Earnings Call Transcript
Macy's, Inc. (M)
Earnings Call Transcript - M Q4 2020
Operator, Operator
Ladies and gentlemen, good morning, and welcome to Macy's Incorporated Fourth Quarter 2020 Earnings Conference Call. Today's 90 minute conference is being recorded. And I'd now like to turn the call over to Mike McGuire, Head of Investor Relations for Macy’s Incorporated. Please go ahead.
Mike McGuire, Head of Investor Relations
Thank you, operator. Good morning, everyone, and thanks for joining us on this conference call to discuss not only our fourth quarter and full year 2020 results but also our update to our long-term strategy. With me on the call today are Jeff Gennette, our Chairman and CEO; and Adrian Mitchell, our CFO. Jeff and Adrian have prepared remarks that they will share, after which we'll host a question-and-answer session. While we’ve extended this call to 90 minutes, given the time constraints and the number of people who want to participate, we ask that you please limit your questions to one. In addition to this call and our press release, we have posted a slide presentation on the Investors section of our website, macysinc.com. The presentation summarizes the information in our prepared remarks and includes some additional facts and figures. I do have one housekeeping item to share. Jeff and Adrian will be participating in a fireside chat at the Bank of America Consumer and Retail Technology Conference on Tuesday, March 9 at 8:30 AM Eastern Time. This event will be broadcast on our Investor Relations website, so please mark your calendars. Keep in mind 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 Securities and Exchange Commission. In discussing the results of our operations, we will be providing certain non-GAAP financial measures. You can find additional information regarding these non-GAAP financial measures, as well as others used in our earnings release and our presentation on the Investors section of our website. As a reminder, today's call is being webcast on our website. A replay will be available approximately 2 hours after the conclusion of this call and it will be archived on our website for one year. Now, I would like to turn this over to Jeff.
Jeff Gennette, Chairman and CEO
Thanks, Mike. So good morning, everyone, and thank you for joining us today. Today, we're going to share our fourth quarter and fiscal year results, discussing our outlook and near-term guidance, and reviewing our updated Polaris strategy. We also look forward to taking your questions in the Q&A session following our remarks. With the customer coming out of an unprecedented year, one that delivered a series of external challenges that would have seemed almost unimaginable not so long ago, let me start with this: when COVID-19 unleashed its challenges, consumer trends shifted quickly, and we learned a lot about our strengths and opportunities. Our Polaris strategy, designed to allow significant flexibility, was tested profoundly and proved durable, allowing us to adapt and innovate with great agility. Facing these challenges, only some of our results have shown improvement from 2019, but our business performed better than we might have otherwise expected under these stresses, and we've shown that we are well positioned to adapt to customers’ needs and to new forces in the external environment. Against this backdrop, many of our fourth quarter results – sales, EBITDA, and earnings per share – exceeded the expectations that we shared with you at the end of the third quarter, and we ended the year in a very good cash position. Sales for the quarter were $6.8 billion, with all brands outperforming expectations in the quarter and the back half of the year. This solid performance has continued into 2021. Significant growth in digital sales supported these results as we took a series of actions to win over new customers, while some of our core customers paused spending with us during the pandemic. We accelerated our focus on digital shopping, extended our assortment to help customers express their unique styles through a growing number of categories, and clarified and simplified our customer value equation. We rapidly adjusted our merchandise mix, reflecting consumers’ increased embrace of categories like home, casual apparel, jewelry, and fragrance, and we made changes in stores to make them safe and easy to navigate. We harnessed data analytics to sharpen our offers and outreach to customers. These and other steps attracted nearly 7 million new customers in the fourth quarter alone, many of them under 40. At the same time, we significantly improved our overall customer satisfaction scores. Notably, we saw solid holiday demand in November and December, which continued into January. As a result, we delivered adjusted EBITDA in the fourth quarter of $789 million, which brought the full year to a positive $117 million. We also saw sequential top-line improvement from the first quarter, the weakest point of the year. Our sales momentum and profitability are due to our investments in advanced analytics and enhanced collaboration with our vendor partners to drive gross margin. We also maintained a persistent focus on managing SG&A. We generated free cash flow of $296 million in 2020, which we will continue to improve through the continued execution of our Polaris strategy. As a result, we ended the year with healthy liquidity, approximately $1.7 billion in cash and approximately $3 billion of untapped capacity in the revolving asset-backed facility that we closed in June. All in all, a year that delivered unprecedented shocks to our industry, our country, and to our colleagues and our families, it could have been a terrible year for Macy's. Instead, we battled through the store closures and reopened to deliver unexpected wins and some promising tests. While no one would ask for a repeat, we did in the end learn a tremendous amount that has informed us on how to best adapt and improve our outlook. I’m incredibly grateful to the team who got us there. Our experience in 2020 increases our conviction to take bolder actions to drive our business forward as a digitally led omnichannel retailer. Under the Polaris strategy, which we introduced to you last February, we have shifted a large proportion of our current and future capital to digital, supply chain, and technology platforms to better integrate our digital and physical assets and deliver the most relevant shopping experiences. In part enabled by these shifts, we expect that approximately $10 billion in sales will come from the digital channels by 2023. We also plan to continue our focus on right-sizing SG&A, improving working capital efficiencies, and modernizing our supply chain to support the omni shopping experience and customers’ evolving expectations around fulfillment speed. We understand there is much work ahead to capitalize on the opportunities now available at Macy's. However, we have the aspiration, the fortitude, and the agility to successfully transform our legacy business in the months and years ahead. From a financial perspective, we are targeting longer-term run rate sales growth for Macy's, Inc. in the low-single-digits with sales and profitability growing off pandemic lows. Our plan is underpinned by a capital allocation strategy that enhances long-term financial stability and returns for our shareholders. We are committed to returning to an investment grade credit profile by paying down debt as it matures, enabling us to target our leverage ratio goal of less than 3 times. Today, we'll share more detail on our 2020 financial results and drivers of our performance. We'll also address key pillars of our Polaris strategy and our outlook for 2021. After recapping the key themes, we'll open the call for Q&A. So first, Adrian will offer more details on our performance.
