Earnings Call Transcript
Macy's, Inc. (M)
Earnings Call Transcript - M Q1 2024
Operator, Operator
Greetings and welcome to the Macy's Inc. First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Pamela Quintiliano, Vice President of Investor Relations. Pamela, you may begin.
Pamela Quintiliano, Vice President of Investor Relations
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 Adrian Mitchell, our COO and CFO. Along with our first quarter 2024 press release, a presentation has been posted on the Investors section of our website, macysinc.com, and is being displayed live during today's webcast. Unless otherwise noted, the comparisons we provide will be versus 2023. All references to our prior expectations, outlook or guidance refer to information provided on our February 27 earnings call, unless otherwise noted. In addition, all references to comp sales growth throughout today's prepared remarks represent comparable owned plus license plus marketplace sales growth and owned plus license sales growth for our store locations unless otherwise noted. 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 on the Investors section of our website. Today's call is being webcast on our website. A replay will be available approximately two hours after the conclusion of this call. With that, I'll turn it over to Tony.
Tony Spring, Chairman and CEO
Thanks, Pam, and good morning, everyone. On today's call, we will provide updates on our Bold New Chapter strategy as well as our first quarter results and second quarter and full-year outlooks. But first, let's discuss the current macro climate. Our customers across all three nameplates continue to benefit from strong wage and job growth. However, inflationary pressures persist, and they're feeling that pinch. The outlook provided on our fourth quarter earnings call as well as today's update assumes our customers will continue to carefully scrutinize their discretionary purchases. We are reading and reacting to the dynamic economic environment and competitive promotional landscape in real time. Regardless of income tier, we know our customer responds to fashion newness at compelling price points in an engaging environment. We continue to evaluate inventory depth and composition to ensure we strike the right balance. Despite the ongoing pressure on the consumer, we are confident in our ability to return to profitable growth as we execute on the pillars of our Bold New Chapter strategy, which are, one, to strengthen the Macy's nameplate, two, to accelerate luxury growth, and three, to simplify and modernize end-to-end operations. This morning, we are pleased to report that although early days, we are on or ahead of plan across all three pillars and that our first quarter EPS results exceeded our outlook. Now a brief update on our bold new chapter progress. At our largest nameplate, Macy's, the customer is responding well to our omnichannel initiatives across product, presentation and experience. In luxury, we are pleased with Bloomingdale's advanced contemporary growth and acceleration of digital. While at Bluemercury, skin care remains a differentiator and a standout. For both nameplates, we are evaluating new store opportunities that will strengthen our ability to accelerate omni growth. In end-to-end operations, we are actively advancing on solutions to consolidate capacity, increase automation and reduce costs across the network. And for our non-go-forward Macy's locations and distribution centers, given our strong balance sheet, we are able to be thoughtful and strategic with our approach to monetization. We have good traction thus far and are encouraged by the pace of deal-making. The entire Macy's, Inc. organization is focused on understanding and meeting the evolving needs and preferences of our customers. They are committed to our future and making sure our Bold New Chapter is a success. The level of enthusiasm and engagement is palpable, and every single function is working together to get a better result. I'm pleased to report that the first quarter net sales of $4.8 billion were near the high end of our outlook, and adjusted EPS of $0.27 was above our outlook. By nameplate, Macy's was in line with our expectations. Comps were down 0.4% and were led by our first fifty locations, which registered a 3.4% comp gain. The first fifty serve as pilots to test new ideas that are based on customer feedback. Results are encouraging as they are an early indicator for the go-forward Macy's fleet and ultimately, the entire Macy's, Inc. go-forward businesses' ability to return to growth. The first fifty represent what we can do when we deliver on our customers' expectations. During Q1, we enhanced merchandising through elevated product rollouts. Full price and planned promotional sell-throughs of new and expanded assortments have been strong. Importantly, our vendor partners are embracing our journey. They are joining with us and helping us raise the bar on both the quality and the differentiation of our assortments, and we truly appreciate their commitment and support. During the quarter, we also piloted new marketing and animation, bringing retail as theater to life. Activations included personal styling sessions, fashion shows, beauty services such as fragrance bottle engraving and craft stations. Our customers were engaged, and these events serve as strong traffic and sales drivers. Rounding out our First 50 conversation, during the quarter, we shifted store staffing to key merchandise departments and to the checkout area and added visual merchandise staffing. These changes were well received by our customers. Net promoter scores improved roughly 500 basis points year-over-year and were over 250 basis points above all other Macy's stores. Improvements are not limited to our First 50. Across the entire Macy's nameplate, we are offering product newness in our most important categories. Within apparel, we introduced and expanded distribution in several market brands to address areas of opportunity where we have experienced softness in both women's and men's assortments. Customers are responding well to Donna Karan, which is a new brand for us, where we're seeing no price resistance. We also expanded distribution and content of Free People, French Connection, Karl Lagerfeld and Hugo Boss, just to name a few. Positive customer response to fashion newness was partially offset by weakness in select warmer weather categories. Our private brand apparel initiative is moving forward