梅西百貨 (M) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to the Macy's Inc.

fourth-quarter earnings release conference call.

As a reminder, today's presentation is being recorded.

I would now like to turn the conference over to your host, Ms. Karen Hoguet.

Thank you.

Good morning and welcome to the Macy's conference call.

I am Karen Hoguet, CFO of the Company.

Any transcription or other reproduction of the statements made in this call without our consent is prohibited.

A replay of the call will be available on our website, www.MacysInc.com, beginning approximately two hours after the call concludes.

Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning.

Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from the expectations and assumptions mentioned today, due to a variety of factors that affect the Company, including the risks specified in the Company's most recently filed Form 10-K.

We are very happy to report that we have reached our long-term profitability target of a 14% EBITDA rate for fiscal 2014.

As you know, this has been a goal on which we have stayed focused, even after the setback in the 2008-2009 recession.

We also were able to achieve 10% adjusted EPS growth in 2014 and hit the low end of our original guidance from a year ago of $4.40 to $4.50 for annual EPS and exceeded our revised guidance of $4.25 to $4.35 that we had provided at the start of the fourth quarter.

We at Macy's have put together a string of very good years and we have no intention of stopping now.

Think about Macy's journey over the past 10 years as having three phases.

The first phase began in 2005 with the May Company acquisition.

We took two very good retail companies and put them together to form a really great company with a huge depth of talent, great store locations, an early-stage online business, and relationships with most-wanted merchandise brands, including our own private brands.

In the first phase we converted a disparate collection of regional nameplates into a nationwide Macy's brand and a somewhat larger Bloomingdale's brand.

The second phase began in 2008 and 2009 as we molded ourselves around the M.O.M.

Strategies: My Macy's, Omnichannel, and Magic Selling.

In these past six years we have made enormous strides in adopting and evolving localization; creating a truly omnichannel business with seamless integration across stores, online, and mobile; and deepening customer engagement through Magic Selling.

In this second phase, we found growth in both owned and licensed businesses.

We put together five consecutive years of comp sales growth, six consecutive years of double-digit growth in adjusted EPS, and now hit our long-standing target of the 14% EBITDA rate.

Coming into 2015, we entered our third phase.

Having now reached one of the industry's highest profitability rates, we are focusing ourselves on accelerating top-line sales growth while maintaining this best-in-class profitability rate.

You have seen us restructure merchandising and marketing with an omnichannel view of our customer, inventories, and business.

We also brought all of our technology functions under one senior leader.

We have aligned all the elements of our base business so we can act faster and be quicker to decisions in driving organic growth.

And we also now set up a new structure with top talent to foster innovation and new business opportunities, such as international and off-price.

The upcoming acquisition of Bluemercury creates an entirely new channel to reach additional customer segments, while also helping to grow beauty in our base business.

As exciting and gratifying as the first two phases have been, this new phase we have entered has the opportunity to take our company to a whole new level of success.

We have the ability to create a larger relationship with existing customers and make inroads with customers that have not traditionally shopped either Macy's or Bloomingdale's.

So let's talk now about the fourth quarter and the highlights of the full-year performance.

I will then talk about our outlook for 2015 and end, as always, by taking your questions.

Our fourth-quarter sales were $9.364 billion, up 1.8% over last year.

As we announced on February 3, our sales increased 2.5% on a comp owned plus licensed basis in the quarter.

Our stronger businesses in the fourth quarter were coats, active, dresses, handbags, younger Millennial apparel, shoes (both men's and women's), cosmetics, and furniture mattresses.

Interestingly, two of those, dresses and shoes (men's and women's), were areas where we tested the single view of inventory between stores and our direct-to-customer warehouses.

This is what we just rolled out companywide as a result of these successes.

This gives us great optimism for our ability to accelerate growth.

The weaker businesses in the quarter were housewares and top of table.

Geographically, we did the best in the southern regions as well as the Midwest.

Our strongest growth markets were throughout the Southwest, but also included Colorado and Midwest markets such as Chicago, Detroit, and Indiana.

Our tourist stores for both Macy's and Bloomingdale's were hurt in the quarter, driven by weaker international tourist spending in light of the stronger dollar.

In spite of this, though, Bloomingdale's had a good quarter and improved versus their third-quarter trend.