Adrian Mitchell, CFO
Thank you, Jeff. Good morning, everyone. Thanks for joining us this morning. As Jeff shared, we're pleased with our fourth-quarter results as they reflect improvement in both sales and margins from the lows of the year. We're committed to updating and accelerating Polaris, taking the actions essential for Macy's to grow as a digitally led omnichannel retailer and delivering higher levels of profitability and free cash flow. I will start today by sharing the key drivers of our fourth-quarter and fiscal year results. In particular, I will focus on Macy's five most important value creators: accelerating sales growth, improving gross margins, increasing inventory productivity, managing SG&A, and reducing our debt. Later, I'll go a bit deeper on how our omnichannel businesses from stores to digital to credit are combining to help us meet our strategic goals. For accelerating sales growth, we saw comparatively strong holiday demand in November and December, and that carried into January with sales totaling $6.8 billion for the quarter. With the pandemic upon us, this reflects a decline of 17.1% for the quarter on an owned plus licensed basis compared to 2019 and a drop of 18.1% for the second half of the year. We pivoted quickly to product categories with higher consumer demand, such as active, lounge wear, and home. We benefited from new customer acquisition and we invested in the digital channel while improving our in-store experiences. We also benefited from the improvement in merchandise return rates and increased engagement with our younger and more diverse customers, both by those segments. I'll spend a couple of minutes talking about each of these. In terms of consumer demand, our focus on the soft home category led by textiles and housewares was a big benefit during the fourth quarter as sales rose 11% compared to the prior year. Beauty and center core categories also performed relatively well with double-digit increases in fine jewelry and fragrances. This growth partially offset the pressure from the decline of total apparel, which was down 33% in the quarter. New customer acquisition was strong in the quarter, partially offsetting the drop in active customer accounts. Nearly 7 million new customers transacted with us, and most of them came to us through the digital channel. We also retained more than 6 million digital-only customers, a strong 50% increase over the prior year quarter. That said, we recognize we have work to do to retain a larger portion of our active customers. Our investments in improving our digital platforms began to pay off with fourth-quarter digital sales growth growing 21% from 2019 to $3 billion. In particular, Macy's brand digital platforms saw double-digit increases in site visits and conversion rates. This growth partially offset the overall decline in store sales as mall traffic continued to suffer due to the pandemic. Importantly, however, the work we did to create safer, easier to shop experiences began to pay off, with improvements in our Net Promoter Score driven largely by positive customer assessments of their safety while shopping. Lower merchandise return rates also benefited net sales. The return rates in the fourth quarter were down 220 basis points from 2019. Our shifts in category mix helped this number along with consumers’ more purposeful buying habits. As apparel sales recover and consumers return to prior habits, we expect return rates to go back to historical levels. We also saw some encouraging numbers in customer engagement with a 45% increase in our Bronze tier members of our Star Rewards Loyalty program over the entire year. Our Bronze customers are by far the youngest and most diverse in the program. They are a vital segment in our under-40 strategy. This increase partially offset the overall drop in active Star Rewards members, which was caused by declines in more established tiers that we believe will reverse as the pandemic abates and dormant customers reengage. Star Rewards provides exceptional value to our customers while allowing us to use advanced analytics to personalize product offers and shopping experiences, driving higher and more profitable customer spend. So that's a look at sales. Now on our work to support gross margin. For the fourth quarter, it was 33.7%, down 310 basis points from 2019. Two areas were particularly important to bolstering this number during the holiday season, supporting merchandise margin and minimizing delivery expenses. Merchandise margin was relatively consistent with the prior year quarter. Some of the underlying drivers include shifts in product mix to lower-margin categories, such as home at the expense of higher-margin categories like apparel. These were largely mitigated by reducing the intensity of promotions, coupons, and markdowns to boost sell-through rates closer to full price, while providing customers the price clarity and value they expect. These moves also helped us improve inventory productivity, which I'll talk about in a moment. The investments we've made in analytics to support improved sell-through rates are being accelerated in 2021. In the fourth quarter, delivery expense increased materially above last year. Carrier surcharges were about one-third of this increase. This increase in delivery expense was the main driver for the 310 basis point year-over-year decline in gross margin rate. As digital demand rose, we were able to partially offset the impact of higher delivery costs by shifting customers to store pickup channels. Approximately 25% of Macy's digital sales were fulfilled in our stores. We made very good progress on improving our inventory efficiency this year, as we aggressively addressed slow-sellers and reduced clutter in our stores. We ended the year with balance sheet inventory down 27% compared to 2019, resulting in a healthy stock-to-sales ratio. We are hyper-focused on continuing to improve inventory turn, which improved 18% in the back half of the year, giving us momentum heading into Q1 of this year. Now, onto our efforts to reduce SG&A. We recorded approximately $2 billion in SG&A in the fourth quarter, about 18% or $464 million lower than 2019. As a percent of sales, SG&A expenses in the quarter were generally in line with expenses in the fourth quarter of 2019 at 30.2%. Given our progress on cost efficiencies, especially from the restructuring in February and July, we exited the year with annualized run rate Polaris’ cost savings of approximately $900 million, which is permanent in nature. This improvement reflects disciplined expense control even as sales exceeded our expectations during the holiday season. We continue to be highly focused on maintaining expense control in the future. Beyond what we discussed already, there are a number of other contributors to our results. Credit card revenue performed well above our expectations in the fourth quarter at $258 million, up $19 million from 2019 with profit-sharing income on key components. This was driven by the relatively good credit health of our customers, resulting in lower-than-expected delinquencies and bad debt. Asset sale gains were $40 million for the quarter versus $95 million in 2019. That bought our full-year 2020 gains to $60 million, slightly better than our expectations. Asset sales continue to be an important component for funding our growth initiatives as we continue to monetize our real estate assets. As a result, overall, we were pleased to deliver positive adjusted EBITDA in the fourth quarter of $789 million. This performance on the back of our performance in the third quarter led us to a positive full-year adjusted EBITDA of $117 million, a much stronger result than we had expected six months ago, underscoring our ability to quickly adapt and refocus. Continuing on, during the quarter, we incurred net interest expense of $84 million, an increase of $42 million year-over-year. For the full year, net interest expense was $280 million, that's $95 million higher than a year earlier. These increases were primarily driven by the long-term secured debt we took on during the second quarter. Additionally, we recorded a tax expense of $154 million in the quarter. The effective tax rate was 49%, primarily reflecting a true-up to our full-year rate due to better operating performance, including the impacts of the anticipated benefits from the CARES Act. For the year, we saw a tax benefit of $846 million, representing an effective tax rate of 17.7%. The annual rate reflects the non-deductible components of the goodwill impairment charge, offset by the impact of the carryback of net operating losses