as planned. We have completed the majority of our brand exits and reimagined and launched several new ones. During the quarter, I.N.C. and Style & Co., which have led the initiative, continued to outperform the Macy's women's apparel segment. This summer, we are refreshing our kids' brands, Epic Threads and First Impressions. And later this year, we'll introduce a new men's contemporary private brand, which will be the last launch of this phase. In the near term, as this transition continues, we expect private brand sales volumes to remain depressed relative to historic levels and to realize improvements beginning later in the year. As a reminder, in fiscal 2023, private brands represented about 15% of Macy's sales, reflecting the exit of several heritage women's brands. Beyond apparel, accessories were better than expectations with strengths in women's shoes and fine jewelry, offset by ongoing weakness in handbags. Beauty continued to be a standout and key traffic driver, driven primarily by fragrances. Our selection of brands, including CHANEL, Dior, YSL, Carolina Herrera, and Valentino, as well as our strong presentation online and in stores, keeps our customers engaged. In big-ticket and home, the overall business remains challenged, although we've seen some recent traction in certain categories. We believe there is an opportunity to recover lost sales. The team is actively working on the market brand matrix, and we plan to begin a complete refresh of our home private brands in fiscal 2025. Digital is also an important part of our Bold New Chapter strategy. It serves as both a gateway to the Macy's brand and is a source of commerce and omni engagement. Under new leadership, the team is making progress on optimizing the customer journey, including addressing places of greatest friction and enhancing and expanding the shopping experience across platforms. Recently, we launched an online baby registry with over 150 new brands, which has been well received. In addition, Marketplace provides an opportunity to serve our customer better and gain a greater share of their wallet. For example, this year, we're offering a compelling selection of electronics for Father's Day and the graduation season. Our digital and marketing teams are working together closely to leverage Macy's iconic events and create a modern and cohesive experience. We kicked off the spring season in Herald Square with our 49th Annual Flower Show, where we partnered with Christian Dior perfumes to create floral installations using 16,000 individual plants, representing over 50 varieties. The installation centered around different Dior scents and was supported by interactive components, including an online activation about the origins of Miss Dior. We are excited for our newest marketing campaign, The Greatest Hits of summer, which represents the beginning of a modern interpretation of the Macy's brand and is the first under our new Head of Marketing. Finally, during the quarter, we opened a 31,000 square foot small format Macy's in Mount Laurel, New Jersey. With each new opening, we continue to learn and adjust. We remain on track to introduce 11 more this year, bringing the total to 24 by year-end. Turning to Luxury, Bloomingdale's and Bluemercury continue to be bright spots within our portfolio. Both foster brand love and loyalty through the unique customer experiences and curated selection of market and private brands across price points. At Bloomingdale's, first-quarter results were in line with our expectations. While our customer is not immune to macro pressures and has become more judicious with their spend, the power of Bloomingdale's position in the upscale market is its diversification across categories and price points. It has the flexibility and the tools to quickly adjust to the market, allowing it to gain wallet share even as there are shifts in popular categories and brands. During the quarter, Bloomingdale's top two household income brackets and loyalty tiers increased their total spend. Contemporary apparel, including brands like L'AGENC and MOTHER, just to name a few, continued to be well received. Along with the beauty category, they serve as powerful engines for growth. And our private brands at Bloomingdale's are a complement to our contemporary matrix. During the quarter, AQUA registered a double-digit year-over-year increase in its ready-to-wear sales, benefiting from the quiet luxury-inspired collaboration with celebrity stylist, Liat Baruch. Looking ahead, we have several exciting upcoming collaborations on the horizon. We remain committed to growing the Bloomingdale's physical footprint and associated digital presence and are on track to open roughly 15 new Bloomie's and Bloomingdale's outlet locations through fiscal '26, including three later this year. Comps at both concepts are continuing to outperform the broader fleet, giving us confidence in our expansion strategy. Digital continues to be a strength and great expression of the Bloomingdale's brand. We have a highly engaged customer who appreciates the depth and breadth of our offering across price points. This has been complemented by Marketplace, which enriches our assortment and content, helps us gain wallet share among loyal customers and introduces new customers to Bloomingdale's. At Bluemercury, we experienced our 13th consecutive quarter of comp growth, driven by continued strength in skin care and the expansion of key brand partners, including Sisley Paris, SkinCeuticals, and Augustinus Bader. Our plans to open at least 30 new locations and remodel about 30 others are underway, with one new location and three remodels slated for the second quarter. These stores will incorporate learnings from our recent Bronxville and New Caney remodels to inform our future stores, including an elevated aesthetic, which improves the luxury perception of Bluemercury, and expanded assortment and an enhanced selling model, which has had a positive impact on the client experience. Overall, we continue to view fiscal 2024 as a transition and investment year for Macy's Inc. Although early stages, we are proud of the progress we are making on our Bold New Chapter strategy. Our teams are collaborating to make quick and strategic decisions, and we're making investments to create an improved experience that will better serve our customers and set the foundation for our future. With that, I'll hand it over to Adrian to provide more detail on our recent performance and our outlook.