Our digital channels at both Macy's and Bloomingdale's did extremely well in the quarter.

We were very focused and pleased with what we accomplished with buy online/pickup in-store, both because of the number of customers who utilized this new way of shopping but also for the radiated sales that we got when the orders were picked up.

And our same-day delivery test was successful and we will expand in 2015 to additional markets.

Average unit retail in the quarter was 1.4% versus last year, with total transactions up 2.5% and average units per transaction down 1.3%.

Gross margin in the fourth quarter was 40.3%, down 30 basis points from last year.

Merchandise margin was down by approximately the same amount.

The growth in delivery expense due to the omni transactions was offset by the increase in income from the licensed businesses and other miscellaneous factors.

Recall, though, that I told you to expect a decline in gross margin rate in the fourth quarter.

And for the back half of the year our gross margin rate was down 10 basis points, which was consistent with our guidance.

Inventory at year-end was down 0.7% below last year and on a comp basis it was up 0.9%, a little less than 1%, over last year.

This is consistent with our strategy to improve inventory turnover.

At year-end we were not yet experiencing a problem from the West Coast port slowdown.

Since then, however, our inventory levels have been negatively impacted, particularly in apparel and accessories.

Approximately 12% of our first-quarter merchandise receipts are being delayed and this will have some impact on our sales, gross margin, and expense in the first few months of the year, but we have incorporated our expectations into the guidance we've provided today.

SG&A in the fourth quarter was $2.324 billion, up 1% over last year and down 20 basis points as a percent of sales.

This is better than we had expected.

The primary reasons for expense being lower than we expected were lower medical and retirement expenses and stronger-than-expected credit performance.

Credit income in the quarter was $240 million, up $22 million over last year.

The usage of our proprietary credit cards reached 47.4%, which is 30 basis points above last year.

Retirement expense in the quarter was $12 million, which also was better than expected.

The quarter also included asset sale gains of $36 million, which is $22 million lower than the asset sale gains last year in the fourth quarter.

Operating income, excluding impairments, store closings, and other costs, was therefore $1.451 billion, up from last year's $1.437 billion on the same basis.

This increase was 1%, but remember there were shifts between the third and fourth quarters, and for the second half of the year operating income on this basis was up over 4%.

Impairments, store closing costs, and other costs were $87 million, which is better than the $100 million to $110 million we had expected when the announcement was made in early January.

This is primarily because severance came in lower than anticipated.

Of this amount, approximately $33 million relates to non-cash asset impairment.

Interest expense in the quarter was $97 million and we also paid a $17 million premium on the early retirement of debt in the quarter.

Tax expense was $457 million in the quarter and net income was $793 million.

Excluding the impairment, store closing, debt premium, and other costs, net income was $857 million in the quarter, down slightly from last year's $865 million.

Average diluted share count in the quarter was 351 million shares, which is 6.5% lower than last year.

During the fourth quarter we utilized $417 million to buy back stock, bringing the full-year stock buyback amount to $1.9 billion, and during the year we bought back 31.9 million shares.

EPS in the fourth quarter on a diluted basis was $2.26, or $2.44 excluding the items mentioned earlier.

This is up 5.6% over last year on this same basis.

So as I said earlier, the fourth-quarter performance helped to make 2014 another good year for Macy's.

Let me just summarize five key highlights as I look back on 2014.

Comp sales, on an owned plus licensed basis, were up 1.4% for the full year, and while we think we fared well versus competitors, we did not achieve our original expectations.

We achieved 10% adjusted EPS growth and the low end of our original guidance.

Our adjusted EPS has grown 26% per year since 2009.

We hit our long-term goal in 2014 of reaching the 14% EBITDA rate, and we achieved a return on invested capital of 22.4%, 90 basis points above last year.

And we generated over $1.7 billion of cash flow after operating and investing activities, which is about the same as we did last year.

CapEx in the year was $1.068 billion, which was a little below our $1.1 billion budget due to timing.

We are very proud of this performance, but as we look forward we are focused on accelerating growth.

The changes made to our organization in January and in early February were made with this in mind.

We reorganized our merchant and marketing organizations to make them faster, more nimble, and better connected between the stores and the digital world.

While we now have omni buyers and planners who span both channels, we also have digital merchants who are 100% dedicated to working with the omni merchants to drive digital growth.