permitted under the CARES Act. As a result of the carryover, we currently estimate we will receive approximately $520 million in income tax refunds during the first half of 2022. As a result, quarterly adjusted net income was $253 million versus $661 million in 2019. On an annual basis, adjusted net loss was $688 million versus income of $906 million. For the fourth quarter, adjusted diluted earnings per share was $0.80 in the quarter compared to $2.12 in 2019, which exceeded our expectations. For the year, adjusted diluted earnings per share showed a loss of $2.21 versus 2019 income of $2.91. The last of our important value creators that I'd like to discuss today is our capital structure and debt. Here, we believe we are well on the path to returning to investment-grade metrics by deleveraging the balance sheet. In January, we repaid approximately $530 million of debt at maturity. Just as noteworthy, we repaid this debt with cash on hand and did not have to draw on the $3 billion asset-backed credit facility. At the same time, capital expenditures in 2020 were $466 million, down from 2019 as expected. We improved our cash generation in the fourth quarter. We generated $296 million in free cash flow for the year, driven by the efficiencies we gained with working capital, which improved year-over-year by $560 million and by focusing our capital spend on the highest priority projects. So that's it for our five most important value creators: accelerating sales growth, improving gross margin, increasing inventory productivity, managing SG&A, and creating a healthier capital structure. Now, I'd like to drill a bit deeper in discussing the performance of our omnichannel businesses to give you some new insight into the progress we're making towards our strategic goals. This includes the relationship between our stores and digital channels and how they are so vital to supporting each other. I'll also discuss the important and continued contribution of our credit card program. I'll start by reiterating what we shared earlier. Macy's is a digitally led omnichannel retailer. The Polaris strategy is designed to ensure we accelerate top-line growth and increase profitability across all our channels. Through Polaris, we continue to work hard to improve the profitability of our core businesses, digital and stores. We all know that the pandemic has accelerated the use of digital channels, including our own, and that our customers' preference for a digital shopping experience is a permanent shift. We're excited about the opportunity to lean into digital growth. But make no mistake, our strategy revolves around growing omnichannel sales and profitability regardless of which channel our customers use. We created our strategy knowing that having both stores and digital acting in concert is critical to maximizing our sales and relevance with our customers in any market. For instance, we know that Macy's digital sales per capita are 2 to 3 times higher in markets where we have Macy's stores. Conversely, from our store closures over the past five years, we have also observed that the growth rate of digital sales drops significantly when we close a store in a multi-store market and significantly when we exit a single store market. Stores provide the critical nodes to our digital customers. One of the important lessons we learned in 2020 was that we need to meet the rising digital demand from our store inventories if we are to satisfy our customers' need for speed and convenience and achieve our inventory productivity and turn goals. We know that channels such as buy online pick up in store, curbside pickup, and same-day delivery will continue to be critical operating practices for us as a digitally led omnichannel retailer. So how do we measure performance across our digital and stores channels? One way is to focus on contribution margin, directly attributing sales, gross margin, and channel-specific expenses to each channel within our financial systems. Channel-specific expenses include selling costs, location-specific real estate costs, and logistics and delivery expenses. On this basis, we are pleased that our digital channel is contributing positively to our profitability, and in fact, is doing so at a higher rate than our stores channel. In 2019, the contribution margin from digital was higher than in stores by mid-single-digit percentage points. So the shift to digital is actually a very good trend for us, and we expect to be able to capitalize on this over the short, medium, and long term. One of the biggest challenges to digital margins is delivery expense. However, given that digital's cost model is primarily variable in nature, while the stores channel incurs more fixed costs, we know that the lower payroll and benefits in the digital channel can help to offset the pressure from delivery expense. That results in a higher contribution margin from digital, as do lower real estate costs. Nonetheless, we also know it is vital to improve our delivery efficiency and better manage and reduce delivery expense. One critical focus area to accomplish this is our supply chain. We are therefore working to improve the placement and allocation of inventory across our network. In addition, we're focused on reducing packages per order, increasing the percentage of orders picked up by customers at our stores, and linking our best shipping offers more directly to our loyalty program and Macy's proprietary credit card holders. By pursuing top-line digital growth, we can minimize the impacts of digital fulfillment and technology infrastructure expenses. We're doing this in several ways, including driving average number of monthly unique visitors to our site, improving conversion, and raising average order value, average unit retail, and average items per transaction. With all these in mind, in the fourth quarter, our digital sales accounted for nearly 44% of sales, up from 30% in 2019. Now let's shift to our credit card program. As a reminder, net credit card revenues consist of profit-sharing income, in addition to sales royalties and new account bounty. Our acquisition of new customers and our focus on retention and loyalty work in tandem with our credit card program. To accomplish these goals, it is vital for us to increase personalization to drive customer growth and retention. Heading into 2021, our goal is to increase the spend of those active customers with rising line of credit and spend capacity and to improve new account acquisitions. New accounts dropped significantly in 2020 compared to the prior year, primarily due to temporary store closures, although we did open 14% more new accounts digitally last year than we did in 2019. New accounts in the fourth quarter were down 34% from the prior year. Our focus in 2021 is to seize upon the momentum we gained in 2020 and aggressively promote new account openings through our digital channels with an easier, more seamless process. Overall, we are pleased with how our credit business performed during the pandemic and its role in strengthening engagement with our customers. Credit card revenue accounts for a large percentage of our profitability, which we expect to continue. Our Polaris strategy will help us engage customers vigorously through personalization and other initiatives designed to drive more transactions on the card. We will continue to report out on the progress we are making. To wrap up this discussion on performance, I want to stress that we understand our business model was challenged prior to the COVID-19 crisis and that the pandemic has underscored the need for us to rapidly evolve towards a more compelling omnichannel model. We start 2021 with a solid foundation. Our digital business is profitable, and we've identified priorities to accelerate growth and profitability in the upcoming years, such as reducing net delivery expense as a percent of digital sales. At the same time, we are leveraging our stores to deliver better service and more convenience for our customers by investing in a more seamless omnichannel experience. Finally, we are pleased with the resiliency of our credit card business and our Star Rewards Loyalty program, even while navigating the crisis. While we are confident that our initiatives will drive market share gains, we know our competitors are not standing still. So we are continuing to realign our costs, our supply chain, and our fixed asset base to ensure that we leverage our expense base to capture the bottom-line benefits of our recovering business for our shareholders. Now, I'd like to turn it back over to Jeff to speak about our strategic priorities.