Adrian Mitchell, COO and CFO
Thank you, Tony, and good morning, everyone. Let me start by thanking our teams for their support of our Bold New Chapter strategy. As I've been out in the field visiting our stores and distribution centers, I've been impressed with the dedication and commitment to our customers. As Tony mentioned, we're encouraged by early progress across all three pillars of our strategy and the positive impact our investments are having on the go-forward Macy's, Inc. enterprise and our largest nameplate, Macy's. Total Macy's Inc. enterprise comps were down 0.3% year-over-year, and net sales were $4.8 billion, down 2.7% from last year and near the high end of our outlook. For the go-forward Macy's Inc. business, defined as Macy's, Bloomingdale's and Bluemercury go-forward locations plus digital, comps rose 0.1% year-over-year. We are pleased with the emerging trends. We view our First 50 locations, go-forward Macy's nameplate and go-forward Macy's Inc. business as evidence that our Bold New Chapter investments are working, and they are what we are tracking most closely as predictors of our ability to return to profitable growth. At the Macy's nameplate, comps were down 0.4% and net sales were down 3.3%, while go-forward business comps were flat to last year. Our First 50, which we view as the leading indicator of go-forward store growth, achieved a positive 3.4% comp. To size that business, these locations represented about 15% of the Macy's Inc. go-forward enterprise and close to 20% of the Macy's nameplate go-forward sales last year. The First 50 comp results compared to a negative 1.3% in the remaining go-forward locations, which have not yet received growth investments, a positive 0.1% for all go-forward locations, and a negative 4.5% for all non-go-forward locations. At our luxury nameplates, Bloomingdale's comps were up 0.3% and net sales were up 0.5%, and Bluemercury comps were up 4.3% and net sales rose 4%. Turning to the rest of the P&L. Other revenues were $154 million, down 19.4% from the prior year. Net credit card revenues declined $45 million or 27.8% from the prior year to $117 million. Delinquency rates and net credit losses were both higher than last year, but in line with our expectations. Macy's Media Network revenue rose 27.6% to $37 million, as the team continued to increase vendor engagement. Gross margin rate declined 80 basis points to 39.2%. The decline was steeper than our outlook, primarily reflecting additional discounting for slower-moving warm weather products. We recognize that our customer is searching for newness at the right value, and we're responding appropriately to ensure we deliver on both. Discounting pressure was partially offset by better delivery expense, which improved 20 basis points as a percent of sales. End-of-quarter inventories were up 1.7% year-over-year. Entering the second quarter, we are delivering fresh goods and are well-positioned for the summer season. Next, SG&A expense was $1.9 billion, down 2% from the prior year and better than our expectations, reflecting our continued cost discipline. As a percent of total revenue, SG&A was 38.2%, 50 basis points higher than last year due to the decline in total revenue. Adjusted diluted EPS was $0.27. This compares to our previously provided outlook of $0.10 to $0.16 and $0.56 in the prior year. Turning to cash and capital allocation. For the quarter, cash generated from operating activities was $129 million, while capital expenditures totaled $229 million. Free cash flow was an outflow of $96 million, a year-over-year improvement of $70 million, and we paid $48 million in cash dividends. We will continue to deploy capital prudently to ensure financial flexibility and a healthy balance sheet that supports our longer-term growth aspirations. With that, let's discuss how we are approaching the remainder of 2024. We are raising our annual EPS outlook and narrowing our sales range to reflect a portion of our first quarter earnings beat. While we are encouraged by recent results and early traction of our Bold New Chapter strategy, we're also cognizant of the dynamic macro environment we are operating in. With continued pressure on the consumer and the majority of the year ahead, our second quarter and full-year outlook provides flexibility to respond to the competitive landscape and the promotional environment. For the year, we now expect Macy's Inc. comps, inclusive of non-go-forward locations and digital, to be down approximately 1% to up approximately 1.5%, with both Macy's nameplate go-forward locations in digital and our luxury nameplates to be roughly flat to up 2.5%, net sales of approximately $22.3 billion to $22.9 billion, total revenues of $23 million to $23.6 billion. This includes other revenue of approximately $665 million to $680 million. Credit card revenues of approximately $490 million to $505 million, which is above our prior forecast due to better-than-expected profit share, resulting from higher balances within the portfolio. We continue to exclude any potential impact for the late fee ruling. We also expect gross margin rate as a percent of net sales to be 39% to 39.3%, benefiting from ongoing inventory controls, higher full-price sell-throughs