Just to be clear, we did not eliminate dot-com merchants at Macy's.

We do realize that we have lots of people learning new parts of their jobs, but we believe our teams can make these changes and still deliver the expected results this year.

We also made changes to our senior teams to enable two key executives to focus more on growth: Jeff Gennette, our President, and Peter Sachse.

Jeff replaced himself as Chief Merchant so he could have more time to strategize growth.

He will be focusing on organic growth, including subjects like digital growth, key families of business like beauty and jewelry, as well as how to grow more aggressively with our private brands as well as our key vendor partners.

Peter will be working on new growth initiatives and innovation.

This is the first time we have had a senior person assigned full-time to focus on growth.

Short-term, Peter is working with his new team on piloting an off-price concept and developing our approach to innovation.

They also will be studying international opportunities, both store and digital.

This is all very exciting and these changes have really energized our organization.

Adding to the excitement is the pending acquisition of Bluemercury.

We see such opportunity for Bluemercury to expand their business rapidly across the country in the digital channel and also maybe perhaps overseas down the road.

We also look forward to opening Bluemercury shops within our Macy's doors.

This accelerated growth won't happen overnight, but we do expect it to make a difference in our top-line results over the next two to three years.

We will be testing different ideas and will roll out those ideas that have potential.

We are all very excited about this, and much like our M.O.M.

Strategies, we expect our team to execute this well and deliver outstanding results.

Our guidance for 2015, a transition year, is straightforward, and even though we see it as a transition year, we are still guiding to sales and EPS growth.

We are assuming comp growth of approximately 2% for 2015 on both an owned and an owned plus licensed basis with total sales growth of approximately 1%.

We are guiding to a flattish EBITDA rate as a percent of sales and earnings per share on a diluted basis of $4.70 to $4.80 per share.

In terms of capital spending, we are increasing our budget by approximately $100 million to $1.2 billion to help fund the growth initiative.

We are making investments in growth, but the key to our approach is balance.

We want to accelerate growth, but it needs to be profitable growth.

By planning ahead, we were able to offset the growth in technology investments, as well as headwinds from higher expected benefit costs and information security with the $140 million savings that we are expecting to get from the restructuring that we announced in January.

And as you are building your detailed models for 2015, there are three other key planning assumptions to help.

Interest expense, we are assuming approximately $380 million.

We are planning a tax rate of approximately 37% and depreciation and amortization is expected to be approximately $1.060 billion in 2015.

We also will be closing the Bluemercury deal hopefully during the first quarter.

This guidance does not include Bluemercury, but while that acquisition will add sales obviously to 2015, we don't expect it to be accretive to earnings in this partial year.

As I said earlier, we are very excited by the opportunities to accelerate sales of our base businesses of Macy's and Bloomingdale's and going forward, we see opportunity to accelerate our growth in other ways as well.

We look forward to updating you on our progress in the quarters and years ahead.

And before I pause for questions, just one piece of housekeeping.

We have decided to change the time of our earnings calls going forward to 9 AM Eastern Time beginning with our first-quarter 2015 earnings call in May.

We have talked to many of you about this and concluded that it makes sense.

We think this will enable us to get information out to all of you faster after we release our earnings at 8 AM.

And with that I will open the call up for your questions.

(Operator Instructions) Oliver Chen, Cowen and Company.

Congrats on solid results and on the evolution of the model here.

Regarding the next steps in thinking about how you are looking at Macy's in a more growth-oriented fashion, on the off-price side could you speak to the customer target and how vendor relationships may evolve and if online will play a role here?

Just as a question for our models; as we are thinking about the 2% comp guidance, did you have an inclination in terms of how we should think about UPTs versus transactions in terms of what you are seeing and what we may extrapolate?

Thank you.

On the second question, no.

We don't expect major change in average unit retail, or units per transaction, etc., as we look at 2015.

In terms of the off-price pilot, I think it's premature to really answer those questions.

We are obviously looking at stores and digital as we think about it going forward, but not sure exactly yet how that will look.

So as we get the test and the pilot started we will talk more about that.

Okay, thank you.

Best regards.

Lorraine Hutchinson, Bank of America.

Thank you, good morning.