Jeff Gennette, Chairman and CEO
Thanks, Adrian. As I shared earlier, the Polaris strategy that we introduced last year has proven to be a critical enabler of our performance in 2020. Early actions dictated by Polaris helped us broaden fashion offerings across categories and improve our digital experience. The cost control that we committed to last year was critical to weathering the pandemic. This year, when we needed to make hard choices on our investments, Polaris gave us the clarity to focus first on the areas most critical to future growth. While we'll discuss mostly Macy's here, both Bloomingdale's and Bluemercury experienced a strong recovery in the fourth quarter, and we believe they are well positioned to outperform the market as the pandemic recedes. We plan to spend more time on these banners on a future call. In recent months, we have recommitted to Polaris, and we're finding it to achieve our mission to accelerate growth while improving profitability and returning to growing cash flows. This will require us to deliver better fashion and style options for customers and an improved digital and omnichannel experience. We are also boosting our focus on delivering clear value to our customers and modernizing our supply chain to enhance our value proposition and our gross margins. Financial results further improved, with initiatives to unlock SG&A opportunities and boost the returns on our capital investments. Polaris also helps us reshape our footprint to meet customers where and how they want to shop now and in the future. The six pillars that underpin the Polaris strategy are: winning with fashion and style; delivering clear value; excelling in digital shopping; repositioning our store fleet and enhancing omnichannel experiences; modernizing our supply chain and technology infrastructure; and enabling transformation through data analytics and a performance-driven operating model. Given its importance to our goals and our future results, today, I'm going to give a little more detail on each of these six pillars. As we discuss these, it is worth noting that we have continued to refine Polaris with a deep understanding of the Macy's customer and how their shopping has changed in the past year. Whether retaining our core customer or acquiring the next generation of new ones, the pandemic has accelerated the shift to digital, with lots more trying out digital channels and a meaningful portion expected to continue purchasing predominantly online post-COVID. Many of our customers have shifted their wallets towards new categories, such as home, while others are increasingly focused on more closely managing their budgets. To win with these customers, we must continue to help them discover their personal style while offering an enjoyable experience that is convenient, reliable and provides the right value across channels. We have and will continue to adapt the Polaris strategy to win with these customers. So this brings me to the first pillar, focused on the one in three American households who shop at Macy's each year and for those who don't yet. The first pillar focuses on winning the customer with fashion and style. Style is how individuals express themselves through fashion choices, including accessories and home decor. Helping our customer express and satisfy their style needs across our core and emerging categories will continue to be a prime competitive differentiator for Macy's, Inc. from off-price to luxury and from offline to online. In 2020, we made significant progress in response to the pandemic and consumer behavior. We rapidly expanded our assortment across Macy's in categories such as home office, outdoor furniture, loungewear, active, and fleece. We also added new categories to meet emerging demand, including baby gear, skin care devices, home fragrances, outdoor recreation, and gourmet food. All told, we added more than 1,000 new brands to address the demand. In store, we accelerated the editing of excess assortment, reducing our inventory levels to make our stores easier to shop. We improved our stock-to-sales ratio while realizing better sell-throughs at regular prices. Looking ahead, we will continue to improve our assortment, especially for the under 40 customer, with the right mix of categories. Within each category, we are building a new and relevant assortment across our private and national brands as well as emerging brands. As we build out our assortment plans, we know that timing and the ability to balance our product will be key. We have a clear plan in place to shift to career and special occasion apparel and accessories when our customers are ready to return to the office, community functions, outside events, and entertaining. This plan includes keeping the appropriate balance with our casual assortments. Notably, Backstage will continue to be a significant element of our assortment strategy. Last year, Backstage outperformed comp sales in Macy's stores by more than three times, and we plan to open about 35 new store-within-stores in 2021. As we improve our assortment, we are also continuing to improve inventory allocation and receipt management to ensure the product is in and flowing to the right locations as a way to maximize inventory productivity and customer convenience. Concurrently, we are working to strengthen vendor relationships by building new vendor partnership models that help drive improved profitability, product innovation, and best-in-class customer experiences. With these efforts underway, we expect to drive faster category growth, plus higher sell-throughs with faster inventory turns. Our second pillar involves delivering clear values, which we will achieve through simple, easy-to-understand pricing and promotions, along with sharper hyper-personalized communications to customers through our loyalty ecosystem. Over the past year, we have made significant strides in improving our customer value proposition. For example, we overhauled our markdown capability, including adding a new location-level tool and advanced analytical powered algorithms, the first of several major pricing capabilities we are adding to our merchandising function. We also saw both sequential and year-over-year improvement in regular price sell-through. In 2021, we plan to continue to simplify and delayer promotions, optimize our markdowns and improve and localize our pricing to create better value clarity for our shoppers, all while improving our merchandise margins. Additionally, we are continuing to build on our customer value ecosystem, which includes loyalty, monetization, and personalization enabled by our Star Rewards Loyalty program. In August, we grew this ecosystem by launching the Macy's Media Network to connect strategic brand partners with our customers, which created a new fashion and beauty publishing model. This venture has already grown to generate more than $35 million annually as a new income stream. Looking ahead, we see a lot of promise in our ability to expand our monetization engine while cultivating greater customer engagement with more relevant and personalized content and offers. Taken together, we believe these actions will drive more customers into our Star Rewards and credit card programs and up to $60 million in monetization income in 2021. Number 3 is excelling in digital shopping. As Adrian outlined, digital is a large, growing, and profitable channel for Macy's, Inc. and with one of the largest digital shopping platforms in the U.S. Based on the latest NPD data, we maintained our market share for the categories we serve over the course of 2020, holding the number 2 spot. We know our investments in this space are critical to Macy's growth over the next three years. In the past year, we've made strong headway in digital, thanks largely to a new team that is transforming our capabilities. We exited our corporate office in San Francisco last year and stood up a new team with some of retail's most talented digital innovators who have found a new energy and focus on our digital customer. This team has already improved our customers' digital journey in many ways, including our browse, product recommendations, and checkout. Along with our robust plans to transform our digital assets and experiences over time, we