Greetings, and welcome to the Macy's, Inc. Third Quarter 2025 Earnings Conference Call. 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. 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 serves as another valuable form of feedback, and I read every one I receive. Recently, a customer visited our Clearwater, Florida store to buy a suit for a wedding. He wrote, 'Your colleague Andrew outfitted me 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 Andrew 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 speaks 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 roadmap 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 K-Pop 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 her exuberant reaction to shopping Macy's Holiday Lane. Summing up 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, a 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-designed 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. 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 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 thoughtful 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 the 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. 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.

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 Reimagine 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, and 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 I 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 to 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 is 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, and 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 is 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 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 address pricing while Tom will cover the strength of the credit business. Regarding pricing, based on what we've shared about the mitigation impact, consumers continue to spend. Pricing on new and fashionable items has had minimal to no effect on consumer interest, especially among our diverse customer base that ranges from middle to upper income. We're pleased with this outcome, which has exceeded our expectations and is positively impacting both our top and bottom lines for the quarter and the year. For basic items and aspirational customers, there is more of a waiting period for finding the best value and promotions. As a department store, we offer a wide range of prices, and we have exciting promotions planned for the rest of the year that align with our guidance to capture our fair share of the market. Tariffs have caused some challenges around margins and pricing that consumers have faced, but they haven't dampened interest in spending. As a business across three different nameplates, we are very 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 applications 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 announce 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 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 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.

Congratulations on the improvement. I have a quick question followed by a longer-term inquiry for you, Tony. In your prepared remarks, you mentioned that the active category was weaker. Could you provide some details on that? This category has been strong for you over multiple years, so it's surprising to hear this. Additionally, when comparing the Macy's Reimagine 125 to the other Macy's nameplate stores in the Go-Forward portfolio, the Reimagined stores have been consistently outperforming by 120 basis points for three consecutive quarters. Can you contextualize that level of outperformance in relation to the benchmarks you want to meet for investments in those Reimagined stores? Is that how you view the opportunities as you start to look beyond the Reimagined locations and consider the rest of the Go-Forward fleet? What are some strategies that can be applied to the rest of the fleet now that you're a few years into the strategy, and which initiatives might not offer as much potential beyond the initial 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 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 one, but we have an arc and architecture to what our expectation is. 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, I'm 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.

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. For the full year, as a percentage of revenue, we have actually reduced it from an increase of 60 to 80 basis points to now 40 to 50 basis points. This indicates the leverage we are achieving in the business. The reason it has increased in dollar terms is due to higher sales, which is a positive in terms of variable costs related to selling. In Q3, we experienced a slight dip in low single digits, with a leverage improvement of 90 basis points. Q4 also shows a decline in low single digits, reflecting similar discipline and benefits as well as increased variable costs associated with higher revenue and a slight timing shift. Overall, I believe we are in a better position for the year due to the leverage we are applying to the business. As I mentioned earlier, we aim to invest in the business to drive top-line growth, which is always a balance we are managing.

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, reduce redundancy, maintain our inventory discipline and continue 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 a 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 do they just end up shopping more Macy's online?

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 store is 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.

Congratulations, Tony. I joined the call a bit late due to traveling. What do you see as the opportunity for Macy's and Bloomingdale's in light of the current turbulence affecting some of your customers? You mentioned the relative weakness in the active category, but could you also address the upward trend 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. In terms of customers having a strong interest in fashion apparel, do you think this is due to brands offering better and more innovative products, or do you believe that strategies like TikTok marketing are generating more excitement among customers than they usually experience? 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. 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.