work on. We've also shown with a lower -- low single-digit top line, we can lever the P&L from an SG&A perspective. So our first goal is to drive the top line. There's no growth without top line sales growth, and then we'll work to flow it through to the bottom line and ultimately look to look at our margin structure going forward.

Very clear. Tony, we're about out of time. Any closing comments or thoughts that you'd like to share with the audience?

We're 2.5 years into our strategy. As Tom mentioned, we just came off of earnings. We raised the top line and bottom line. We've got record customer service scores. I think back to the beginning of the strategy and if we didn't have tariffs, if we didn't have inflation, if we didn't have a fuel crisis, if we didn't have the geopolitical and macroeconomic, where will we be? What would I do differently? Well, I'd would reimagine Macy's stores, I close underproductive stores. I'd get rid of unproductive supply chain assets. I'd doubled down on Bloomingdale's and Bluemercury.

I'd make sure our end-to-end operations were effective. I'd speed the delivery to the customer. I'd invest in physical and digital. I'd put more people into the stores. I'd make sure that our assortments were modern and compelling and tasty. I would make sure that we had the right balance of not undershooting the customer in any one category that we believe that the customer at both Macy's, Bloomingdale's and Bluemercury has the capacity to spend.

So we're 2.5 years in, and I'm really proud of the progress we've made. I think we have clear signs with 8 of 9 quarters of growth in the reimagined stores, double-digit growth at Bloomingdale's, multiple quarters of growth at Bluemercury. We're on the right path. The key right now is to make sure that we follow our strategy. We stay focused on execution. We pay attention to the macro environment, so we don't trip on our way to future success, but we really commit ourselves to delivering more for the consumer.

Great to hear. Thank you, Tony. Thank you, Tom.

Thank you.

Thank you.

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; and 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, she'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 Reimagine 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 and 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 Reimagine 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, Reimagine 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 Reimagine 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 brand and 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 white space opportunity.

Digital is a central component of our omnichannel 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 we 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 trend-setting 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 Reiss, Rodd & Gunn 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, petites, 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 remained 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 America's 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 Noah Kahan, Post Malone, Salt-N-Pepa, Bebe Rexha, Shaboozey and Blake Shelton. We also leveraged 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%. 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 skin care, 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 to newness across our product offerings and our lineup of marketing and events. Across nameplates, we continue to skew toward middle and upper income consumers where performance remains 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 Thompson, Sally LaPointe and Jonathan Cohen.

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-Carlton 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 the 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%. 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 channel mix. 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'd 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 have 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 in the current outlook based on what we know today. We now forecast 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 refunds. 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 $21.825 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.

Congrats on 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 rather puts and takes for Q3 comp would be helpful.

Sure. Thanks, Blake. 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 stacked 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 Labor Day 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 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 $1.90 to $2.10, added $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's 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, whoever the right word 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 AUR.

But I think the other piece is making sure that we're not undershooting the customers' expectations. So if 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 jewelry being two of them, where we want to make sure we're capturing our fair share of the business.

And I'd add, Blake, that AUR is really part of our broader model of 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 have always noted that our investments would be made more in the third quarter. So we see higher SG&A investments in Q3, 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 Reimagine stores as 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 and delivering for our customers.

Perfect. That's super clear. Maybe turning to Reimagine. Do you have any details that you can share around how the oldest Reimagine cohorts, 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 continue 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 Reimagine 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 Reimagine 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 comment 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's 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 a 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. So 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 and 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 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.

And I'll 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 of Goldman Sachs.

Tony, with the success of the Reimagine 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 Reimagine performance, 9 to 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 bet based on our piloting of additional store initiatives in the fourth quarter that we're going to be adding more Reimagine 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 Reimagine 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. I'm 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's 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 Reimagine 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 that's helping us maintain and build on the momentum of our strategies.

The next question is coming from Oliver Chen of TD Cowen.

AUR was impressive. What factors offset that? And also, as we think about guidance, what's incorporated and what you're thinking for longer-term AUR trends? The second question was just on your thoughts on the younger customer and the initiatives that you're conducting to target that younger customer embrace the younger customer, while at the same time, of course, maintaining your loyal customer base.

And then on the guidance as well, merchandise margins and promotions and markdowns versus last year, should we expect that to be flattish? And would also love your comments on the consumer meaning did anything incrementally change since we last spoke? We've been seeing some pressure -- additional pressure at the middle to lower, but I would love your thoughts on any changes or optimism.

Thanks, Oliver. Let me try to take the first 2 parts of the question, then I'll let Tom finish out. AURs continue to grow because our product assortment continues to improve. The assortment of better quality things, whether it be third pieces, whether it be leather versus faux, whether it be brands that command a higher price point, we're in the early innings of continuing to better and improve the quality of our assortments, the growth of Ralph Lauren, the growth of Coach, the continued growth of areas like watches, fine jewelry at Bloomingdale's, all leads to a higher AUR.

And that's the confidence of our colleagues, that's the impact of our website on the better goods that we sell that the customer wants to buy them from Macy's and Bloomingdale's and Bluemercury.

In terms of the younger customer, we're just coming off of a great prom season, great graduation season. I mean our watch business is on fire because it's to graduation gifts. It's the great birthday gifts. It is a great entree to the younger customer, as is the prom business, as is our wedding registry, which continues to grow.

So I think we just have many opportunities. We have a young next-gen fashion component at Macy's. We have the launch of Hotel Bloomingdale's. A part of that is the new AQUA collab with Nicky Hilton, which is obviously geared a little more younger. So there's so much within the assortment based on the brand matrix to cater to multigeneration of customers and certainly the younger customer. Tom?

And I'd add, we're not seeing anything dramatically different in the competitive environment right now and expect our promotional activity to be in line with last year. Importantly, we're positioned very well from an inventory perspective, inventory up 2.5% in Q2, in line with our growth and a lot of newness positioned for the fall. So I feel like we're heading into the fall and holiday in a good spot.

And our consumer skews more to the middle and higher end, and we've seen more consistent performance at that level. And as we've noted before, at the lower end, a little more choiceful, but those trends have remained. And I'd point out, as Tony was mentioning, we also have a wonderful ecosystem across Macy's.

We have our credit card, our loyalty program with visibility into over 70% of our customers every transaction and a chance to really engage with them as we now product and the Reimagine stores built out to 75% of our go-forward volume. So we feel good about how we're positioned for fall.

Our next question is coming from Michael Binetti of Evercore ISI.

A couple for me. I think this is the second quarter in a row with really big AUR gains, but modest gross margin expansion. In your mind, is there a transition point where AUR starts to offset any of the gross margin headwinds in the business that leads to a higher rate off the strong AUR strategy? Or is it best to think that AURs come with ongoing higher costs, they're driving a nice top line and gross profit dollar growth, but the rate is kind of the investment for that top line?

And then, Tony, I think one thing that investors in the sector are wrestling with is comments across the sector that tariff refunds are going to be redeployed into investments and sharper prices in the second half, but there's generally a lack of increasing same-store sales guidance into the back half despite more investment or even slowing multiyear stacks.

I'd love your perspective on that. You've got a lot of investment in third quarter, like Tom mentioned, and you're putting some of the tariff refund back to work. But there's a range in 3Q and 4Q comps that allows for slightly negative comps. I'd just love to get your perspective on that for the industry.

Sure. Let me take a shot at both, and then I'm sure Tom will want to add as well. I'd love to separate AUR from gross margin because I think it's a false narrative to kind of say higher AURs lead to higher margins because we have businesses with high AURs that have high margins naturally. We have businesses with high AURs that have naturally lower margins. So it really is category and brand dependent.

A higher AUR will ultimately allow us to flow fewer units through the system, which will lower our cost base, will allow us to improve the quality of the experience for the customer because we're maybe moving fewer units through a colleague per hour. So there's a lot of advantages to selling, if you can, a higher AUR product.

And so it's been a mission of ours across both Macy's, Bloomingdale's and Bluemercury to have the right proportion. We want to have best, better, good. We want to have a range of brands and price points to offer. But higher AUR really just gives you more of an opportunity to lever on the expense side than it does to deliver more on the margin side.

In terms of your other question about the investment of tariffs and the comp guide, I think our investment of tariff refunds is disproportionately focused on the long-term health of our brands and business. So while there will be some benefit to the short term, most of it, when you talk about top-of-funnel brand building, when you talk about piloting reimagine store initiatives, when you talk about defraying fuel costs in the fourth quarter, those things don't have a short-term sales benefit. They are yet the right thing to do for the business.

And if you go back to the middle of 2025 and you say, what were the things that we were wrestling with as we face the impact of tariffs, we started to pull back on marketing. We started to change kind of the piloting program for Reimagine stores.

So we stopped doing the things we should be doing because we had to navigate the impact of tariffs. So in my mind, this reinvestment program is doubling down on the benefits of the Bold New Chapter, which if you strip everything away, strip all the tariff headwinds and tailwinds away, the core of our business is actually performing better.

I'd emphasize that point, Tony, that our tariff refund reinvestment is focused on the long term and the short term is more surgical. And we're not overly investing in any one specific area. So it's not meaningful in terms of the broader overall business.

And Michael, when we look at AUR, I'd just add on to your point that we look to grow margin dollars with top line growth. And there are longer-term margin expansion opportunities because better, best brands do ultimately help drive margin, but they do come with cost in the short term. And with gross margin, we look to improve our assortment and continue to manage and improve the efficiency of managing our inventories.

We can expand our private brands and continue with our store and online initiatives to build margin as we go forward. And as I noted earlier, from an SG&A perspective, we can lever the P&L at a low single-digit level. And we certainly always have our always-on savings approach. So look forward to delivering margin dollars along with top line growth as we move forward.

The next question is coming from Dana Telsey of Telsey Advisory Group.

Nice to see the progress. One of the things that you mentioned in the deck at least was AI and AI both for Macy's and for the Bloomingdale's brand. How do you see AI as a revenue driver and an expense enhancer? And then just lastly, obviously, with the new activations and the stores do look great. I've seen the Bloomingdale's almost all over the country and each one is special in terms of what they're doing. How are you thinking about brands that -- where are you in brand newness? Is there more brands that are added or brands being subtracted? How do you think of the flow?

Thanks, Dana, for the questions. I'll give you a small piece on AI and let Tom finish and then talk more about the brand additions. We view AI in 3 parts: driving revenue, improving the experience for our colleagues and customers and creating greater efficiency and reducing costs for our company. And I think our initiatives are geared that way. We have a number of pilots, a number of things that are proof of concept and a number of things that are rolling out that are in those 3 buckets. And if you want to say 1/3, 1/3, 1/3, that's as good a way to look at it as any because I think the embracement of AI also comes with the belief that humanity has a role within the retail business, particularly in the relationship selling that we do at all 3 of our brands.

In terms of the brand additions, we still have plenty of opportunities to edit and add. And I think that's the great part of where we are in the Bold New Chapter. If we were done, where is the upside? We are in the early innings. There is plenty more to do. We are seeing more excitement. We're adding it Macy's Kurt Geiger. We'll have Tory Burch launching at Herald Square in the fourth quarter. So there's plenty of opportunity for growth at all 3 of our brands by making the case in the market that we are a dependable, consistent, well thought of great balance sheet, strong partner, believe in the importance of fashion and newness in our business and have great regard for our brand partners where we really just want to be the very best partner they can work with.

And Tony, on AI, I'd just add that we're very thoughtful around the return on investment. And the example of our replenishment initiative is a good one. That started out as a pilot has moved to -- through testing to prove itself out and then to further roll it out more broadly to improve how we are allocating our inventory to stores. And that's a great example of making sure we do it thoughtfully and get a return.

We also have customer-facing activities like the AI assistant that has been rapidly rolled out from Macy's digital to Macy's stores and now Bloomingdale's digital that helps customers really choose what products they want. And we've seen much better engagement and results in basket size and conversion from people who are using it. So we want to make sure we're doing the right thing for the business as well as for our customer and look at a lot of different opportunities going forward on this.

The next question is coming from Paul Lejuez of Citi.

On the Reimagine 200, I'm curious where the outperformance from -- is it more from transactions or ticket? And also just at a high level, like are those stores able to traffic or is it more of a conversion as customers show up in the stores? And then second, just at a high level here on the Macy's banner, how apparel performed versus other categories within the store?

Sure, Paul. Thanks for the question. On the businesses that are performing, we're seeing the apparel business strong at both Macy's and Bloomingdale's. And again, we referred to the return to work as being a driver of that. You can say GLP-1s are a driver of that. And I would argue that fashion within all the brands and across both nameplates is a driver of that.

And there's even more reason to be excited as you look at what the fall season has to offer, which always comes in the fall season with higher AURs when you talk about coats versus swim or you talk about boots versus sandals. It's just naturally an easier sale in terms of growing the top line.

In terms of the Reimagine 200, we're seeing steady performance in terms of traffic. We're seeing increase in AUR. We're seeing higher basket size, and we're seeing a slightly lower conversion based on the price points and the deliberative experience, I think that the consumer has in those stores. So we know our conversion rate at Bloomingdale's is lower than Macy's and our AUR is higher than Macy's and our average transaction is higher than Macy's.

So we can kind of really forecast nicely looking and understanding market by market and store by store, as we change the character of the assortment, what happens to the individual components? You get a higher AUR, you can get a higher basket, you have slightly less conversion because people deliberate a little longer on a more expensive purchase.

Tony. Just to go back to the categories. Any other color you could share outside of apparel, how other categories performed, maybe what underperformed?

Sure. In terms of other categories that perform, we're continuing to see growth in our petite business. We're excited about the growth in men's and women's shoes. I think we've talked about the watch category has been strong for 3 quarters now, and we think that's great going into the holiday season. It's going to be a super gift business for both Macy's and Bloomingdale's. The fragrance business continues to perform really well. There's a ton of newness in fragrances for the fall season, and we're already getting a nice read on all the new fragrances for the third quarter.

And then in terms of softer businesses, we talked about the women's intimate apparel business being softer. We talked about the sleepwear business being softer. And the big ticket business, even though it got better in the second quarter versus the first quarter, was still down to the prior year. It's one of the places where we are using a portion of the tariff refunds to sharpen our prices. And I think when we return to pre-tariff pricing in big ticket, we saw a meaningful change in the business.

The next question is coming from Chuck Grom of Gordon Haskett.

This is Ryan Bulger on for Chuck here. I wanted to ask about -- historically, you've seen tourism as a contributor to the business and then spoken to it a little bit less recently. You had a bit of a unique event with the World Cup here in 2Q. And I was just curious if -- did you see anything related to that either impacting your business during the quarter or impacting how you think about the contribution of tourism on the business overall going forward?

We had a great performance of World Cup product. So I would say we're very pleased at both Macy's and Bloomingdale's is a bigger piece at Macy's of the World Cup business. I think we probably saw a little bit more tourism, but we're still nowhere near the tourism levels that we saw before the pandemic. And I think as I always look at it and say, this represents a big opportunity for us over time because our city stores that draw tourists represent incremental business that we're not counting on, but that will return at some point in the future as more people travel to the states.

The next question is coming from Bob Drbul of BTIG.

Tom, I was just wondering if you could spend some time on the credit card side of the business, a little bit more detail around trends there, usage trends and any sort of, I'd say, bad debt, et cetera, that you're seeing at that level?

Sure. Happy to. So our credit card continued to grow in the quarter, and we're pleased with performance. Net credit losses are in line with expectations and we believe better than the overall industry. And we have great credit quality. Importantly, we're continuing to build out our credit base with great partnership across all of our businesses in-store and on digital and have a number of programs to build usage of the card because it is intimately connected to our loyalty program, which is part of our broader ecosystem. So we're pleased with credit card trends, I believe they're sustainable, and it is a critical part of our overall loyalty and business model going forward.

Our final question today is coming from Simeon Siegel of Guggenheim Partners.

Tony or Tom, maybe just within your comments about the different AUR dynamics by brand. So could you share what AUR versus units were by banner? And then I was hoping you could flesh out the traffic versus conversion comments you had made earlier on the call. Do you feel like you need to and maybe there's an opportunity to retrain your customers for the ongoing elevation that would help conversion? Or do you feel like you need to walk away from certain customers? Just curious how you're thinking about that traffic versus conversion dynamic as an opportunity and maybe thinking that, especially with the great NPS improvement, how you would align that with the conversion you're seeing?

Thanks, Simeon, for the question. On the AUR, we don't break out the difference between the 2. But as I said, the AUR at Bloomingdale's is meaningfully higher than the AUR at Bloomingdale's, but has been growing at both brands based on the mix of products we're selling and based on the brand elevation that we're committed to. In terms of traffic and conversion, traffic has been steady, both physically and digitally, and conversion has been more of a challenge. And I would say that your point is right that we are working with our colleagues to help them to become better sellers. We are spending more time on our PDPs and on the quality of our top-of-funnel marketing, making sure that we're underscoring and accentuating the benefits of buying better things.

We're also trying to temper ourselves because you have data now by the second that some purchases take 1 or 2 or 3 visits before you make them. So a more expensive mattress or a more expensive diamond or a better quality leather is not an immediate purchase necessarily. So how do you tease between the immediacy of conversion you're looking for on every single visit to the site or to the store with what may be a browse behavior that's so important to people becoming and falling in love with your brand and business.

At this time, I'd like to turn the floor back over to Mr. Spring for closing comments.

Thank you, everybody. Appreciate your questions today and for you joining our second quarter call. Please look out for some fun surprises as we're less than 77 days from the parade. And I promise our 100th Macy's Thanksgiving Day parade will be our best yet. Talk to you after the holidays. Happy call.

Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Greetings, and welcome to the Macy's, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Pamela Quintiliano VP of Investor Relations. Pamela, 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; and Tom Edwards, our COO and CFO.

Along with our first quarter 2026 press release, a Form 8-K has been filed with the Securities and Exchange Commission, and the 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 March 18 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 at www.macysinc.com/investors/. 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 Macy's go-forward locations in digital and Bloomingdale's and Bluemercury nameplates inclusive of stores and Digital. Go-forward Macy's nameplate comp sales include the approximately 350 Macy's go-forward locations and Macy's Digital. Go-forward Bloomingdale's and go-forward Bluemercury comp sales include all store locations in digital.

As a reminder, on February 18, we announced an update to our non-GAAP financial disclosures, the details of which are available in the Form 8-K. These changes do not impact our historical or future GAAP metrics and disclosures. The updated disclosures, which encompass comparable sales, OLM dollar sales, revenues and non-GAAP earnings are intended to both simplify disclosures and provide increased clarity on the key metrics that support our growth profile and go-forward operating performance. Beginning this quarter, adjusted earnings metrics reflect our new non-GAAP metrics. 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 two hours after the conclusion of this call.

With that, I'll turn it over to Tony.

Thank you, Pam. Good morning, and thank you for joining us today. I'm pleased with the strong start to the year. Our Bold New Chapter initiatives continue to gain momentum. In the first quarter, we delivered enterprise-wide growth, better-than-expected performance across all key metrics and our best comparable sales in four years with all nameplates and channels positive. These broad-based operational and financial improvements reflect the strength and viability of the Bold New Chapter strategy. Our customer-led focus is resonating and driving tangible results. Macy's Inc. net sales, comparable sales, adjusted EBITDA and adjusted diluted EPS all exceeded our guidance.

Macy's nameplate delivered its fourth consecutive quarter of positive comps and led by our Reimagine 200 locations. Bloomingdale's has achieved double-digit comps and its best first quarter sales volume on record, and Bluemercury delivered another quarter of comparable sales growth.

I want to take a moment to thank our colleagues, their dedication to the Bold New Chapter strategy and consistent focus on our customer are integral to the progress we're making. Through strong cross-functional collaboration, we continue to learn from each other without becoming one another.

Our results reflect the progress we're making on each pillar of the Bold New Chapter strategy. Macy's, Inc. delivered 3% comparable sales growth, representing our strongest first quarter since 2022, with go-forward Macy's, Inc. rising 3.1%. Adjusted EPS of $0.13 was well above the high end of our guidance on stronger sales and expense management.

Now let's discuss each pillar of the strategy, beginning with strengthening and reimagining Macy's. Macy's nameplate achieved positive 1.6% comparable sales with Reimagine locations growing 2.4%. We are encouraged by the Reimagine performance, which have delivered positive comparable sales in 8 of the last 9 quarters. During the first quarter, we expanded learnings to an additional 75 locations, bringing the Reimagine base to 200. As a reminder, these locations account for nearly 60% of our go-forward Macy's stores and were about 75% of our fiscal 2025 go-forward Macy's store sales. And while we achieved our highest first quarter, Macy's nameplate Net Promoter Score on record, the Reimagine locations continue to score even higher.

Digital also contributed to positive comparable sales results. Our improved digital experience reflects the foundational platform improvements we have implemented over the last several years and is supported by our store and brand initiatives. At the same time, our curated marketplace is further enhancing our fashion authority position by complementing and expanding our category and brand matrix.

During the quarter, we introduced Ask Macy's, our new AI-powered conversational shopping assistant. Shaped by data and insights from thousands of colleagues, Ask Macy's creates a connected customer journey. It serves as a starting point for discovery across channels and helps deliver the best Macy's at every touch point. Although early days, initial response has been favorable.

As a multi-brand, multi-category and multigenerational retailer, we are uniquely positioned to provide inspiration for our customers everyday moments, holidays, events and everything in between. Across both stores and digital, we are benefiting from the optimization or refinement of our merchandise strategy. We've made strides in modernizing our assortments and improving curation. Our point of view across best, better and good price points classifications has become more clearly defined, and we're showing up with increased conviction.

With our strong and stable balance sheet, large addressable market, loyal customer base and steadily improving results, we're gaining market interest. We are continuously working to improve our brand matrix, reduce product redundancies and offer more fashion.

During the first quarter, we introduced several new brands, including Rotie's, Donna Karan Weekend and Ted Baker Men's. In addition, we expanded Abercrombie Kids offerings to infants and toddlers and further expanded the store distribution of Reiss Free People Theory and Rodd & Gunn.

Looking at category performance. watches, petites, dresses, women's career, kids, handbags, fragrances, and shoes all outperformed. We did see some softer trends including big-ticket home, especially furniture and our plus-size business.

Overall, our Macy's customers have noticed the positive changes across product, messaging and experience. And as we look ahead, I am confident we have the right initiatives in place to deliver long-term profitable growth.

Turning to the second pillar of the Bold New Chapter strategy, accelerating and differentiating luxury. Bloomingdale's achieved a positive 10.2% comp and its highest first quarter sales in its 154-year history. Our premium contemporary to luxury positioning is unique, enabling us to capture and maintain customer interest. Through matrix elevation, new brand additions a vibrant shopping environment, including collaborations, activations and personalized customer service, we are providing a compelling and distinct experience.

Recent strength has been broad-based with powerful growth in each channel. Performance is anchored on multiple strategic levers, and we're confident that we can continue to expand share of wallet on a brand-by-brand, location-by-location and category-by-category basis.

Looking at the first quarter, ready-to-wear men's apparel, fine jewelry, shoes, tabletop, all outperformed. We expanded the reach of a very important client program, which caters to our highest vendors and see ongoing growth opportunity with this customer. We also hosted our newest campaign, California Love, which featured California-inspired events, animation and brand exclusives. The campaign served as a strong driver of traffic and customer engagement and generated meaningful editorial media coverage. We introduced several new luxury brands, including Chloe Ready-to-Wear, Isabel Marant, Phoebe Philo, Park Denim, Aireloom and Kate Shoes. These brands complement our existing luxury matrix, generating incremental sales among our loyal multigenerational customer base as well as attracting new clients. Potential and existing partners appreciate the transitional journey we're on which gives them the confidence to enter and expand their distribution at Bloomingdale's. Congratulations to the team on further reinforcing Bloomingdale's status as the leading modern luxury shopping destination.

Rounding out the conversation on luxury, Bluemercury comparable sales growth accelerated to 6.4%. The Bluemercury customer closely aligns with the Bloomingdale's shopper. She appreciates Bluemercury's intimate relaxing and customer service-oriented environment and knowledgeable colleagues. During the quarter, results were driven by makeup, dermatological skin care and fragrances including Byredo and Parfums de Marly,as well as Dr. Diamond's Metacine and SkinCeuticals. New and remodeled stores remained outperformers.

Turning to the final pillar of our strategy, simplifying and modernizing end-to-end operations. We recently expanded its scope to incorporate optimizing and scaling enterprise-wide organizational excellence, which we believe more accurately reflects our model and innovation capabilities. This pillar supports revenue growth and customer experience enhancements and is driving efficiencies. We've been testing, refining and implementing initiatives, including AI and believe there are meaningful opportunities to better serve our customers and support our colleagues.

Now I'd like to discuss our thoughts on the consumer and our outlook. The Macy's, Inc. customer, who is predominantly middle to upper income, remained resilient in the first quarter. We found that when the product and the experience are differentiated and compelling, engagement and spend increase. During the quarter, our customer appreciated the assortments, marketing events that supported key holidays, including Valentine's Day, Presidents' Day and Easter.

In the second quarter, we have continued to actively engage with our customer. We expanded our immersive Macy's Flower Show from Herald Square to our State Street location in Chicago. This event served as a strong traffic driver, drawing 800,000 customers to those stores and generating significant media coverage. At Bloomingdale's, the TV show, Margo's Got Money Troubles has pushed us further into the cultural Zeitgeist by declaring there are no victims in Bloomingdale's, a line that has gained momentum. We quickly leveraged that powerful statement across both social and experiential activations.

2026 is our year of celebration and it's our country's 250th anniversary. In just about a month, we will host one of our signature events, the 50th Anniversary of the Macy's Fourth of July fireworks, our biggest yet. And later in the year, we'll host our 100th Macy's Thanksgiving Day Parade. And we have a new partnership with Live Nation and Major League Baseball designed to help our customers celebrate the summer. Across amphitheaters and stadiums nationwide, we will be powering fan-first experiences from moment before inspiration and in-venue surprises, the celebration nights, sweepstakes and rewards. We're also hosting a series of unique World Cup events. At Macy's, we have transformed the mezzanine at Herald Square to an immersive and engaging World Cup experience with customer activations and official merchandise from adidas, Nike, Lids and more. And at Bloomingdale's 59th Street, we'll have a Hugo Boss David Beckham collaboration that includes a personal adherence from the soccer star himself.

Between our recent results and upcoming celebrations, there's a lot to be excited about.

Now turning to our guidance. We are committed to building on the momentum and remain focused on the factors that are within our control. We are pleased with our second quarter performance to date and are raising our full year outlook. Our updated guidance incorporates better-than-expected first quarter top line and bottom line results as well as a modest increase in sales for the remaining quarters.

Recognizing macroeconomic and ongoing geopolitical uncertainty, guidance provides flexibility to respond to potential changes in the competitive landscape and consumer demand.

In closing, I am encouraged by the team's strong execution and our results. Customers are responding to our curated product assortments, focused service, targeted messaging and traffic driving promotions and events. This is supported by an improved end-to-end omnichannel experience. And with five consecutive quarters of better-than-expected top line and bottom line results, four consecutive quarters of comparable sales growth and ongoing positive Reimagine comps, I am confident that the Bold New Chapter initiatives have firmly laid the foundation for sustainable, profitable growth and long-term shareholder value creation.

With that, let me turn it over to Tom.

Thank you, Tony, and good morning, everyone. In the first quarter, the Bold New Chapter continued to gain traction across all three pillars of our strategy. Both top and bottom line results were well above guidance. We benefited from our strongest first quarter comparable sales results in four years, delivered net sales growth for the first time since emerging from the pandemic and achieved better-than-expected results across key income statement metrics.

Our progress is fueled by the dedication and commitment of our teams and partners. The substantive enterprise-wide improvements we are making are resonating and our customers are responding.

Looking at a detailed view of the quarter, beginning with Macy's, Inc. Net sales grew 1.8% to $4.7 billion. Results were above guidance of $4.575 billion to $4.625 billion and compared to $4.6 billion last year. Excluding a roughly $40 million impact from the 14 non-go-forward store closures at the end of last year, net sales grew 2.7%.

Comparable sales on a reported basis rose 3% versus guidance of 0.5% to 1.5% and negative 2% last year. Go-forward comps grew 3.1%.

By nameplate, Macy's comparable sales rose 1.6%. We continue to be encouraged by the performance of the Reimagine locations, which grew 2.4%.

Bloomingdale's comparable sales were up 10.2% and Bluemercury comparable sales increased 6.4%. Total revenue rose 2.1% to $4.9 billion. Other revenue, which includes credit card and Macy's Media Network, was $210 million, up 8% versus last year. Within that, credit card revenue was $172 million, up 12% versus last year, reflecting our continued healthy credit portfolio and prudent management of net credit card losses.

Macy's Media Network revenue was $38 million, 5% below last year, reflecting the timing of advertising spend on a year-over-year basis.

Gross margin was $1.8 billion or 38.9% of net sales compared to 39.2% last year. Excluding an approximately 30-basis-point tariff impact, gross margin rate would have been even with last year.

SG&A rate of 39.9% was better than our expectations and was flat with last year. SG&A dollars of $1.95 billion were in line with our expectations despite higher sales and compared to $1.91 billion last year. SG&A reflects investments in Bold New Chapter initiatives to drive growth, partially offset by our always-on approach to expense savings.