are very optimistic about Macy's opportunities in digital. To build on this momentum and realize our goal of growing digital sales to $10 billion within the next three years, we will continue to make fundamental investments while delivering new, immersive, content-driven experiences for customers. For example, we are launching a refreshed homepage with curated visual content and more precise search and browse functions as well as a more intuitive bag and checkout experience with broader ways to pay. In high engagement categories like beauty, we are creating immersive online experiences so customers can discover new products to shop with confidence. These experiences augmented with virtual reality and virtual consultations, which we have staffed with our own beauty consultants, are already showing tremendous power. Digital growth in our beauty category within Macy's in 2020 grew more than 60%. This elevated digital experience in beauty is only the beginning. We will carry our learnings here into other categories in 2021 and beyond. Over the next three years, we expect to see continued double-digit growth in digital with increasing channel profitability. Number 4 is repositioning our store fleet and enhancing the omni experience. Our fleet continues to have high value, relevant, and vibrant stores, mostly in A and B rated malls, which will remain a critical part of Macy's future. We have already invested considerably in these best of Macy's stores. Across the remaining fleet, we are committed to the 125 store closures that we announced in 2020. Approximately 60 stores have closed or will close soon, further reducing our footprint in C and D malls. Following the closure of all 125 stores, at least 85% of our sales will come from A and B mall stores, and we will ensure through targeted incremental investments that all remaining Macy's represent the best of our brand. This year, reflecting consumers' increasing demands for speed and convenience, we are concentrating on two initiatives. First, we are enhancing our omnichannel shopping experience by focusing on scaling store fulfillment, stops, curbside pickup, and same-day delivery services. Second, in an effort to more closely connect online and offline and deliver a seamless customer experience, we continue to invest in technology that enhances the way we engage our customers and elevate our in-store experiences, from category merchandising in store lab to transaction and staffing models. Together, we expect these efforts will drive down our cost per transaction while increasing our customers' conversion in the store. At the same time, we continued to test how off-mall stores can lift our digital business while profitably filling gaps in our geographic markets. As we test new store ecosystems in three markets: Dallas, Atlanta, and DC Metro, we continue to find significant synergies between digital and stores. Adding off-mall locations will provide customers with a fuller omni experience by providing more convenience, selection, and speed whether they are shopping the digital or stores channels. We look forward to sharing findings from tests in these markets in the early part of next year. Number 5 is modernizing our supply chain and technology infrastructure. Another element of our Polaris strategy that was elevated this year is our focus on rebuilding our infrastructure and network to better meet customers' desire for speed and convenience. As Adrian mentioned, we are hyper-focused on building a supply chain that can handle more sales volume and reduce friction for customers on fulfillment and returns, while managing and reducing our delivery expense. Through these actions, we are also better managing and placing our inventory to meet customer demand and to minimize markdowns. We expect these efforts will deliver higher productivity in our customer fulfillment centers and in our stores, lower delivery expenses, and improved customer service across our network. We know customer expectations in this area are rising, and we are committed to meeting their demands. Last, we have added a pillar to our strategy that will enable our transformation strategy and accelerate the pace of change. This includes, first, a modernized technology platform to support a friction-free customer and colleague experience. Second, a revamped data and analytics foundation to drive growth and profitability through all our decisions. Third, and the most critical to our success, a performance-driven operating model enabled by clear incentives for our colleagues. We recognize that the next 12 to 18 months of our transformation journey will require great focus and superb execution. Our team has never been more aligned in their urgency to deliver the advances we discussed, which will strengthen our growth and profitability. Our colleagues and our leadership team are all in. Their passion, dedication, and excitement, as measured by their willingness to step up during the pandemic, is extraordinary. Further proof of their commitment, our colleague engagement scores across our organization are the highest they've ever been. I'm excited to see how this will translate into better sales and styling support, especially in stores, where we're targeting a significant improvement in customer conversion rates. With that, I'll turn it over to Adrian, who will share our guidance for 2021.
Adrian Mitchell, CFO
Thanks, Jeff. As we look ahead to the rest of this year and beyond as we get beyond the pandemic and our business normalizes, we are focused on delivering on the metrics that will cement our position as a digitally-led omnichannel retailer. That means sustainable sales growth across channels, resilient gross margin and EBITDA margin, solid free cash flow, and a healthier capital structure. Considering the profound changes over the past year and the lessons we have learned, we are today providing updated short-term guidance as well as some guideposts towards where we see the business moving longer term. These are based on our current strategic priorities, with a recognition of ongoing uncertainties in the marketplace, but they also reflect a more significant and faster lean into our digital growth efforts as well as the continued rightsizing of our mall-based stores within the highest quality malls while testing new off-mall concepts. I'll first talk about our long-term objectives, then cover our shorter-term outlook for 2021, which we consider to be a recovery and rebuilding year. In the future, for Macy's, Inc., we target annual sales comps of low single-digits as the business normalizes past the full effects of the pandemic. We foresee digital penetration exceeding 40%, while for our stores channel, we acknowledge that malls in general will continue to face headwinds that will lead to low to mid-single-digit comp store sales declines after recovering from the pandemic in 2021 and 2022. We see gross margin as a percentage of sales stabilizing in the mid-30s. This will be driven by improvements in delivery costs and merchandise margin, faster inventory turns, and the ongoing shift to the digital channel. For credit, we are targeting this channel to stabilize at roughly 3% of sales. For adjusted EBITDA margin, we see continued growth moving into high single-digits. For debt, we will remain disciplined and are committed to paying down debt as it matures to deleverage the balance sheet. We're targeting investment grade metrics which include a leverage ratio of under 3 times and an interest coverage ratio of greater than 6.5 times. We do not plan to reinstate the dividend or share repurchase program in the near-term as we are focused on investing in our growth initiatives and paying down debt. However, we will monitor our plans continually in this area and will consider, with Board approval, when the time is appropriate to resume dividends and repurchases. Now, let's look more closely at 2021, which, as I mentioned, we view as a recovery and rebuilding year as we approach the resolution of the COVID-19 pandemic. Of course, there are still questions about the rollout of vaccines and the resulting shifts in consumer behavior. As a result, no one truly knows what the near to medium-term will look like. But we do expect our 2021 performance to be