Karen, you called 2015 a transition year so I guess I just wanted to get your thoughts on that.

Is that a year of increased cost and then we will see that investment come down?

Were you --?

No, because remember we are holding to the 14% EBITDA rate, so the key is holding the profit rate and trying to strategize to get greater growth.

So we don't expect to see the accelerated growth in 2015, hence, the 2% comp guidance.

That's really where the transition is.

As I said, we expected to make the investments in growth and, therefore, the restructuring is funding those investments.

So we anticipated it and planned for it, but again holding both to the EBITDA rate and also earnings growth.

Great.

And then as we look to our longer-term cash flow models, is $1.2 billion the new level of CapEx or would that be just for this year and then perhaps that would come down a bit?

Well, I don't think it will come down.

I think the question is how is the model going to evolve going forward, but I don't anticipate it going down.

There is going to be ongoing investments in technology forever, so I can't tell you what they are going to be, but every year whatever it was we budgeted last year, there's new subjects that go in.

And so we believe that the technology spend will not go down, at least as far out as we can see.

And, obviously, we are continuing to maintain and add new stores where we can, so I really don't anticipate a reduction.

Great, thank you.

Kimberly Greenberger, Morgan Stanley.

Great, thank you.

A really fine end to the quarter or rather end to the year here in the 4Q, Karen.

I am wondering -- obviously the new strategies and initiatives you have in place to drive an accelerated revenue growth over the next two to three years; 2015, if I could read between the lines, is sort of the seed year, if you will, to put the things in place that will drive that growth.

And I'm wondering what metrics internally will you all be looking at to gauge whether or not you are on track to deliver that acceleration in growth?

Are there ways that you can share some of that information with us along the way so that we can understand how you are performing relative to your expectations?

Well, I think the easiest way to track it is going to be our comp sales performance.

So achieving that 2% will be very important as a signal as to whether things are working.

We will also be testing various things throughout the year, but we won't know the results until we get through the fourth quarter next year.

So it is going to be hard to keep you up to date.

Obviously, if there is something we are either very excited about or we're not going to pursue, we will tell you, but we are testing lots of concepts and ideas that we hope to roll out next year.

Much like, if you think about the single view of inventory, we tested it last year.

We started with dresses in the spring season of 2014 and then added four or five businesses into the fall, so that we would know whether we could roll it out this year.

And as I said earlier, we were so excited by the results of those tests we rolled it out to the whole company.

Great.

Just a follow-up on your comp guidance here for 2015.

The 2014 rate, obviously, fell just a fraction of a point underneath that 2% goal.

You've got a lot easier comparisons in 2015, but is there something else feeding into that 2% comp target in 2015 that wasn't really there for 2014?

No.

I mean 2014 we did 1.4%, so the 2% is actually higher than 2014.

So I don't think there's anything unusual about the year 2015 when it comes to the comp guidance.

I mean, anything unusual that could help it re-accelerate to that 2% level?

Sure, I could give you a whole list of things that give me great confidence that it could do better, but at the same time you just don't know.

Okay.

Thanks, Karen.

Paul Swinand, Morningstar.

Good morning and thanks for taking the questions, as always.

Wanted to just -- sorry if I am beating a horse here, but the CapEx at $1.2 billion, if you are going to hold it the same I'm assuming the top line is getting better.

Is it that you are targeting a rate of sale or a percentage of sales?

No, I'm not -- truth is we don't know what is going to happen going forward in terms of the capital budget.

As I've listened to various investors call lately there is some confusion around technology and some have implied that it should come down over time.

The point I'm trying to make is I don't expect that to go down, nor do I expect the investment we are making in our store business to go down over time.

So the only question would be might there be more rapid spending on some growth initiatives.

And at some point there could be if we see the opportunity, but at this point I wouldn't know what it was or how to quantify it.

With the risk of you not wanting to reveal all your plans, is the $1.2 billion more leaning towards the technology?

And then can you give us any real color on the composition of the increase and how it's going to look going forward?

If you think about the $1.1 billion, that encompassed the technology that we've been spending and that we will continue to spend.

The extra $100 million, roughly, is for growth initiatives, whether it be to expand Bluemercury, whether it be the off-price pilots that we are talking about, and other things like that.

Okay, great.

Thank you and best of luck.

Paul Lejuez, Wells Fargo.