Adjusted EBITDA was $290 million or 5.9% of total revenue. This exceeded the high end of our guidance range of 4.9% to 5.1% and compared to $304 million or 6.3% of total revenue last year.

Adjusted EPS of $0.13 was above the high end of our guidance range for a loss of $0.01 to a gain of $0.01. Results reflect a roughly $0.04 tariff impact.

Our disciplined approach to cash flow and balance sheet management continues to support our strong financial position. During the first quarter, operating cash flow was an inflow of $292 million versus an outflow of $64 million last year. And free cash flow was an inflow of $140 million versus an outflow of $203 million last year.

End of quarter inventory dollars were up 3.6% compared to last year, in line with our expectations and comp sales growth. We are well positioned for summer with increased newness across price points and lower aged inventories relative to last year.

Capital expenditures were $177 million, which were flat to the prior year period. Monetization proceeds were $25 million compared to $38 million last year.

In the first quarter, we returned $100 million to shareholders through a $50 million of quarterly cash dividend and $50 million of share repurchases, leaving approximately $1.1 billion remaining on our buyback authorization. And we ended the quarter with $1.3 billion of cash on our balance sheet compared to $932 million last year.

Now I'd like to provide an update on our end-to-end initiatives. We continue to make meaningful progress modernizing our operations and improving effectiveness. Our China growth distribution facility is ramping nicely. We are realizing the early benefits of automation in both service levels and cost efficiencies and expect ongoing progress as we build capacity for holiday.

From an organizational point of view, we are leveraging AI, including evaluating several inventory forecasting and management initiatives to further improve our ability to meet customer needs.

Looking ahead, we are confident we can build on these and other initiatives across the enterprise and find new areas of opportunity.

Moving to guidance. We entered the second quarter with relevant new products supported by compelling marketing, visual presentation and events. We are encouraged by quarter-to-date results, but still have the majority of sales volume ahead. Consistent with our past practice, we are taking a prudent approach to quarterly and annual guidance, giving ourselves the flexibility to respond to changes in the competitive landscape and macroeconomic and ongoing geopolitical unknowns.

For the full year, we are raising our outlook to incorporate better-than-expected first quarter top and bottom line results. In addition, we are modestly increasing our sales for the remaining quarters.

Our full year guidance also reflects updated tariff and fuel assumptions. For tariffs, our guidance now reflects current rates, which are lower than our previous assumptions. For fuel and transportation costs, we are factoring in elevated levels based on what we know today.

The estimated impact of lower tariffs and higher fuel costs is net neutral for the fiscal year. We will continue to closely monitor developments as the environment evolves.

Regarding tariff refunds, while we are seeking refunds, the timing and amounts remain uncertain. As such, any potential benefit is not incorporated in our outlook.

Looking at second quarter guidance, we expect net sales of approximately $4.75 billion to $4.8 billion. Last year's store closures contributed about $35 million to sales in the comparable period. Comparable sales to be approximately flat to up 1%. Adjusted EBITDA as a percent of total revenue of 6.9% to 7.2%, and adjusted diluted EPS of $0.29 to $0.34. Tariffs and fuel costs combined are expected to have a roughly $0.03 to $0.04 negative impact to EPS and a 20- to 40-basis-point negative impact to gross margin.

For the full year, we now expect net sales of approximately $21.5 billion to $21.75 billion. Fiscal 2025 store closures contributed roughly $145 million to net sales in the comparable period. Comparable sales to be approximately up 0.5% to up 1.2%, other revenue of approximately $920 million, gross margin as a percent of net sales to be 38.4% to 38.6%, reflecting a roughly 20- to 30-basis-point negative impact from tariffs and fuel. SG&A to be up 1% to 2% on a dollar basis compared to last year, with the rate roughly in line with prior year in the second and fourth quarters and above in the third quarter, reflecting timing of investments to fund growth.

Adjusted EBITDA as a percent of total revenue of 7.7% to 7.9%, interest expense of roughly $100 million and adjusted diluted EPS of $2 to $2.20, which assumes a roughly $0.10 to $0.20 combined tariff rate and fuel cost impact.

In closing, it's an exciting time at Macy's, Inc. We have a clear strategy in place and the discipline and financial strength to execute. We are taking our learnings to refine and fortify each pillar of the Bold New Chapter. As I look to our future, I'm confident we have the right foundational initiatives in place to drive long-term, sustainable, profitable growth and deliver compelling value to our shareholders.

Now let me turn the call back to Tony for closing remarks.

Thanks so much, Tom. We're now in the third year of our Bold New Chapter. And while there's still more work to be done, our strategy is delivering results. Initiatives are continuing to gain traction across all three pillars. We have returned to top line growth while continuing to provide value to shareholders through our dividend and stock buyback programs. As we look ahead, our strong balance sheet and cash flow generation support the necessary investments to fuel long-term profitable growth.

I'm encouraged by the progress made, confident in the strategy and excited for our future. And with that, operator, we're now ready for questions.

[Operator Instructions] Our first question today is coming from Blake Anderson of Jefferies.

Congrats on a great quarter. So I wanted to start off with the comp. Can you talk about what you're seeing most recently there? Any commentary you can provide on kind of how the comp was throughout the quarter and then what you're seeing most recently versus your guide? I know there's some moving pieces with the macro in terms of gas prices and tax refunds, but kind of any update on what you're seeing most recently in your ability to deliver upside in Q2?

And then with the updated guide, kind of it seems like it implies maybe flat comps in the second half. How do you feel about your ability to continue to generate positive comps into the second half as well?

Thanks, Blake. Good to talk to you. Yes, we're pleased with the second quarter performance to date, very consistent performance throughout the first quarter. There were no vagaries between one month to the next, and we really comment on the entire quarter. Just glad to see the consistency of the business across all three nameplates and the consistency of the business across multiple categories of business, to see the dress business, the women's career business, the kids business, the watch business, the women's shoe business, the men's shoe business, there are so many categories that are trending healthy right now that I'm cautiously optimistic about our ability to continue to drive our performance.

We obviously have a prudent guide relative to the geopolitical and macroeconomic factors. But the things that are within our control, we feel really good about. I'll let Tom comment on the guide for the back half of the year.

Thanks, Tony. The guide for the back half of the year, Blake, we're really pleased to have raised our overall guidance for the year on comp sales, really reflecting the Q1 over delivery as well as additional sales through the rest of the year, which includes the back half. So as we're around a flat implied comp for that it's really benchmarked against stack comps. But what it means is our Bold New Chapter is going to continue to deliver. We're going to continue to execute against it. We're heading into the second quarter with good inventories, much newness. So very excited about the future and continuing to deliver for the consumer in the second half of the year.

Yes, Blake, and I just end with, we look at the 2-year, 3-year stack, and we don't want to end up with a hockey stick in the fall. So we want to make sure that we have the opportunity to not only continue our performance, but give ourselves the opportunity to navigate the things we don't know right now.

That makes sense and very helpful. And then if I could ask a longer-term question. As part of your Bold New Chapter strategy you laid out medium-term targets of sales growth with mid-single-digit EBITDA growth. And given now there are a lot of moving pieces with tariffs, fuel, your store closures, I was just wondering, Tom, if you could update us on the underlying business, how do you feel about your confidence and visibility for margin expansion over the medium term? And what would be the factors that are in your control, you feel most that can drive upside?

I feel really confident, Blake, about our opportunity to grow the business and to deliver long-term profitable growth. And I'd start by saying that we are already delivering that growth. In Q1, EPS was up versus prior year. We've provided some additional new metrics earlier this year that showed last year, we were delivering growth, excluding tariffs on the bottom line as well as EBITDA. So we feel good about our opportunities.

And the other thing I'd point out is in Q1, as we over deliver revenue, it drops to the bottom line. So we can show how we can flow through. We have opportunities on gross margin to continue to improve assortment, add new brands, manage inventory with many new initiatives and continue to deliver excellent customer experience. And on SG&A, we'll continue to lever that and invest with rigor to drive the top line.

Our next question is coming from Matthew Boss of JPMorgan.

Congrats on a very nice quarter. So two questions. So, Tony, could you elaborate on the cross-functional collaboration that you cited that's happening between Macy's and Bloomingdale's? Really how you think has impacted results to date and the opportunities that you think it provides maybe relative to the underlying Bold New chapter plan? And then, Tom, could you speak to the drivers of gross margin versus plan in the first quarter, and then the underlying build to get to the 40 to 60 basis points of expansion for the year as we think about the second quarter versus back half?

Thanks, Matt. yes, we've got a healthier cross collaboration. Some is obviously having spent 35, 36 years at Bloomingdale's and coming to Macy's and building bridges in terms of talent between the two brands, making sure that in our reporting, we are looking at the business in a comparable fashion and trying to better understand underlying trends, geographic trends, sharing where we see brand opportunities, where things overlap.

And as you know, at the same time, making sure that we can learn from each other without becoming one another. I have every intention of making sure that we preserve the specialness and uniqueness of Bloomingdale's and build on the 10.2% comp growth they had in the first quarter, and at the same time, make Macy's more fashionable, make sure that we are editing out brands and styles and redundancies within our assortment as we flow new brands into the Macy's architecture that include theory and Rodd & Gunn and Free People and more to come. Because I think that there is this opportunity with 38 million people shopping at Bloomingdale's -- at Macy's and 4 million people shopping at Bloomingdale's that we can have our cake and eat it too.

We can absolutely be better collaboratively and at the same time, make sure that we have the distinction that's necessary for both brands.

And Matt, with regard to gross margin, in Q1, excluding tariffs, our gross margin was flat to prior year. And just looking at what we said in Q4 and giving guidance to be down in Q1 and then build over the course of the year. We still expect that build. And what's driving it for the year is multiple factors. We're expanding our Reimagine program from 125 to 200. That's already delivering results. Expect to see that continue. We expect to drive regular price sell-through through multiple initiatives, including to Reimagine, how we are managing inventory on a day-to-day, month-to-month basis, leveraging areas like hold and flow that have been working so well in the past and using new forecasting tools, which we're exploring as part of our AI initiatives on how we both forecast demand and replenishment. So there's a number of underlying factors here that are helping support our long-term business.

Our next question is coming from Brooke Roach of Goldman Sachs.

Tony, can you speak to the drivers of the comp acceleration that you're seeing across banner? What proportion of the comp gains that you're seeing are driven by traffic versus ticket? And within that, what are you seeing in AUR?

Thanks, Brooke. We are seeing continued AUR growth and consistent traffic. And I think we're balancing the improvements in AUR with a slight reduction in conversion, but still an overall basket size increase. So more customers shopping, people being choiceful as they look at the value equation between prices and categories, but overall, architected by Macy's and Bloomingdale's. We think there's tremendous opportunity to make sure that the range of our price points across both banners makes sense relative to the types of consumers that we're catering to. So we want best, better, good across the pyramid. We also will see AUR expansion when we're selling more expensive materials. So that could be leather versus vegan leather. That could be linen versus cotton.

And so we have really challenged our teams to make sure that we are not undershooting the customer, we are embracing the best of what is happening in fashion, that we are making sure that our assortment architecture has the right variety necessary to attract as many consumers as possible while, at the same time, we've got our off-price offering with Backstage at Macy's and the outlet store Bloomingdale's. So we feel like we've got on the barbell, we're catering to it in an effective manner.

And Brooke, I'd add that we've been seeing this algorithm, higher AUR, consistent traffic and higher basket size over multiple quarters of a very long period of time. So it's one we want to drive going forward and support our long-term goals to grow.

Great. And then just a follow-up for Tom. Can you quantify the size of the headwind to the business that you're currently seeing from higher fuel costs? How are you thinking about the resiliency of your business if oil prices continue to rise into the back half of the year?

Sure, Brooke. I'm happy to. And for fuel costs, we expect them to be a full year headwind of about 10 to 20 basis points. And that's fuel EPS up to $0.15 from about $0.05 to $0.15. And we're incorporating in our outlook what we see as the current view of fuel and it is offset by lower tariffs. So for the year, we're net neutral as we have incorporated lower tariff rates, which were, by the way, in line with the tariffs that were announced that's potentially coming into play later this year. So we feel like we're well positioned there. And then we'll continue to monitor this closely on both fronts, tariff and fuel, but feel -- we appropriately for what we know now incorporated in our forecast.

Our next question is coming from Dana Telsey of Telsey Advisory Group.

Bloomingdale's looks terrific. 59th Street, you just got the new Prada shoe department or the new installation, it looks great. On the reimagined Macy's stores, while it was up 0.9% in Q4 accelerated to 2.4% in Q1, what are you seeing in the acceleration? And given the major events that are taking place like the 250 where you do the huge fireworks and all, how should we be thinking about marketing spend going forward?

And then, Tony, how do you think about the promotional environment and what you've seen out there?

Thanks, Dana. I agree. I think the Prada shoe installation at 59th Street looks outstanding. We're excited about the Reimagine 200 program. It's 8 of 9 quarters of growth with the Reimagine stores. We got all cohorts growing. We're seeing growth across multiple categories. What I love about the program is it's a recipe. It's not one idea, it's the merchandise, it's a better assortment, it's the presentation, it's better storytelling, it's more people in the stores, it's better service, record Net Promoter Scores even higher in the Reimagine stores. It's service in the fitting room. It's service in the beauty department when people sit down in a chair and decide on what their beauty regimen is. So what I love is this last ingredient, which we've added in the last 6 to 12 months, which is local empowerment, giving our local leaders the opportunity to allocate the resources a little more effectively by floor and by area as well as add in the local ingredients that really allow us to be this national retailer that executes much more effectively on a local basis.

i think marketing spend continues to be consistent. I think what we're working on is the right balance between top of funnel and bottom of funnel, or what we're doing to kind of tell the story about the brands we sell and the fashion that we sell and the brand Macy's, Bloomingdale's and Bluemercury, and how we convert in-store and online with the right level of search marketing investment.

Tom, what would you add?

I'd add on the Reimagine stores. We're very pleased with how they're performing, and it's a great example of us investing in the business to drive growth and generating good returns on that. We have followed each tranche and seen how they have improved at the top line as well as the bottom line over time and pleased with how they are progressing going forward. We always look to be good stewards of capital and returns and feel these are great investments to improve our customer experience and drive the top line.

Any update on the promotional environment, what you're seeing?

Dana, I don't see any significant changes. Normally, there needs to be a bigger glut of inventory and a significant change in consumer demand before you see the kind of causal effects of promotion. Right now, it's a very comparable promotional environment to what we've seen over the past several years.

Our next question is coming from Paul Lejuez of Citigroup.

It's Tracy Kogan filling in for Paul. I just wanted to clarify one thing first. I think you said you see consistent traffic. And I just wanted to clarify if that meant traffic is flat? Or do you mean it is down or up consistent with 4Q. And then my second question is just on your credit portfolio. I think you mentioned that it was healthy, but I was wondering if you were seeing any signs in bad debt or payment trends that show any strain from the consumer?

Thanks for the questions, Tracy. Regarding traffic, we saw it improve sequentially. And as Tony mentioned, it's been fairly consistent over time with AUR and basket size being the primary driver.

Regarding the credit revenue, our credit, first, is a very important part of our overall Macy's ecosystem. It fits into our loyalty program, and it helps us understand how over 70% of our customers are spending and engaging with us over time. So it has a very broad meaning overall. And what we saw in the quarter was 12% growth and that was driven by the health of our credit portfolio and a reduction in net credit losses. So we have a very strong credit environment in our portfolio, and we're going to be monitoring going forward to make sure we're taking care of that credit.

Looking at the remainder of the year and ongoing, we expect the credit card business to grow at the rate of the overall business and we have many initiatives in place to drive both new cardholder acquisition and increased card usage.

Our next question is coming from Michael Binetti of Evercore ISI.

Congrats on a great quarter. let me ask you about the AUR. I saw the presentation, it was up 8.3%. That's a really big acceleration about 400 basis points from the prior quarter, if I'm looking at like-for-like numbers. And we haven't seen a level like that in a while. First, just love to see if you could talk a little bit about -- a little more specifically about what areas of the business drove that in the quarter?

And then, Tom, I have to ask what do you think explains the gross margin flat, excluding tariffs at that level of AUR improvement? I think those two are usually a little more linked for you guys. I'm trying to think about how we should think about that as we go forward in our models here?

Thanks for the question, Mike. The AUR has been growing for the last couple of years at both brands. It's both the mix of business, as I was saying before, the different fabrication, the categories we're selling, more jackets versus T-shirts, the introduction of linen versus cotton, the breadth of brands that we're selling, Sam Edelman versus the size of our private brand business today. So some is the construct of our assortments is just different. It's evolving. There is more in the best bucket than in the better or the good bucket. And that's going to continue to allow us to increase the AUR. The AUR of the Macy's brand was more 5% and change. The AUR the Bloomingdale's brand was in the 9%, 10% range. So you have a slight difference between the two brands that blends to the to the 8% and change. But I would say that we still have opportunity. We have less clearance than we had less -- a year ago, less aged goods that also gets you the back-end benefit of better AUR because you're not selling as much clearance.

But we're going to continue to monitor the right levels of inventory in each of the price buckets to make sure that we're capitalizing on where we see the demand. I would tell you, in the past, we were a little hesitant on the higher AUR product to be in stock and to give more distribution to our stores. I think we're trying to find the right balance of not undershooting the customer.

And I'll add on the gross margin versus AUR. Q1, first, was in line with our expectations being flat, excluding tariffs. And it's really a mix of business around channel and product. Importantly, Michael, we have a line of sight to how gross margin will continue to expand over the remainder of the year and build as we move through the year.

Okay. And then if I could just ask a quick follow-up on beauty, great comp out of Bluemercury. Is -- can we get a sense of how much beauty was up across the total business? Is it your sense that the category is improving? Or was this just all execution at Bluemercury or something you did that you felt particularly strong about?

I think Mike, it's the combination of brands and service. And I think all three of our brands are full-service beauty experiences. And when we have enough newness, there was a lot of newness in skincare, there was a lot of newness and fragrances. It's going to bode well for our total beauty business. And then we are doubling down on the beauty experience via our beauty advisers, making sure we're giving a level of experience that people say that's better than self-service, that gives me a reason to kind of go to the department store, whether it's samples, whether it's a gift with purchase, whether it's someone who allows me to shop across brands, we're working to make sure that we're building on the sizable beauty business that we have at all three brands.

Our next question is coming from Chuck Grom of Gordon Haskett.

This is Ryan Bulger on for Chuck here. I wanted to ask about the delta between the Macy's go forward at 1.6 and then the reimagined $200 million at $2.4 billion. And just kind of the underlying drivers there and what you'd expect to see on that going forward?

Sure. The reimagined stores, we said, it's about 60% of our store base at 75% of the sales based on 2025 Macy's store sales. You have the 1.4% is the Macy's comp number inclusive of all the Macy's stores. So the 1.4% to the 1.6% is the real difference. And the Reimagine stores have the additional investments. And so whether that be staffing, whether that be additional brands, whether that be the additional visual enhancements. And so we're monitoring that carefully because we view that 2% to 3% growth is being very important to the overall architecture of our planning strategy going forward. And we love seeing the Reimagine stores growing across all the cohorts and seeing the consumer respond across geographies to the changes that we're making in the Macy's name plate.

The next question is coming from Bob Drbul of BTIG.

I guess I'm curious to see, as you look into the second quarter, and you mentioned some of your World Cup initiatives, do you think that's going to be a big driver to any of your big geographies?

Well, we've invested in the active category in partnership with Nike and with Adidas and to a smaller degree, with Puma and creating a reason to come to the store a reason to shop. We'll have personal appearances at both Macy's and Bloomingdale's, not just in our flagship stores, but in our local stores as well. I think these events, just like Prom or Valentine's Day kind of give the reason for the consumer to kind of come into the store, vote by being a part of something that's happening in the country. And we view World Cup is just something that people are excited about the same way if you're in New York, you're excited about the Next right now. Or if you're watching, hopefully, the fourth of July fireworks, you're going to be excited seeing the fact that we have fireworks on both the west side and the east side this year. And we -- as a retailer, we have a responsibility to kind of give people a reason to buy, to bring in the animation to add kind of more than just a need-based purchase. This is an emotional business, and so to me, it's fun to see all the sports teams. It's fun to see the activations and young kids all the way up to dads and moms looking to be a part of the celebration of World Cup.

Great. And I guess, just could you spend a few minutes just on the Ask Macy's, the AI utilization, and sort of what you're seeing there throughout the business?

Sure, Bob. Early days. We're learning as we go. What I love seeing is the higher conversion rate for the people that are engaging with Ask Macy's because it's giving people a better prompt-driven response to the search that they're looking to complete. We're also trying to use Ask Macy's as a foundational way to help educate more of our colleagues. We view AI and humanity working together, and that creates the best possible results. But early days, pleased with the response to Ask Macy's and eventually Ask Macy's will become Ask Bloomingdale's. And so that will allow us to scale it across both brands.

And Bob, I'd add that we have AI initiatives across the business, we have 35 tests and pilots that we're running. And we're really looking to leverage it in customer-facing, helping our associates be more effective in their roles as well as in areas like supply chain. So we're really trying to see where it can help us, and as Tony mentioned, help us serve our customer and work with humanity as well as the science.

Our next question is coming from Oliver Chen of TD Cowen.

Tony and Tom, a really exciting in terms of the growth you're seeing. Regarding back-to-school, what are your thoughts and key catalysts in terms of managing the opening and value relative to what you're clearly seeing with the best and better matrix?

Also, it's competitive. So timing regarding that balance between just-in-time versus earlier due to the nature of competition?

And second, as we think about artificial intelligence and labor, merchandising as well as inventory, what are your -- how would you prioritize how this is going to impact the business as the pricing and supply chain is different, but equally important to the large language models? And how you're thinking about humanization of search and problem solution and agentic search optimization?

Let me take the first part, Oliver, and then I'll let Tom take the second part. I'm excited about back-to-school. We have back to kind of camp or day camps going on right now. The kids business is really healthy across boys, girls, the infants business that we do. I love the matrix that we have that you go from our own private brands to Ralph Lauren, to Abercrombie, to Nike, to Jordan. We have a unique, I think, compelling assortment across both genders. And so I think we're becoming more of a destination for the kids category. Team is doing a terrific job. And I think the assortments that I've seen look great, and we're doing a better job, I think, by the way, of being set up for the South, which goes back to school earlier versus the north that obviously goes back to school after Labor Day.

Let me just say this on AI, and then I'll let Tom add his comments as well. Our AI strategy is our Bold New Chapter. First is we start with the Bold New Chapter. And how do we power the Bold New Chapter? It's through our belief that AI can help us drive revenue, make sure that we're giving our colleagues an easier experience and our customers a better experience, and making sure that we're creating efficiencies like in the supply chain example you were raising. So our strategy is the Bold New Chapter, and our drivers kind of come from all the different proof of concepts we have in AI.

Tom, what would you add?

And I'd add, Oliver, that we're good stewards of returns and ROI and very cognizant that AI can be costly to implement as well as providing great benefits on the other end, and that could be helping associates in store, in the office or in the supply chain where we're already using it in places like China Grove. So we're going to keep that in mind and make sure that as we leverage it, it's leveraged in a way that makes sense from a return perspective, and then, as Tony mentioned, support our overall strategy.

One follow-up, Reimagine, we've noticed better service and also a compelling product assortment. Within that, what should we know about your private label initiatives as you have really important franchises there? And I'm sure you're thinking about how to manage the differentiation amongst the private labels as well as innovation.

And also Reimagine going forward, can you speed up the implementation to the whole base in terms of the progress you're seeing there?

Thanks, Oliver. Yes, we're very proud and excited about the growth in the Reimagine stores, 2.4% across geographies, across all cohorts of stores, and we're going to go as fast as we possibly can. Right now, we're focused on the 200 stores that represent 60% of the store base and 75% of the Macy's store sales. The customer is responding. They like the balance of market brands and private brands. They like the balance of newness and fashion and basics. Our private brands are a strategy, but the private brands really serve as a part of the assortment architecture area by area. And we have parts of the business where private brand is 30% or 40% of the business. We have parts of the business where private brand is less than 3% of the business. And it has to be what's appropriate in the individual category. Are the market brands not servicing our needs and does private brands have a reason for being, can we make more money by having something in the commodity in private brands? And if we don't need to duplicate what is necessary and better potentially from the market brands with what we do in private brands.

So obviously have a private brand strategy. We are committed to building our private brand business, but it's going to be more now based on what's appropriate area by area based on our assortment architecture.

The next question is coming from Simeon Siegel of Guggenheim Securities.

Tony, really encouraging to hear the breadth of categories that are working. Just any high-level thoughts on what areas might be lagging and where you still see meaningful to improve there? And then, Tom, can you just elaborate on the marketing timing shift within the Macy's Media Network at all and how you're thinking about media versus credit card sales embedded within the full year other guide?

Sure. Thanks, Simeon. We've mentioned the softness in the big-ticket business, particularly furniture. I think that the tariffs, in that case, made some of our products more expensive and the consumer push back. I also think the category has been softer just based on interest rates and the overall mortgage environment. So we're working hard to change the trajectory of our furniture business. The other business that we saw softer was in plus sizes, and that, again, for us has been soft for some time. So the team is busy at work trying to improve the quality of our assortments and make sure we have the right representation for the plus size customer.

We're just excited by the fact that we have so many categories right now that are trending positive. And I think it's a good indication that there is more working than not across both Macy's, Bloomingdale's and Bluemercury.

And Simeon, with regard to Macy's Media Network and credit card revenue, Macy's Media Network was down 5% in the quarter due to the timing of spending, but we have a line of sight to grow this business for the year. And it's a very important revenue stream that builds on the Macy's brand equity and one that we're very excited about. It is still in early stages as we're growing it. We're focused on engaging with current and new advertisers, activating growth initiatives, including the Amazon Ad partnership that we announced last year. And it is a real strong part of the broader Macy's ecosystem.

So we expect growth for the year, and we expect it to build over the course of the year.

With regard to the credit card, the benefit of the net credit losses was taken in Q1. Going forward, we would expect the growth of the credit card is more in line with the overall business. And between the two of them, our goal and outlook for the year of $920 million of revenue is unchanged from our prior outlook and reflects growth year-over-year.

Our next question is coming from Jay Sole of UBS.

Just want to follow up on the gross margin discussion. It looks like for EBITDA for Q2, you're guiding to EBITDA margin down 60 to 90 bps, and you're talking about SG&A flat as a percentage of sales. So I guess that implies gross margin should be down about 60 to 90 bps. Do we have that right? And then what will be driving that?

Gross margin, we expect to be fairly consistent, excluding tariffs in Q2 and the tariffs and the fuel costs, which were new for the quarter are around at 20 to 40 bps impact. So again, as we look forward to the year, Jay, we look to continue to grow the underlying gross margin and expand through the back half of the year.

The next question is coming from Marni Shapiro of Retail Tracker.

Congratulation. So I had two very quick questions. The marketing, how should we think about it in the back half of the year? Because you've appraised like the 100th parade coming up in the fourth quarter, and that's seems to be a pretty big deal. So I'm wondering if it's a little bit more weighted than usual to the fourth quarter? And do you have events planned around that?

And then just I think you mentioned that you have more people coming into the brand. Are you seeing younger shoppers come in? And are they signing up for credit cards and the loyalty program and the whole arrangement at Macy's?

Thanks, Marni. Yes, Go Nicks is right. We're excited about the parade. We had to have the fireworks first and the World Cup, but the 50th fireworks. We have lots of products for the 50th fireworks as well as the first time ever, the East side and the West side, we'll have Fireworks, the partnership with MLB and stadium activations. And yes, the 100th parade is going to be like never before. And we are busy at work trying to make sure that we have once-in-a-lifetime moments that will be a part of that overall celebration.

It's a great partnership between merchandise, marketing and digital, that brings it all to life to make sure that we deliver something that's meaningful and memorable for the consumer. We're absolutely attracting new customers to both Macy's, Bloomingdale's and -- I keep saying both, to Macy's, Bloomingdale's and Bluemercury, across all three brands. We are seeing sign-ups of credit cards to all generations of customers. It's making sure that the loyalty program first kind of credit second is that there's a reason to be a part of the membership of these brands that there's something exciting to be a part of beyond just the points or the discount. And I think the teams are doing a nice job in that regard.

And then finally, I would say we sell brands. So to your report, whether it's Addicted, whether it's Birkenstock, whether it's UGG, whether it's Levi's, whether it's Ralph Lauren, whether it's Coach, the better our brands do at attracting Gen Z and Gen Alpha, the more business we are going to have because we're the biggest partner for many of these brands.

And I'd add, Marni, that on the credit card and loyalty and the sign-ups, we've talked about in the past, applications being up as we've worked across both digital and stores to engage with new customers. and bring them into our program. So we're very excited about the potential to continue to drive our credit card and loyalty program.

The next question is coming from Janet Kloppenburg of JJK Research Associates.

Congratulations. I just have one question. I think you said that traffic has been consistent. And I think you also said that marketing as a percentage of sales might be flat. So I'm wondering if you need to invest in marketing to get the traffic up in the stores to tell the customer, how Macy's has changed, how it's been upgraded? And obviously, that's working, but maybe there's more opportunity there.