and private brand expansion, partially offset by elevated discounting of warmer weather spring product and targeted promotions to address a value-conscious consumer. SG&A rate of 36.3% to 36.4% of total revenue as we continue to effectively manage expenses to properly support our new strategy and the associated areas of opportunity. And full-year adjusted EBITDA as a percent of total revenue of 8.7% to 9%. There is no change to our capital spend, asset sale proceeds or asset sale gains assumptions for the year. After interest and taxes, we expect adjusted diluted EPS of $2.55 to $2.90, which does not assume any share repurchases. For the second quarter, we expect net sales of $4.97 billion to $5.1 billion. Total revenues of $5.1 billion to $5.25 billion, with other revenue at about $155 million. Credit card revenues are expected to be flat with last year's $120 million. As a reminder, 2023 results included the pro-rata adjustment for the midyear increase in our annual net credit loss outlook due to the normalizing credit environment. Gross margin rate to be at least 170 basis points better than last year, reflecting the lapping of heightened clearance markdowns on excess seasonal goods, quarter-to-date discounting of the remaining spring assortments and the planned liquidation of select men's private brands as part of our broader reimagination strategy. Adjusted EPS of $0.25 to $0.33 and end-of-quarter inventories to be up low single digits to last year, as we reinvest in private brands and conduct additional national brand tests in our First 50 and go-forward locations. To wrap up, we are encouraged by the momentum in our Bold New Chapter strategy and our future growth prospects. Despite ongoing macro pressures on our consumer, we remain committed to our previously stated fiscal 2025 financial targets and are excited to return Macy's, Inc. to profitable growth. I'll now hand it back over to Tony.
Tony Spring, Chairman and CEO
Thank you, Adrian. Our Bold New Chapter sets us firmly on a path to change our trajectory. Although early days, our investments are gaining traction, and reinforce our belief that Macy's Inc. can return to sustainable profitable growth, accelerate free cash flow generation and unlock shareholder value. Our focus on serving the customer is unwavering. We are confident that we have the right team and strategy in place to achieve our goals and look forward to updating you on our progress. With that, operator, we are ready for questions.
Operator, Operator
Operator Instructions. Today's first question is coming from Matthew Boss of JPMorgan Chase. Please go ahead.
Matthew Boss, Analyst
Great. Thanks and congrats on the progress.
Tony Spring, Chairman and CEO
Thank you.
Matthew Boss, Analyst
So, Tony, could you elaborate on the key initiatives, which you saw drive the 3% to 4% comp in the First 50 doors? Maybe what you're seeing between traffic and AUR in these stores? And how quickly could you scale this playbook? And then, Adrian, just maybe drivers on second quarter gross margin expansion and any change in your back half merchandise margin expectations?
Tony Spring, Chairman and CEO
Thanks, Matt. Appreciate the question. Look, we're excited by the early innings of First 50. It's a combination of the things that we have talked about in people, product, presentation and experience. People, it's having the right people in place at the right time. It sounds easy, but using technology and the data we have on traffic and conversion by day, by hour, making sure that we have people in the shoe department, people in the ready wear fitting rooms, people in the big ticket area and fine jewelry. But the team is all over it, and I think doing a great job in leaning into the opportunities to increase the quality of the experience in our stores. That's why we saw a 500 basis point improvement in Net Promoter Scores in the First 50 stores. It's the product, the team feeling the obligation to meet the needs of the customer, and whether that's the rollout of new brands like Donna Karan or the expansion of brands like French Connection, Free People and Karl Lagerfeld and Hugo Boss. We need more variety. We need less redundancy. We need more interest within the assortment, and I think that's making a difference in the customers' reception to the stores. The experience, it's adding animation and events into the stores, and it's also making sure from a presentation standpoint, we look crisp, we look compelling. That's the partnership with the brands to make sure that the impact is in each of the categories of business. And again, I would add that we're in the early innings. So we're going to study this. Capital is something that we care a lot about, capital allocation. We're going to be very discerning in terms of what we decide to do and where. But I feel good, and I think opportunities exist to expand this as the year progresses as soon as we see another quarter or more consistency among the stores and the overall results. Traffic is good. The AUR is up about 4%. So, conversion, I think, is reflective of the discerning customer who feels under pressure and is going to wait to buy the things that they love. So we accept the challenge and we'll respond to it appropriately.