bifurcated, with continued pandemic challenges in the spring season and more post-pandemic like momentum starting in the fall. Our annual guidance reflects this view. Here are some highlights. We expect Macy's, Inc. 2021 net sales to be between $19.75 billion and $20.75 billion, up 14% to 20% over 2020. Remember that we are lapping a year of significant declines in store growth due to store closures. Our expected stabilization of performance in 2021 is reflected in these metrics. We expect our gross margin rate to improve by high single-digit percentage points from 2020 levels, up to 37%. Credit card revenue is expected to be substantially lower than 2020, approximately 3% of sales, due to an expected rise in delinquencies and bad debt that did not materialize last year. SG&A expense dollars are expected to be lower than 2019 levels, primarily due to savings of $900 million we accomplished in 2020. As a percent of sales, SG&A is expected to improve from 2020 levels but deteriorate by approximately 1.5 percentage points compared to 2019, driven by the sales deleverage. Asset sales gains are expected to total between $60 million and $90 million. Adjusted EBITDA margin is expected to be approximately 7% to 7.5%. Net interest expense is expected to be approximately $325 million for the year. The adjusted tax rate for 2021 is estimated at approximately 23.25%. Adjusted diluted earnings per share is estimated to be between $0.40 and $0.90. Finally, we're committed to delevering the balance sheet, and as such, expect to repay debt at maturity in January 2022. To support the growth I've outlined both in the near and long term, we plan to invest a large percentage of our capital in the digital experience as well as our supply chain and technology transformation. As we go forward, we expect to spend about half of our capital supporting these, which will be an increase of roughly 2.5 times from what we've done over the past several years. In total, in 2021, capital spend is estimated at approximately $650 million and is targeted to grow over time. Now, from a channel perspective, digital sales are expected to make up approximately 35% of net sales. This past year saw an unprecedented year of digital growth, and our outlook reflects a more normalized growth cadence, but one heavily focused on being a digitally-led business. For stores, we anticipate strong comp store sales numbers as we cycle the pandemic-related closures. Stores are targeted to represent about 65% of net sales for the year. We do anticipate that customers will be increasingly more comfortable in public spaces as vaccine distribution reaches scale, but we haven't made any significant assumptions around tourism-based sales recovering in 2021. We expect that store gross margin will help improve total enterprise gross margin compared to 2019 as we prioritize our promotional and markdown practices while improving inventory productivity in turn. From a seasonal standpoint, our guidance contemplates continued pandemic-related challenges in the first half of the year, with momentum building in the back half. We expect our profits to be weighted more towards the back half of the year as sales continue to improve. We expect about 75% of our adjusted EBITDA, excluding asset sale gains, will be generated in the second half, with the majority of that coming in the fourth quarter given the importance of the holiday. The seasonality of our profits is expected to be most apparent in SG&A. While we've made significant progress on cost reductions, the sales deleverage is expected to continue elevating our first-half SG&A rate as a percent of sales compared to 2019. Once we cycle into the back half of the year, the sales improvement is expected to drive SG&A rate to be more in line with the levels we saw in the back half of 2019. Keep in mind too that we plan all of our asset sale activities for the fourth quarter, so asset sale gains are not contemplated in our guidance over the first three quarters of the year. Within our expectations for the first half, we expect first quarter net sales to increase significantly compared to the first quarter of 2020 to between $4.2 billion and $4.3 billion, with adjusted earnings per share between a loss of $0.52 and $0.45 compared with a loss of $2.03 in 2020. In summary, with our updated and accelerated Polaris strategy, Macy's has a clear path to sustainable growth, driven by the digital channel, by rightsizing our mall-based stores to better quality malls as well as exploring more convenient and productive off-mall formats that are closer to our customers. At the same time, we'll continue to address gross margin opportunities and gain SG&A leverage as sales recover in 2021. We target to return to stabilized growth longer-term as the effects of the pandemic wane. We are keenly focused on delivering strong and sustainable shareholder returns, investing in growth initiatives that generate high returns, achieving a healthier capital structure, and progressing towards investment-grade metrics. With that, I'll turn it back over to Jeff for some closing remarks.
Jeff Gennette, Chairman and CEO
Thanks, Adrian. In closing, I'd like to leave you with a few thoughts. As we look towards a healthier economy in the coming months and years, I am optimistic about the way we are reimagining and repositioning our business in line with our Polaris strategy. We have a strong focus on our customer and market trends. We are building out our digitally-led omnichannel experience. And we are well positioned to better capture customer demand across the total market, from off-price to luxury and from offline to online. We know what's important to customers. We will empower them to find their personal style through curated and distinctive products, clear value, and enhanced digital and store experiences, optimized by modernized infrastructure and a performance culture. We will be in a better position to be increasingly relevant to the next generation of customers. I am encouraged by the talent and focus of our teams across Macy's who persevered through 2020 and who are committed to our future growth. We have a diverse leadership team that includes a blend of new talent with outside perspectives, along with our tenured and best-developed leaders. I am confident that, together, we will build towards a sustainable, profitable future. This concludes our formal remarks. Now we'll take your questions.
Operator, Operator
And we will take our first question from Chuck Grom with Gordon Haskett.
Charles Grom, Analyst
Jeff, on the pace of recovery in 2021, how are you planning the business by category, particularly areas that may take longer to recover, but also areas of the business that could see a release of some pent-up demand? And then, Adrian, when we think about the gross margin structure in the 2021 guide of 37%, with digital where it is, do you think you can get back to 40% to 41%? Or is the mid-30s the best run rate?
Jeff Gennette, Chairman and CEO
Good morning, Chuck. We anticipate that our performance in the first half will closely resemble what we experienced in the fourth quarter. We expect the home business to remain robust and elevated. Customers are continuing to spend on luxury items such as fine jewelry, fragrances, and designer skin care, all of which are performing well. In the fourth quarter, those categories saw a 14% increase. Overall, we are optimistic about home, fine jewelry, fragrances, and sleepwear, expecting their positive trends to continue. The average retail price is increasing, and the sell-throughs in these areas are improving, so we are actively supporting those categories across Bloomingdale's and Macy's. However, we foresee ongoing challenges in certain areas, particularly in the apparel sector. While casual categories are performing well, dress categories are still struggling. Our inventory levels are aligned with sales, and we have a strategy for ramping up with key vendors and our private brands, particularly if we begin to see improvements as vaccinations progress and customers start booking events and weddings. Overall, we expect the first half to reflect strong performance in previously successful categories and from the new brands and categories we have introduced.