Thanks, Janet. I appreciate the challenge. I think there's what you spend and there's what you talk about. So one could argue, we spend enough on marketing. We need to spend some of that money to better communicate the changes we're making, which is the challenge that we accept. We need to have a better balance of the top of funnel and bottom of funnel and make sure that there is a communication about the why in addition to the what.

We are constantly looking at geographies and the business between physical and digital. I'm less concerned, frankly, about our traffic than I am about making sure that we get the right conversion on the quality of the assortment that we're providing for the customer without unnecessary levels of discounting. So I think the team has done a really good job of balancing where the customer is paying full price, where the customer is excited by the assortment, converting that customer at full margin and then taking the necessary markdowns on things that aren't working as well.

Tom, what would you add?

Janet, I'd add that I really enjoy my partnership with our CMO, and we take a very disciplined approach to marketing spending. And I'm a big supporter of making sure we support the brand, but also drive results. So we're looking at that on an ongoing basis, and we do want to leverage marquee events. I'd also add, Janet, this is all supported by a really robust strong free cash flow and strong free cash flow yield as well as a healthy balance sheet with no maturities out to 2030. So we have the flexibility to invest both in the business in other areas as well as marketing as we move forward.

Ladies and gentlemen, that brings us to the end of today's question-and-answer session. I would like to turn the floor back over to Mr. Spring for closing comments.

Thank you, everybody, for your participation. Just a reminder, please make sure you watch our fireworks on the 4th of July. They're going to be bigger, better than ever before with some incredible performances, and a big shout out and thank you to the Parade and Fireworks team for what I know is going to be a wonderful day for the brand. Have a good week, everybody.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Greetings, and welcome to the Macy's, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Pamela, you may now begin.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO; and Tom Edwards, our COO and CFO.

Along with our fourth quarter 2025 press release, a Form 8-K has been filed with the Securities and Exchange Commission, and the 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 2024. All references to our prior expectations, outlook or guidance refer to information provided on our December 3 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 at www.macysinc.com/investors. All references to comp sales throughout today's prepared remarks represent comparable owned plus license plus Marketplace sales or OLM less otherwise not. Go forward, Macy's, Inc.'s comparable sales and other go-forward metrics include Macy's go-forward locations in digital and Bloomingdale's and Bluemercury nameplates inclusive of stores in digital.

As a reminder, we recently announced an update to our non-GAAP financial disclosures, the details of which are available in the Form 8-K filed on February 18. These changes do not impact our historical or future GAAP metrics and disclosures. The updated disclosures, which encompass comparable sales, OLM dollar sales, revenues and non-GAAP earnings are intended to both simplify disclosures and provide increased clarity on the key metrics that support our growth profile and go-forward operating performance.

For fourth quarter and full year 2025 results, we reported non-GAAP earnings consistent with previous disclosures and prior guidance. All prior and updated non-GAAP metrics will be available in our investor presentation located on our website. Beginning with the first quarter of fiscal 2026, adjusted earnings metrics will reflect our new non-GAAP metrics. Please note that 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, let me turn it over to Tony.

Good morning, everyone, and thank you for joining us today. 2025 was a year of transformation. Solid execution of our Bold New Chapter strategy, supported by our strong balance sheet drove enterprise-wide improvements. We're gaining measurable traction and delivering meaningfully positive results. As we look back on 2025, we achieved several major milestones. First, we returned to positive comparable sales for total Macy's Inc. and Macy's nameplate, marking an important inflection point. Second, we achieved better-than-expected top line and bottom line results in every quarter, demonstrating strong and consistent execution.

And third, we delivered adjusted diluted EPS well above our most recent guidance. Results were also above our initial guidance despite the unanticipated impact of tariffs and lower-than-expected asset sale gains. I'm thankful to our colleagues. Their leadership, talent and commitment are the driving force behind our performance. Our teams have worked collaboratively with our partners to deliver the Bold New Chapter. And together, we are making meaningful progress towards our long-term sustainable profitable growth. Now let me provide a brief overview of fourth quarter results before turning to our full year performance and fiscal 2026 expectations. In the fourth quarter, Macy's, Inc. net sales, comparable sales and core adjusted EBITDA all exceeded guidance. Results were driven by better-than-expected performance across key line items and positive go-forward comparable sales at each nameplate, led by Bloomingdale's impressive 9.9% growth. Adjusted diluted EPS of $1.67 was well above our guidance range of $1.35 to $1.55. During the fourth quarter, customers responded favorably to our merchandising, marketing and promotional events, supported by an improved omnichannel shopping experience.

Macy's Thanksgiving Day parade drew a record 34 million-plus viewers and had over 3 billion earned social media impressions, up about 30% to last year. We leveraged the power of the parade into our retail offerings. Holiday destination categories, including fragrances, jewelry and handbags outperformed. Other highlights included women's contemporary, denim, dresses and children's. At Bloomingdale's, our Happy Together campaign generated roughly 15 billion unique impressions per month in earned media for November and December.

Our Burberry and Bloomingdale's partnership generated buzz through its in-store pop-ups and exclusive products. While almost every category had positive comps in the quarter, standouts included fragrances, women's contemporary, designer apparel and fine jewelry. Fourth quarter performance wrapped up a successful second year of our Bold New Chapter strategy. For fiscal 2025, we exceeded expectations on all key line items, including net sales, comparable sales, EBITDA and core adjusted EBITDA. And adjusted diluted EPS of $2.32 was well above our most recent guidance of $2 to $2.20. Now let's review how our strategic pillars drove annual results, beginning with strengthening and reimagining Macy's. Macy's nameplate achieved 0.6% go-forward comparable sales growth, representing a 190 basis point improvement versus last year and a 690 basis point improvement on a 2-year basis. Performance was led by the Reimagined 125 locations in digital. The Reimagine 125 comparable sales grew 1%. Stores that have received initiatives delivered positive comps in 7 of the past 8 quarters and serve as a strong proof point of our ability to return to growth. Performance reflects our customer-led focus, including clear and purposeful changes at Macy's. We've improved our assortment relevancy.

We're investing in staffing and events, and we're leveraging local market strengths. These initiatives are having a halo effect on Macy's omnichannel business and contributing to positive digital comparable sales results. Speaking of digital, Macy's digital channel represents approximately 1/3 of our annual sales. It is benefiting from a modernized macys.com inspired by what we're doing in stores. Over the past year, we have shifted to a more editorialized approach that reinforces our fashion authority and facilitate shopping across categories that drives commerce. Across stores and digital, we are emphasizing products and experiences.

Our inventory composition and in-stocks have improved. We have a better balance of newness and evergreen product and have further refined our assortments and brand matrix. In 2025, we introduced 60 new brands, including Abercrombie Kids, MFK, BCBG and Good American. At the same time, we expanded distribution on top existing brand partners such as Avec Les Filles, Sam Edelman and Donna Karan, while we continue to edit less productive brands. Our omnichannel customer experience is supported by investments in our colleagues. We've rolled out enhanced education, a tiered approach to staffing and events and dedicated frontline colleagues to specific merchandise areas. In addition, we're taking a more localized approach to provide store-level empowerment and deliver against direct customer preferences in each of the markets we serve. This year, we achieved our best Net Promoter Score on record. We're proud of the results and our deep customer engagement. We had approximately 900,000 respondents participate in surveys throughout the year, and we remain committed to continuous improvement. As I reflect on 2025, Macy's has a clear, well-defined strategy that is gaining traction.

When combined with our strong financial foundation, I am confident we can further build momentum. Now turning to our second pillar of strategy, accelerating and differentiating luxury. In 2025, Bloomingdale's achieved 7.4% comparable sales growth, representing a 490 basis point improvement versus last year and a 1,030 point improvement on a 2-year basis. Strength was broad-based across stores and digital with growth in almost all product categories. Our Bloomingdale's strategy is anchored on being the local leader in the markets we serve. We have a clear emphasis on discovery, newness and connection with the premium contemporary to luxury customer.

Over the past year, we have raised the bar on curation. At the same time, we've deepened brand partnerships and further invested in experiences. This approach is resonating. We continue to gain market share across brands, categories and regions. Our unique multigenerational audience is drawn to our inviting and vibrant shopping environment and compelling assortments. During the year, we introduced new brands, including Toteme, Christian Louboutin, Victoria Beckham Beauty, Skims, Messika, and Vuori, just to name a few. These brands have inspired existing customers, attracted new ones and further strengthened Bloomingdale's relevancy. It's an exciting time at Bloomingdale's. Our team is strong and has never felt better. We have a highly loyal and engaged customer base and excellent vendor partnerships. We also have an omnichannel road map for growth. Recent performance demonstrates how a disciplined focus, clear brand strategy and consistent execution can drive results. We are well positioned to build on this foundation and deliver sustained performance.

Rounding out the conversation on luxury, Bluemercury achieved 1.6% annual comparable sales growth. Results continue to be driven by dermatological skincare and fragrances, including SkinCeuticals, Dr. Diamonds Medicine, Sisley-Paris and Parfums de Marly. We're also encouraged by the performance in our new stores, which continue to post growth as we iterate on assortments and develop each store's client base.

The third pillar of our strategy is simplifying and modernizing end-to-end operations to improve customer service and drive greater efficiencies. Initiatives are delivering results. As our business continues to evolve, we are expanding the aperture of end-to-end to encompass a broader view of organizational excellence and operational efficiency. This continues to incorporate the use of AI, where we are building capabilities throughout the organization.

The team has walked me through over 35 different use cases, all of which are designed to support how customers shop and how our colleagues serve them, and I'm excited about what's to come. Looking to fiscal 2026, we are focused on the factors in our control. We continue to execute our Bold New Chapter strategy. We'll build on what's been working, including our go-forward fleet, product and brand relevancy and our improved omnichannel experiences and messaging. This will be supported by our strong culture and seasoned leadership team. At Macy's, we're confident in the Reimagined location's ability to deliver profitable growth. Earlier this year, we introduced initiatives to an additional 75 locations, creating the Reimagine 200. Now nearly 60% of our go-forward Macy's store base has the full suite of initiatives, accounting for roughly 75% of our go-forward Macy's store sales, delivering meaningful scale to our overall business. 2026 is a year of milestones.

We have the 50th anniversary of our 4th of July Fireworks and the 100th anniversary of the Macy's Thanksgiving Day Parade, and we will be top of mind during these key moments as well as many others. We are calling 2026 celebration start at Macy's. In addition to the large-scale events that the whole country celebrates with us, we also have localized strategies designed to engage customers, generate excitement, increase brand loyalty and enhance the shopping experience. We had our first celebration, Prom starts here last Saturday.

Customers at Herald Square and our stores across the country were able to meet their favorite content creators, explore curated prom edits, attend beauty master classes and personalize their looks. These activations drove social engagement and our overall sales. Prom is just one of the many events that Macy's will host for the entire family this year.

And Macy's is not celebrating alone. Last week, Bloomingdale's launched its spring fashion campaign, California Love, featuring unique experiences, exclusive products and community-driven moments. At its heart is Surf Shop, a new Carousel spotlighting California-owned and inspired product. The Carousel introduces 16 new California brands, 270 limited time exclusives from customer favorites, including Vince, Citizens Humanity, AGOLDE, Staud, Simkhai, FRAME, and MOTHER, and it also has an AQUA and Lisa Says Gah collaboration. Bloomingdale's has strong momentum with multiple levers for continued growth. We are a partner of choice, allowing us to introduce more new relevant and exclusive brands while expanding our points of distribution with existing brands.

Our immersive shopping environment, which invite customers to spend the day with us, are differentiated and resonate across geographies. With stores in just 14 of the top 50 designated U.S. markets, there is significant room for expansion of small-format Bloomingdale’s and outlets, and we are methodically evaluating all opportunities. I am confident in our ability to further expand our position as a leading modern luxury shopping destination. Now I would like to discuss the consumer and our approach to 2026 guidance. Thus far, our customers have remained resilient, and we are pleased with our quarter-to-date results.

Our customers across nameplates skew more towards the middle and upper income tiers. Performance remains stronger in these cohorts, while the lower tiers remain more choiceful. As we look ahead, there are many macroeconomic and geopolitical factors that could influence discretionary spend.

While we remain confident in our strategy and believe we are well positioned to build on our recent momentum, we are taking a prudent approach to guidance. Our first quarter and fiscal 2026 guidance ranges support our go-forward growth initiatives while preserving flexibility to respond to changes in the competitive landscape and consumer demand. To close, our commitment to the Bold New Chapter is unwavering. It is delivering results. We have achieved 4 consecutive quarters of better-than-expected top line and bottom line performance and 3 consecutive quarters of comparable sales growth led by our go-forward Macy's and Bloomingdale's business. In 2026, we are well positioned to deliver further progress. Looking further ahead, our proven initiatives, strong execution, strategic clarity and customer focus should drive sustainable growth and unlock future value creation. Now let me turn it over to Tom.

Thanks, Tony, and good morning, everyone. We are encouraged by our fourth quarter performance, which capped off a year of meaningful advancement of our Bold New Chapter strategy. For both the quarter and the full year, we achieved better-than-expected net sales, comparable sales, go-forward comparable sales, adjusted EBITDA and adjusted diluted EPS. Let's begin with a detailed view of the fourth quarter. Macy's, Inc. net sales of $7.6 billion were above our guidance range of $7.35 billion to $7.5 billion and compared to $7.8 billion last year.

Excluding the approximately $200 million impact from the 64 non-go-forward stores that closed at the end of fiscal '24, Macy's, Inc. sales grew 0.9% Macy's, Inc. comparable sales rose 1.8%, materially above our guidance for down 2.5% to flat, led by go-forward business comparable sales growth of 2% compared to guidance of down 2% to flat. By nameplate, Macy's go-forward comparable sales rose 0.6%, including Reimagined 125 growth of 0.9%. Both the first 50 and next 75 locations were positive. Bloomingdale's comparable sales rose 9.9%, benefiting from its best holiday result on record, and Bluemercury comparable sales increased 1.3%. Turning to revenue. Macy's, Inc. total revenue was $7.9 billion, down 1.1% to last year. Similar to net sales, the decline was entirely attributable to last year's store closures. Revenues included $277 million of other revenue comprised of credit card and Macy's Media Network. Credit card revenue was $205 million, up 17.1% versus the prior year, driven by our healthy credit portfolio. And Macy's Media Network revenue was $72 million, up 12.5%.

Gross margin was $2.7 billion or 35.2% of net sales compared to 35.7% last year. Excluding an approximately 60 basis point tariff impact, which was in line with our expectations, gross margin rate would have expanded about 10 basis points. For the quarter, AUR continued to rise, driven by a favorable mix shift and positive consumer response to newness. SG&A expense of $2.4 billion declined $23 million or 1% from last year. The decline reflected the net benefit of the 64 closed Macy's locations and ongoing expense savings initiatives.

It was partly offset by investments in our go-forward business, which we view as critical to driving healthy and sustainable top line growth. As a percent of total revenue, SG&A expense was 29.8% compared to 29.7% in the prior year. During the quarter, we recognized $3 million of asset sale gains. This compared to our expectation for $15 million to $20 million and $41 million last year and reflects the shift in timing of certain transactions. We remain committed to optimizing our go-forward fleet and being disciplined in our approach to closing underproductive stores. With that, looking at fourth quarter earnings, adjusted EBITDA was $840 million or 10.6% of total revenue. This compares to $903 million or 11.3% last year. Adjusted EPS of $1.67 exceeded the high end of our guidance range of $1.35 to $1.55, including a tariff impact of approximately $0.13 and a roughly $0.04 impact from lower-than-expected asset sale gains. Performance was supported by our disciplined approach to cash flow, balance sheet and capital allocation. Let's start with cash flow. Macy's, Inc. generates robust operating cash flow on an ongoing basis. This supports our capital allocation priorities. For the year, operating cash flow was $1.4 billion versus $1.3 billion last year, and free cash flow was $797 million versus $679 million last year.

This represents a free cash flow yield of over 15%. We achieved higher free cash flow despite monetization proceeds of $107 million compared to $283 million last year and ended the year with $1.2 billion of cash on our balance sheet. During the year, our balance sheet was further strengthened via a series of financing transactions. We now have no material long-term debt maturities until 2030. Our adjusted debt to adjusted EBITDAR leverage ratio remains below our 2.5x target, which reinforces our financial flexibility. At year-end, inventories were $4.4 billion, down 1.3% from last year. Heading into spring, we feel good about our composition.

We have more newness, less aged goods and open-to-buy flexibility to respond to market dynamics and trends. Turning to capital expenditures. We are focused on supporting growth and efficiencies and improving our customer experience. We evaluate all initiatives based on return on investment. For 2025, capital expenditures were $740 million, down from $882 million in 2024. The reduction in year-over-year spend primarily reflected the completion of several longer-term projects, including our China Grove distribution center, which opened last year. Looking ahead, we continue to believe there are compelling investment opportunities to support and accelerate our long-term growth profile. Our capital allocation priorities are clear and consistent. First, invest in the business to support the Bold New Chapter strategy; second, manage our balance sheet leverage and liquidity; third, return cash to shareholders through dividends and share repurchases. For the year, we returned $448 million to shareholders, including $197 million of cash dividends. Since reinstating our regular quarterly dividend in 2021, our annual payout amount has risen 27%.

In addition to the quarterly dividend, in 2025, we repurchased $251 million of shares, including $50 million in the fourth quarter. This leaves approximately $1.1 billion remaining on our authorization. As we reflect on 2025, we made significant progress towards achieving our long-term goal of sustainable profitable growth. Before turning to guidance, I want to share a few observations from my first 9 months. Starting with the team, I have been impressed by our talented colleagues. Their dedication, skill and expertise, combined with the willingness and urgency to drive the business forward is delivering results.

Beyond our teams, I believe Macy's, Inc. has significant underappreciated capabilities in areas such as data science, AI and technology. And our Macy's ecosystem is a fundamental strength, which I'll describe in more detail shortly. With these observations as a backdrop, my focus and approach is clear: support the execution of what is already working, adjust direction and adapt where needed and build on our strengths and opportunities to accelerate growth. There are 3 specific areas that highlight these learnings and approach that are incorporated into our plans for 2026 and beyond. The first area is our Macy's store portfolio. One of my top priorities has been to carefully evaluate the Macy's base, including current performance, future potential and real estate value considerations. We are taking a pragmatic approach and are committed to running an optimized fleet that can profitably grow. Based on our assessment, our target go-forward fleet remains approximately 350 locations. These will form a cohesive market-by-market framework that supports our broader Macy's omnichannel business.

We still plan to exit approximately 65 locations, completing the previously announced 150 closures. With our strong balance sheet and cash flow generation, we can be flexible on timing of transactions in order to maximize value of remaining assets, we now expect closures through 2028. The second area is related to organizational excellence and operational efficiencies of our end-to-end operations. Our end-to-end initiatives are working. We have materially improved delivery times and now share specific delivery expectations with our customers.

Following our multiyear network modernization efforts, our new state-of-the-art China Grove distribution facility has streamlined and automated how we work and will provide better customer service and reduce cost to serve. Building on this as a base, we believe there is significant opportunity to leverage AI throughout the organization, including supply chain, merchandising, marketing and call centers as well as in customer-facing and omnichannel areas. Now let's discuss the Macy's ecosystem. I've been impressed with our deep customer knowledge. We connect with nearly 40 million customers annually, giving us visibility to over 70% of transactions. This is enabled by our stores, digital channels, loyalty and credit card programs in addition to Macy's media network, marketing and events. They are all interconnected and provide value to our customers and to Macy's, Inc. Having spent many years across the retail, consumer goods and hospitality industries, this ecosystem is a unique strength. Now before turning to guidance, as a reminder, on February 18, we filed an 8-K updating our non-GAAP metrics and definition of non-GAAP earnings, which now excludes noncash asset sale gains and benefit plan income. These measures illustrate sequential improvement and a return to growth and are intended to simplify reporting to better focus on our go-forward business performance. Moving to guidance.

We entered the year well positioned. Our inventories have a relevant mix of categories and brands across a variety of price points. This is supported by compelling marketing campaigns and events that are designed to activate and engage customers. For our guidance, we are taking a prudent approach, giving ourselves flexibility to respond to changes in the competitive landscape and external environment as well as macroeconomic and geopolitical unknowns. As we look at 2026, a few considerations. The tariff environment continues to evolve.

Our first quarter outlook largely reflects rates before recent changes as prior tariffs are incorporated in our existing inventory cost basis. For the second quarter and rest of the year, our outlook assumes similar tariffs remain in place. With that, for the full year, we expect net sales of approximately $21.4 billion to $21.65 billion, Macy's, Inc. comparable sales to be in a range of down approximately 0.5% to up 0.5% other revenue of about $920 million, gross margin as a percent of net sales to be 38.3% to 38.6%. We expect the tariff impact to gross margin of roughly 20 to 30 basis points. We begin to lap higher tariffs in the second quarter. We expect gross margin rate to be down in the first quarter and up in the second through fourth quarters. SG&A to be up 1% to 2% on a dollar basis to last year, below the rate of inflation. Please keep in mind that planned spend reflects investments to support sustainable top line growth, including enhancements to the omnichannel shopping experience across nameplates and in talent. We are not benefiting from as meaningful an SG&A reduction from closed stores on a year-over-year basis with 14 closures in fiscal '25 compared to 64 in fiscal '24.

We are also maintaining our always-on expense savings approach. Based on seasonality of spend, we expect the highest SG&A dollar growth in the first and third quarters. We expect adjusted EBITDA as a percent of total revenue of 7.7% to 7.9% versus 7.9% in fiscal 2025 and interest expense of roughly $110 million. And we expect adjusted diluted EPS of $1.90 to $2.10. This does not include potential future share buybacks. It does incorporate a roughly $0.10 to $0.20 tariff impact and compares to adjusted diluted EPS of $2.15 in the year ago period.

For the first quarter, we expect net sales of approximately $4.575 billion to $4.625 billion. Macy's, Inc. comparable sales are expected to be up approximately 0.5% to 1.5%, adjusted EBITDA as a percent of total revenue of 4.9% to 5.1% versus 6.3% last year and adjusted EPS of negative $0.01 to positive $0.01 compared to $0.11 last year.

We expect tariffs to negatively impact EPS by roughly $0.05 to $0.10 and gross margin rate by roughly 40 to 60 basis points. In conclusion, we ended 2025 on a strong note. Better-than-expected fourth quarter results across key metrics underscore the strength and promise of our Bold New Chapter strategy. We have proven initiatives in place, supported by our solid free cash flow, balance sheet and capital allocation strategy. As we look to 2026, we are well positioned to thoughtfully navigate the near term, deliver our long-term goals and provide meaningful value to our customers and shareholders. Now I will turn the call back to Tony for closing remarks.

Thanks, Tom. The Bold New Chapter strategy is centered on creating a more focused, resilient company. It balances the art and science of retail. We combine customer insight, data and creative merchandising to meet customers where they are. Recent performance reflects accelerating momentum across each pillar of our strategy and reinforces our confidence in the direction. We have a clear path to growth. Our balance sheet relationships and initiatives position us to build on recent financial and operational success and pursue new opportunities. And with that, operator, we're now ready for questions.

[Operator Instructions] Our first question today is coming from Blake Anderson of Jefferies.

Congrats the nice quarter here. I wanted to ask Tony to start, given the continued macro and consumer volatility, just how are you feeling about the ability for Macy's, Inc. to be more resilient going forward despite the headwinds to the consumer? And what gives you confidence you can continue to build on the momentum you made this past year?

Thanks, Blake, for the question. I feel terrific about how we closed 2025, growth across Macy's, Bloomingdale's and Bluemercury, Reimagined stores continuing to outperform 7, 8 quarters of growth, Bloomingdale's running on all cylinders, growth in digital, growth in physical, growth in full price and growth in off-price. And we end the year with a healthy balance sheet and inventories below the prior year. There is a lot of uncertainty.

And so our guidance reflects this tension between how good we feel about our strategy, how good we feel about our team and the level of uncertainty relative to macro and geopolitical environment. So I feel good about the things that we control. The team is clear-eyed and focused on delivering for the customer, making sure that we build on the Net Promoter Scores that we are at record levels and the level of traction that we're getting across all 3 nameplates.

And Blake, I'd just add here that we have a business model that puts us at an advantage in this situation. We're multi-brand, multi-category, multichannel sort of off-price to luxury, so we can react and adjust depending on circumstances to serve the consumer and meet their needs.

Great. And Tom, if you could add on AUR versus units. Just curious how you think about that for the guide this year.

Sure. Happy to. So we've been very pleased with AUR continuing to grow, and we saw that continue in Q4 as well as in Q3 and before that. And it's really a reflection of our strategy to improve our assortment to bring in better brands, to reimagine our stores, to modernize our digital channels. So we're feeling good that, that trend will continue, and that's included in our expectations going forward.

Overall, basket is also increasing. So while units may be down slightly, we're seeing an overall basket in our consumer buying more on a dollar basis. We see traffic steady and more predictable. And on the conversion side, maybe a slightly more choiceful consumer, but feel good about going forward from an AUR perspective.

Our next question is coming from Matthew Boss of JPMorgan.

Sure. Happy to. So we've been very pleased with AUR continuing to grow, and we saw that continue in Q4 as well as in Q3 and before that. And it's really a reflection of our strategy to improve our assortment to bring in better brands, to reimagine our stores, to modernize our digital channels.

So we're feeling good that, that trend will continue, and that's included in our expectations going forward. Overall, basket is also increasing. So while units may be down slightly, we're seeing an overall basket in our consumer buying more on a dollar basis. We see traffic steady and more predictable. And on the conversion side, maybe a slightly more choiceful consumer, but feel good about going forward from an AUR perspective.

Thanks, Matt. Look, we feel terrific about the Bloomingdale's business. There is every indication that the growth continues because it's so broad-based. It's in the apparel business. It's in the home business. It's in the accessories business. It's in our flagship stores. It's in our smaller stores. It's off-price and Bloomie's. The vendor community has rallied around Bloomingdale's like never before. They are delivering for their customers at an exceptional level right now. So we are continuing to fund from both a capital and from an SG&A standpoint, the growth potential of Bloomingdale's. It's important to the overall architecture of Macy's, Inc.'s go-forward business. So I feel strong about the opportunity for Bloomingdale's. The disruption in the marketplace only gives more fuel to the fire. Relative to Macy's, I'm pleased that we are to 200 stores now in the reimagined program. That's 60% of our go-forward Macy's fleet and 75% of the Macy's store go-forward sales.

You've moved from test to iterate to now we're at the scale point. And I think the reimagined program has the opportunity to continue to deliver comp growth for the Macy's brand. As we mentioned on the call, our digital business at Macy's is healthy, 1/3 of our business and growing with a nice balance between 1P and 3P. So the external environment is where we have concern. The performance of our business relative to the fourth quarter, the first quarter so far and the broad-based growth across all 3 nameplates gives us confidence in what we control.

And Matt, I'll continue with the quarter -- Q1 trends and into the rest of the year. So we are encouraged by Q4 performance. Our consumer skews more to the higher income, and we're seeing them be more resilient. So we're seeing the trends continue into Q1 and pleased with that. However, we're cognizant of that broader external environment and want to take a prudent and measured approach to guidance. And we also have 60% of the quarter from a volume basis left to go. When we look at the rest of the year, we're looking at our comps on a multiyear stack. And on that basis, they're more evenly paced through the year. So we're really thoughtfully considering that as we guide it for the full year on a comp basis. But we're very confident of our strategies and continue to build on the Bold New Chapter momentum as we move through the year.

Our next question is coming from Brooke Roach of Goldman Sachs.

Tony, with some competitors leaning into value in a bigger way this year, what actions are you taking to appeal to a more price-sensitive consumer amidst the inflationary macro backdrop in '26. What are your plans for promotion and marketing on this?

Thanks, Brooke, for the question. We have value as a part of our overall architecture as being a department store -- promotional department store at Macy's. Remember, we have Backstage. We have regular promotional events. We have a private brand portfolio that offers meaningful value in the different categories that we play. So to me, it's always a balance. We want to offer promotion to make sure that we are continuing to capture the customer that is looking for deals or for value. And at the same time, we don't undershoot the customer who's looking for the better brands and the range of price points that we can offer across our entire portfolio in both 1P and 3P and from off-price to full price and certainly from Macy's to Bloomingdale's. So I like how we're positioned. We're really being requiring of ourselves and the market to make sure that we get the balance right, call it, a barbell approach, but from good, better, best, we're looking at it from every brand type and every price point to make sure that we're executing and doing everything we can to capture all different levels of consumers.

Great. And then just a follow-up for Tom. Can you detail the puts and takes to gross margin this year beyond tariffs? What are the core operational drivers of the improvement that you're forecasting? And how should we be thinking about the cadencing and magnitude of that improvement as you move into the back half?

Sure. Thanks for the question, Brooke. The core underlying performance, and if I look at the full year guide, we're guiding down flat to 20 basis points and tariffs are 20 to 30 basis points. So the underlying trend is positive. We expect gross margin to be strong and improve and expand as we move through the year. We would see that as well in Q1, except there's a slightly higher tariff impact of 40 to 60 basis points in the quarter.