Adrian Mitchell, COO and CFO
Good morning, Matt, and thank you for your question about gross margin. I would like to provide some context regarding the second quarter gross margin because our experience and performance in the first quarter are quite significant. We are pleased with how we managed the first quarter and delivered earnings that surpassed our expectations. As Tony mentioned, we are focused on enhancing our customer experience, while also acknowledging that customers are facing challenges in the uncertain macro environment. We can only control certain factors. During the first quarter, we balanced various elements, including sales growth, providing value to price-sensitive customers, managing markdowns and discounts, ensuring healthy inventory turns, and effectively managing our operating expenses, particularly variable costs. The main challenge we faced in the first quarter was that warm weather products didn't sell as quickly as anticipated, so we had to adjust to maintain inventory health. Regarding inventory, we have established a strong track record of maintaining inventory discipline over the years. In the first quarter, we took the necessary steps to ensure our inventory remained healthy in terms of volume and composition. Speaking to your question about the second quarter, we are entering the second quarter with less aged inventory than last year and a greater variety of transitional products. Therefore, we feel well positioned for the summer and the remainder of the year. We aim to maintain flexibility to navigate a more competitive and promotional environment, allowing us to adjust to any challenges ahead. Specifically concerning the Q2 outlook for the second half of the year, we forecast our gross margin for the second quarter to be at least 170 basis points above last year. We are optimistic about this trend, especially with warmer weather approaching, and we are well prepared for warm weather merchandise. As we transition to the fall season, our focus will be on maintaining inventory discipline and control as we head into the third quarter and the holiday season, ensuring we have the right product mix.
Matthew Boss, Analyst
Great color. Best of luck.
Adrian Mitchell, COO and CFO
Thank you, Matt.
Warren Cheng, Analyst
Hey, good morning. This is Warren Cheng on for Michael. I wanted to follow up on your comment that the vendor partners are engaging with the enhancements you're making in these First 50 stores. Is that driving a lift in the vendor mix or allocations versus what you had planned? And also curious if that's driving any impact on the full-price sell-through or margins you're realizing in those First 50 stores?
Tony Spring, Chairman and CEO
Thanks, Warren, for the question. I think the vendors feel a sense of partnership, and there is a natural obligation that we have to each other. We do well when the vendors do well, the vendors do well when we do well. And I think that we have seen a level of engagement relative to these First 50. I think as we talked about on the last call, we hate closing stores or even rationalizing the store base but the vendors were very supportive of that idea, meaning they wanted to focus on our most productive assets. They wanted to invest with us. They wanted to offer us a better assortment in the stores. They see higher full-priced sell-through in those stores. And that's really all kind of coming to fruition. Again, it's early innings, so we're going to be careful, but we wouldn't do these weekly events if our vendors weren't partnering with us. We wouldn't be able to add the level of staffing if our vendors weren't partnering with us. We certainly wouldn't be able to offer the distinction and variety within our assortment if our vendors weren’t partnering with us. And so I feel it's a story of two mutually dependent partners. I think we said private brand was 15% last year. Maybe one day, we'll get it back to closer to 20%. But ideally, we're going to lean into the partnerships where 80% of our business is to make sure that they feel Macy's, Bloomingdale's, and Bluemercury are the best places to do business.
Warren Cheng, Analyst
Thanks. That's really helpful. And I wanted to ask a follow-up on your credit card revenues. 1Q came in a little bit better than you expected. You also raised the rest of the year slightly. Can you give us an update on how you're seeing credit losses and delinquencies trend over the last three months?
Adrian Mitchell, COO and CFO
Yeah. I'll go ahead and take that one. When we think about our credit card results in the first quarter, we're pretty pleased. And to your point, Warren, we did increase our annual outlook by about $15 million. The reality is that we saw higher balances in our portfolio. In terms of the delinquency metrics, the payment metrics, they are very much in line with our expectations. But also what contributed to our beat in the first quarter was also better than expected profit sharing with Citi as well.
Warren Cheng, Analyst
Thanks. Good luck.
Tony Spring, Chairman and CEO
Thank you.
Ashley Helgans, Analyst
Hey, good morning. For the First 50 locations that were up 3.3%, how much was ticket versus traffic? And then maybe you could talk about the level of promotions at those stores versus the rest of the fleet?