Adrian Mitchell, CFO
Thank you for your question and for joining us this morning. Regarding gross margin, we are targeting an adjusted EBITDA margin that approaches the high single-digit range. To achieve this, we are focusing on increasing our revenue and improving efficiencies in both our SG&A and gross margin. You are correct that we plan to stabilize our gross margin in the future as the business normalizes in the mid-30s. We are actively working to enhance merchandise margin, reduce delivery costs, and achieve efficiencies in our SG&A to increase overall profitability. The category mix will affect our merchandise margin, as the current pandemic has skewed towards lower-margin categories like home goods. However, we believe that as recovery occurs, apparel sales will rebound, which will help counteract some of the gross margin rate declines caused by the mix shift. We are also optimizing our pricing and promotions strategy, aiming to decrease unnecessary promotions and markdowns to enhance full-price sell-through, which will benefit our merchandise margins and ultimately our gross margins. We saw considerable momentum from the fourth quarter of last year. As previously discussed, we are addressing delivery expenses by better allocating inventory where customers prefer to shop, minimizing split shipments, and improving our average unit retail. There are various strategies we are implementing, and we aim not only to achieve a gross margin in the mid-30s but to significantly elevate our adjusted EBITDA margin towards the high single-digit level in the long term.
Operator, Operator
And we will take our next question from Paul Lejuez with Citi.
Paul Lejuez, Analyst
Just thinking about the contribution comments by channel that you laid out, and just leading up to the pandemic as digital penetration was increasing, your overall EBIT margins were going down. So I'm kind of curious what you think has changed that would reverse that as digital continues to grow in terms of overall penetration. And on the same lines, in that longer-term algorithm, the low single-digit top-line growth that you laid out, how does store closings factor into that? Are you talking overall sales? Is that a comp number? Just want to make sure I understand how you're thinking about stores long-term and how attractive that is to the top line.
Adrian Mitchell, CFO
Thank you for your question, Paul. When we consider the contribution margin, it's crucial to recognize the differences between the channels. We understand that enhancing margins in the digital channel hinges on minimizing delivery expenses to boost our digital gross margin. From the store perspective, our focus is on utilizing our assets more effectively for initiatives like buy online pick up in store and curbside delivery, while also aiming for growth in comparable store sales. Looking ahead, we are anticipating low single-digit growth based on comparable sales. Regarding the announcement of 125 store closures made in January of last year, on a 2019 basis, this represents approximately $1.3 billion in sales, which poses a challenge as we adjust our mall-based stores. However, with our goal to grow digital sales to $10 billion in the next three years, alongside our efforts to cut digital delivery expenses and the ongoing $900 million in SG&A savings from last year's restructuring, we should be able to improve our EBITDA margins compared to pre-pandemic levels. These are some of the key factors we are concentrating on as we move forward.
Operator, Operator
We will take our next question from Kimberly Greenberger with Morgan Stanley.
Kimberly Greenberger, Analyst
Adrian, I appreciate all the comments today. This has been extremely helpful and illustrative. I wanted to clarify or ask two things. On the 500 basis point differential in the contribution margin between stores and digital, if you sort of reflect back over the last five years, can you give us some context around the performance just in your stores channel? And have you seen store margins fall over time? And then, secondarily, on the longer-term financial targets, with gross margin in the mid-30s, I think this year, 2021, you're providing a preliminary gross margin outlook of 37%. Should we consider that 37% target this year to be where you would expect gross margin to be sustained at?
Adrian Mitchell, CFO
Thank you, Kimberly. Thanks for your question. Regarding the contribution margin, the mid-single-digit profitability contribution for our digital channel relative to our stores is based on our 2019 numbers. The thing to keep in mind is that over the last five years, we've built tremendous scale in the digital channel. When you think about the leverage of the technology infrastructure and the improvement of scale, we're really seeing increased benefits in terms of the profit contribution in the digital channel. In contrast, we've seen our store sales declining, given a large fixed asset base in stores. So what we're working to do from an omnichannel standpoint is really leverage our store assets for the digital experiences around buy online pick up in store, curbside, and store fulfillment. We see very clearly that as our business on the digital side scales, we have great opportunities to continue to improve the profit contribution margin of that business. Delivery expense is a focus for us as we think about reducing packages, encouraging customers to pick up from our stores, improving our average unit retails, and with the pricing and promotion work we have done where we saw good gains. That will all continue to contribute to a healthier and more profitable digital business while also taking advantage of our physical assets. As for our guidance around 2021, we are only sharing expectations around sales and adjusted EPS. For the first quarter, we do expect to have a healthy level of gross margin.
Operator, Operator
And we will take our next question from Matthew Boss with JPMorgan.
Matthew Boss, Analyst
So Jeff, your sales guidance for this year, I think, stands 17% to 18% below the pre-pandemic base at the midpoint. As we think about potential consumer recovery in the back half, and I think you've laid out $10 billion or more in competitor revenues up for grabs, what's your flexibility to chase sales in key categories? And then, secondly, as we think multiyear, how should we think about your ability to recapture that $4 billion to $4.5 billion in revenue to potentially get back to your 2019 revenue base over time?
Jeff Gennette, Chairman and CEO
We have a lot of flexibility with, obviously, our very good liquidity position with our inventories right now. As we saw when you looked at how we came out of the second quarter and our opportunity with our inventory position for third and fourth quarters, we were able to respond. There were some supply chain snags in certain businesses, like home, where we didn't have as much flexibility on that. But we are looking towards the front half of the year and really the full year based on where the consumer goes. We have the seeds of where we see those runways. As I mentioned in my first answer to Chuck's question, as those things start to pick up, if you think about the dress and suit business, as people begin booking events, you'll start to see those businesses improve for us. I expect the first half to be very similar to the fourth quarter, with strong performance expected in categories that have been strong as well as in the new brands and categories that we have added.
Operator, Operator
We will take our next question from Omar Saad with Evercore Partners.
Omar Saad, Analyst
I wanted to ask about the 7 million new customers. It's great that you guys are attracting a lot of new fresh faces to the franchise. Do you have a sense from where they're coming from and why they're discovering Macy's at this point in time? And then I also want to ask if you could address the existing customers. So many new customers imply the existing customer base is spending a lot less year-over-year. Is this predominantly older customers who aren't necessarily digitally active and haven't felt comfortable to go back to the stores? What are the strategies for bringing those existing customers, historical customers back into the franchise while keeping a lot of these new entrants you've attracted?