The items that are driving our gross margin performance, which is exactly what we saw in Q3 and Q4 are really the fundamental Bold New Chapter initiatives of improving and creating a more relevant assortment, bringing in better brands, having greater -- better experiences across our omnichannel platform, both in stores and in digital, and that is supporting AUR and gross margin as we move forward. So we do expect that trend to continue through the year. We haven't guided to specifics on a quarterly basis, but we would expect that fundamental trend to be positive, reflecting our strategy.

Our next question is coming from Dana Telsey of Telsey Advisory Group.

Good morning, everyone, and nice to see the progress. Bloomingdale's 59th Street, that fourth floor looks terrific with the brand expansion. On the Macy's additional 75 stores being added to the reimagined bucket, how are you thinking about the progression there versus the original stores that you added to the bucket? Do you expect the same type of results? Is there a different timing, different things you would add up or down? And then just on the number of store closures this year, how many will there be in 2026? And are you thinking of any number of store openings even for the smaller Bloomie's.

Thanks, Dana, for the question. The reimagined program, we're very proud of and pleased with the contribution. We've had 7 of 8 quarters of growth in the reimagined and growth from the first 50 on forward. So as we added the next 75, we began that in February. Those tactics roll out over the course of the first few weeks of the spring season. That's additional colleagues in the store, that's additional brands within the assortment, that's better execution in the store, better storytelling, localized events. As a part of that program, we certainly have iterated before we got to scale.

So I would tell you that as opposed to directing top-down centrally every aspect of the program, we are empowering locally more so in the next tranche of stores and even going back to the original stores, allowing our local leaders to determine where those colleagues can be best utilized -- we're also trying to make sure that we're customizing local events so they resonate more meaningfully with the consumer base. And we're obviously amping up our work in visual and storytelling because we can see what a difference it makes in selling regular price and in selling the new brands that we're adding to our assortment. I'll let Tom cover the store closures.

Thanks for the question on the store closures, Dana. So as we look at the non-go-forward stores, our goal is to have an optimized fleet on a market-by-market basis that supports our broader Macy's omnichannel business. And we've rigorously evaluated the future current performance of our stores and the real estate value. As a result, we're extending the closure timing of the remaining approximately 65 stores through 2028. While we don't provide in advance closure guidance, I would look to that 3-year time frame for the remaining approximate store closures. And that will allow us to wait for the most favorable real estate market in order to get the most value for our shareholders and for our business. And the way we can do that is we can be patient because of our strong balance sheet and cash flow and still invest in the business to drive our overall growth. As a result of this, we're expanding and increasing our cash expectations from this initiative from a previous $500 million to $650 million to a total of $650 million to $700 million. And that leaves us after we've monetized approximately $400 million, $250 million to $300 million to go, which is worth about $1 a share. We look forward to running an optimized fleet that will support our broader business going forward.

The next question is coming from Oliver Chen of TD Cowen.

Tom, which categories drove upside this quarter? And also, as you think about private brands, where are you there? More simply, what are your thoughts on what it will take to positive comp above 2% to 3% more consistently? And then finally, in the realm of AI, which -- what's live today relative to the use cases and the KPIs you're thinking of? I know AI is applying to supply chain as well as customer experience as well as marketplace. But are there thoughts in terms of how you're evaluating proof points there? The Media Networks had impressive momentum. It could probably be $500 million to $1 billion though. So would love thoughts there as well.

Thanks, Oliver. So in terms of categories, let me start there. Good to see the growth in women's contemporary apparel at both Macy's and Bloomingdale's, continuing to see the strength in the dress business and the tailored clothing business, which I think underscores the dress up and return to office and the mix of both a little bit dressier and casual tops and bottoms. Seeing growth in the accessory category, particularly fine jewelry, lab-grown diamonds, watches. So we feel good that there's a broad-based interest in fashion across a multitude of categories. Fragrances, obviously, a strength for both brands.

Private brands is still an area of development. So we're still at the 12% or so of our total business. And we have reworked all of these brands. And I would say that the team is keenly focused on improving the quality and improving the value offering despite the impact of tariffs. I'll let Tom cover the future 2% to 3%. We're obviously not guiding that in 2026. But I think we intend to be a growth company. We are reworking the framework of this portfolio because we believe we can be a growth company.

And the fact that we had growth in Macy's, Inc., growth at Macy's, growth at Bloomingdale's, growth at Bluemercury says that we're on the right track. I would just close with AI for us is an opportunity to combine the improvements in technology and data science with humanity and deliver a relationship-oriented business that is focused on the consumer. Our initiatives are focused on growing the business on providing a simpler experience for our customers and our colleagues and taking cost and driving efficiency throughout the operation. So it's not any one initiative. We are not buying shiny objects. We are solving problems and helping the overall business grow and improve the architecture of how we run the business. Tom, what would you add?

On the positive comps, Oliver, I think there are a number of things that are already growing and we can continue to expand on. First is bringing in better brands and having a more relevant assortment. That is working, and I think we have a long runway there to continue to expand. The other is to look at our overall owned licensed marketplace.

And we've been in our new 8-K sharing our OLM sales and focus more on OLM comp because we can and are managing the business across all different areas. That's how the consumer shops us. They don't know exactly where it may be coming from or who owns the inventory, but we can create the best experience and provide more relevant assortment across all of our different means of delivering to the customer.

The last thing I talk about, which I mentioned in the script is this Macy's ecosystem. I think there's a huge value here. And I talk and see the 40 million customers we know of that are in our loyalty programs. We know not just what they're buying on a given day, but what their history is and what their preferences are. And that's where I look at the credit card, the Macy's Media Network and our knowledge and our capabilities in AI and data science that are all coming together, I believe, very nicely with strength to allow us to build and scale up in this area.

Follow-up. Digital has been impressive. It's a big percentage of mix. What should we know about profitability rate versus dollars and any initiatives we should focus on gentlemen?

Thank you, Oliver. Digital is a very important part of our business. It's approximately 1/3 of the business, and it is benefiting from the overall initiatives that we're doing in stores as we build up better brands. It is also -- we're also doing some things in digital specifically to modernize a look and feel and make digital and our various sites place for fashion authority that builds on the Bold New Chapter.

As we look forward, we're going to continue to grow it along with the rest of the business. It is profitable, and we're happy to sell via stores or digital. And I just would end by saying that the stores are a foundation for the business that's what gives us a market-by-market presence that supports digital and again, pulls everything together into one system.

Our next question is coming from Paul Lejuez of Citi.

Curious what it cost from a CapEx and SG&A investment to bring a store into the reimagined program and also what kind of sales and EBIT dollar risk do you expect in 1 and year 2, and then I if I missed it, can you talk about CapEx plans for F '26, just how that breaks down.

Let me take the first part of that, Paul. Obviously, we're pleased with the fact that we had 7 of 8 quarters of growth in the reimagined program, the fact that we're adding 75 additional stores, the fact that we're continuing to comp positive quarter-to-date. We are now at 60% of our Macy's go-forward fleet in the reimagined program and 75% of the store sales. It is accretive to what we're doing.

Our job, Tom and I, is to make sure that we are getting a return on the investments we're making. The stores continue to be capital light with minor little to no in the first tranche of stores in terms of CapEx. And in terms of OpEx, it's designed per location based on the volume level and what we believe to be the incremental sales opportunity. So we've now got it down to more of a science to go with the art and make sure that, again, with -- along with the Net Promoter Score continuing to improve in these locations, we're delivering a better experience that's resulting in a better business.

And Paul, I'll build on that on the reimagined stores as they came into the company, I wanted to understand better those exact returns and how much we're investing. And there was an analysis -- detailed analysis done of how things were working out. And what we saw was the investments, of course, are driving growth, which you saw and as Tony mentioned, 7 of the last 8 quarters, reimagined stores are growing. What we're also seeing is a good return on investment, and it's meeting our expectations over the years and as we progress. And in addition, as we iterate, we'll be even more effective in allocating resources and improve our returns.

On a CapEx basis, our CapEx was lower this year as we completed some major projects, most notably the China Grove new distribution facility. As we look to next year, our guidance is approximately $800 million. And the main part of that increase will be in Bloomingdale's. We're increasing our CapEx allocation because we think there's a significant growth opportunity there, both organically and as we look at opening potentially some stores, as Tony earlier noted. The other part of our investments are in the Macy's store, our technology and supply chain.

Just one other no item. You gave some guidance on the other line, but can you talk about the split between credit card and media revenues? And maybe anything you could share about the underlying health of the credit card portfolio.

Sure. I'd be happy to. So our guide for other revenue is approximately $920 million. It's up 7% versus prior year. And both the credit card and Macy's Media network are very healthy. When we look at the credit card, we're up 24% in 2025, and that's due to a big improvement in the net credit quality of our customers. As we look forward, we expect it to grow along with the business. And our portfolio remains healthy. We're getting higher applications and working very carefully across digital and in stores to expand usage.

Macy's media network, we expect to grow relatively stronger, and that is supported by our whole business and all of our partner brands and others in addition to an Amazon ad initiative that we announced earlier. And I'd also just like to add with a note that we call it other revenue, but it's really an integral part of the business. I want to say that the credit card and the Macy's Media Network exists because of the broader Macy's business and customers and brand strength, and we look forward to talking about it more in the future.

Our next question is coming from Simeon Siegel of Guggenheim.

Did you say traffic was up and how much was AUR up in Q4? And then, Tom, just really helpful to get the go-forward breakdown and framing. Can you help us think about maybe following up on the credit card revenues, how do we think about how credit card revenues are associated with go-forward versus non go-forward? And then maybe similar, how should we think about the gross margin SG&A profiles for the go-forward versus non-go-forward businesses? I'm assuming that the latter is going to be a healthier margin. So that would be helpful.

Sure. Thanks, Simeon. In Q4, we continue to see, as we've seen through the year, AUR being positive versus prior year, driven by our new chapter initiatives. In the quarter, we did have some weather events and traffic was a little softer. But overall, as you can see by our results, we were pleased that we're growing and continue to grow revenue and comp sales.

From a credit card basis, our credit card exists across the whole business, and we're very careful as we're looking at go-forward versus non-go forward to make sure we maintain a market presence on a store basis as well as a digital basis. So I wouldn't expect a material change as a result of our go-forward initiatives. And similarly, on a GM basis, our non-go-forward stores are profitable. We have to call them underproductive, but we're really looking at them from a can we grow them profitably over the long term. And I wouldn't look at a major difference in gross margin between the 2.

I would just -- yes. Simeon, I would just add that the traffic outside of the weather event was essentially flat in stores and up online in both of all 3 of our brands, and that our AUR continues to improve and increase again across all 3 brands, mainly based on the mix of products more so than just the impact of tariffs.

That's great. That's really helpful. And then just any help kind of think about go forward to our expectations by banner?

Go-forward store expectations by banner?

Yes.

We're talking go forward, mainly talking about the Macy's banner, and we plan to close an additional 65 stores over the next 3 years. In the 8-K that we provided that updated our disclosure metrics, we're really pleased to focus on our OLM go-forward sales. And I would say this shows a significant improvement over the last 3 years in '23, down almost 6% in '24 down almost 1% and this year, up 1.7%. So I'd focus on a return to growth for those businesses.

Our next question is coming from Michael Binetti of Evercore ISI.

Could you just walk us through some of the flow-through metrics in the first quarter EBIT guidance? It looks like you're targeting EBIT down about 130 to 150. It was only down 20 basis points in the fourth quarter. First quarter comps still slightly positive and the tariffs are about the same impact as fourth quarter. So I'm just -- I'm curious about what deteriorates a little bit in 1Q.

And then maybe could you just walk us through how the reimagined 200 stores now contribute to the comps in 2026 guidance and how that evolves from first quarter through the rest of the year? Maybe I can ask it as when we look at the spread of the reimagined stores versus the go-forward comps or the total business comps, as you expand into more stores and start to push the initiatives out sequentially through the year, does eeimagine start to break away and push the comps higher? Do we see that spread widening?

Thanks for the question, Michael. I'll take the first part and the Q1 flow through to EBIT. So we are seeing gross margin impacted by tariffs, 40 to 60 basis points and expect gross margin on the whole to be down in the quarter, but importantly, up through the remainder of the year. The other change is in SG&A. We are expecting some additional investments in SG&A through the year, including in Q1, and those are really to support and drive growth. Our investments have driven growth in the past, and we're looking forward to continue to invest, including in the reimagined 200 to continue that pace. So that's really the key difference.

And relative to the reimagined stores, Mike, you have a convergence that I think begins to happen by the time you get to the latter part of the year and certainly going into next year where the majority of our fleet is in the reimagined program. And while they continue to outperform the remainder of the go-forward fleet, the differential is smaller. But we expect comp growth in our reimagined stores, and that will help build our confidence for growth in the Macy's brand going forward.

Our next question is coming from Bob Drbul of BTIG.

I guess 2 questions for me. The first one is can you outline a bit around the progress that you think you're making with younger consumers. I think you mentioned the PROM event, but just sort of where you're really focused on what you're seeing with that consumer segment? And I guess the second question I have is just around some of the newer brands that you're bringing in. Can you just detail a bit on full price selling and sort of what you're seeing the promotional environment versus your ability to obtain full price as you sort of work through the program?

Sure. Thanks, Bob, for the question. Continuing to focus on 5 different generations that are shopping with us. We believe we have a tremendous opportunity with the next generations of customers. As you mentioned, we held a prom event in over 200 locations, had tremendous turnout, activating high schools across the country, continue to be a resource and destination for Sweet Sixteen. As I mentioned, 25,000 people getting married registered at Bloomingdale's. 75% of them are in the Gen Z and Gen Alpha, I guess more so Gen Z kind of population. But other categories like time pieces, fragrances tend to skew younger and I think give us the opportunity to continue to grow with that cohort. We are a destination for first job, first home, marriage and the moments in life that I think expose you to these multiple generations of consumers.

The newer brands, we're very pleased with. And I think the best indication of our full price sell-through and of our performance is the fact that the brands are expanding distribution with us and adding more stores. We believe in the breadth of good, better, best. We need to have the right mix of assortment and opening price point as well as not undershoot the customer in terms of their interest in most wanted or sought-after brands. So we want to have that breadth of Polo Ralph Lauren and Coach and Rees and Theory. And at the same time, we want to have the right good and better brands within our mix so that we can be a destination for customers that are looking for a variety of brands and price points.

And Bob, I'd add that we ended the year with inventories down and in a very good position with increased newness, and we have ample open to buy, so we can chase into these trends should they occur and also flexibility otherwise. So we're looking to maintain our flexibility to deliver against these consumers.

Our next question is coming from Jay Sole of UBS.

Tom, 2 questions for you. One is you just talked about some of the SG&A investments. If you could elaborate a little bit more on what you're spending on. And then within the interest expense guide of $110 million for fiscal '26, can you just maybe talk about what's driving that? I think interest expense was $20 million in 4Q. So I was just kind of wondering why it's going up on a run rate basis if we look into '26?

Sure. I'd be happy to help, Jay. On the SG&A investments, first and foremost, is in the Reimagine 200 as we expand that. And then in others, it's across Macy's and Bloomingdale's and investments in digital and our technology areas. As I look at this year's SG&A increase of approximately 1% to 2%, it also includes lapping greater savings last year when we had more significant number of store closures impacting the year. In 2024, we closed 64 stores in the past year, beginning of this year, announced 14 store closures. So that's also a factor in our SG&A.

I would say that we maintain an always-on approach to generating savings. We have seen that pay off and deliver results through 2025, and we're continuing that into 2026. From an interest expense point of view, we're really looking at a more consistent. Our overall debt level hasn't changed aside from the refinancing at the very beginning of last year. So we would expect the $110 million of $100 million very consistent with the prior year.

Our next question is coming from Marni Shapiro of Retail Tracker.

Congratulations. The stores look absolutely fantastic. Congratulations on that, especially very impressive with what I'm seeing at Macy's. Can you talk a little bit about the customer coming into Macy's? Are you getting -- I know Bloomingdale's, I think you've talked about it quite a bit and you're seeing the generational shopping also. Are you seeing that at Macy's beyond, say, the prom event? Are you getting a younger customer back into the store? Is the online shopper a different shopper? Are you getting the younger customer in through online? And then I just have one quick follow-up on the beauty business. If you could just give us a quick update there about what's changing there or expected to change in '26?

Sure, Marni. Thanks for the question. Both Macy's and Bloomingdale's have an opportunity with the younger consumer. I think it's both being a destination for all of these life's moments that begin from Bar Mitzvahs, Bat Mitzvahs, Confirmations, Sweet Sixteens and yes, the prom events and the first jobs and the weddings that happen and that we are definitely driving those consumers along in some cases, with their parents or sisters or siblings into the stores. And digital certainly is an opportunity for us to capture a younger consumer who's looking for a broad array of price points and brands. And marketplace gives us the opportunity to lean into baby and into maternity and into other aspects of life that give us more exposure to the younger consumer. The Prom event, just as an example because I was in our stores at both Macy's and Bloomingdale's, there's just a tremendous amount of traffic in the stores. And it is all these young consumers. The activation of these high schools across the country was phenomenal. And I think it just underscores the interest that these local communities have in national retailers kind of stepping up and doing something distinctively different to make sure that we are obviously a part of their life's moments. What was your question on beauty?

I was just kind of curious, you guys have a stronghold in fragrance. Obviously, there are a lot of new brands in beauty that are targeting a younger consumer. I see some of them filtering in, especially Bloomingdale's. Are you pushing the envelope on that? And just an update on Bluemercury, any changes happening there?

Sure. We had growth again in the fourth quarter at Bluemercury, finished the year with growth across the nameplate. We are continuing to see the strength of Bluemercury in dermatological skin care and brands that are not as available in more mainstream stores. And as it relates to Bloomingdale's and Macy's, we are absolutely leaning into newness as well as partnering with the major brands on how we make the counter a greater destination, greater interest, how the beauty adviser with the free services offers her consultancy and helps people with their beauty regimen because we know we're seeing back to young people, kids as young as 12, 13, 14, starting a skin care regimen. And the mother is looking for someone to help with that. So you're not just putting anything on your skin, you're trying to find actually what's going to work with your skin. And so We’re proud of the breadth of the assortment that we carry and that we continue to expand brands like Sisley and La Mer, and that we also introduce newness from Clarins, as well as play in the color space with brands like Victoria Beckham Beauty and others.

At this time, I'd like to turn the floor back over to Mr. Spring for closing comments.

Thank you, everyone, for your thoughtful questions. We appreciate the interest in Macy's, Inc., and we look forward to updating you on our progress on the first quarter call. Have a great day and rest of the week. Take care.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or back off the webcast at this time, and enjoy the rest of your day.

Greetings, and welcome to the Macy's, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Pamela Quintiliano Vice President of Investor Relations. Pamela, you may now begin.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO; and Tom Edwards, our COO and CFO.

Along with our third quarter 2025 press release, a Form 8-K has been filed with the Securities and Exchange Commission, and the 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 2024. All references to our prior expectations, outlook or guidance refer to information provided on our September 3 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 at www.macysinc.com/investors.

All of our consistent comp sales throughout today's prepared remarks represent comparable owned-plus-licensed-plus-marketplace sales and the owned-plus-licensed sales for our store locations, unless otherwise noted.

Go-Forward Macy's, Inc. comp sales include the approximately 350 Macy's Go-Forward locations in digital and Bloomingdale's and Bluemercury nameplates inclusive of stores in digital. Go-Forward Macy's comp sales include the approximate 350 Macy's Go-Forward locations and Macy's Digital.

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. We're encouraged by recent results, which reflect the accelerating momentum of our Bold New Chapter strategy. The fundamental enterprise-wide changes we are making are resonating with our customers. Initiatives are gaining traction across all three pillars of our strategy and driving broad-based operational and financial improvements.

For the third quarter, we delivered growth across key metrics and results were meaningfully better than expected. Macy's, Inc. net sales, comparable sales, core adjusted EBITDA and adjusted diluted EPS all exceeded our guidance with positive contributions from each nameplate.

Macy's had its strongest comp growth in 13 quarters led by a Go-Forward business, which achieved another quarter of positive comps. Bloomingdale's posted its fifth consecutive quarter of growth and its best comp in 13 quarters. And Bluemercury recorded another consecutive quarter of comparable sales growth.

I want to thank our teams and our partners. You're an integral part of our success. Results reflect your diligent execution of the Bold New Chapter strategy. We have a shared ambition for Macy's, Inc. and together, we are making significant progress towards achieving our goal of sustainable, profitable growth.

Turning to a more detailed view of the quarter. Macy's, Inc. delivered a positive 3.2% comp with Go-Forward Macy's, Inc. continuing to outperform, growing 3.4%. Adjusted EPS of $0.09 was well above our guidance range of a loss of $0.15 to $0.20 and above last year's third quarter result of $0.04. EPS was driven by better-than-expected net sales, comparable sales, gross margin and SG&A. End of quarter inventories were in line with our expectations and we have a compelling mix of newness across brands, categories and price points for the peak holiday season.

Looking at the evolving retail landscape, consumers are more discerning about how and where they spend their dollars. They want curated product assortments, consistent service and a seamless omnichannel shopping experience, and that's exactly what we're striving to deliver through the three pillars of our Bold New Chapter strategy: strengthening and reimagining the Macy's nameplate; accelerating and differentiating luxury; and simplifying and modernizing end-to-end operations.

Let's discuss how each pillar contributed to our better-than-expected third quarter results, beginning with strengthening and reimagining Macy's. Macy's nameplate achieved 2% comparable sales growth, its second quarter of positive results and a sequential improvement from the prior quarter. Performance was driven by Go-Forward Macy's, which rose 2.3% and inclusive of Reimagine 125 stores, which were up 2.7%. Macy's nameplate also benefited from digital growth, inclusive of Macy's marketplace, as well as the ongoing outperformance of our off-price concept Backstage.

We believe Macy's results reflect a positive response to improvements in our omnichannel customer experience, brand curation and category offerings. We are seeing this drive momentum in our Reimagine 125 locations and in the broader Macy's business.

Turning to the customer experience. One of the best ways to measure progress is through our Net Promoter Scores. We view this as an important measure of customer sentiment and a leading indicator of future sales. Notably, Macy's delivered its highest third quarter Net Promoter Score on record.

Customer e-mail serve as another valuable form of feedback, and I read everyone I receive. Recently, a customer visited our Clearwater, Florida store to buy a suit for a wedding. He wrote "Your colleague Andrew, had me outfitted not just with clothes but with confidence. He treated me with patience, kindness and professionalism. As he was helping me, he assisted a young man shopping for his very first interview suit. He took the time to show him how to wear it, carry himself, and even shared some encouraging words. Employees like can remind me that Macy's is a place where people can walk out feeling seen, valued and better than when they walked in."

Andrew is a great example of how customer relationships are strengthened when our colleagues demonstrate hospitality and care. As part of our Bold New Chapter strategy, we are enhancing our selling education to improve colleague engagement and provide our customers with a seamless shopping experience.

In addition to a better experience, we are elevating our product curation to deliver a more inspiring mix of newness and fashion. Our merchants continue to be focused on the clarity of our offering, enhancing variety and reducing redundancies. Our strong balance sheet, large addressable market and loyal customer base are attractive differentiators and brands are eager to work with us. Recently, we introduced Rodd & Gunn, Reiss and Prada Beauty and Expanded Barbour, Mackenzie-Childs and MFK.

Looking at category performance, we delivered year-over-year improvements across all lines of business: fine jewelry, watches, handbags, men's career, and ready-to-wear outperformed the total Macy's comp, while active categories were softer. The variety of brands and categories we offer speak to our fashion authority and the relevancy in a way we haven't for years, and we are not done. We're committed to bringing Macy's to the consideration set of even more shoppers and our reimagine 125 locations are providing a road map for the future.

When I walk these locations, I'm inspired. We are methodically working to improve the experience in each area of the store. They are now better organized, easier to shop and have a more compelling visual presentation. Within each category, we're driving higher interest and engagement through increased differentiation. We're carving out floor space to leverage new trends and maintaining a presence in categories and brands that we're known for.

Now I'd like to provide a perspective on how we're approaching the fourth quarter at Macy's. Holiday is core to who we are. It's where our brand heritage and customer relationships are strongest and where we consistently deliver differentiated experiences. This year, over 34 million people tuned in to watch the Macy's Thanksgiving Day Parade, setting a new all-time record. The Parade was the most watched live entertainment event in 7 years and the second most watched event of 2025 behind only the Super Bowl.

We continued our tradition of blending beloved classics with contemporary culture debuting Buzz Lightyear, PAC-MAN, Mario, and characters from the smash hit KPop Demon Hunters, including a live performance by HUNTR/X. In addition, POP Mart, the makers of Labubu, had a Friends-giving in POP CITY float. These floats and balloons nicely complement our Herald Square in-store experiences with PAC-MAN, Disney, Marvel and POP Mart, just to name a few.

Congratulations to our entire team. I know you're already hard at work on next year's 100th Parade celebration.

Our holiday campaign, The Most Wonderful Stories Start Here is in full swing. It serves as a storytelling platform for holiday emotion and nostalgia across channels and touch points. Messaging highlights a mix of new brands, key items, exclusive products and incorporates a more personalized approach to customer communication.

We have built on last year's success with our 25 days of gifting campaign, featuring new curated gift lists each day and holiday markets in Herald Square and our Chicago State Street locations.

In addition, Alison Brie is back as our personified Gift Guide, pairing across broadcast and our digital platforms, and we're leveraging our iconic Santaland IP with Santa visiting 11 markets this year. Our campaigns and events are supported by a comprehensive 360-degree media mix that features social influencers and celebrities, including a partnership with Jennifer Hudson and our first ever Chief Ornament Officer, Hannah Strickland, the 9-year-old who has won the hearts and minds of so many with their exuberant reaction to shopping Macy's Holiday Lane.

Summing up to Macy's nameplate, I'm encouraged by recent results, which reinforce our belief that we have the initiatives in place to deliver long-term growth.

Turning to our second pillar the Bold New Chapter strategy, accelerating and differentiating luxury. In the third quarter, momentum built at Bloomingdale's, while Bluemercury had another quarter of positive comparable sales. At Bloomingdale's, we're making great progress on our ambition of being the omnichannel local leader in the markets we serve. We've cultivated a unique multigenerational customer base that's incredibly loyal, including the luxury customer of the future and are taking share across categories, regions and brands.

Bloomingdale's delivered another impressive quarter, achieving a positive 9% comp, which was its best in 13 quarters as well as a sequential improvement in its Net Promoter Score. This speaks to the differentiated aspirational positioning, which continues to resonate with consumers. Our success is built on strong brand partnerships. We're deeply focused on nurturing those and on being the most reliable and innovative partner in the market.

During the third quarter, we continued to expand the breadth of the brands we offer, introducing a number of important designer brands, including Totême, TWP, Zimmermann, Victoria Beckham, Christian Louboutin and Roger Vivier, just to give a few examples.

From a category perspective, ready-to-wear men's apparel, fine jewelry, shoes and tabletop all outperformed. Bloomingdale's is truly unique in the marketplace. We serve as a house of discovery, providing an experience that's vibrant, inviting, original and anchored on exceptional customer service.

In the fourth quarter, we're building on our recent success. Our Holiday Campaign, Happy Together leverages Bloomingdale's appeal as the destination, shopping experience that brings loved ones together. The campaign is wide ranging, spanning window displays, in-store experiences, a curated gift guide and compelling digital messaging.

In addition, we have several exclusive collaborations, including our AQUA, and Salvatore Rizza collection. A core component of Bloomingdale's Holiday Campaign is our unique partnership with Burberry. This season, we're offering an exclusive omnichannel collection for the whole family, including our custom design carousel pop-up shop and Windows, as well as our famous Holiday Bear. We invite those of you in New York City to visit our 59th Street flagship store to see an illuminated Burberry plaid scarf that wraps the entire building.

Looking ahead, there are a number of opportunities to further strengthen Bloomingdale's position. We have significant opportunities to grow in markets we serve as well as expand existing distribution, increase our digital penetration, and open additional small-format Bloomies and outlet locations. By staying nimble and personalizing all elements of the customer experience from access to special products and customer activations, to digital elevation, we will further differentiate Bloomingdale's as the leading, modern, luxury destination.

Rounding out the conversation on luxury, Bluemercury achieved a 1.1% comparable sales growth, representing another quarter of gains. Results continue to be driven by dermatological skincare and expanded brand partnerships, including Parfums de Marly, Byredo, and Sisley Paris. We remain confident in the long-term growth profile of our luxury category and are excited about the strategies we have in place.

The final pillar of the Bold New Chapter is simplifying and modernizing end-to-end operations. In the third quarter, we achieved a key milestone on our end-to-end journey with the opening of our new China Grove distribution center. The state-of-the-art facility incorporates automation, robotics and AI into our delivery ecosystem. It propels us into the future and ensures we're able to exceed customer expectations for accuracy and timeliness of deliveries and further reduce our delivery costs.