Tony Spring, Chairman and CEO
Sure, Ashley. There was no difference in the level of promotion in those stores versus the rest of the fleet. So no change there. The difference was in traffic, a higher conversion rate and a comparable increase in average unit retail. The customers are responding, as we said, to the right recipe. And I use the analogy of a recipe because a recipe means you have to get all the ingredients right. Sometimes in our business, the merchants want to do their part only if the stores do their part. And the stores only want to do their part if the digital team does their part. In First 50, we're all doing our part, and we're getting credit for product improvement. We're getting credit for visual animation. We're getting credit for the experiences we're adding. We're getting credit for the service experience. Those Net Promoter Scores are a great indicator, and we drill down to perception on availability of size and color. We drill down to the inspiration from visual animation. We drill down to have the brands and styles and products that I like. We're seeing meaningful increases across all of those metrics. And I think that's a good indicator, early innings, but the team working together and improving the overall experience in our First 50 stores.
Adrian Mitchell, COO and CFO
Tony, if I may just add, I just want to amplify Tony's point about this being early innings. On one dimension, we're 90 days in. And we're still practicing around things like selling and service. We're getting better every day on staffing, on moving the team around the store. But also there are a number of changes that have not been implemented in these First 50 yet. So to amplify Tony's point, it's early innings. We're still experimenting. There's still more changes coming into the store based on what our customers expect of us. But overall, we're encouraged by the early wins.
Ashley Helgans, Analyst
That's really helpful. If I could ask one more question, what is the upper limit of your compensation guidance for the fiscal year in relation to the health of the consumer compared to current levels? In other words, does the consumer need to improve in order to reach that range?
Adrian Mitchell, COO and CFO
Yeah. From our perspective, we've been pretty consistent that the pressure on the consumer is a given in terms of how we think about our business. So as we think about the range of our comp this year, it does not assume any improvement in the consumer. What it doesn't assume is improvement in how we're executing our business and how well we're serving the customer, given the growth investments that we're placing in our stores, in digital, and the acceleration of growth within our luxury nameplate. The range that you see is really reflective of the competitive environment and the continued pressure on the consumer. But from our perspective, we feel that what we can control is really what we're going to be focused on, but the consumer, we believe, will remain under pressure for the balance of the year.
Ashley Helgans, Analyst
Great. That’s helpful.
Adrian Mitchell, COO and CFO
Thanks, Ashley.
Tracy Kogan, Analyst
Thanks. It's Tracy Kogan filling in for Paul. I had a question on SG&A. It came in below your expectations this quarter, and I was wondering what the drivers of that were? And then what kind of expense initiatives do you have for the remainder of the year? Thank you.
Adrian Mitchell, COO and CFO
Good morning, Tracy. In response to your question, we're satisfied with our ongoing expense management. From a cost savings and SG&A control perspective, we've focused on two key areas. The first is effectively managing variable expenses as we move through the quarter, and the second is gaining momentum on the structural cost-saving initiatives related to end-to-end operations that we discussed during the last call. The positive aspect is that we're making progress in end-to-end operations, with benefits stemming from the consolidation of our tech vendors on routine service contracts. We have successfully transitioned a significant portion of our finance team to offshoring, and we're achieving a better balance in fulfillment activities. Although we're still at the early stages of end-to-end operations, it's encouraging to see the progress and value we've delivered in the first quarter. To summarize your question, Tracy, our success comes from managing day-to-day variable expenses and the advancements in our long-term transformation efforts in end-to-end operations.
Tracy Kogan, Analyst
Great. Thanks, guys.
Adrian Mitchell, COO and CFO
Thanks, Tracy.
Dana Telsey, Analyst
Hi, good morning, everyone. As both of you think about the health of the consumer and having come through the first quarter with the unseasonable weather, staying the same, getting better, getting worse? What are you seeing? And does it differ by income levels? And lastly, can you expand on the small store format? Any tweaks or adjustments? What's working, what will be adjusted or tweaked, and how you're thinking about it? Thank you.
Tony Spring, Chairman and CEO
Thanks, Dana. The health of the consumer, I never claim to be an economist. I would say, as we've described, under pressure, discerning, very choiceful. There are certainly categories that are stronger than others. The great part of being a department store is that we can move inventory. We can move people. We can move our marketing and assets and homepage exposure. And the key thing is for us to just keep our ear to the grindstone on making sure that we understand where the business is happening and move our resources there appropriately. I think the teams in general are doing a very good job. We are reordering. We are canceling. And that's what you'd expect from a good merchant and planning organization, that they are active in the market, making decisions based on what they're seeing in the business. I expect the consumer to remain under pressure. We got a big year in front of us. Maybe there'll be rate cuts, maybe there'll be one war ending, but it's an uncertain environment. And I think our job is not to assume anything different on the things we don't control but to play our game with strength, to play a game with confidence, to play a game with agility. And I think the team is doing that. With regard to the different income levels, we're certainly seeing at the high end the Bloomingdale's consumer is interested in purchasing, but she's being very thoughtful in the category she's purchasing in. So I think we said that luxury handbag and shoe business is much softer than it was, still up strong to 2019, but she's investing now in advanced contemporary. She's investing now in parts of the beauty business. She's investing now in aspects of the home. So there's just a difference, I think, as you look at the income tier. The customer at the lower tier has to make choices based on rent and family obligations. The customer at the higher tier is going to do it based on where she has interest or they have interest and passion and something that we are doing, I think that creates the motivation to buy. You want to comment, Adrian, on small format?