Thanks, Karen.

Can you maybe talk about some of the major buckets of expenses in 2015, where you expect to see leverage versus deleverage?

Specifically, if you could touch on your assumptions for credit income and retirement expense, how those factor into guidance this year.

Thanks.

Credit income, my suspicion for next year will be flat to down slightly.

And as often is the case with credit, it may be lumpy because if you think about the rollout of the chip card, that will come most likely all in the third quarter.

So you may see some odd quarterly progression on the credit line, but in total for the year we would expect it to be flat to down slightly.

On the retirement expense, after obviously huge reduction this year, we do expect it to go up modestly in 2015 but not by a huge amount.

Healthcare is obviously going to go up significantly, which again shouldn't surprise anybody.

I think those would be the major factors as we've talked about headwinds.

Then obviously we continue to invest a lot in information security and then also in these growth initiatives, which obviously don't bear sales yet and so we are investing in those.

But we are covering it with the restructuring that we had announced earlier this year.

Got you, thanks.

Then how should we think about asset dispositions offsetting CapEx in 2015 and beyond, and how that might factor into the P&L as well?

We've had significant asset sale gains the last couple of years, as you know, and I would expect that to continue as we go forward.

I think that's just going to be a piece of the business.

I can't tell you what the amount is, but we are assuming in our guidance that we will continue to monetize stores.

Okay.

Thanks, Karen; best of luck.

Jeff Stein, Northcoast Research.

Karen, given the fact that you are planning kind of flattish EBITDA margin, can you talk a little bit about what's going on within the P&L outlook for gross margin and SG&A?

Also wondering if you have given any thoughts -- now that you have achieved your target EBITDA margin is there any thought being given to resetting the bar longer-term (multiple speakers)?

Oh my goodness, let us enjoy it for five minutes.

No, the real answer is, look, it could go up a little bit but we are not aiming to go higher.

We believe we have hit the right balance between growth and profitability in achieving this, but as we've said repeatedly, when we originally were thinking about going a lot higher that it was going to impede growth.

So our judgment is staying around 14% is the right answer.

Again, it could go up, but we are certainly not going to strategize to make that happen.

And taking look at gross margin this year and SG&A directionally, how should we --?

We are not going to give a lot of guidance here yet.

We are still formulating the plans, but I wouldn't expect significant change on either line at this point.

Okay.

And final question; the women's sportswear business has just been in the doldrums for a number of years now.

Any thoughts in terms of what might possibly reignite a stronger trend there?

And do you have anything or have you seen anything in your business to give you encouragement on that side?

Did you say women's sportswear?

Yes.

I think you have to think about it defined by what women are wearing today.

And actually if you think about that, dresses has been extremely strong and continues to be so.

Both day dresses and evening dresses.

Also active, ath-leisure.

So I think we all need to think about women's apparel differently and actually it had a pretty decent year last year when you think about it more broadly.

Okay, thank you.

Paul Trussell, Deutsche Bank.

Good morning, Karen.

You mentioned the impact from the West Coast port issue on 1Q.

Just wondering if you could just elaborate a little bit on that and how we should think about the cadence of comps during the year, given that impact, as well as any timing of marketing shifts or the launch of any particular initiatives.

We are not providing guidance by quarter that way, so I'm sorry that I really can't help you there.

Clearly sales, margin and expense will get impacted to some degree in the first quarter because of the port situation, but I'm not going to give guidance by quarter.

Understood.

And then as we look at the balance sheet, obviously you have discussed the modestly higher CapEx.

Is there any change to the cadence of buyback, just how you are thinking about usage of cash as well as your leverage, your targeted leverage ratios?

Any changes there?

There is no change in our targeted leverage ratios and the way we use our excess cash, as you know, in addition to paying the dividend, has been to buy back stock with the cash over and above what we are using for CapEx.

So while we don't give guidance to a specific buyback number, you can expect us to continue to be aggressive in terms of buying back stock.

Just lastly, you have mentioned international as one of your initiatives.

Obviously there are some licensed stores to be opened in the UAE area this year.

Is there a potential for owned international stores, just how are you thinking about that particular initiative?

At this point we have one Bloomingdale's store in Dubai and we have the Macy's and Bloomingdale's licensed locations opening in 2018, so they are not opening this year.