Now let's discuss our thoughts on the consumer and the early read on holiday. Starting with the Consumer Health, our customer base, which is predominantly middle to upper income, remained resilient and engaged in the third quarter. We have strong visibility on the factors that are in our control. These include inventory discipline, composition and the level of newness as well as improved experiences in messaging.

We're pleased with the start of the fourth quarter. However, the majority of the sales volume is still ahead of us, and we believe it's prudent to continue to incorporate a more trustful consumer into our guidance for the remainder of the quarter. The assumption is consistent with our prior view.

To conclude, I remain excited by our customer response to the meaningful changes we're making under the Bold New Chapter strategy. We now have achieved three consecutive quarters of better-than-expected top and bottom line results and two consecutive quarters of comparable sales growth. These results further illustrate the benefits of being multi-brand, multi-category and multichannel. Our unique positioning provides sourcing optionality, economies of scale and brand product and price diversification. And our off-price to luxury offerings, combined with our strong financial position enable us to continue to expand existing relationships, attract new partners and lean into other areas of opportunity.

With that, let me turn it over to Tom.

Thank you, Tony, and good morning, everyone. In the third quarter, customers responded well to the substantive enterprise-wide enhancements we are making under our Bold New Chapter strategy. We are encouraged by recent performance. Macy's, Inc. comparable sales of 3.2% were our strongest in 13 quarters. Go-forward comps were up 3.4%, with growth across all nameplates. An adjusted EPS of $0.09 was well above the high end of our guidance on better-than-expected sales, gross margin and SG&A.

Looking at a detailed view of the quarter. Macy's, Inc. net sales of $4.7 billion were down 0.6% or about $29 million to last year. The sales decline was entirely attributable to the 64 non-go-forward stores that closed at the end of last year. These contributed roughly $160 million to sales in the year ago period. Excluding the impact of these planned closures, Macy's, Inc. sales grew 2.9%. This represents an acceleration from second quarter sales growth of 0.9% when similarly adjusted for closed stores.

By nameplate, Macy's net sales were down 2.3%. Macy's comparable sales were up 2%, while go-forward, comparable sales continued to outperform, rising 2.3%. Reimagine 125 comparable sales rose 2.7%. Both the first 50 and the next 75 locations achieved another quarter of positive comparable sales results. Net Promoter Scores at these locations continued to exceed the broader fleet.

In Luxury, Bloomingdale's net sales rose 8.6% and comparable sales were up 9%, and Bluemercury net sales were up 3.8% and comparable sales were up 1.1%.

Turning to revenue. Total revenue was $4.9 billion. Other revenue, which is comprised of credit card and Macy's media network was $200 million. Within that, credit card revenue was $158 million or $38 million higher than prior year. Credit card revenue continued to be driven by our healthy credit portfolio and the prudent management of net credit card losses as well as growth in new applications. Macy's Media Network revenue was $42 million, roughly flat with the prior year.

Gross margin was $1.9 billion or 39.4% of net sales compared to 39.6% last year. Excluding a 50 basis point tariff impact, gross margin rate would have expanded approximately 30 basis points. The third quarter tariff impact was lower than anticipated as mitigation actions performed well. This led to a better-than-expected gross margin rate.

Traffic was positive and AUR continued to increase, primarily due to a favorable mix shift and positive customer response to newness across classifications. SG&A expense of $2 billion declined $40 million from last year, reflecting the net benefit from our closed Macy's locations and continued cost containment efforts. This was partially offset by ongoing investments in our go-forward business, which we view as imperative to driving healthy and sustainable top line growth.

As a percent of total revenue, we levered SG&A expense by 90 basis points to 41.2% compared to 42.1% in the prior year, benefiting from revenue growth, diligent expense management and a modest shift in timing of expenses. During the quarter, we recognized $12 million in asset sale gains. This compares to our expectation of $20 million and $66 million last year. We remain committed to closing underproductive stores and are being disciplined with our approach to transactions. The strength of our balance sheet provides us with the patience and flexibility to ensure we are achieving the best value.

Core adjusted EBITDA, which is adjusted EBITDA, excluding asset sale gains, was $273 million or 5.6% of total revenue. This was above our guidance of 3.3% to 3.7% and last year's result of 4.2%. Adjusted EBITDA was $285 million or 5.8% of total revenue compared to 5.6% last year.

Third quarter adjusted EPS of $0.09 was also well above our guidance of a loss of $0.15 to $0.20 and compared favorably to $0.04 last year. Inventory dollars were up 0.7% to last year, in line with our expectations, reflecting tariff-related cost increases.

On a unit basis, inventories were down, and we are well positioned for holiday. We continue to take a disciplined approach to our cash flow and balance sheet. Year-to-date operating cash flow was $247 million versus an outflow of $30 million last year and free cash flow was an outflow of $183 million versus an outflow of $492 million last year.

Capital expenditures were $525 million, down from $649 million spent last year. And monetization proceeds were $95 million compared to $187 million last year. We returned $350 million to shareholders through $149 million of consistent quarterly cash dividends and $201 million of share repurchases, including $50 million of buybacks in the third quarter. This leaves approximately $1.2 billion remaining on our buyback authorization. And we ended the quarter with $447 million of cash on our balance sheet compared to $315 million last year.

Turning to end-to-end operations. We continue to improve our network and make strategic investments to increase speed of delivery and reduce costs. We believe further opportunity remains with the recent opening of our new customer fulfillment and store replenishment center in China Grove, North Carolina. Outfitted with the latest automation solutions, it is the company's largest and most technologically advanced distribution center. I want to thank our supply chain and broader teams for this tremendous accomplishment.

Positioned in the Southeast, the 2.5 million square foot facility expands our reach, enabling faster, more efficient service for millions of customers. By supporting all product categories from apparel and beauty to home and toys, more orders can be shipped from a single location, helping customers receive everything they need faster and in fewer boxes. The China Grove facility is initially supporting customer fulfillment and store replenishment for the Macy's nameplate with plans to expand to additional nameplates.

Now I'd like to turn to guidance. We entered the fourth quarter well positioned. We are confident we have a compelling mix of categories and brands across a variety of price points to satisfy our customers' holiday needs and wants. These are supported by exciting marketing campaigns, events and experiences designed to activate and engage customers.

As Tony mentioned, we are pleased with the start of the fourth quarter. With the majority of our sales volume still ahead, our guidance continues to incorporate a more choiceful consumer, assumes that the current tariffs remain in place and provides flexibility to respond to changes in consumer demand and the competitive landscape.

For the fourth quarter, we expect net sales of approximately $7.35 billion to $7.5 billion. As a reminder, last year's store closures contributed about $200 million to sales in the comparable period, comparable sales to be down approximately 2.5% to flat with go-forward comparable sales down 2% to flat. Core adjusted EBITDA as a percent of total revenue of 9.4% to 10.1% and adjusted EPS of $1.35 to $1.55. We are now expecting fourth quarter asset sale gains of roughly $15 million to $20 million compared to our prior expectation of $38 million. This impacts fourth quarter adjusted EPS by approximately $0.05 to $0.06 relative to our prior expectation.

Based on fourth quarter guidance, our revised full year 2025 guidance assumes net sales of approximately $21.475 billion to $21.625 billion. As a reminder, fiscal 2024 store closures contributed roughly $700 million to net sales. Comparable sales to be flat to up 0.5%, with Macy's, Inc. Go-Forward comparable sales to be flat to up roughly 1%.

Other revenue of approximately $830 million to $840 million, with credit card revenues expected to be roughly $635 million to $645 million and Macy's Media Network to be approximately $195 million. Gross margin as a percent of net sales to be 37.7% to 37.9%. This is better than our prior expectation reflecting effective tariff mitigation efforts, including shared cost negotiations, vendor discounts and strategically raising tickets. We now estimate a 40 to 50 basis point tariff impact to gross margin which equates to roughly $0.25 to $0.35 of EPS. This is below our prior expectation of 40 to 60 basis points and $0.25 to $0.40 of EPS.

SG&A to be down low single digits on a dollar basis to last year, with fourth quarter dollars also down low single digits, as we maintain our disciplined approach to expenses, we will continue to invest in areas that are contributing to our growth profile. Asset sale gains of about $60 million to $65 million compared to our prior expectation of $90 million and $144 million last year. Core adjusted EBITDA as a percent of total revenue of 7.5% to 7.7% and adjusted EBITDA of 7.8% to 8%, interest expense of roughly $100 million, reflecting our recent financing transactions.

And finally, we have raised our expected adjusted EPS to $2 to $2.20. The previously mentioned change in asset sale expectations has a roughly $0.07 to $0.08 impact on annual EPS relative to our prior guidance. Our guidance does not include additional share buybacks.

In conclusion, we are encouraged by recent results. We have a healthy balance sheet, including ample liquidity and a disciplined capital allocation strategy. We remain committed to thoughtfully navigating the near term as we execute against our long-term goals.

Now let me turn the call back to Tony.

Thanks, Tom. Changes come to Macy's, Inc. We are giving our customers even more reasons to shop with us. I encourage you to visit our stores, our website or the apps. The difference from when we first embarked on the Bold New Chapter, 20 months ago are palpable. The strategy is gaining traction, and our teams across nameplates are energized and fully committed to delivering long-term growth.

And with that, operator, we're now ready for questions.

[Operator Instructions] Our first question is coming from Matthew Boss of JPMorgan.

Great. And congrats on the improvement.

So Tony, with two straight quarters of positive comps, could you speak to traction that you're seeing with your reimagined store initiatives as it relates to traffic versus basket? And could you elaborate on November comp trends and customer behaviors that you're seeing maybe relative to the third quarter?

Sure, Matt. Thanks for the question. We are definitely seeing traction in the R 125. That's positive growth in both the first 50 and the next 75, that sequential improvement, a 2.7% comp. It's a reaction, I think, of customers to new brands, to better presentation, to more colleagues in the right place at the right time. We've seen consistent traffic in our stores and in digital business, frankly. And continued improvement in AUR.

So we come out of the third quarter. And as we said, the fourth quarter, pleased so far, but we obviously have a very big part of the fourth quarter in front of us. So we're taking that choiceful approach to this aspirational customer that shows up in force to the latter part of the fourth quarter. So we just had an echo in here, apologies.

So I just want to make sure that the guidance, obviously, is not a ceiling. It's intended to show the guardrails of how we're thinking about the business. And we come out of the month of November as we came out of the third quarter, confident in our strategy.

Next Question is coming from Brooke Roach of Goldman Sachs.

Tony, what are the most important drivers in the business that you think can sustain the momentum as you look ahead into 2026? As you continue to execute the Bold New Chapter strategy, how are you thinking about the opportunity for core adjusted EBITDA margin delivery? Do you see the recent tariff margin pressure as recapturable into 2026?

Thanks, Brooke. Appreciate the question. The drivers of the business are not unlike what we've been talking about. It's having the right product assortment that is less redundant and more variety. It's having the right balance of good, better, best across the entire matrix of our assortment. It's having the right balance as an omnichannel retailer of having a good physical business and a good digital business, which, by the way, we had a good digital business and a good physical business across all three nameplates.

It's making sure that we shed underproductive stores, which again, when you look at the third quarter comp, you don't have $170 million of closed store volume in that number, which is why the go-forward comp is so important to measuring our performance quarter-to-date, year-to-date and what we've guided for the fourth quarter.

In terms of core EBITDA, I'm really pleased with the core EBITDA result because if you look at the shortfall in asset sale gains, our performance is better than a year ago and better than our guidance. And it's better than a year ago with $170 million less in sales. Same is true for the fourth quarter. So I look at the opportunities being navigate the tariffs. They don't go away. So they are a part of how we have to operate in 2026 unless something changes with the courts.

And we have the ability as a multichannel, multi-category, multi-brand, multi-price point retailer to offer the customer what and where and how the way they want to shop. I think this is a perfect opportunity for a department store to lean into what we're very best at, which is offer a broad range of assortment and not let the tariff impact get in the way of our comp performance.

And Brooke, I'll add in here. When we look at our full year guide, which we were really pleased to raise as we beat Q3. We're now in a range where we're equal to where we were at the beginning of the year, and that's with a tariff impact of $0.25 to $0.35 built in and a slightly lower ASG around that $0.07 to $0.08. So it really reflects the strong fundamental performance of the business. When you speak about the drivers, it's the Bold New Chapter initiatives that are really delivering this comp growth, an accelerated comp growth.

And as we look at tariffs, we're pleased that the impact for tariffs for this year are lower than we previously anticipated. We had been looking at a 40 to 60 basis point impact. It's now 40 to 50. That has flowed through to the bottom line in Q3. And it's really due to the great proactive mitigation efforts of our teams for shared cost negotiations, vendor discounting, raising pricing, if needed. And we're seeing that play out. So as we look to next year, we're going to continue those same efforts and look to mitigate tariffs and certainly keep an eye out on the ongoing tariff situations to what they will be. So we plan on delivering for the customer, first and foremost, and we'll manage through as we have done with tariffs this year.

The next question is coming from Blake Anderson of Jefferies.

Congrats on the nice results. So I wanted to ask 2 questions. One on the aspirational customer. So Tony, just curious if you can talk a little bit more about their behavior in Q3? And then what you're expecting for Q4? I know you said there's uncertainty there. How are they shopping? I guess, what are you expecting there for maybe Macy's versus the Bloomingdale's banner? Curious how they show up at each banner. And then as we think about next year on the store closure strategy, how do we think about flowing through SG&A savings versus reinvestment needs?

Sure, Blake. Thanks for the questions. Let me take the first, and I'll let Tom take the second. The aspirational customer is a good thing. It suggests that we talk to a broader number of customers in the fourth quarter than we talk to the remainder of the year. And so our job is to make sure that the breadth of our assortments, value, promotions, price points cater to that customer.

I think what we're implying, again, in our guidance, which is not a ceiling, it's a guardrail is that we see more of these consumers, which have been choiceful all year long in the fourth quarter. And we want to make sure that we see how they show up, what they buy, how we react to that as the quarter unfolds.

I have every confidence in the team, confidence in our marketing approach, confidence in our inventory levels. We come into the quarter with markdowns in good shape, inventory in good shape, hiring in good shape, digital and physical in good shape. We are well positioned to deliver the quarter. I think we're just acknowledging the fact that when you have more customers shopping who are not your core customer, their interests are slightly different. And so we want to make sure that we understand that customer as the quarter unfolds.

And Blake, I'll add on in terms of the stores and the savings from them and really start with Q3 because you saw what top line growth will do and allow us to lever the P&L. So we were able to lever SG&A by 90 basis points in the quarter, and we're down low single digits year-over-year on an absolute basis, benefiting in part from the benefits of store closures, but also from strong cost disciplines and savings. And we expect Q4 also to be down low single digits year-over-year. So we are seeing that benefit.

As we move forward, we do expect to continue to optimize our store fleet for underproductive stores. We make those announcements at the end of the year. As we move forward, we'll certainly achieve those savings. But it's also important to note that this year as well as next year, we are investing in the business to drive that top line growth. So it is a balance that we really look forward to talking about more on our fourth quarter call. But rest assured, the savings from SG&A do flow through, but we will look to balance because top line growth is key, and we saw how it impacted beneficially the business and allows us to lever SG&A on a go-forward basis.

The next question is coming from Chuck Grom of Gordon Haskett.

Congrats on a good quarter, guys. On the consumer front, I'm curious if you're more or less confident today than you were, say, 90 days ago. I'm just trying to reconcile the fourth quarter guide, which is lower than your third quarter guide at the midpoint despite the positive comp that you just had last quarter.

And then maybe if we could double-click on traffic versus ticket and then within ticket, AUR versus UBT? And then finally, any additional color on category performance, particularly in the key areas of apparel, home and footwear?

Thanks, Chuck. Let me take the first part, and I'll let Tom add his comments as well. I'm more confident today in our strategy than I was 90 days ago. I'm more confident in the delivery of our results and the quality of our inventory and the quality of our marketing and the representation that we have across the 3 nameplates. Full stop.

Our guidance for the fourth quarter is actually higher than our previous implied guide. It just represents the reality of a more choiceful consumer based on the breadth of aspirational customers who shop our brands during the fourth quarter. I hope we are wrong, but it's my nature as a leader to be thoughtful, methodical, informed, sensible. And so that's always going to inform my guide.

The less I know about something, the more I'm going to be more prudent in how I approach it. But I feel really good about the results. When you have physical and digital growing, when you have your best quarter in 13 quarters, when you have growth across all 3 of these nameplates, when you have inventory current, when you have inventory levels relative to sales in a healthy position, there's lots of reasons to feel very good, and we are pleased with the start of the fourth quarter. So please do not read into the desire to be prudent in our guidance that we have any less confidence in this strategy. We frankly have more confidence in the strategy today than we had 90 days ago.

And Chuck, I'm going to add in, you had asked about the traffic ticket AUR. When we look at Q2 versus Q3, one of the biggest drivers in the accelerated momentum is a change in traffic. So we were positive in traffic for the quarter. And that's a very important indicator of how customers and consumers are reacting to our new strategies. Ticket and overall basket was also up.

Within that, AUR was up versus prior year. And that's important as well. It's not a tariff-related impact. It's something that has been going on quarter-over-quarter. And over the past years as the Bold New Chapter has been in place as we continue to drive great value and our consumers are reacting and responding positively with improved and higher basket sizes.

So we're pleased with our performance there and the traction as well as the momentum. When I look at our Q4 guide, I'd point out that we both raised and narrowed the range versus our implied guide previously at the top line. So we're pleased to be able to do that. And we look forward to continue to deliver against consumer expectations.

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

Perfect. Congrats on a nice quarter. I've got one for Tony and then one for Tom. Maybe, Tony, just the performance of the business stands out, I think, particularly when you stack it against other department store peers. So can you just talk about how the department store competitive landscape has evolved in the last year? And maybe where you see it going next year and beyond?

And then for Tom, just on guidance, I think from a gross margin perspective, it embeds the worst compression of the year in the fourth quarter. So what's changing from 3Q to 4Q that makes that pressure a little bit more outsized?

Thanks, Alex, for the questions. I'll take the first, and Tom can obviously take the second. Look, it's hard for me to talk about the competitive landscape. I can talk about our business and how I think we are performing relative to prior year and prior quarters. We look good right now. I'm in stores every week. I was in a dozen stores Thanksgiving weekend.

Our pricing is sharp. Our presentations are sharp. Our colleagues are engaged. I think we stand up very effectively in every store that I was in, in the mall against the competitive landscape. We are better than a year ago. We are well positioned for the holiday season with -- about 50% newness in terms of gifting for the holidays, a good balance where the cold weather is helpful to our cold weather categories, but we're not reliant on cold weather.

So we have a nice, broad distribution of variety across other categories in terms of fragrances and gifting and the strength of the handbag business now are coming back again. So I think we are very well positioned for the holidays. I think we're very well positioned against other department stores for the holidays. And I think as we've seen in the prior quarters, we're taking share.

Alex, when I look at our Q4 gross margin, let me just start and ground us in Q3 and work through. So in Q3, we were better than expected. Tariffs were a 50 basis point headwind. But excluding those, we'd be up versus prior year. So the headline number was down about 20 basis points. And that's up even more versus our expectations.

In Q4, my math at the midpoint, down around 100 basis points, but 70 to 100 basis points is due to tariffs. So I noted that in the prepared remarks, and that is a little lower as a range than what we previously were expecting based on our mitigation efforts to reduce tariffs. The remainder is the flexibility to respond to competitors and the overall environment in Q4, and that's something that we had noted in our Q2 earnings call. So that's not new. That's just continued to be in there.

I would also point out for the full year, our prior guidance for gross margin was down 60 to 100 basis points year-over-year. Our current is to be down 50 to 70 basis points. So we have improved on the overall for the year, partially due to lower tariff, but also partially due to a better business results. So we're pleased with that performance.

The next question is coming from Rob Drbul of BTIG.

Just 2 questions for me. I think the first one is, can you expand a bit more sort of on pricing increases or ticket increases and the response of the consumer as well as vendor support, just sort of how that's working together?

I think the second question is just on the credit business, I think you have an initiative with new applications and higher credit spend. Can you just talk through how that's trending and the expectations into the fourth quarter into '26?

Sure, Bob. Thanks for the questions. I'll take pricing. And obviously, Tom will talk about the strength of the credit business. In terms of pricing, I think based on what we've shared in terms of the mitigation impact, the consumer continues to spend -- the pricing, I think, on newness and on fashion has had little to no impact on consumer appetite, particularly when you're looking at the breadth of our customers from middle to upper income.

So we're excited about that. That's better than what we had expected, and it's delivering a result on the top line and the bottom line better than we had expected for the quarter and frankly, now for the year.

I think there is certainly on basics and on an aspirational customer, there is more of a waiting game that occurs for the best value and best promotion. And the nature of our business as a department store is we offer a variety of prices. We have some terrific promotions planned for the remainder of the year, all within the guide that allow us to capture our fair share of the business.

So I think tariffs created some noise and some challenge relative to margin and to pricing that the consumer has experienced, but it hasn't stopped an interest in consumption. And I think that as a business, across 3 different nameplates, we are extremely well positioned for the fourth quarter.

And Bob, as I look at the credit business, it's performed well throughout the year in Q3, up a little over 30%. And for the full year, based on our guide, up approximately 20%. And that's really due to the great work our teams and colleagues have done building that portfolio into a really strong credit profile. We've improved our net credit loss results very significantly, which is helping drive the revenue benefit.

And when you talk about app -- going forward, you had mentioned growing the business. We are seeing higher applications year-over-year. So that is a great sign and indicator for the future of this business that people are interested, and we're getting our customers to buy into the franchise.

I think as I look at it more broadly going forward, credit is a part of the broader ecosystem. And we have 40 million customers we speak to on an annual basis. Credit is linked to loyalty. It's an integral part of that. And we're going to continue to manage this in a very disciplined way, grow acquisition, grow usage and make sure it is linked to the broader engagement with our customer.

The next question is coming from Paul Lejuez of Citigroup.

It's Tracy Kogan filling in for Paul. I had 2 questions. First, just on your store closure program, I think you had said 150 stores to close over 3 years. Just wondering where you expect to be at the end of this year with that overall total? And then overall, do you expect to close fewer or more than that 150 over the 3-year period? And then just I don't think I heard you address the Macy's Media Network reduction. So if you can maybe give details on that.

Sure. Thanks, Tracy. With regard to store closures, we closed 64 last year. We announced store closures at the end of the year. So we're not in a position right now to do that, but we'll share that new information on our fourth quarter call. We do want to be respectful and move through holiday with all of our stores and engage with all of our customers in the most positive way possible. We remain committed to our store optimization program, and we'll certainly provide with more details on the broader program at that same time.

With regard to Macy's Media Network, we did reduce the guidance slightly, and that's really a recalibration of advertising spending. Macy's Media Network is still growing strongly versus prior year. We expect even with this slight recalibration for Q4 to be up strong double digits versus prior year, and the full year to be up low double digits.

And as I mentioned, with the credit card and the overall ecosystem around Macy's, this is a key part of it. As we speak to our 40 million consumers and the strength of the brand, as evidenced by the amazing Parade, which I thoroughly enjoyed with my family, it was amazing in-person. I think that there's power here, and we expect to continue to build and grow this business as we have this year with things like the Amazon partnership and leveraging, of course, our brand partners and access to those consumers in our loyalty and broader ecosystem.

The next question is coming from Michael Binetti of Evercore ISI.

Congrats on the improvement. Just one quick one and then a longer-term question for you, Tony. I think in the prepared remarks, you said active was a weaker category. Maybe just a little bit of detail there. I think that's obviously been a multiyear strong category for you, surprised to hear that.

And then I guess if we just look at the Macy's Reimagine 125 versus the rest of the Macy's nameplate stores in the Go-Forward portfolio. When you -- I think the Re 125 have been pretty consistently out comping to go forward by 120 basis points, 3 quarters in a row, very consistently actually. Can you put that level of outperformance into perspective relative to the hurdle rates you want to see for those investments in the Reimagined stores?

Is that how you'd frame the opportunities as you start to look beyond the Reimagined doors and look at the rest of the Go-Forward fleet? Or what are some of the more portable strategy you can take out to the rest of the fleet now that you're a few years into the strategy versus what initiatives may not be as much of an opportunity past the first 125.

Thanks, Mike. Great questions. First, yes, active was a little softer. We still believe in the importance of the category, the partnership with Nike, the importance of the breadth of both the third piece and the opportunity in the business as it relates to Bloomingdale's and other active brands like Varley and Vuori.

So I think that it's a business that simply gets impacted by the breadth of what we also are selling. So we're in a dress up cycle right now. We're selling tailored clothing really well. We're selling dresses really well. We're selling career sportswear really well. We're selling evening and dress shoes really well. So I just think it's the ebb and flow of the nature of our business. We are prepared and will stay committed to a strong and healthy active business. But it just happened to be softer for the category.

And as it relates to the R 125 investments, we feel pretty good in looking at the second year, particularly of the first 50 and the first year of the R of the 75 or the R 125 in total in terms of the payback that we're getting. We don't expect it on day 1, but we have an arc and architecture to what our expectation is. And I think in the next 75, our investments were different than our first 50 based on the learning that we had from the first year of experimentation.

And remember, we did some additional stores last year in the fall to try to make sure we could jump start the 75 with more learning and more prescriptive investment strategy in the next doors.

And as Tom talked about, we'll talk on the fourth quarter call about the expansion of the R 125 program. We'll clearly do more stores next year based on the outperformance and based on the payback curve.

And I just wanted to jump in and add. You had mentioned about 120, 130 basis point differential. And in our presentation, we do note the R 125 was up 2.7% comp. The Go-Forward stores were up 1.5%. That Go-Forward piece does include the R 125. So the differential is actually greater. And when I look at the investments we're making and the learnings that we are taking ahead and moving into the next investments, very comfortable with the payback and how we are looking at these stores to drive the top line with an appropriate investment in the store experience in other areas like brand and category expansion.

[Operator Instructions] The next question is coming from Nicholas Sylvia of TD Cowen.

This is Nick on for Oliver Chen. Congrats on the quarter. I wanted to ask about SG&A as you revised your guidance from what I see, it looks like it is now 40 to 50 basis points over the full year. Could you just elaborate on the planned SG&A increases? What that is going to be allocated to in terms of digital store formats or other areas? And then more broadly, or I guess more specifically speaking on digital, how do you see the mix of digital versus in-store evolving over 2026?

Thanks, Nick. I'll start with SG&A. And I think from a -- for the full year from a percent of revenue basis, we've actually moved it down. So it was up 60 to 80 basis points. It's now up 40 to 50. So it speaks to the leverage we're bringing to the business. And one of the reasons it's up on a dollar basis is our sales are higher. So we're happy from a point of view of having some variable costs related to selling.

And as I look at Q3, we were down low single digits, and we levered by 90 basis points. Q4 is down low single digits, really reflecting the same discipline and benefits as well as increased variable costs related to the higher revenue and a little bit of a timing shift. But overall, I think for the year, I feel like we're in a better spot based on our leveraging the business. And as I mentioned earlier, I want to make sure we want to invest in the business to drive that top line growth. So that's always a balance that we are doing.

And as it relates to digital, Nick, we're pleased with the growth of the business. We're pleased with the replatforming and the enhancements that the digital team has made to the overall experience on our app, on our home page, on our category pages, the work we've done in personalization. Obviously, we mentioned the important investment we made in China Grove to not only support our store network in terms of delivery of inventory, but also fulfillment of our digital business to the consumer.

But I'd be remiss if I don't mention the omnichannel business, which is the focus we have as a company is winning market by market with what we offer physically, what we offer digitally and making sure that we don't get enamored with a digital penetration that may go up or go down and we end up not having a bigger business. Our focus is on a bigger business, a healthier customer base, where the customer decides how, where and when they want to shop.

Next question is coming from Dana Telsey of Telsey Advisory Group.

The newness is definitely evident in the assortment as you walk through the stores, whether it's at Macy's or Bloomingdale's. Tony, how do you see this path of newness continuing? Where do you want to take it either by category, price point? How do you see that opportunity and in capturing new customers and getting more from existing?

And then, Tom, when you think about the opportunity for the puts and takes of gross margin going forward, given that tariffs have been maybe a little bit less of a headwind lately. Where do you see opportunity?

Thanks, Dana. Appreciate the questions. We are excited about the amount of newness that we have coming into both Macy's and Bloomingdale's. And I think newness is important across good, better and best price points. I'm a big believer in balance that our overall assortment architecture has to be right for the customers who shop each of our brands.

In the case of Bloomingdale's, that's adding more designer and more advanced contemporary to our overall assortments while still remaining an aspirational store.

In the case of Macy's, it's making sure that we are not undershooting the customer. So adding brands like Reiss and Rodd & Gunn and Theory and MFK and Expanded Barbour and Mackenzie-Childs really feels the better and the best price points where we didn't have a compelling or a large enough assortment.

So I remain challenging of myself and our merchant team to make sure that we're shopping the markets and that we're continually looking at what the customer is looking at -- and that we're refreshing and updating our assortments. Areas like women's ready-to-wear is an opportunity for us at Macy's. We've had some nice growth, as I said, in career sportswear and dresses and in the contemporary zone. We think there's much more opportunity in our effort to try to learn from each other without becoming one another. We know there is a bigger contemporary market for Macy's and the merchant team is leaning into that opportunity.