Adrian Mitchell, COO and CFO
Thank you, Tony. We are very encouraged by the rollout of our small format stores. We recently opened a new store in New Jersey, with 11 more openings planned. We're pleased with the performance of the small formats at Bloomingdale's, which are exceeding our expectations. We anticipate adding one more Bloomingdale's this year. We're encouraged by what we're learning and how customers are responding, and we plan to continue to focus on this area.
Dana Telsey, Analyst
Thank you.
Adrian Mitchell, COO and CFO
Thank you.
Chuck Grom, Analyst
Hey, good morning. Congrats on success with the First 50. Curious how quickly you guys can roll these efforts out to more stores to help the total company comp? I'm curious what categories in those stores you're seeing the greatest lift in those locations?
Tony Spring, Chairman and CEO
Sure. Thanks for the question. I don't think it's a matter of if we can roll these out, but when. All of these decisions we've made are capital-light and mainly involve variable SG&A. We're ready to implement them as soon as we see sustained positive results, which we have been observing in most of our stores, not just a few. That’s a very encouraging sign. We're also noticing improvements in merchandise content and across multiple FOBs, which is another good indicator. Additionally, our Net Promoter Score shows that customers are actively engaging and providing us with valuable feedback. So, it's really just about timing now. We are determined to succeed and fulfill our commitments to our shareholders and team members. I believe we will start seeing positive outcomes in the first and second quarters, allowing us to take further actions later in the year, and I hope to discuss more store rollouts in 2025.
Adrian Mitchell, COO and CFO
Good question. We haven't commented on the monthly cadence. We've navigated the quarter as best as we could and felt good about our performance. Regarding quarter-to-date results, I'm not going to comment on that either. There is still a lot of the quarter ahead of us, including graduations, Father's Day, and Fourth of July. So it seems premature to assess the balance of the quarter based on just a couple of weeks.
Chuck Grom, Analyst
Okay, great. Thank you.
Tony Spring, Chairman and CEO
Thanks, Chuck.
Adrian Mitchell, COO and CFO
Thanks, Chuck.
Katie Delahunt, Analyst
Hi, this is Katie Delahunt on for Alex Straton. My question was on the CFPB credit card regulations. Can you give us an update on what your latest view is there? And then maybe remind us of your mitigation efforts as well as if you've had any success so far with those?
Adrian Mitchell, COO and CFO
Thank you, Katie. Our perspective is that the situation remains uncertain. Therefore, we plan to disclose the impact of the late fees once it becomes clear. Both the size and timing of the impact are uncertain. Once the final ruling is announced, we'll be able to provide more information at that time. Although we haven't shared many specifics regarding our mitigation strategies, we are actively exploring options with our partner, Citi. We are considering a variety of strategies, some of which are still in development. For now, we are waiting to see what the final ruling will be so we can proceed accordingly.
Katie Delahunt, Analyst
Great. Thank you so much.
Adrian Mitchell, COO and CFO
Thanks, Katie.
Oliver Chen, Analyst
Hi, Tony and Adrian, I would love your thoughts on targeted promotions ahead and discounting pressure that you're seeing. I know you've been making really good strides on pricing analytics. Also, as we think about apparel, there's great changes in the private label portfolio. What are your thoughts on apparel comping positive and timing for that to happen in relation to the newness that you're introducing? And finally, as we think about marketplace model as well as digital advertising, you've made nice strides there. What should we know about modeling that and how material it will be as you continue to make progress there as well? Thank you.