At this point I am not really even sure we have a good answer to that yet.

We have been extraordinarily successful with the Dubai partnership.

Our partner there runs a terrific Bloomingdale's and it has been great; not only for sales there and the profit we get from the license agreement, but more importantly it has helped our business here in terms of international awareness.

As we all know, the world has become so global.

So we are very excited about that, but we may very well end up owning our own stores in other parts of the world at some point.

We just don't know.

And as I mentioned earlier, we are also looking at online and omnichannel opportunities.

But when you see how well our brands resonate with the international tourists in this country, it, frankly, seems like we should be utilizing that brand awareness and the popularity of the brand in some way, but we haven't figured out how to do that.

And as always, you would see us do it in a balanced and rational way as we have done, in fact, with Dubai with Bloomingdale's.

Thank you.

Matthew Boss, JPMorgan.

Good morning, Karen.

Larger picture, can you talk about the balance between multiyear growth investments and the earnings growth algorithm here?

And more so, what is the best way to think about phases of the three-year growth map in 2015 versus maybe 2016 and 2017?

And this may be oversimplifying it, but I separate sort of the organic-based business growth.

And that hopefully will accelerate in 2016 as SVI rolls out to the Company, as the new organization is better able to focus on omnichannel growth, as well as some of the initiatives we are working on that we talked about -- that I talked about earlier.

The newer ideas that Peter is working on will probably take more time to have an impact on the Company and so those will less likely have a big impact in 2016 or 2017.

But, again, we are building for the future; that is really the key here.

But in terms of the organic growth, we hope to begin to see impact very quickly.

And obviously comp growth is a very good thing for the bottom line of the Company and the cash flow.

So good that that is happening soon.

Okay, great.

Then can you just talk about some of the learnings from the single view of inventory tests that you did across shoes and dresses, and more so kind of the best way to think about the top line and margin opportunity that we could see now that it's rolled out across the chain?

Yes, a couple of things.

One is that in one of the teams they began analyzing not just the demand in the stores in a given market, but they also looked at the dot-com demand in that market.

And, as a result, they are now analyzing what we call trade area demand and it's allowing them to allocate better the merchandise location to location.

In another area, we began testing online, which gave us very quick results so that we could roll out a new product very quickly and so that has been helpful.

Also, we have been able to negotiate differently as we're working together.

So there's lots of opportunities for growing the business that our teams have found and I think it's just only beginning.

Great, best of luck.

Michael Binetti, UBS.

Karen, good morning.

Quickly on -- obviously Walmart announced some major increases to minimum wages and I know a lot of the positions that you guys have (technical difficulty) would be at above that rate.

But as I look around the web, I can see some of your entry-level positions are in a range that I would say might have upward pressure on them with a big competitor -- or I guess a big retailer like Walmart having -- making some raises there.

Can you talk to us a little bit about your thoughts on whether that will impact maybe how much of the workforce could see upward pressure on the wage rates?

Obviously, wage rates are a subject we study quite closely and currently our wage rates are above the state minimum wages.

We tend to provide first jobs for many of our associates and we move these entry-level associates up the wage scale as they gain experience.

Having said that, we are constantly studying what's happening.

And, by the way, it is market by market in what we need to do to be competitive in terms of our hiring.

So I think this will be an ongoing area of attention.

Okay.

If I could just ask a follow-up on the off-price initiative you mentioned, I find it interesting that consumers are obviously showing you that they appreciate that channel.

Obviously, you have a leadership position in your existing business, but there is installed competition in that sector.

What do you think about that attracted you guys to that space that could be your advantage as you jump into a category with an installed base of competitors?

And maybe what are some of the challenges in that businesses that will be new for your team compared to what they are doing today?

Obviously there's always challenges in starting a new business, and particularly one where there's very successful competitors, but our team thinks they have the opportunity to compete quite effectively against these players.

Obviously I not going to tell you until we've started rolling it out, but the team feels very optimistic that we will do well.

Again, this is one of those things where we will let the customer vote and see what she says.

Any perspective on the dividend before I go?

No, the dividend is an important part of our capital allocation strategy.

There is really no change there.

All right, thanks.

Joan Payson, Barclays.

Good morning.

Karen, you referenced the tourism issue in the fourth quarter.