And Dana, from a puts and takes in the future perspective, first, I think we're really well positioned to deliver top line growth and bottom line growth. On a top line basis, we've seen the contributors here. The R 125, our go-forward business at Macy's Bloomingdale's strong growth and our overall system working across all different channels, categories and brands.

From a margin perspective, on gross margin, we had mentioned NPS, and it really speaks to customer satisfaction. So as we continue to improve our customer satisfaction, I believe that will support better regular price sell-throughs. We have great opportunities to continue to improve brand assortment variety, reduced redundancy, maintain our inventory discipline and continuing to lever tools like Hold & Flow and other activities that are going to make our systems more efficient.

And speaking of that, end-to-end efficiencies including our planning activities, I think there is opportunity across all of these areas to continue to build on our gross margin.

And from an SG&A perspective, the top line growth will help lever. And of course, our cost discipline as we're always on cost discipline view as well as additional end-to-end savings there. So I believe there's great opportunities top and bottom line going forward.

The next question is coming from Jay Sole of UBS.

Tony, my question is about the customers who shop at the closed stores. Have you got an analysis on how many of those shoppers you're able to recapture in other stores or online? And if so, what your thoughts about that?

Sure, Jay. We have a recapture plan that we put in place every time we close a store. It's a slightly different model if it's a single-store market versus the multi-store market. And if it's a digital or omnichannel customer versus single channel customer.

And what I would say is, so far, we are pleased with the retention that we've seen. It's consistent with what we've experienced in the past. And I would say we're on or slightly above our retention expectation so far. So it's always something that we try very hard to retain and particularly if the store is closing a few miles away from another store. We have a better shot at retaining more of those customers. And the longer and the further away you are from that customer, the harder it is to retain more of the sales.

We tend to see also more of the business in areas like big ticket, where the customer normally will travel a little bit more to outfit their home and in select beauty categories, where, again, we may move the colleagues, both in beauty and in fine jewelry, I would say, we tend to move the colleagues from the closing store to another neighborhood store and they come with either client book or with a relationship with customers that tend to shop with those associates.

Interesting. And would you say most of the time those customers become shoppers of other Macy's stores? Or they just end up shopping more Macy's online?

3 Both. And again, it's really proximity. You probably have a 15- to 20-minute drive horizon. And obviously, based on traffic in certain markets, it's different how long or how many miles that is. But if a store is closed by and as I said, if they're already shopping multiple Macy's, in some cases, the stores were closing where the store that they did the returns at, where the store they might have run into for a replenishment item and they already shopped another store, we're likely to retain that customer.

If they were shopping online and only that store and the other stores a little bit further away, it's harder for us to retain that customer. But we are always through our personalized marketing efforts, doing outreach to those customers, the loyal and credit card customers that we have a longer relationship with, we're also more likely to hold on to.

The next question is coming from Janet Joseph Kloppenburg of JJK Research.

And congratulations. Tony, I got on late because I'm traveling, but what do you see as the opportunity for Macy's and for Bloomingdale's -- some of the turbulence is going on I think where some of your [indiscernible] customers. And also, you spoke to the weakness of relatively [indiscernible] in the active category. Maybe I missed this, but these to the uptrend that you're seeing in the handbag categories?

Thanks, Janet, for the question. Yes, we did speak to the softness in the active category and really talked about the fact that consumer is investing into dresses and career sportswear and our contemporary collections and denim, so other kind of active-ish casual categories, just not active per se. And not the case in the Bloomingdale's brand where they've been enhanced by the strength of their overall active assortment.

We certainly are in a better position today than we were a year ago as a department store or a multi-brand, multi-category retailer. I feel great about our assortments. I feel strongly about the quality of the team. We are well positioned with our marketing for the fourth quarter. All 3 of our nameplates have opportunities to take share in the marketplace. Both Tom and I were out Black Friday weekend visiting stores. I like how we're showing up, I like the way we're engaging the customer. I see the Net Promoter Scores as a wonderful indicator of our opportunity to grow this franchise, grow this portfolio across each of our nameplates.

Okay. And in terms of the customer being very -- having great appetite for fashion apparel. Do you think that's because the brands are presenting better products, more innovative? Or do you think some of this TikTok marketing, et cetera, is exciting the customer more than they normally would have been?

Thanks, Janet. All of the above. There's no doubt that social media is having an impact on people all across the country wanting to know what's in vogue, what's in fashion, what's in style and wanting to partake in the trends. And whether they buy the designer, they buy something that's inspired by the designer, it's again, another advantage of being a multi-brand and multi-price point retailer.

We have something that looks like that from that designer or from something that may look like that. And I think the opportunity to participate in trends to feel like you're fashionable for whatever you're posting on social media is a great advantage of a department store. And I just would give a shout out to our visual teams in the stores. We are showing up well. We are telling stories. We are communicating ideas. We are inspiring customers to buy trends and new fashion, I think, better than we've done in the past.

And Janet, I'll add on to your question on how we work versus competition. I just say that we're really well positioned with a very strong balance sheet, robust cash flow, no debt maturities. We're a great partner and a sought-after partner. And we have the ability to invest and return in our business and return cash to shareholders. So I believe we're well positioned from that perspective as well.

At this time, I'd like to turn the floor back over to Mr. Tony Spring for closing comments.

Thank you very much. I appreciate all the questions. I hope that everyone has a magical and successful and enjoyable holiday season. And if you still are missing things on your wish list or have some gifts you have to give, I know 3 places, Macy's, Bloomingdale's, and Bluemercury, where you can find gifts that will satisfy every single person on your list.

Happy holiday, everybody. We'll talk to you on the fourth quarter earnings call.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off at this time. Have a wonderful day.

Okay. We are ready to get started. It is 8:10. Thank you very much for joining us here today. I'm Dana Telsey, and I'm thrilled to be joined by Tom Edwards, the COO and CFO of Macy's. Tom joined just less than 6 months ago, but has obviously been very involved with many consumer brands that sell to Macy's, that have been involved, whether it's Wyndham, whether it's Kraft, whether it's Brinker. And now at Macy's, he understands the consumer and the trajectory of what brands do. Like what we said, activating the consumer, exciting the consumer. That's Tom.

So we know that Macy's is transforming the company through their Bold New Chapter strategy by strengthening and reimagining the Macy's nameplate, which is nearly 450 doors. I think accelerating differentiating luxury with both Bloomingdale's and Bluemercury, and simplizing and modernizing the end-to-end operations. Tell us, since you've been there, what do you see as the opportunities for the Bold New Chapter strategy and where you are?

Thank you, Dana. And first, thanks for having me here. It's great to be here on the first fireside chat of your first conference with Santander. It's a real pleasure and it's an honor. And it's an honor to be part of the Macy's team. I've been here a little over 3 months now, but I've been a Macy's partner from different brands for over 8 years. So I understand the strength and the power that Macy's brings, both as a brand and as a business to its partners and to consumers. And that's really what brought me here. The strength of the brand, the bold new chapter strategy, which is working and look forward to telling you more about that, and the opportunity to create a significant amount of value.

When I think about what matters now, I think first about the Q2 results, which are a great example of how everything can come together with the Bold New Chapter and really changing how Macy's is presenting itself to consumers and winning in the market on a day-to-day basis. For Q2, we overdelivered on the top line, on the bottom line and on adjusted EBITDA. We had the best growth in the last 12 quarters with Macy's, Inc. and Macy's growing comps and growing both Reimagine 125, which is our new stores that we are reinvesting in and changing how we're interacting with consumers. So that was incredible results.

Bloomingdale's grew almost 6% comp and Bluemercury 2%. So our luxury business is also performing. So we're really making meaningful differences and we're seeing it happen.

So as you think about the Bold New Chapter strategy, which are the elements that you see have the opportunity going forward?

I think all of the elements. So we have 3 elements to the Bold New Chapter. It's very exciting. The first is strengthening and repositioning the Macy's nameplate. That is happening. And the best example is the Reimagine 125 where we reinvested in staffing in the stores. We've put in new brands and increased our focus on merchandising them. We have eventing and local activity and local activation. So we're doing the right things for the brand in the market. We're seeing it work and we're seeing the results in our second quarter.

The second platform is accelerating and differentiating our luxury businesses. And that starts with Bloomingdale's and also includes Bluemercury. Bloomingdale's is growing. It's 4 quarters of comp growth now. It is gaining share in the market. We're bringing on new brands, and we're really well positioned in this market environment to continue to gain share.

We're also expanding our footprint there because we have some new formats for Bloomingdale's. The Bloomie's smaller format and the Bloomie's outlet, which we've added to over the past year and plan to do so in the future. And of course, Bluemercury is differentiated with a skin care focus and a real consultative approach. So we feel we have a positioning in that area as well.

The last stool -- leg of the stool for Bold New Chapter is our end-to-end modernization. We want to simplify and modernize our supply chain and also our back office to drive synergies and to better serve our customer. So in the supply chain area, this is both generating savings, but it's also making sure people get their packages faster, we're in stock more in stores, we're utilizing different capabilities like hold and flow to make sure we're better utilizing inventory and satisfying customer needs. So what I see is a really great balance here between serving the customer first. If there was a theme here, it's we're changing from operationally-led to customer-led and all of the pieces around that supported. And the savings will then help to reinvest in the business and ultimately to grow top line and grow that top line profitably as we return Macy's, Inc. to growth.

That's a very good setup. So zooming out, what is your view on the consumer? How do you see them navigating the volatility of the macro?

We see the consumer has been very resilient. As we mentioned in our Q2 comments, the consumer was resilient in the quarter. And at the time of our call, we also noted that, that translated into the first month of our third quarter. So the consumer has been resilient in the face of tariffs and other macro changes. We have seen differentiation in our consumer with the higher end and the middle tier doing better, and the lower end maybe a little more pressure. And I would point out that we are positioned with our customer more towards the middle and higher with our average income at a higher level, both for Macy's and of course, for Bloomingdale's, which has a more luxury focus and a more luxury consumer.

So as we look forward, we are, and as we discussed in Q2, embedding in our outlook, a little more choiceful consumer in the back half. But this is really something that we're prepared for. We're looking and ready to compete and to win in holiday. We've come out of the quarter with inventories down, in very good shape, very clean, open to buy with a lot of newness in our inventory. And that is one thing I'd point out, the consumer is responding to newness. So as we have put that out on the floor, they have responded. That's one of the reasons we're growing.

So I would say that Macy's, Bloomingdale's, Bluemercury are well positioned to compete in this environment as the consumer navigates through the macro.

And how do you see tariffs and the sustainability of the consumer?

Well, for tariffs, just as a little backdrop. We have embedded in our prior guidance 40 to 60 basis points of tariff impact. And that was increased in Q2 from 20 to 40 basis points. And we're working across our supply chain and with our partners to mitigate tariff impacts. So this includes working with our factory partners, working with our brand partners and, ultimately, in some instances, pricing. So the whole balance is the 40 to 60 basis points.

Right now, we have not seen a significant impact for that for consumers. And that's where we say they have been resilient. On the other hand, we do believe that it will flow through and that they will become a little more choiceful in the future. But again, we're positioned well to compete regardless. And I think our multi-channel, multi-brand model, a multi-category model that we're priced high to low, gives us the ability to better respond to tariffs because we can buy at different levels, whether it be good, better, best, whether it be different brands, whether it be leaning into different channels and formats within our own ecosystem to make sure we're providing to the consumer product they want at prices that they feel are good value.

So it is not a one size fits all, and we're using all the levers, but there are a lot of levers. And I think that's one of the benefits of our scale and our ecosystem.

Got it. Lower interest rate environment, what does it mean for Macy's?

A lower interest rate environment, I think it means a couple of things. First, I look at it in the broader macro content. To the extent, all other things being equal, lower interest rates are good for consumers. And what's good for consumers is good for Macy's in the overall retail environment. So that can be a positive. When I say all other things being equal, there are a lot of other things. And that's why we have built in a little more choiceful consumer. On the other hand, we're well positioned to address that. The other piece is that lower interest rate supports higher asset sale values and puts us in a great position where we're not in any rush to monetize assets to make sure we get the absolute best for our shareholders to drive value.

As we looked over the past year, last year, we monetized and received cash proceeds of a little over $280 million, year-to-date, $75 million with a guidance of $190 million. And we are on our way to adjusting our fleet size to make sure we're in a position where we can win with the go-forward fleet. As we saw in Q2, it is winning, it is growing. And the fact that interest rates could be lower puts us in even better position there [indiscernible].

When you mentioned it, the differentiation in banners, what do you see from Macy's, Bloomingdale's, from Bluemercury? What is the size of the fleet? How do you think of digital versus physical? How do you distinguish?

Sure. I'll start with Macy's. As we mentioned at the beginning of Bold New Chapter, with around 500 stores, we announced that we would close approximately 150 to get to a fleet size of approximately 350. We're continually evaluating that to determine which stores and how that works. In the last year, we closed 64. So we made headway there. The key is that we're going to be in places where we can win, grow the business, grow profitably, deliver value and have continued to maintain the scale and presence across the U.S., so we're serving customers.

Digital is a key component of that. So we're staying in markets to make sure we have a physical presence because that really helps the digital presence as well. And we're investing in digital. If you have a chance to log on to check out the website, it has recently been revamped, and I think you'll find that it is looking and feeling great talking to our brands and to [ usage ] occasions as well as to value with a really balanced approach and a great look and feel. So that piece is critical, and Macy's will ultimately get to that level of around 350, and there could be some pluses and minuses as we work through it.

Bloomingdale's has opportunity to grow its footprint Part of that is that we're in very few -- only 14 of the largest DMAs in the country. So there is opportunity. We have a small format, the Bloomie's, of which there are 4, and an outlet, of which they are around 20. So there is opportunity to grow that footprint and continue to gain share in luxury. And as we gain new outposts in different areas that then augments the digital business as we've seen.

Bluemercury, we also have been growing that, and it's growing comps, as I said, 18 quarters in a row. So we feel like there's an opportunity to continue to grow Bluemercury as a brand. Feel good about all of that.

And loyalty programs are very interesting also for each of the brands.

The loyalty programs are great. And if I could say it is all connected. We have digital where we have a great loyalty program, which tiers up from bronze to platinum. And we have a credit card that's integrally related to it. And that forms the basis of the communications to consumers on a day-to-day basis. And then, of course, it all comes together with data and data analytics. The Macy's and Bloomingdale's talks to 40 million active consumers a year. We have information on them from the credit cards, from the loyalty program and really understand where they're at in their lives and what they're buying. And then have the data analytics capabilities on the back end with data science and analytical tools to be able to adjust our approach because it's all about connecting to the consumer, not just to inundate them with e-mails, but to really talk to what they are interested in and to understand how they segment into groups because obviously, not everyone wants to buy the same thing.

So I think that, that broad ecosystem is what makes Macy's, Inc. and Macy's special. It's also what makes our Macy's media network attractive. People are interested in working with us because they can then have access to these 40 million customers and speak to them on a more regular basis. So I look at it as a broad ecosystem that really, combined, has a lot of power.

Got it. And now when you think about private label, that seems to be an energizer for the different brands. What's the opportunity, sales, margins? How do you see it evolving?

The answer is yes. The opportunity is sales and margins, all of those items. So we have, in addition to reimagining our stores, we've reimagined private label and paired down brands, introduced new brands and we really look at it as filling in white space to meet consumer needs that are not met elsewhere. So the private label brands have a real purpose and meaning, whether it be style, price point or many other factors of what they're delivering. And at our height, we had a penetration of around 20%. We're now in the low teens. And private label historically has had higher margins because we're directly working with our partners and own that more directly.

So we look at this as an opportunity to continue to fill in white space, it has to make sense for consumers, and to grow profitability as we expand it and broaden our base. So it's a win across the board. And this goes for both Macy's, Bloomingdale's and Bluemercury as we're introducing different products within beauty, Bloomingdale's at different levels of luxury, and of course, at Macy's across any number of private label brands.

One of the things that's different about Macy's now because let's go out with the old, I don't like the word department stores, that's from the past. When Pam came up with the Bold New Chapter name and really differentiated what Macy's is, how do you see the uniqueness going forward given what you just outlined with the 3 different brands? Because you've sold to both, you've had brands sell to Macy's and now you're curating the assortment.

Yes. You said it very well. We're multi-channel, we're multi-brand and we're multi-category, and we work from high to low from off-price to luxury. That is a key strength. It gives us the ability to respond to consumer needs, to move into different trends and brands and really to help drive growth overall. On the other hand, it helps make us be a preferred partner for our brand vendors. And that is very meaningful as we have been bringing on new brands, filling in space and making sure we're delivering against consumer needs. So I believe that, that combination is really critical.

The other thing that's critical is the scale of Macy's, Inc. and the capability. So when you think of scale, it's the breadth of consumers we're talking to. It's the coverage of the U.S. It is the different formats that we work in, but it's also the capabilities of delivering omnichannel, understanding the data, being able to respond to it and quickly react and talk to our consumers really on a daily basis, but do it in a way that's meaningful for them where they're continuing to engage and want to engage more for the brand.

And from your perspective, has the competitive environment or the competitive set changed?

The competitive set -- we're competing broadly across retail to bring consumers in, and I think this is -- and we compete on a daily basis. What I wanted to mention, and I think it's really important, underpinning all of the Bold New Chapter and the Reimagine is the refocus on the customer. So if you come away with one thing, I would ask you to come away with that, changing from operationally-led to customer-led. And that's where -- no matter, who we're competing with, that's what will make a difference. It's your interaction with the associate in the store who knows about the product, who can talk to you about the product and who can then bring you in so that you have a great experience. We have seen the benefits of this in Q2 with our results, but also with our Net Promoter Scores. We believe it's a great measure of how we will perform in the future. And across the board, we had our highest Q2 Net Promoter Scores ever for both Macy's and Bloomingdale's. And we're continuing to work on it.

We're rolling out and building out a culture of customer service and of hospitality. And that links back to my background because I've worked in hotels and restaurants and know that the hospitality is critical. How you feel about the brand is also how you feel about the individual who is serving you who is the face of that brand. And there's a tremendous amount of focus, time, energy on making sure we make that interaction very, very meaningful.

Now when you think about the financials and the algorithms, over $21 billion in sales today. What's your thought on holiday, promotional, not as promotional? How do you view it?

Well, if I could take the financial algorithm first. So we are looking forward to and have driven growth in the quarter. We're looking forward to driving growth in the future. And I'd point out that over the course of the Bold New Chapter, the Reimagine stores, first the 50 and then the 125, have driven outsized performance and comp performance as well as comp growth for 6 straight quarters. So that's an incredible, I think, trend that we are building off of. That's the underpinning of everything as we look forward. From an algorithm point of view, we're also generating savings. So our end-to-end initiatives and always-on attitude to driving savings allow us to reinvest in our brands, ultimately support and maintain margins and margin growth and are part of that algorithm to drive profitable growth, both single-digit top line, and, as we mentioned at the beginning of our Bold New Chapter, mid-single-digit EBITDA growth.

Underpinning that is also a strong balance sheet and cash flow. We recently strengthened our balance sheet. We further pushed out maturities. We do not have a maturity for debt until 2030, 5 years of which to do the right things of reinvesting in our business with tremendous amount of flexibility and then strong free cash flow, which we, of course, reinvested in the business, and we see those dividends paying off. And then speaking of dividends, provided a consistent dividend over the course of the last years and the future of around $50 million a quarter, and year-to-date have returned cash to shareholders of $150 million. So this all works together as a great cycle and feel really, really good about how that is panning out.

In terms of holiday, in our guidance, we did note that the consumer would be more choiceful, yet they've been more resilient. So our goal is to be ready to serve the consumer with product that make -- that there's a great value and product that they want, and we are just well positioned to do that. So whatever the environment is, our multi-channel, multi-category, different price points and different brands, we are positioned well. Our inventory is down. We have ample open to buy. We have great newness in that inventory. And having just toured our holiday set for the Christmas and the overall season, I have to say, it is amazing. And I think that the teams are incredibly, incredibly well prepared.

Got it. And going with that financial algorithm, what does it take to leverage SG&A? And how do you think of the buckets?

Sure. So there are a couple of things. First, I'd point out, in Q2, we did leverage SG&A in terms of it being down $30 million versus prior year, while we grew comp, while we were reinvesting in the business, and that is part of the overall pairing the fleet size down as well as driving end-to-end savings. Going forward, Number 1, we'll continue to drive and look for efficiencies in the business; Number 2, we'll grow the top line, which enables us to lever the P&L below.

And I have to be remiss if I didn't add that there's a huge opportunity as well in gross margin. So the adding of new brands and the right brands that consumers want, how we merchandise them in the stores, how we use inventory and build out that hold and flow, which makes us more efficient on the back end in inventory buying, but also more efficient in having a product that consumers want, and we can sell it at full price in the stores when they need it, our end-to-end savings, which also help gross margin, and private brands, which you mentioned before. So there are a lot of levers and we're working on all of them as we move forward because they're all part of the overall system.

What does AI mean? And what could it mean?

AI means a lot. And I think it will be a tremendous asset to the business and allow us to make many positive changes. We are in the very, very early innings as I'm sure everyone is aware. And what we're doing as a company now is testing, learning and looking at areas where we think it can make an impact. And as we see those work through, we will then be even more aggressive in how we roll it out. Some of those areas from a consumer-facing point of view are personalization, how are we using and taking our data analytics tools that we already have, already robust and making it even better to understand what the consumer wants, how they want it and to take new data in, not just the data in our system. So it allows us to have a much broader lens, a broader aperture to how the consumer is reacting.

It can help us in demand planning, forecasting, replenishment, everything around managing inventory to make sure we have the right inventory that we're upfront from an assortment point of view, all the way to how we allocate and replenish to consumers and to stores. On the end-to-end savings, we are using AI. It helps us determine where we place inventory. And we're also using robotics in a new facility we just opened that is state-of-the-art and allowing us to significantly reduce costs as well as serve the customer better. The other piece where AI is working is in the support areas. How can we be more effective in just running the day-to-day business? It has a huge opportunity there and in areas like a call center.

Got it. Now your background, you used to sell to Macy's, now you're at Macy's. What's the biggest difference?

The biggest difference is that scale and the breadth of the business. I can now see -- I appreciated it before because Macy's was a preferred partner. And I can see now when we're talking about the brands, categories, off-price to luxury, that we really have everything to offer the customer and can move around that and then have the scale and capabilities back of house in analytics and understanding the customer.

The very foundation of the Bold New Chapter was a customer study where we talked to 60,000 customers who were customers or were relapsed customers and understood what they wanted to have a better experience that will make them come to the brand, come back to the brand, use it more often. And everything was data-oriented to understand that. And it's some of the simpler things of take away. We would like to see more associates, more knowledge, more people on the floor. And that's where we made investments in staffing. We made investments in areas like shoes and fitting rooms as well as the different brand assortments and changing how we are managing day-to-day the staffing to make sure that people are there when needed and in areas where they have expertise.

So part of this is science, part of it is art and it is people. At the end of the day, I think a retail is serving people's need and engaging and creating a lasting bond with an individual consumer. And coming in and looking at the company from before I joined, I already love Macy's as a consumer, and now I see that there are so many people that have that love, and we're turning it now into them engaging more and to the results you see in Q2.

And those are the Reimagine stores also?

Yes, those are the Reimagine stores as well, where we have invested in staffing. We have added in new brands that are on trend. We're driving areas like contemporary home, fine jewelry, all the different things that our consumers want. So we see it happening, and we're well positioned for the future.

So now wrapping it up with our speed dating questions. Big picture, what are the most important factors driving your outlook, whether it's tariffs, interest rates, global macro? And on a scale of 1 to 10, how do you rate the current economy and consumer spending in the second half of the year?

So the most important thing driving our outlook is us, it's the Bold New Chapter. We're going to perform whatever the environment is and deliver value to our consumers. There may be other macro considerations, but we're there for the consumers, we're poised, we're ready to deliver in whatever environment it takes. So I think that, that is the most important thing. And then on a scale of 1 to 10, I would rate the consumer resilient. So we have -- we've seen resiliency up through our first month of our third quarter. And again, the American consumer never count them out, but we're prepared to deliver against their needs.

Second question, holiday sales. Do you think overall retail sales will be up, down or flat versus last year?

As I mentioned before, in Q2, we noted that we have built in a more choiceful consumer. So I don't know how -- I don't want to translate that into numbers, but we have built in a more choiceful consumer. And the important point I'd like you to take away is we're ready to deliver against the consumer regardless of what the environment is, and we want to make sure we're prudent in our outlook.

And last one, next year, 2026, how do you expect revenue growth to be versus '25? And what are the 1 or 2 items you're most excited about and most concerned about?

For 2026, it's a little early to provide guidance on that. At our Q4 earnings, we'll provide a more robust and fulsome outlook on 2026. But what I see is momentum is building for Macy's, Inc. for all of our brands, and we're doing the right things across all of the Bold New Chapter initiatives. So we're well positioned to continue to deliver. And I think that as we move into the next year, we're going to continue to -- every area, customer service, brands, end-to-end, delivering against luxury, we'll be well positioned to do well, and we'll be well positioned to deliver our algorithm of growth on the top line at the low single-digit area and mid-single-digit EBITDA growth over the longer term.

And Tom, this is your first Thanksgiving Day Parade. So enjoy.

Thank you.

Hopefully, it wouldn't be raining. I want to thank Tom very much for being our keynote speaker on our first conference. Thank you, Tom. Thank you, Macy's. Thank you, Pam. Thank you for joining us.

Thank you, Dana. Thank you.

Thank you.

Good afternoon, and welcome to this next session of the Goldman Sachs 32nd Annual Global Retailing Conference. My name is Brooke Roach, and I cover the apparel softlines and branded consumer goods here at GS. And I'm thrilled to introduce our next session with Macy's.

Here today, representing Macy's is Tony Spring, Chairman and CEO; and Tom Edwards, COO and CFO. Welcome, Tony, and welcome, Tom.

Thank you, Brooke. Great to be with you.

Tony, Macy's reported second quarter earnings yesterday and delivered an impressive inflection to positive comps. Can you kick off our session by speaking to the key highlights in the quarter and the drivers of the momentum that you see?

Sure. We're very pleased with our second quarter results. We saw an enterprise-wide growth across each of the 3 nameplates. Majorily...

Pause for 1 second. I don't think we can hear you. Can you bring a mic? Or do you want to just try again?

Can I move Jim a bit up.

Tony, you are in the front row. It doesn't count. Try again.

How about now? Can you hear me now?

Go ahead. Yes.

Okay. And I will try to speak loudly because we had a good quarter. We beat on the top line. We beat on the bottom line. We exceeded our guidance for sales, for margin, for revenue, for EBITDA, for EPS, core EBITDA. We had the best quarter in 12 quarters for Macy's, Inc. and for the Macy's brand. We saw a growth in our R 125. We saw growth in our digital business and our physical business at Macy's. We had the fourth consecutive quarter of growth at Bloomingdale's, growing over 5.7%. And we had our 18th consecutive quarter of growth at Bluemercury.

And I think what we look at as being a multichannel, multi-category, multi-brand and I think in this environment, saying multi-price point retailer is an advantage, and it reinforces our conviction that the Bold New Chapter is the right strategy to bring Macy's things back to sustainable profitable growth.

Very clear. Tony mentioned the Bold New Chapter strategy, and it's been in place for about 1.5 years now. Can you discuss where you've made the most progress and what might be longer dated?

Sure. So just to refresh everyone's memory, the Bold New Chapter was our 3-year plan to improve the quality of the entire enterprise, and it was broken down into 3 parts. The first part was to be able to reimagine and strengthen the Macy's nameplate. We're pleased with our performance 18 months in. We closed 64 underproductive stores last year. We have flowed in new brands, which was a part of adding more relevancy to the Macy's brand. And seeing growth from existing brands like Levi's and COACH and Ralph Lauren is also good because it strengthens the power and impact and desirability of the Macy's brand. We also wanted to make sure that our stores reflected the future of retail.

So if you remember, before we did this strategy, we talked to 60,000 active Macy's customers and customers who used to shop Macy's, and tried to talk to them about what are the things we're missing. And the delta was interesting because the log for Macy's was just as strong as had been previously. What wasn't as strong was the like they were unhappy with the experience in our stores. So it made it easy for us to figure out in our first 50, which was a part of 2024s launch, and we added 75 more stores in 2025, and we're now at our Reimagine 125.

And the tenets of improving the experience had to do with more staffing in specific areas where the customer said we were underserving their needs. It had to do with improving the presentation that's both density on the floor to make it easier for people to shop, to find their size and color and also the general presentation and standards in the store as well as storytelling, which I don't think we give enough airtime to the importance of telling stories in a very busy active life where people are in a nanosecond moving from one point of information to another, how do you tell a compelling story that gets people excited about the trends, about a style, about a new brand. And then finally was the empowerment of our people, and the empowerment of our locals to our managers to make sure that we could learn from what they thought we were missing in the central direction we are providing.

And then the final tenet is the end-to-end operations. and making sure that we were adding more simplification, more automation, reducing the complications that had to do with reducing the number of supply chains that we operate. That has to do with embracing the power of AI as well as generative AI that had to do with making sure that we were taking cost out of the network and in some cases, also speeding up the delivery of product to the customers where we were behind the competition.