Tony Spring, Chairman and CEO
Thanks, Oliver. You got a number of questions in there. Let me take them one at a time. On promotion, I feel good about the team's work, and we're obviously looking at our discount rate on a daily basis versus last year in comp events and trying to again, through our personalization engine, apply the value where it's necessary to either incent the customer to buy or to move aged inventory. And again, as Adrian talked about, we come into the second quarter in a healthier inventory position from an age standpoint, but it's a long game. And so we're playing it on a daily basis to make sure that we are making the right decisions on promotion to attract but not overinvest in value. In terms of ready-to-wear growth, I'd tell you, this learn from each other without becoming one another has great application when I look at the ready-wear business at Bloomingdale's, which right now is terrific. And it gives me optimism that we are in the early stages of that opportunity at Macy's. We have to get through the remainder of the private brand disposition that we're up against. We have to roll out more of the newer brands to gain the level of materiality to our overall business. But the impact at Bloomingdale's is really good to see, and I think it will be helpful as it relates to the opportunity at Macy's. In terms of marketplace, we had a great quarter, and that was on top of a great year in 2023. I'm excited about the baby registry launch, which puts us in the baby registry and along with wedding registry, launching over 150 brands with the start and getting good reactions from the consumer. And I think as Adrian mentioned, MMN, our media network, is up more than 20% to last year. We're seeing good vendor engagement that goes beyond just the important beauty category where we had an immediate impact. And we're diversifying what we're doing in MMN to include search and other facets of or the way in which we engage the consumer. So marketplace, healthy. MMN, growing. Promotion, discerning and thoughtful and targeted. And ready-to-wear growth happening at the Bloomingdale's and determined to see that result at Macy's as we progress.
Oliver Chen, Analyst
Thank you. Best regards.
Tony Spring, Chairman and CEO
Thank you.
Brooke Roach, Analyst
Good morning and thank you for taking our question. I was hoping you could talk a little bit more about the trends that you're seeing in luxury and some of those luxury initiatives that could be rolled out to the Macy's network in aggregate especially in Bluemercury as well. Thank you.
Tony Spring, Chairman and CEO
Thank you, Brooke, for your question. Our portfolio at Macy's Inc allows us to analyze the business across various consumer income levels and value ranges. The teams from Macy's, Bluemercury, and Bloomingdale's are communicating more effectively than ever. While I don't want one to overshadow the other, this collaboration provides us with an advantage in understanding the fluctuations in our business. Regarding current luxury trends, there's been a notable shift towards quiet luxury, which is reflected in the Macy's offerings that are more accessible. We're focusing on opportunities in products, categories, and brands with minimal logos. Since our business is cyclical, I recognize that trends can quickly change. There will be a time when logos regain popularity. We're all eager to see Alessandro’s direction at Valentino, which is unlikely to align with quiet luxury. In the beauty sector with Bluemercury, we've identified a strong consumer demand for high-end skincare products that people are willing to pay for, as they strive to maintain their appearance and address various skin types at different ages. Additionally, Bluemercury has effectively capitalized on the fragrance market by examining the success of fragrances and other categories at Macy's and Bloomingdale's, leading to impressive growth in this segment in a short timeframe. As mentioned previously, we are optimistic about Bluemercury's growth potential with 30 new store openings planned over the next couple of years and 30 remodels beginning in the second quarter. We are excited about the growth opportunities at Bluemercury and the collaborative learning between Bloomingdale's, Macy's, and Bluemercury to better respond to consumer preferences.
Brooke Roach, Analyst
Great. Thanks so much. I’ll pass it on.
Bob Drbul, Analyst
Hi, good morning. I would like to hear more about your asset monetization plans for this year and the upcoming years. What are your thoughts, how are you approaching it, and what visibility do you have on the plans for this year? Thank you.
Adrian Mitchell, COO and CFO
Absolutely. The key takeaway regarding asset monetization is that we are experiencing significant momentum. We are encouraged by the activity in deal-making and are concentrating on securing quality deals, identifying the right buyers, and ensuring we achieve proper pricing. Our balance sheet remains robust, and we have strong partnerships with real estate developers that help us unlock value for our shareholders. Since we announced the closure of around 150 stores in late February, we have seen encouraging traction. The proceeds from these store closures are strategically important, as they enable us to reinvest in the business and enhance the performance of the First 50 stores while also returning capital to shareholders. We acknowledge the current elevated interest rate environment but remain optimistic about the pace of deal-making and the positive impact that these store closures and monetization efforts will have on our business over the next three years.
Bob Drbul, Analyst
Thank you very much.
Adrian Mitchell, COO and CFO
Thanks.
Operator, Operator
This brings us to the end of the question-and-answer session. I would like to turn the floor back over to Mr. Spring for closing comments.
Tony Spring, Chairman and CEO
Thank you, operator. We hope everyone has a great Memorial Day and summer. Spend some time with your friends and family, hopefully, get a good vacation in there. And we hope to see some of you or many of you at our amazing Fourth of July fireworks. Should be spectacular this year. Have a good rest of the day, everybody.
Operator, Operator
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.