Could you share either what the portion of sales is that is related to tourism or how much of an impact that had in the fourth quarter?

And then could you also provide some additional detail on the 2015 outlook and what's driving the plan for that licensing component?

We don't break out the tourist business or the international business.

Obviously, it is more of an impact in places like New York City or downtown San Francisco, but we don't break it out in total.

Or the impact it had on the quarter.

Obviously, we do everything we can to offset it.

And in terms of the comp guidance, we have given about the same guidance for the owned and the owned plus licensed.

And while our licensed businesses are growing faster than the owned, so maybe there will be somewhat of a delta, we don't expect it to be like it has been in recent years because we, at this point, are not planning to introduce any new license businesses to our mix.

So, obviously, if we were to announce a new business, that would change what our guidance is, but for now the guidance is about 2%, both on and owned basis and an owned plus licensed.

But we would expect the owned plus licensed to be a little bit higher.

Stephen Grambling, Goldman Sachs.

Thanks, good morning.

Just a follow-up on Matt's single-source inventory question.

How is this impacting your plan for the growth rate and inventory, and maybe how that will impact turns?

Is there actually an opportunity for ROIC at this point to hold or even improve as margins are flat and CapEx is up relative to sales?

Yes, that's the dream.

Again, I think as our buyers and planners are looking at inventory across the direct-to-customer warehouses and stores, they are being far smarter about where to put inventory or moving it channel to channel.

So I think it's going to have a big impact on turnover, which will be very good down the road.

Now, I don't think that will all be in 2015.

As I said, this is a transition year, but we are optimistic that this could make a difference.

That's helpful.

Then I guess changing gears, as we look at the e-commerce business, is there any detail that you can give on how the assortment online has changed over the past few years and how you expect it to change going forward, perhaps aside from the Bluemercury deal?

I think we continue to try to offer, both at Macy's and Bloomingdale's, the best assortment we can.

In some cases we extend what we have in the stores, what we call the endless aisle, whether it be big and tall sizes or small sizes that may not be in every single store.

So that has been a big help.

There's some merchandise that we have only online, but for the most part we are aiming for more congruency between stores and online.

Is there an opportunity to maybe move to more drop shipping?

Well, we do a fair amount of that today from the vendors.

Remember that if an order is combined, it's not always efficient to ship part from the vendor and part from us, but we are always looking for those opportunities.

And, again, we start with what the customer wants and try to make those decisions in the smartest way we can.

Thanks.

Good luck this year.

Bob Drbul, Nomura Securities.

Karen, good morning.

Just a couple questions.

I guess overall when you look at the business, the health of the consumer, the trends of opening price points versus some of the collection businesses, can you just talk about any of the trends that you are seeing there and then the impact on gas?

And then in terms of the drivers to the comp for 2015, what are the categories that you expect to really lead this year as we look forward?

In terms of the categories, my suspicion is it's going to be the categories that we have seen doing well.

We still expect active to be very strong.

The center core categories, most notably handbags, cosmetics, beauty, big ticket, so I think we're going to see a continuation of what we have been seeing.

Men's has been strong, shoes, etc., as we go into 2015.

Okay.

And how about just general comments on the consumer?

Sorry about that; I forgot.

I was listening to your second question.

I think that what is interesting is, as we look back on 2014 and we look at what we were expecting in terms of the economy, our internal projections were right on the money in terms of inflation, GDP growth.

Where they missed was GAF growth: general merchandise, apparel, and furniture.

And we actually were over 1 point -- we expected GAF growth to be about a point plus higher last year than it turned out being.

And so as we look to 2015 -- and, interestingly, in the fourth quarter we did see GAF growth beginning to strengthen, which could bode quite well for 2015 should that happen, in part due to the gas prices and in part just due to how the momentum has changed.

So that could be helpful as we go into 2015.

All right.

And just give us any flavor on how February has gone so far.

We don't comment on the month.

Obviously, the weather has not been helpful, but hopefully it will be fine by the time we get through the quarter.

Thanks, Karen.

Matt McGinley, Evercore ISI.

Good morning.

You have put a lot of moving pieces with the restructuring versus the investment in 2015.

I know that the restructuring that you did earlier this year was effectively reinvested, but do you expect those benefits to accrue pretty evenly?