Very clear. In terms of the impact of the Bold New Chapter strategy, you just inflected comps positively in the quarter. How are you thinking about the sustainability of this performance here, particularly given your guide for a bit of a deceleration in 3Q? And what's in your control? And what's a function of macro?

It's a great question. I think the execution of our strategy is 100% in our control. What's not in our control, and I think is incorporated into our guide is the uncertainty in the macro environment that we're all operating. And as I've been reading and joking with you before coming on stage that there seems to be a consistency of the use of the word resiliency and also the word uncertainty. And I think that's the reality of the retail environment right now. We've not seen a time period where a number of costs in different categories are going to go up to some degree where availability may be different depending on the brand and the category and the item. And so I think we've put in our guide for the fall season, a level of prudency to make sure that we can react to the way the customer is going to shop.

And again, it's another reason why I am so bullish on being a multi-category, multi-brand, multi-price point retailer because there are categories and items within our assortment that are the same price. There are items within our categories that are more expensive. There are things we bought less of or didn't buy because they were unrealistic in terms of their pricing. That's the advantage of not being limited to a specialized brand, your own brand and having the ability to shop the market like a consumer would and say what will make the biggest difference in our business this fall season.

Very clear. The Reimagine 125 stores have been consistently outperforming the rest of the fleet. Can you contextualize for the audience some of the changes that you're making in these stores? Which of these drivers have been most material? And how quickly can you scale these across the rest of the fleet?

I've used the example, we're not going to trip on our way to success. So we went from 50 to 125 stores. We will add more stores next year and talk about that on the fourth quarter call. We had a 1.4% comp performance in the R 125 in the second quarter. Both the first 50 and the next 75 grew in the second quarter, that is 5 of 6 quarters of growth in the first 50. So there's a programmatic result that we are seeing that I think is scalable, but we also want to make sure that we continue to refine and iterate and learn as we go forward.

I think I mentioned in my previous answer, the 3 ingredients that I think that are so important to our R 125 program is really the staffing investment. It needs to be targeted where will you get the biggest payback. I think in many cases, we're learning from our traffic and conversion data. We have more opportunities on the weekends. We have more opportunity in peak hours. So how do we reduce the workload that isn't customer-facing so that we can have more colleague-facing colleagues on the floor when the consumer is in the store.

I think the other piece that I said briefly was important is this local empowerment. We're going to get 75% right centrally. We can direct a portion of the schedules. We can direct how to take the markdowns. We can direct some degree of planogramming. But the local leader knows exactly that they have traffic in the women's shoe department and it's not satisfying the customer. How do we move people around? They know specifically that if we direct somebody to put a piece of outerwear in a store in Florida, that's not a good decision. And they need to be empowered to change that. So that's really we're trying to embrace the benefit of being a centralized retailer that has many stores across this country and at the same time, empower local leadership to make smart decisions.

Tom, the Reimagine stores have driven strong sales, but they also come with some incremental investments. Can you help frame up the profitability trajectory of these stores relative to the rest of the fleet?

Sure, Brooke. I'd be happy to. We do invest in our Reimagine stores in order to drive the results that Tony was speaking about and really implement our initiatives. And that's important because it's important to drive the top line comparable sales. And we saw that happen in the quarter. So this is critical. It's also important to drive a differential across the Reimagine and rest of fleet. So we show that we're -- our implementation is working. And we saw that with the Reimagine 125 up 1.4% in the quarter compared to the overall go-forward up 0.1%. So the initiatives are working. The investments are paying off.

Now in terms of the profitability component. At the same time, we're always on in terms of looking for savings. We are looking for savings as we are closing underproductive stores, and we're seeing that come through in SG&A. We're also looking at implementing savings in our end-to-end operations initiatives, which have been occurring and have a long tail of benefits that will continue into the future, as well as looking at costs on an ongoing basis.

And this really came together in Q2 because you could see we had investments in R 125. We grew the top line. SG&A was reduced in the year versus prior year by about $30 million, and we over delivered our top and our bottom line together. So that shows how the synergy of this can work together. And I believe, Brooke, long term, you'll see as we roll out those initiatives to more stores, we'll get that positive return on investment and drive the top line.

You mentioned some of the store closures in your last answer. So let's dig in a little bit more to your fleet repositioning. You've closed more than 60 stores under the Bold New Chapter strategy, and there's more on the horizon. What are you seeing so far in terms of sales recapture either online or in adjacent stores? And how do you expect this to evolve moving forward?

Sure. Happy to help on that. First, we did close 64 stores last year. We generated cash proceeds from sale of assets of nearly $300 million last year and $75 million year-to-date this year with a forecast of $175 million. So we're doing the right things from a monetization point of view to get to a fleet that is profitable and that we can grow going forward. And we're exiting stores that are underproductive, not necessarily that are unprofitable, that are underproductive. And in each of those decisions, there's a real careful analysis of whether it makes sense and how we capture volume from those stores in existing stores in the market or in our online business.

So this is a very thoughtful process to not just close a store, but to transition our faithful loyal customers to new places to shop or places that they've been to, but we want them to go to more. The net is they are coming back at a higher rate than we were initially anticipating. So the capture and the recapture rate is better than expected, and I think this is also helping contribute to our overall top line.

Tony, let's move back to you and talk about Bloomingdale's, which I know is very dear to your heart.

Always.

Bloomingdale's comps have been really strong. And you've seen some new brand launches and some capsules. Can you elaborate on the drivers of outperformance here? Are there any specific categories or customer demographics that you would call out? And how much of this has been driven by recent disruption in your competitive set versus idiosyncratic initiatives?

Yes. I'd like to start first with Bloomingdale's is in charge of Bloomingdale's performance. And the reason that Bloomingdale is performing well is because they have a great assortment. They have a strong team. They have a clear strategy. They've got a productive fleet. They've got a growing and healthy online business. They've got wonderful marketing campaigns and partnerships and activations. They're launching this week, Just Imagine, which is a wonderful artistic campaign with lots of exclusive products with an event in all stores this Saturday. So all you out there, please go shop. .

And yes, the marketplace is disrupted, and there certainly is a benefit to Bloomingdale's that comes from that. But they're not resting on their laurels. They're seizing the moment. They're a hungry team. They are expanding the amount of distribution they have with existing brands. They're approaching brands that we don't currently carry. They are doubling down on the growth we've seen in the digital business. We're attracting new customers to the Bloomingdale's brand. We're attracting colleagues who want to work for the Bloomingdale's brand because they can see that we have inventory. They can see that they can make more money. These customers see that they can satisfy their wardrobe. And in some cases, we're introducing existing customers to new categories within the store. Someone who used to buy their sheets or towers at Bloomingdale's, all of a sudden goes to the shoe department and says, "Oh, I don't realize you carry the brands that I buy in another retailer." And so it's just more share of wallet opportunity for that brand.

Very great. And what about the Bloomie's concept? How are you thinking about the opportunity there?

Yes. We have 4 stores open now. It's both -- it's a densification opportunity. So how do we add a node into a market where we feel like there's more opportunity. It's a replacement strategy, how do we close a store that may be bigger or less productive or not is in good shape and put in a Bloomie store? And how do we use it to enter new markets? So in the case of Seattle, it was entering a new market. In the case of the DC Bloomie's, it was a densification. In the case of Chicago, it was a replacement store. And in the case of our newest store in Shrewsbury, New Jersey, that was a densification even though it's probably still 40 minutes from our Short Hills store. .

We see the opportunity to open more Bloomie stores. It is with the Bloomingdale's outlet, the 2 vehicles that we see as the primary ways to grow the footprint of the Bloomingdale's total brand. Remember, Bloomingdale's is only in 14 of the top 50 DMAs in the country, the smallest penetration of DMAs of any of our competitors. So in our mind, there's still runway for real estate. But I like that adage of location, location, location, and it's easier to open a store and close a store than to do everything in between. So I want to make sure before we just add more real estate, we have the right real estate.

Very clear. You mentioned at the beginning of your conversation about different income demographics and how it was very advantageous that you play it all the way from the high to the low. What trends are you seeing in your off-price business today? And are you seeing any trade down given the choppy macro?

We're not seeing any trade down. I think we're enjoying the benefit of the off-price business at both Macy's and Bloomingdale's being healthy. So Backstage has continued to perform at Macy's. Backstage was a way for us to add more volume and more productivity to stores that didn't necessarily have enough content or categories within them. And I think in the case of Bloomington, the outlet store continues to perform and we continue to add more locations.

The interesting thing is when we look at the basket when a customer buys online and from a full-price store and off price, they're more valuable customer. So to me, the off-price business is not necessarily a trade down of the consumer. I think it's capturing an off-price purchase that they would have made in another off-price retailer. And there are certain categories, whether we like it or not, it could be the kids category, could be some novelty home products, could be seasonal things like Halloween or Easter that people don't love to pay a full price for. And so whether it's kids growing out of sizes, whether it's a holiday that lasts for a nanosecond, we need to make sure that we are capturing that business in one of our points of distribution.

Very clear. Well, let's take a step back for a minute to discuss a few topical questions. Tony, you described the consumer as more choiceful this year. Are there any pockets across categories or consumer demographics where you're seeing outsized strength or weakness?

The thing that continues to strike me is that the consumer is interested in newness and in fashion, wherever we have it across any category of business. It could be a new brand that we added to the kids department like Abercrombie Kids. It could be the level of newness that we see with the COACH, given the popularity of Tabby and Empire and all the different bags that have driven that business. It could be the introduction of denim from Good American. It could be the new silhouettes of top-tier product from Levi's. Every place we have newness, we have a good business. The places where we have software business or a less robust business is where we have more basic necessity, more continuative product.

And I think it's an example of -- just like value, it's an example of how in a choiceful environment, the consumer is not going to not spend. They're going to be spending more surgically, more thoughtfully on where they think they get the most value for the money. So if there's some embellishment to a coat, we're seeing some action and reaction. If there's an embellishment to a sweater, even though it's only early September, we're seeing a reaction. I think the basics, we're going to probably have to be more aggressive with. And I think it's another -- again, back to the benefits of a multi-branded retailer, we have a range of price points. We are not limited to just one. And so we'll try and adjust our buys and obviously, in the case of continuative product, in the case of basics, those things are on replenishment, you tend not to overbuy them, you buy back into what you sell.

Very clear. One question that we're asking nearly all companies at our conference is their expectations for the environment into the back half of '25 relative to recent results. Do you expect things to be the same, better or worse?

I expect the consumer to be more choiceful and we've embedded a more prudent guide into the fall season. It's hard to look at our guide and say that I'm more optimistic about the fall season because we've added a more prudent guide to the fall. It's not as good a performance as we had in the second quarter. I hope I prove myself wrong because that would say that the consumer wants to remain resilient, and there are categories where they will pay more and that they will adjust and work around the tariff environment and still have gifts under the Christmas tree, still have the right items for the winter and holiday season.

Is there anything that you see into 2026 that would change your response?

'26 is always hard for me to answer at this point in the year because we do so much business in the fourth quarter. What I would say is I look at 4 elements and challenge myself, are we in a good place on those elements? Number one is culture. I feel really good about the work we're doing from culture inside this company. Number two would be strategy. I'm in the middle of the strategy, 18 months in, I feel really good about the work. We talked about it at the beginning, lots of points of progress, plenty of work still to do.

The third would be leadership. We have a complete leadership team. I feel really good about the people on our team, the level of collaboration, the level of focus, the opportunity to be able to accomplish more as they learn even more about the department store business if they come from outside or the impact they're having as they rebuild their teams. And then finally, would be execution. And where, frankly, we're just executing better. So those aspects would make me feel better about '26 than about '25, but you have to give me more insight into what's going to happen to the economy.

Very helpful. What proof points do you see that gives you confidence that Macy's can gain market share in this environment? And one question that we're asking everyone in consolidation with the market share question is whether or not you think that market share consolidation will speed up, be the same or be less in '26?

Again, it's not -- I don't have the crystal ball and not an economist and not a great prognosticator. But I would say it's likely we'll have more consolidation that this environment will create more winners and losers versus everybody going down or everybody going up. I feel like based on the 4 tenants we talked about, I like our odds. We're coming into this a healthier retailer. We have a healthy balance sheet, no debt maturities until 2030. Healthy cash flow, investing in the business, maintaining our investments in stores, maintaining our investments in the digital business, returning cash to shareholders, a quality quarterly dividend, buying back stock.

So I think those are signs that we're a healthy retailer that's going to be around. And our key is to pay attention to the signals from the consumer. The consumer dictates how our business goes. And if we're attentive, we're in the market, we're in our stores, we're talking to our vendor partners, we're more likely to be successful.

The topic of the year is tariffs. And Tom, you talked a little bit about this yesterday on your call, but can you contextualize how you expect the cadencing of tariffs to impact Macy's profitability ahead and into '26? How are you thinking about the time line and mitigation magnitude of your action?

Sure, I'd be happy to. So as we discussed on tariffs, we had previously had a 20 to 40 basis point impact to gross margin for tariffs built into our prior outlook. The tariff outlook and situation changed, it increased. So in our current guidance, we've embedded 40 to 60 basis points impact.

As we look through the year, in Q2, most of the original tariffs came through, including the 145% tariffs from China. In Q3, that base tariff is also occurring. And in Q4, some of the incremental tariffs, we believe, will impact the company. And that's really due to the timing of receipts and when they start when the tariffs actually come into play. So that's what's currently baked in.

And our teams are doing an amazing job of mitigating it. We are talking and negotiating with vendors. We're talking with manufacturers. We're taking other initiatives across the supply chain, and we'll be looking more longer term to things like country of origin and how we manage our business holistically.

And I'll point to something Tony mentioned, we have the benefit of being multi-brand, multi-channel, multi-price point retailer where we can flex, I think, in ways that others can't and far more broadly. So Brooke, it's a little early to talk about 2026 and the impact in that year. I would say that we have far more time now to react, to plan thoughtfully and to use some of those advantages and levers to mitigate this impact and really ultimately serve the customer with good products, good value across all of our channels.

Tony, given the uncertainty that tariffs create across the supply chain, have you noticed any shifts in vendor negotiations as your partners react to some of these direct cost pressures?

Everybody is working together. I think this is a symbolic or symptomatic of almost like the post-pandemic period where we're partners. And it's in our best interest together to keep the factory in business, to keep the customer engaged. And so there is a negotiation. There's a tit for tat. We are really trying to look very thoughtfully. And a coat can probably take $5, $10, $15 more, a T-shirt probably can't. And so how do we margin ourselves to a place, how do we really think about as if we were the consumer, what do we think is reasonable? What do we think is realistic? The beginning of my career in retail was it's not what it cost, it's what will the customer pay for it? So we try to pick up the item and look at it together, go through assortment planning. It's one of the benefits, again, we keep saying it, but assortment architecture is a key barometer and talent that a merchant has to have. And it's particularly important in a multi-branded retailer.

So we get the opportunity to have good, better, best. And so if we feel like some of the best is too expensive or some of the good feels like it's better, but it looks like it's good, then we have to make those adjustments. And sometimes those are harder conversations. But I think when you're honest and you do it in a way where I use the adage to say, what you mean, don't say it mean. There's a way to get across the people exactly why you're not going to buy something or why you're going to buy less of something because it's not competitively priced.

And conversely, we have to accept the fact that this is a balance between what's right for our customer and what's right for our shareholders. We can't absorb 100% of the cost of tariffs. We can't pass along 100% of the cost to our customers. We talked to ourselves, our vendors, the factories, how do we work together to solve that problem.

Tying up the tariff discussion, that has led to a lot of pricing questions. Are you seeing any pushback or elasticity as a result of pricing actions to the extent that you or your vendors have taken pricing? And what are your plans for pricing in the remainder of this year and into 2026 based on what you see in the order book?

I think that is -- pricing is one of the levers that we can look at. It is definitely not the first lever because we're talking to vendors and manufacturers and looking at all other options. But as we look at it, we'll do it judiciously. And as Tony mentioned, with an eye to where the consumer is and what we can do at the different levels.

We've seen an incredibly resilient consumer to date. And our AUR in the quarter was up 1.3%, but it was more through the management of our business and really doing the right things to serve the customer and drive good full price sell-through.

But that AUR was more of a function of mix or like-for-likes?

It was just doing everything we're doing with our go-forward and Bold New Chapter strategy and with the right brands and the right levels of pricing.

Very clear.

Both mix and like-for-like. I think you have, as we've talked about, some categories where we have before tariffs undershot the customer. So we have a brand like Donna Karan that is doing quite well. And in most cases, the average unit retail on the floor for Donna Karan is higher than the other on the floor in the Missy or Bridge category. In other cases, it's the mix of the business.

Very clear. From an inventory perspective, Tom, can you discuss your expectations for inventory into the back half? Are there any adjustments or changes in the order magnitude of shipments because of what's happening in the environment?

I'll start with Q2. So first, in Q2, our inventory was down around 1%, and we're really pleased with that. We moved through the quarter to get out the inventory with a very, very clean and a good composition. So we feel like we're really well positioned. We have a great amount of newness in. And as Tony mentioned, the customer and the consumer is responding really well to that. So we feel positioned well.

We also, on the other hand, have ample open to buy. So it gives us the flexibility to respond depending where we're at in this choiceful consumer environment. And we can chase and also respond appropriately if the consumer is more choiceful. We're getting the receipts we need. So we're comfortable with where we stand right now and expect to manage inventory in line with our sales going forward.

Tom, sticking with you, can you contextualize the areas in your business where you've driven the most significant change regarding intentions to simplify and modernize the operations? Where do you see the most opportunities for further efficiencies ahead? And what does that mean for profitability?

Sure. So I had the pleasure of seeing some automated distribution facilities. And I think in our end-to-end savings and initiatives across operations, there's been a tremendous amount of work done that's really foundational and allows us to serve the customer faster at a lower cost and with more visibility to what we are doing from a customer perspective, for instance, in terms of delivery times. So I see that continuing as we're still in the process of implementing and rolling it out. So we should see more savings and see more of a positive impact from a customer-facing point of view.

We're doing some similar activities on the IT side and simplifying our operations, moving more to the cloud and to operate at ultimately a lower cost, but also provide more capabilities for the business. And I've been very impressed coming on board with the capabilities in areas like data analytics, data science and our ability to really talk to and understand our customers so that we can engage with them better. So I do see a longer multiyear path to this, where there will be savings and capabilities developed over that time that will continue to support the Bold New Chapter.

Tony, one of the initiatives that you have that also happens to be margin accretive is your private brand strategy. And you've relaunched several of those brands over the last several quarters. What feedback are you hearing? And how is that shaping your road map for future launches? Are there any specific categories where you see the most white space?

We've been on a methodical refreshing of our entire private brand portfolio. We have retired brands that were less relevant. We've introduced new brands like State of Day or Mode of One or Arch Studio in the home area. We've completed the refresh across the pyramids with the exception of home furnishings, which will complete by the end of this year.

I think we see the biggest white space or biggest opportunity in the white space that exists within our assortment. That could be in some opening price point, that could be in some essentials within categories. It's many times the things that are missed in the market that we feel is necessary to keep the customer coming back because we stay with a particular category or price point within our private brand portfolio.

Private brands are just like market brands, though. So as much as I love the business, and I believe we have the opportunity to grow private brands based on the penetration today being in low teens versus at a high of 20% just a few years ago, it needs to be accretive and it needs not to be duplicative of a better market brand at a comparable price. So the challenge for us in private brands is to make sure that we are as requiring of ourselves as we are of our market brand partners. Is that product priced appropriately? Is there a compelling reason for the consumer to buy? And in some cases, we have a brand Style & Co that is doing exceptionally well. And there really isn't anything in the marketplace that meets that customer's need.

Same thing is true with State of Day within our intimate apparel area. It's a great product. It's a niche within intimate apparel that we feel is missing in the marketplace. And so we want to find and nurture and grow those businesses that reflect that.

On promotions. Near term, you signaled that your guidance includes a step-up in promotions into the back half and that the backdrop will intensify. What are you seeing in the promotional landscape today relative to this assumption? Is this just caution? Or are you seeing signs that would warrant you becoming more prudent?

I think, again, based on our inventory ownership and our marketing calendar, I see nothing that says the environment is more promotional. But I think the reality is, in all transparency, if you have prices going up in different ways between retailers, you have some folks talking about having loaded in inventory earlier in the season, which, by the way, is not my approach to retail. I don't believe you ever get the payback of loading in inventory to try to save on cost because we need to sell through that inventory and the cheapest markdown is the first markdown and the opportunity to sell is usually in the first few weeks that you have the product.

So carrying lots of weeks of supply to try to save on tariffs, I don't think is a great strategy. But I think ultimately, we want to make sure that in the fall season, we come out clean. We're positioned well for '26. We continue to flow freshness into the fourth quarter. And so the guide includes the prudency to make sure that we can react to how other people have bought the season, not just how we bought the season.

Great. We're about out of time. Tony, any final comments...

Already.

Already. Time flies very quickly. Any thoughts that you want to leave with the audience?

This is an inflection point. This is the beginning of momentum for Macy's, Inc. We have a Bluemercury brand that's run 18 quarters of growth. We have a Bloomingdale's brand that had its largest volume second quarter in the history of the brand. We have Net Promoter Scores. Our customer service scores are at the highest level they've ever been at both Macy's and Bloomingdale's. We are getting feedback from the customer that says we're doing many of the right things. It's our job to continue to lean in and do more of them even in the face of tariffs, even in the face of a complex environment. So I believe that we have a multi-brand portfolio of businesses that offers the consumer and the investor opportunities for growth as we go forward.

Great. Well, thank you, Tony, and thank you, Tom. Thank you for everyone joining us.

Thank you.

Greetings, and welcome to the Macy's, Inc. Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Pamela Quintiliano, VP of Investor Relations. Pamela, you may now begin.

Thank you, operator. Good morning, everyone, and thanks for joining us. With me on the call today are Tony Spring, our Chairman and CEO; and Tom Edwards, our COO and CFO.

Along with our second quarter 2025 press release, a Form 8-K has been filed with the Securities and Exchange Commission, and the 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 2024. All references to our prior expectations, outlook or guidance refer to information provided on our May 28th 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 at www.macysinc.com/investors. All references to comp sales throughout today's prepared remarks represent comparable owned-plus-licensed-plus-marketplace sales and owned-plus-licensed sales for our store locations, unless otherwise noted.

Go-Forward Macy's, Inc. comp sales include the approximately 350 Macy's Go-Forward locations and digital. And Bloomingdale's and Bluemercury nameplates inclusive of stores and digital. Go-Forward, Macy's comp sales includes the approximately 350 Macy's Go-Forward locations and Macy's Digital.

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. We're encouraged by recent quarterly performance and the execution of our Bold New Chapter strategy. We've made substantive enterprise-wide improvements to our business, yielding meaningful results. For the second quarter, top line, bottom line and core adjusted EBITDA exceeded our guidance. Macy's, Inc. and Macy's nameplate both had their strongest comparable sales in 12 quarters.

Macy's Go-Forward comparable sales were positive, inclusive of growth in our Reimagine 125 locations and digital. Bloomingdale's achieved its fourth consecutive quarter of comparable sales growth and continued to gain market share. And Bluemercury achieved its 18th consecutive quarter of comparable sales gains. I want to thank our teams and our brand partners for helping us deliver improved product and omnichannel experiences for our customers.

Turning to a more detailed view of the quarter. Macy's, Inc. achieved comparable sales growth of 1.9%, and our Go-Forward businesses delivered comparable sales growth of 2.2%. Adjusted EPS of $0.41 was above our guidance range of $0.15 to $0.20, reflecting comparable sales growth, disciplined expense controls and tariff mitigation actions.

End of quarter inventories were down 0.8%, and we feel good about our composition headed into the fall season. Our second quarter results highlight the benefit of being a portfolio of nameplates that are multi-brand, multi-category and multichannel. This model provides sourcing optionality, economies of scale and negotiations and product and price diversification. And with our off-price to luxury offerings and strong financial position, we're leaning into areas of opportunity, chasing important trends and providing more reasons for the customer to shop with us.

Now let's discuss how each pillar of the Bold New Chapter strategy contributed to our results, beginning with strengthening and reimagining Macy's. Our goal for Macy's is simple, offer customers access to the brands and categories they're looking for at a great value with a compelling omni-channel shopping experience. Macy's achieved 1.2% comparable sales growth in the quarter. This was led by Go-Forward Macy's, which rose 1.5%, inclusive of the Reimagine 125 that were up 1.4%.

Macy's off-price concept backstage, along with Macy's marketplace were both strong contributors. These still white space in our assortments and help us retain customers seeking more price and brand variety. Recent results illustrate that improvements in our Macy's omni-channel customer experience are resonating. We have shifted from being an operationally-led to customer-led organization and are calibrating our assortments on both a brand and category basis.

Highlighting our progress, Macy's delivered its strongest second quarter Net Promoter Score on record. We view this as an important measure of customer sentiment and a leading indicator of future sales. I recently received a note from a customer who had just visited a store, and they said shopping at Macy's was such a pleasant surprise. The store was clean and organized and most importantly, the employees were enjoyed interact with. The service has improved tremendously over what it was just a few years ago. I will definitely recommend shopping there, and I will return to shop there myself. I read every customer note that I receive. Listening to feedback is 1 of the most important ways we can improve and grow our business.

In addition to improving the shopping experience, we've also made strides in product curation. Our vendor relationships are strong, and we are viewed as a valued partner that helps broaden their reach and deliver against customer needs. Our balance sheet, large addressable market and loyal customer base are attractive differentiators and market brands are excited to work alongside our teams. As 1 of their largest partners, we receive compelling product from the brands our customers are asking for, including Coach, Donna Karan, Levi's and Ralph Lauren, just to name a few.

And as these brands thrive at Macy's other brands are taking notice. We've been attracting new partners, including Abercrombie kids, expanding our distribution to existing labels such as Sam Edelman, Hugo Boss, Good American, and we're continuing to update our private brand assortment.

Turning to category performance. Comparable sales of women's contemporary and career as well as men's tailored clothing outperformed. In addition, fine jewelry and watches, textiles and mattresses continued to experience strong demand. The success of these categories illustrates the breadth of product and price points that we offer and our ability to cater to customers' evolving lifestyle needs.

Rounding out the conversation on Macy's, our strategy of closing underperforming locations, while investing in areas of opportunities will create a more focused and profitable store base. I believe we are positioned to deliver long-term growth in our Macy's Go-Forward business, inclusive of digital. This is driven by exceptional customer omni-channel experiences, improved selling, enhanced colleague development and inspired merchandising, including more variety with reduced redundancies.

The second pillar of the Bold New Chapter strategy is accelerating and differentiating luxury. In the second quarter, both Bloomingdale's and Bluemercury maintained their positive comparable sales trend. Bloomingdale's achieved a positive 5.7% comp and its highest second quarter sales and Net Promoter Score on record.

Our ambition is to be the leader in local markets that we serve and our recent performance underscores that Bloomingdale's is gaining momentum. Our strong heritage of customer service and premium contemporary to luxury positioning is differentiated in the market. And we are able to offer the best of current trends in an accessible and compelling environment that has broad multigenerational appeal.

During the second quarter, ready-to-wear, fine jewelry, fragrance and tabletop performances were a few standouts. Bloomingdale's is also well known for its special and exclusive capsule collections and partnerships, which build brand heat and excitement and support increased visits to our stores and online. This summer, we had takeovers by contemporary brands MOTHER and STAUD and introduced our latest limited edition AQUA collaboration, AQUA and Ava Phillippe.

This week, we're launching our Fall campaign, which is called Just Imagine. The campaign celebrates creativity, art and style and is supported by a robust lineup of activations, impressive visuals and new and exciting and exclusive product. Looking ahead, we remain focused on growing Bloomingdale's through attracting new brands and partnerships, expanding distribution, growing digital and increasing our national footprint through Bloomies small format stores and Bloomingdale's outlet locations. These initiatives help us to take additional share across categories, markets and brands as we capitalize on disruption in the marketplace.

Our other luxury concept Bluemercury achieved 1.2% comparable sales growth, representing its 18th consecutive quarter of gains. Results were driven by dermatological skin care and recent brand launches, including Byredo, Victoria Beckham Beauty and Charlotte Tilbury. Our Bloomingdale's and Bluemercury customers are responding well to our aspirational to luxury positioning. We have proven growth strategies in place for both and are confident in the luxury category and its long-term potential.

The third pillar of our Bold New Chapter strategy is simplifying and modernizing end-to-end operations. We have an always-on approach to profit improvement and are finding efficiencies through automation, resource optimization and the streamlining of processes. Our end-to-end work gives us the ability to invest in our growth ambitions while delivering an improved return for our shareholders.

Now let's discuss our view on the consumer. Our customer cross nameplate has remained resilient through the first half of the year and quarter-to-date. However, given the uncertainty regarding the impact of tariffs on demand, we believe it's prudent to continue to incorporate a more choiceful consumer into our guidance for the remainder of the year.