Jeff Gennette, Chairman and CEO
Hey, Omar, happy to take this question. Let's just talk about the 7 million new customers. In the fourth quarter, this number reflects a 2% increase over what we had in 2019 levels. We saw this as an encouraging sign because in a quarter we were down 17% in sales, to have the customer base increase gives us some momentum going into the new year. The new customers coming into the brand have been steadily improving, and the fourth quarter was our best performance. Many of these new customers are much younger and more diverse compared to our historical customer base. Around 4 million of those 7 million came through digital channels, which was a significant 36% increase from the previous year. We're also seeing that our Star Rewards Loyalty program has gained traction, with 4 million new members in 2020, which represented a 50% increase and these members are predominantly under 40. As for existing customers, we definitely saw a slowdown in our Gold and Platinum customers based on their feelings about shopping and the pandemic. We believe they will return to more normalized behavior as the pandemic subsides. Additionally, our collaboration with Klarna has attracted many new customers, around 2/3 of whom were previously unknown to Macy's, and most of them are also under 40. In summary, we have strong momentum with new customers and are optimistic about re-engaging existing customers as conditions improve.
Operator, Operator
We will take our next question from Michael Binetti with Crédit Suisse.
Michael Binetti, Analyst
Maybe just Jeff, ask you about the inventory comments. You mentioned you have a plan to ramp inventory in some of the categories. As your indicators start to improve, could you offer a few thoughts there? Are the vendors going to be holding inventory? What's making them more comfortable holding that inventory before you're comfortable? And then maybe just as you look at the shape of the year for inventory, maybe you could help us triangulate around your sales growth plan and how you think about the base case of where inventory will grow in the first half versus the second half of the year as you see it today.
Jeff Gennette, Chairman and CEO
Yes, Michael. We are really happy with where our inventory position ended the year. Our stock-to-sales ratio is where we stand, and we have the liquidity ready to place receipts against improving indicators. We are not seeing issues with vendors predominantly in the categories that are dormant right now. They will have inventory ready for us if we buy it when the time comes. As for the categories that we need to be most focused on, it includes dress-up categories with strong relationships with our key wholesale partners. We're looking at all those engines for suits and accessories. When you look at our inventory levels and sell-throughs, we expect to be below our sales forecasts and plan for higher sell-throughs and less markdowns overall.
Operator, Operator
We will take our next question from Dana Telsey with Telsey Advisory Group.
Dana Telsey, Analyst
As you talked, Jeff, about new partnership models with vendors, can you expand on that and tell us exactly what you're meaning? Regarding the tourist impact, which I think was a 290 basis point headwind in the third quarter, 210 basis points in the second, what did you see in the fourth quarter? How are you planning it for 2021? Additionally, it sounds like you're seeing good results on Backstage. How are you planning the growth there?
Jeff Gennette, Chairman and CEO
Dana, let's start with vendors. We've been working with our new Chief Merchant. It's a great opportunity to work across all of our top brands. We're being transparent about profitability and joint investments against the shared customer, looking at opportunities to enhance brand experiences both online and in-store. We see great success in data leveraging, working with our partners to build lifetime value. We also see strong synergies in our gifting and special occasion products. As we look at the Backstage strategy, this is one where we started in 2015. Backstage has done extraordinarily well as their sell-throughs have been strong. We have plans to expand that to another 35 stores this year. We are optimistic regarding off-price as well. In 2020, we executed well across both ends of the value continuum and expect to continue seeing strong growth in both Backstage and Bloomingdale's outlet formats.
Operator, Operator
We will take our next question from Steph Wissink with Jefferies.
Stephanie Wissink, Analyst
I have a follow-up to Paul's earlier question on gross margin optimization. Could you talk a little bit about what you're assuming in your $10 billion digital target in terms of the percent that's fulfilled from stores? In the fourth quarter, it was around 25%. What should we think about the optimal penetration of store fulfillment in that $10 billion target?
Adrian Mitchell, CFO
Good morning, Steph. You're absolutely right. About 25% of our digital demand was fulfilled from stores; that includes store fulfillment, buy online pick up in store, curbside and same-day. The reality is we are fully focused on making sure we leverage our store assets effectively. We're working with inventory placements for better customer demand matches. We want to be flexible when customers choose shipping options, whether they prefer home delivery or store pick up. While we are increasing that 25% pilot, our guidance is based on ensuring we have a strong integration of all fulfillment capacities.
Jeff Gennette, Chairman and CEO
Yes, Steph. As we get towards the second half of the year, we will increase our investments where needed across both fulfillment capabilities and vendor supports to maximize the availability and create substantial opportunity for growth. We’re planning with awareness to enhance the customer experience.
Operator, Operator
And we will take our next question from Lorraine Hutchinson with Bank of America.
Lorraine Hutchinson, Analyst
I wanted to follow-up on your comments around credit; that business outperformed sales nicely in 2020. So I was a little bit surprised to see the 2021 guidance calls for a drop. Can you speak a little bit about your assumptions behind the 3% of sales guidance and where there could be upside or downside?
Adrian Mitchell, CFO
Hi, Lorraine, it's Adrian here. Our guidance for credit card revenue is about 3% for 2021. If you think about 2021, our guidance reflects an expected increase in bad debt and delinquencies. We're effectively getting back to more normalized levels, but also recognizing we expect some degradation because of bad debt and delinquencies. We've also seen some declines in account balances due to lower sales levels in 2021. In the first half of the year, we expect more pandemic-like activity, which will suppress some sales opportunities, especially among our higher tier card users.
Operator, Operator
We will take our next question from Oliver Chen with Cowen and Company.
Oliver Chen, Analyst
We were curious about the opportunities ahead with price clarity and how you'll balance price clarity relative to promotions and offering good value, yet maintaining some nice merchandise margins. I would also just love your take on speed, the concept of speed, and how that may be an opportunity as you think about supply chain and/or delivery to customers. Where you see the most opportunities at speed?
Adrian Mitchell, CFO
Good morning, Oliver. We're focused on simplifying our pricing, promotions, and discounts for our customers so we can effectively deliver the value of our offerings while protecting margins. We're emphasizing better control on promotions and looking for ways to reinvest those in more impactful categories. We feel confident in our ability to elevate margins as we continue this trajectory. Speed is crucial to customer experience; we want to be competitive on delivery speed and customer choice whether they choose shipping home or pick up in store. We're also focused on building a more efficient supply chain to enhance delivery options while lowering costs, which will enhance overall performance.
Jeff Gennette, Chairman and CEO
Yes, Oliver, speed is vital to our strategy as well. We're pushing to improve delivery processes while also ensuring fulfillment channels are optimized. This will not only improve our efficiency, but also create a better customer experience overall.
Operator, Operator
And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.