Our third quarter and full year ranges assume we continue to reinvest most of the savings from closed stores and distribution centers in initiatives that support our long-term growth aspirations. In addition, reflecting the incremental tariffs that have been announced since our last earnings call, full year guidance now incorporates a 40 to 60 basis point tariff impact to gross margin. This compares to our prior expectation of 20 to 40 basis points and equates to roughly $0.25 to $0.40 of EPS versus our prior expectation of $0.10 to $0.25.

To conclude, I like where Macy's, Inc. is positioned. Our first half and third quarter-to-date performance is encouraging, especially in our Go-Forward business inclusive of Reimagine 125, Bloomingdale's and Bluemercury. We've made meaningful positive changes to our product and to our omni-channel experiences across nameplates, and our customer is responding. At Macy's, we're testing, we're iterating, and we're refining our initiatives to drive relevant assortments, inspiring experiences and compelling value for our customers.

At Bloomingdale's, we're continuing to drive profitable growth through our unique positioning, our strong appeal to our customers and our partners, and we'll continue to capitalize on the disruption in the marketplace. And at Bluemercury, our curated assortments and agnostic selling are both strong differentiators. This is all supported by the important work in end-to-end operations where we've become increasingly nimble, leveraging knowledge and relationships to improve responsiveness and create more productive operations.

Now before turning the call over to our new COO and CFO, Tom Edwards, I'd like to take a moment to welcome him to the team. Tom joins us following a successful career across a variety of publicly traded consumer discretionary companies. While many of you know him from his time as COO and CFO at Capri, he has held senior positions at Brinker and Wyndham as well. Tom's experiences and financial acumen uniquely complement the hospitality-oriented work we are doing to support the Bold New Chapter strategy, our focus on building and strengthening brand partnerships and our ability to deliver long-term growth. Tom, welcome.

Thanks, Tony. I'm thrilled to be here, and I believe we have a tremendous opportunity ahead of us as momentum builds across the Bold New Chapter strategy. My first weeks here have reinforced my conviction in our ability to return to profitable growth and create significant value for our shareholders in the years to come. The enterprise-wide improvements we have made are resonating with our customers. The evidence of this is clear with our recent results including our encouraging second quarter performance, which I'll now walk through.

Macy's, Inc. comparable sales of 1.9% were our strongest in 12 quarters, benefiting from positive results at each of our nameplates. Adjusted EPS of $0.41 was above the high end of our guidance on better-than-expected sales, gross margin and SG&A. Looking at a detailed view of the second quarter. Macy's, Inc. net sales were $4.8 billion, down 2.5% to last year.

Roughly $170 million of the sales decline was attributable to the 64 non-Go-Forward stores that closed at the end of last year. Excluding the impact of these stores, sales grew 0.9%. Macy's, Inc. achieved comparable sales growth of 1.9%, led by Go-Forward business comparable sales growth of 2.2% by nameplate, Macy's net sales were down 3.8%. Macy's comparable sales were up 1.2%, with Go-Forward business comparable sales continuing to outperform rising 1.5%. Reimagine 125 comparable sales rose 1.4% with the first 50 and next 75 locations, both achieving positive comparable sales results.

Customers responded well to elevated merchandise, more effective staffing and localized events, and we continue to see stronger Reimagine 125 performance in traffic, average order value and Net Promoter Scores relative to the broader fleet. In Luxury, Bloomingdale's net sales were up 4.6%, and comparable sales rose 5.7%. And Bluemercury net sales were up 3.3% and comparable sales rose 1.2%.

Turning to revenue. Total revenue was $5 billion. Other revenue, which is comprised of credit card and Macy's Media Network was $187 million. Net credit card revenue was $153 million or $28 million higher than the prior year. Credit card revenue was driven by our healthy credit portfolio and the prudent management of net credit card losses. Macy's Media Network revenue was $34 million, flat to last year and in line with our internal expectations.

Gross margin was $1.9 billion or 39.7% of net sales compared to 40.5% last year and was slightly better than our expectations. As discussed on our last earnings call, there were 2 unique factors impacting second quarter gross margin. First, we took proactive markdowns on remaining early spring product to maintain healthy inventories. And second, the flow through of product brought under the 145% tariffs primarily impacted the most recent quarter.

Inventory was $4.3 billion, down 0.8% to last year. We are comfortable with our inventory composition for the fall season and have ample open to buy for the remainder of the year. SG&A expense of $1.9 billion declined $29 million from last year reflecting the net impact of the benefit from our closed Macy's locations and ongoing cost containment efforts, partially offset by investments in our Go-Forward business, including the Reimagine 125 locations and Bloomingdale's. As a percent of total revenue, SG&A expense was 38.9% compared to 38.7% in the prior year. We are continuing to carefully manage our expenses and drive efficiencies throughout the organization.

During the quarter, we recognized $16 million of asset sale gains. Adjusted EBITDA was $393 million or 7.9% of total revenue. Core adjusted EBITDA, which is adjusted EBITDA, excluding asset sale gains, was $377 million or 7.5% of total revenue, above our guidance of 6.0% to 6.2%. Second quarter adjusted EPS of $0.41 was also above our guidance of $0.15 to $0.20. We continue to take a disciplined approach to our cash flow and balance sheet.

Year-to-date operating cash flow was $255 million versus $137 million last year. And free cash flow was an outflow of $13 million versus an outflow of $244 million last year. Capital expenditures were $343 million, down from $432 million spent last year, and monetization proceeds were $75 million compared to $51 million last year. We returned $251 million to shareholders through $100 million of consistent quarterly cash dividends and $151 million of share repurchases, including $50 million of buybacks in the second quarter.

This leaves approximately $1.2 billion remaining on our share buyback authorization. And we ended the quarter with $829 million of cash on our balance sheet. To further fortify our already strong balance sheet and provide additional flexibility, we recently completed a series of financing transactions to extend our debt maturities and modestly reduce leverage. This resulted in a net long-term debt reduction of approximately $340 million. With these transactions, we extended our material long-term debt maturities by 3 years and do not have any meaningful maturities due until 2030.

Now I'd like to turn to our view of the consumer and guidance. The consumer has been resilient. We are pleased with second quarter results and momentum has continued third quarter to date. However, the macro environment remains fluid. As such, we believe it is prudent to maintain our cautious view on the consumer for the remainder of the year. As a result, our third quarter and full year guidance assumes that current tariff rates remain in place and provides flexibility to respond to consumer demand and the competitive landscape.

Guidance also assumes that Bold New Chapter initiatives continue to gain traction and reinvest most of the savings from closed stores and distribution centers to support our long-term growth. For the fiscal year, we have raised and narrowed our net sales and adjusted EPS guidance ranges. Our revised forecast assumes net sales of approximately $21.15 billion to $21.45 billion. As a reminder, fiscal 2024 store closures contributed roughly $700 million to net sales.

Comparable sales to be down approximately 1.5% to down 0.5% with Macy's, Inc. Go-Forward comparable sales to be down roughly 1.5% to flat. Other revenue of $840 million to $850 million, with an anticipated year-over-year improvement in both credit card revenues, which are expected to be $635 million to $645 million, and Macy's Media Network, which is expected to be approximately $205 million.

Gross margin as a percent of net sales to be roughly 60 to 100 basis points below the prior year. Assuming current tariffs remain in place, we estimate a combined tariff impact to gross margin of roughly 40 to 60 basis points versus our prior expectation of 20 to 40 basis points. This equates to a roughly $0.25 to $0.40 impact to EPS compared to our prior expectation for a $0.10 to $0.25 impact.

Given the anticipated timing of receipts, we expect the additional impact to our gross margin rate and EPS to primarily flow through the fourth quarter. Our teams are working diligently to offset tariffs through mitigation actions that include shared cost negotiations, vendor discounts and strategically raising tickets.

SG&A to be down low single digits on a dollar basis to last year in line with our prior guidance or up 60 to 80 basis points as a percent of total revenue with third quarter SG&A dollars down low single digits and fourth quarter dollars down low- to mid-single digits. Adjusted EBITDA as a percent of total revenue of 7.4% to 7.9% and core adjusted EBITDA of 7.0% to 7.5%. Interest expense of roughly $100 million reflecting our recent financing transactions. And finally, we expect adjusted EPS of $1.70 to $2.05, which does not include potential future share buybacks.

For the third quarter, we expect net sales of approximately $4.5 billion to $4.6 billion. As a reminder, last year's store closures contributed about $160 million to sales in the comparable period. Comparable sales of down approximately 1.5% to up 0.5%. Core adjusted EBITDA as a percent of total revenue of 3.3% to 3.7% and adjusted EPS of a loss of $0.20 to a loss of $0.15, including asset sale gains of roughly $20 million.

To sum up, we are pleased with the recent results which are a reflection of the Bold New Chapter strategy. We are well positioned to thoughtfully navigate the near-term and deliver our long-term goals. Looking ahead, we will remain focused on the fundamentals and initiatives that provide meaningful value to our customers and to our shareholders, supported by our healthy balance sheet, which we have further strengthened, ample liquidity profile, disciplined approach to inventory management and prudent capital allocation strategy.

Now I would like to turn the call back over to Tony.

Thank you, Tom. In closing, we're encouraged by our second quarter results. initiatives are resonating as we deliver an improved product and omni-channel experience. Looking to the back half, we're well positioned for the fall and holiday seasons. Our multi-brand, multi-category and multi nameplate model gives us the flexibility to respond to consumer demand in all environments. And longer term, we remain confident that the Bold New Chapter strategy will deliver sustainable profitable growth and increase shareholder value.

With that, operator, we're now ready for questions.

[Operator Instructions] Today's first question is coming from Matthew Boss of JPMorgan.

And congrats on a nice quarter. So Tony, could you maybe help rank order drivers of the sequential improvement that you saw in same-store sales and the progression that you saw during the quarter and any change in momentum so far in the third quarter? Maybe just any perspective on the forecasted moderation that you've built into comps.

Sure. Thanks, Matt. Appreciate it. We had a strong quarter across the board. The first growth at Macy's, Inc. and Macy's brand in 12 quarters. And it was across many different categories of business, which is why we're so, I think, invigorated by seeing growth in women's apparel, men's, kids, home furnishings, parts of center core. And as you note, the second quarter was strong with July, the strongest month of the quarter, and that carries into the beginning of the third quarter, which we obviously identified. That's driven by a healthy start to back-to-school.

And I think an early read on some of the outerwear and colder weather categories, which you can't bank on what August represents, but it's nonetheless a good start gives us, I think, a cautious optimism, meaning that we're celebrating the second quarter, good start to the third quarter, but we're being prudent in our guidance for the third quarter and the remainder of the year because we want to see how the tariff environment plays out in totality.

The next question is coming from Dana Telsey of Telsey Advisory Group.

Good morning, everyone, and nice to see the progress. Do you think about the store portfolio and what you saw from the Reimagine stores, any learnings from those? And do you expand it to 200 stores, 250 stores.

And then lastly, on the gross margin with the incremental tariffs, how are you thinking on pricing for the different categories and brands, both private label and branded?

Thanks, Dana. Let me take the first part, and then I'll have Tom cover the second. In terms of the R 125, we had a strong quarter, and it was both in the first 50 and in the next 75. So positive performance in both. And the performance is a combination of what we've talked about. It's the additional staffing where the customer was asking for it. It's in the fitting rooms. It's these ambassadors and key families of businesses. It's better storytelling, visual merchandising dedicated to each of these stores.

And then I think finally, the piece we probably haven't talked about enough, it's local empowerment. While we're going to get 70% or 75% right, we're asking those local leaders to put their stamp on what's necessary to deliver for the customer. That's why we had Net Promoter Score on record in the second quarter with the R 125 Net Promoter Score even stronger.

I think as it relates to tariffs, we are taking a surgical approach. We're going to have price increases. We've had some price increases. We're also negotiating with the marketplace. It's not a one-size-fits-all, so we've tried to be really thoughtful about what categories can bear the cost and the increases and where we've had to negotiate a little bit harder. Tom, what would you add?

Tony, I'd just add a little background on the tariffs, Dana. We previously had a guidance in of a 20 to 40 basis point impact, which was $0.10 to $0.25 and have increased it to 40 to 60, which is $0.25 to $0.40. And that is net of mitigation factors such as partnering with our suppliers and vendors and diversifying our countries of origin.

We expect the majority of the incremental impact -- to impact Q4 given our timing of receipts. And as Tony mentioned, we're adjusting prices, but as appropriate, not broad-based and really assessing it with our partners in an effort to remain competitive. And I believe that we are really well positioned to navigate through this time given our business model, multi-brand, multi-channel, multi-category and multi-price point.

The next question is coming from Blake Anderson of Jefferies.

Congrats on the nice results. So I wanted to just build on Matt's question earlier about the quarter-to-date in second half. So Tony, if you think about now versus maybe 3 months ago when we last spoke to you, are you still embedding essentially the same level of uncertainty and caution for the consumer? Or are you able to say you feel a little bit better about the consumer? Just curious on maybe the tone has changed, especially in light of the pending tariff increases still coming through and then Tom just mentioning your adjusting prices.

Thanks, Blake. We still view the consumer as choiceful, but we also view the consumer as resilient. And I think the beat in the second quarter says what we thought at the end of the first quarter, the consumer was more resilient and we've seen that continue into the beginning of the fall season. That being said, we want to be prudent in our guidance and make sure we see the full impact of the tariffs across a broad spectrum of categories in retail and other things kind of play out before we, I think, understand the true impact of this change in the way pricing is going to occur in the marketplace.

We feel good about our customer. She's buying newness, he's buying fashion. They're interested in the new brands and the changes in the assortment, and we're seeing it across each of our nameplates. The last thing I would add is that we have a customer base at Macy's that's approximately 50-plus percent over $100,000 household income. So while we have exposure to lower income levels, it's not nearly what it was. And obviously, we talk to an even more affluent consumer at the Bloomingdale's brand. And I think as you go by income level, you certainly see a healthier performance in the higher tiers of income.

The next question is coming from Oliver Chen of TD Cowen.

Tony and Tom. Private Brands have been an exciting initiative. What's the head in terms of catalysts there and trying to drive differentiation versus the competitive landscape? And as we think about your third quarter guidance, what's assumed in terms of the negative 1.5% comp relative to the plus 0.5%?

And lastly, as we think more longer-term, and what comp do you need to leverage your fixed expenses in terms of a longer-term comp to generate margin expansion overall?

Thanks, Oliver. Let me take the first part, and I'll have Tom address the last. So as you've noted, we've been reimagining private brands for the last 2.5 years. We're in the process of working through the home assortment this year and pleased with some of the initial response. We did a partnership with Alix Friedberg with On 34th, which resonated well with the consumer. I think leaning into Palm Royale as a show and as a way to kind of add relevancy to the Macy's private brands was a good move. We have our fashion show with INC celebrating its 40th anniversary a week from Friday with Christian Siriano, another way to add relevancy and interest to our private brand portfolio.

We're pleased with the launch of state of day, excited by the growth in Style & Co. So there's broad-based improvement, I think, in the private brand portfolio. But the best is still to come because our penetration of private brands is still well below our 20% high watermark and we know that, that's an opportunity for us to grow sales and span differentiation and improve margins.

I think relative to Q3, we just continue to say we're going to take a prudent approach to our guide, making sure we understand the fullness of the impact to the environment and the consumer. So far, Q2, the beginning of the fall season, we see a resilient consumer who's interested in newness and fashion. Tom, what would you add on Oliver's question on improved comps necessary.

Sure. Thanks, Tony. And Oliver. In terms of SG&A, I think there's an opportunity longer term to leverage our SG&A. And in terms of the comps, I won't give a specific number, Oliver, but I'm looking at the quarter and what we've done here is deliver $30 million of savings in SG&A, net while reinvesting some in the business and generating top line growth. So that's the type of characteristic and outlook that I think will move going forward and enable us to really leverage it, but importantly, grow the top line, which I think is key longer-term to leveraging sales growth.

In terms of gross margin, and I want to build on the private label comment, again, we also have an opportunity longer-term to expand our gross margin, expanding private brands, which is historically around 20% of sales and now in the lower teens, will help drive gross margin. They typically have a higher margin. And then our initiatives, which are helping to better serve customers and getting better merchandise assortments out there as well as other end-to-end efficiencies will also help on the gross margin side. So I really see opportunities on both gross margin and SG&A as the initiatives for Bold New Chapter continue to resonate.

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

And congrats on a nice quarter. Maybe for Tom, just on the SG&A improvement on that rate versus our last full year guidance. Can you just talk about where you're finding more savings both in the quarter and also for the back half? And I think it assumes a little bit more reduction in the back half than you've delivered in the first. So just curious about that.

And -- then maybe for Tony, I'm just curious about that acceleration in the Bloomingdale's comp, if you could unpack that a little bit more sequentially.

Thanks, Alex. Well, looking at SG&A, as Tony mentioned, we have an always on approach to profit improvement, and that gives us the room to invest in our growth, while delivering improved returns and ultimately levering the P&L. SG&A was down nearly $30 million in the quarter, and that was across benefits from the store closures that we implemented last year. There was continued end-to-end savings benefits as those initiatives pay dividends and will continue to do so over the next several years.

And also just making sure we're very conscious in managing costs on an ongoing basis. You are correct, in the second half, we expect SG&A dollars to continue to be down in Q3, down low single digits and in Q4, down low to mid-single digits. So this is really a reflection of those continued savings in both store and end-to-end and otherwise. And it's a little more weighted to Q4 given the timing of store closures and other benefits.

And I would point out this is a net number, because we are still reinvesting in the business to drive the top line and enjoying the benefits of Bold New Chapter initiatives, which are resonating and driving a difference in performance where we are implementing those.

And Alex, I would say the Bloomingdale's business just continues to build momentum. They have a terrific strategy, a strong leadership team, great continuity and the focus in a market that is somewhat disrupted. They've had additional brand additions, which have been a part of their growth. They've grown their digital business, which is a part of their growth. They've done some wonderful collaborations with their private brands and market brands, which has been a part of their growth. And they're adding Bloomies locations and Bloomingdale's outlet locations.

So we see plenty of runway for the Bloomingdale's business, and I think it's uniquely positioned in this aspirational to luxury positioning, where that advanced contemporary customer, which is such a growing part of the business, it's right in the sweet spot of what Bloomingdale's does best in the marketplace.

The next question is coming from Chuck Grom of Gordon Haskett.

This is [ Ryan Bulger ] on here for Chuck. I wanted to ask a little bit about the traffic -- sorry, the comp composition traffic versus ticket, both on an owned basis and an OLM basis? And then also, broadly speaking, what are you seeing in the marketplace a little more in terms of pricing, in terms of tariffs from peers? And then what you're doing about that in response?

Ryan, let me take the first part, and then I'll let Tom take the second part. Our improvement in business was broad-based, as I said, by category and was also driven by improvement in traffic, improvement in average order value and like we've said, improvement in customer experience. The 1 pocket that was a little softer was a unit demand. And obviously, I think that's partly reflecting the consumer being choiceful and partly reflecting the beginning impacts of some pricing. But I think we've bought it that way. We've got a good composition of inventory across a broad base of categories.

And I think we are well prepared for the fall season. I like our inventory position being down 0.8% kind of going into the fall season, having open to buy and having the strength of marketplace as well as our licensed businesses to support even more growth beyond what we've bought. Tom, what would you add relative to what you're seeing in the marketplace or tariffs?

I'd emphasize, Tony, your comment on beginning to see the impact. So we've built in a more prudent outlook in the second half with a more choiceful consumer depending on tariff impact overall but we are in the early stages of seeing that as they are beginning to flow through. So we're going to monitor it really carefully and adjust prices as appropriate. But again, not to a broad-based approach and make sure we assess it down to a really granular level with our partners and remain competitive.

And I think to close, we have room in what we have guided to be able to be competitive, to be able to hold on to market share without buying the business. And I think that's the balance, how we satisfy the customer and how we return value to shareholders. Thanks for the question, Ryan.

The next question is coming from Paul Lejuez of Citigroup.

It's Tracy Kogan filling in for Paul. I just wanted to follow up on the last question. I know you said you're just starting to see some price increases. And I was wondering how that is falling out between your own private brand and national brands. Are you seeing already some increases in both. And then I'm just wondering, since you have seen some increases as of now. How is the elasticity been looking relative to what you expected? Is it kind of are the unit changes in line with what you would expect so far?

Thanks for the question, Tracy. Yes, I think it's the early innings on how the consumer is responding to the changes in the marketplace. I think the good news is there's a level of resiliency, there's a level of interest in newness and fashion, we are not bought completely into the fall season. We have the leverage points of marketplace and our licensed businesses. And I would say that in some cases where tickets were higher, where costs were higher, we bought fewer units. In other cases, we remain consistent with units. And in other cases, we didn't buy as much of a brand or category.

So I think this is just such a wonderful example of being a multi-brand, multi-category, multi-channel and multi-price point. And I want to say, again, multi-price point because when you can go from off-price to luxury, you're not reliant on 1 thing. And if something wasn't competitive, if we felt it was too big a reach for the consumer, we didn't buy it or buy as much. And I think that's 1 of those moments where being this modern marketplace or department store is an absolute advantage in this environment.

And Tracy, I just build on that, regardless of the external environment, our Bold New Chapter initiatives are really positioned to support performance. And what we saw in the second quarter as performance and improvement in traffic. So people are buying more and coming in, and it's really due to those base initiatives, which are going to continue through the second half, regardless of what's happening elsewhere.

Our next question is coming from Michael Binetti of Evercore ISI.

First one, just on adding to the Bloomingdale's question from earlier, nice to see the comp there, we've seen continued pressures and even bankruptcies in the luxury market here lately. Just maybe speak to what you're seeing in that market and where you're seeing the accelerating opportunities to gain share there as that category seems to be getting a little tougher, nicely counterintuitive there, I suppose. Tom, how much did tariffs impact the second quarter.

And then finally, it looks like you lowered the back half credit growth rate a little bit, maybe 11% to 15%, 20s in the first half. Just any comment on -- you made a comment on the health of the portfolio there. So I'm just curious what you're baking in on the deceleration as we think about the run rate into next year?

So let me start with Bloomingdale's and I'll let Tom cover the tariffs and the credit portfolio, which is healthy, and he can speak to that. Look, we see the Bloomingdale's business has been terrific. And this is now 4 straight quarters of growth. They are taking market share. They are adding additional brands. We are seeing, Mike, broad-based growth across ready-to-wear, denim, men's, home, kids, beauty, fragrances. I think that this brand has done a terrific job.

And when you think of kind of continuity of leadership, continuity of strategy, continuity of partnerships in the market, paying our bills, strong balance sheet, the strong corporate support of Macy's, Inc., Bloomingdale's is positioned for continuous growth. And I think we have the additional opportunities of obviously, brand expansions, digital growth, additional door expansions with Bloomie's and off-price. The Bloomingdale's off-price business continues to grow, had a really good quarter. So I don't look at the marketplace as defining Bloomingdale's opportunity. I look at Bloomingdale's defining Bloomingdale's opportunity.

And Mike, regarding tariffs and credit. Tariffs in the second quarter, we had provided a prior full year guidance of 20 to 40 basis points or $0.10 to $0.25. And that was a little bit more in the second quarter. We saw some of the higher tariffs coming in at the 145% level. So we did see a GM impact related to that. And our gross margin rate was also a little lower than last year's Q1. We moved through inventory and really put us in a great position to start to fall in the back half of the year with a really clean inventory position. And I would point out that our gross margin was better than our expectations in the second quarter. So all that considered, we're doing better than we expected and coming into the second half in a great position.

From a credit portfolio perspective, really pleased with the growth. The significant growth $28 million in revenue in the second quarter, and we expect to see continued strong results. It's really due to the credit portfolio strength and how we're underwriting and managing that and really linking up with our store colleagues and across the business to support that, which is an integral part of the overall Macy's ecosystem.

Our next question is coming from Paul Kearney of Barclays.

On tariffs, how should we think about that impact as we look into next year? How much do you anticipate being able to mitigate? And should we anticipate a step-up in mitigation in the spring season and then over time?

Let me take the first part, and then I'll let Tom add his color. I think it's a little early to be forecasting tariffs in 2026. We don't know the magnitude of tariffs. We don't know what tariffs they're currently going to place are going to hold. We're certainly going to have more opportunities to mitigate. We could have mitigated the second quarter better than we currently did. But I think it's early to kind of comment on the tariff situation in 2026.

I think what we are focused on as a team is how we continue to build on this momentum that is growing for Macy's, Inc. How do we make sure that things that we control that we're continuing to prove upon, whether that's customer experience, newness in our assortments, variety within our pricing, better balance between our owned, licensed and marketplace businesses, off-price, full-price businesses. I think those things we can continue to do a better job than we've done. We've got credit in the second quarter for the improvements that we've made, but we have plenty of room to continue to grow.

And I just add and emphasize that right now, we don't have total clarity on levels of tariffs in 2026. And there is, on the other hand, more time to address. So the key takeaway would be we're really well positioned to navigate it. Our teams are doing an amazing job currently, and we'll certainly talk more about it as we get towards the end of the year and provide guidance for next year as we normally do on our fourth quarter call.

The next question is coming from Jay Sole of UBS.

Great. This has come up a couple of times in the call. But Tony, I want to ask about the investments that you're making, obviously, you sound very pleased with the investments you're making in services, especially across Macy's, Inc., but also the SG&A leverage you're delivering. How do you find the right balance between leveraging growth. What would -- are there opportunities that you see to maybe grow SG&A dollars more that could maybe get that comp growth rate a couple of hundred basis points higher? And how do you think about what to invest in versus what maybe allow to flow through to the bottom line?

Thanks, Jay, for the question. Let me take the first part, and I'm sure Tom would like to add some color as well. I think what you describe is how you balance your strategy? And I think as the leader, we have to do a good job of managing a portfolio of investments. That means some things we're going to put more money into. I'm a big believer in colleagues on the floor, those customer-facing initiatives are really important to changing the character of the department store experience. We see it in letters in a daily basis on what we're doing to change the experience for the customer in our stores. We need to add more stores next year. We'll talk about that on the fourth quarter call in terms of how many more stores.

We're obviously doing that also in our digital experience. I invite you to look at macys.com today versus just 3 months ago. We're providing a richer product-driven, trend-driven storytelling experience. But to your challenge, our job is to satisfy the customer and in turn, satisfy the shareholder. We have to make sure we're delivering a better experience, investing to grow the comp sales and then leverage our structure so that we're delivering more on the bottom line. Tom, what would you add?

I'd add that we are always on savings, and we have a large pipeline of savings from continued store closures as we previously announced, end-to-end initiatives and just managing the business to be more efficient on a daily basis. And as we do that, we're reviewing initiatives. We're testing. We're learning. We're improving. So there's a process here, Jay, as we move forward to make sure we're doing things that are impactful and creating a return for shareholders.

As part of that, that's really the balance, generating savings, reinvesting some and really getting to the point where we're leveraging based on driving sales growth, which we saw in this quarter across all of our banners and we're really pleased with that result, while generating $30 million in SG&A savings versus the prior year.

Our next question is coming from Janet Kloppenburg of JJK Research Associates.

Good morning, Tony and Tom, and congratulations on a wonderful quarter. I have too many questions, so I'm going to get yelled at. But have you any thoughts on what the incremental markdowns that you've carried into the second quarter? What influence that had on the comp performance, which was, of course, excellent? And I also was wondering, I know it's early Tom, but have you seen any pushback from the consumer on the incremental pricing that you've delivered. For instance, I know that Levi's has raised their prices. And I am wondering about the wraparound of the tariffs into the first and second quarter of next year. We're seeing -- hearing that from a lot of your competitors, and I wonder about that.

Thanks, Janet. The question on markdowns impacting the comps in the second quarter, I would say there's some -- it's a minor part of the improvement in our performance in the second quarter. The areas that had the strongest growth were not the areas that had the biggest markdowns or liabilities kind of coming into the second quarter. So we took those markdowns. The composition of our inventory is clean. I like the early read of August and what the customer is buying because that is not markdown related. It's newness related, it's back-to-school related. It's early fall product and winter-weight categories. So all of that is very positive.

You mentioned the Levi's business. I mentioned on the call, Levi's continues to be a terrific business for us in all areas of the business, and they're great partners. We're getting top-tier products from them, and it's the fashion in Levi's that is really selling best for us. So again, I think it underscores. The customer is more concerned about value than they are about the price point. Is there a reason for something to be more expensive? That might be true in a piece of outerwear, that might be much harder to get on a T-shirt.

With regard to tariffs, Janet, I think it's a little early to talk about the Q1 and Q2 for next year. We'll have a little more clarity on it in terms of the tariff levels. We do have more time to mitigate and we'll certainly be talking more about that on our Q4 call. But as I mentioned before, I think we're really well positioned to navigate through it and have been navigating through it across all our teams really effectively.

And what about the pricing and early indication from the consumer?

I would just state that the consumer has been resilient. And we've seen that in Q2, and we've seen it at the beginning of Q3. We are to be more prudent in the second half, forecasting a little more choiceful consumer, but what we've seen so far is resiliency.

Thank you. At this time, I would like to turn the floor back over to Mr. Spring for closing comments.

Thank you all for joining us today. We look forward to providing an update on our progress on our next earnings call. Have a great day, everyone.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.