Or does that save-and-spend program that you have weigh more to the back half with the investment that would make I guess the front half a little bit better and the back half a little bit worse?

I shouldn't answer off-the-cuff, but I don't think so.

I think we will be making the investment throughout the year.

Maybe it will build somewhat.

Again, the credit numbers are lumpy so that may impact the back half a little bit more, so hard to say.

And then it always depends on the timing of asset sales versus last year.

Then on the new initiatives, I know that as part of the test-and-learn process for these new initiatives you are going to have some spending that is associated with that.

But as you've done these tests in the past, and I assume you do these sorts of things in your stores all the time, how long does it typically take to move something from the test phase into more like a primetime?

Is this something that you've done that takes nine months or is it --?

Testing theory will tell you we should wait a lot longer than we do.

Retailers, as you know, are by definition impatient so we do tend to react a little quicker than we probably should based on testing theory.

So my suspicion is that this time next year you will hear about some things that we've tested this year that we are rolling out.

For example, SVI, single view of inventory, was one of those.

We did a little bit in the spring, more in the fall, and we were just so excited about it we rolled it out to the Company now.

So I think you will see us moving with some of these things for 2016.

Thank you.

Richard Jaffe, Stifel.

Thanks very much.

Good morning, Karen.

Given the aggressive CapEx and the entering of Phase 3, could you talk about your internal thought process regarding investment and the return on the invested capital, both in terms of hurdles you would like to achieve and the timing you provide these new projects to achieve [those results]?

That hasn't changed and, honestly, I'm not sure I would characterize $100 million increase in capital as aggressive, but we have very disciplined standards in terms of what we expect.

We judge all of these investments on an internal rate of return basis that obviously has to far exceed the cost of capital.

And then, secondly, we look at a third- and a fifth-year return on invested capital to make sure that all of that return doesn't happen way out.

You hate to see too much value in what I call that terminal value.

And I think we have a very good process and a disciplined process to look at that, and that is not going to change.

Very good, thank you.

Dana Telsey, Telsey Advisory Group.

Karen, good morning.

Can you talk a little bit about, as you think about the acquisition -- the new growth opportunities -- acquisition, new concepts, international -- is there a preference in terms of capital allocation and how you are thinking of returns of the different opportunities?

And on the order online/pickup in store and now same-day delivery, how do you think of same-day delivery emerging as we go through 2015?

It certainly seems like the speed of getting customers things faster is becoming even more important and popular.

I think you're right about the same-day delivery, particularly in the bigger markets like Manhattan and San Francisco.

That is where you are going to see that, but I do think people want to receive their orders quicker.

And, frankly, that's where our store network has been so helpful.

If you need something same-day and you're in a market that doesn't have same-day delivery yet, buy online/pickup in store helps with that.

Or even next day.

And, by having inventory closer to the customer, that's a huge competitive advantage for us in terms of satisfying what the customer is looking for.

So I see that is going to continue to be important and we are obviously focused on that.

Your first question in terms of prioritization; I would say right now we don't really have a prioritization.

We are looking for the highest returns we can get on the capital that we are going to invest, and we are also looking in these new initiatives of how will it impact the base business.

So one of the great things about Bluemercury, for example, is not only is it going to be a great business in and of itself, and they will expand and generate a great return on the acquisition, but also we believe it's going to help the core business.

Both in terms of the shops that we will open in some of the Macy's stores as Bluemercury, but also, frankly, learning about the beauty business will obviously also help us as we go forward.

I love the idea of these new growth ideas not only being great in and of themselves, but also building off the base business and helping there.

Terrific, thank you very much.

David Glick, Buckingham Research Group.

Thank you, Karen.

Just a follow-up on the off-price opportunity.

Just to clarify, do you envision this new opportunity as more of the traditional off-price retail channel versus the strategy that Bloomingdale's is pursuing as an outlet strategy?

And then what are the core competencies that you think you can leverage from the Macy's organization, whether it's brand relationships, the Macy's name, private brand development, to bring value to this new initiative?

The Macy's will be more like what you are calling traditional.

Obviously, in the outlet world we have Bloomingdale's, so there was no reason to create a Macy's, because we are also expanding the Bloomingdale's outlet concepts.

We didn't want the competition between the two directly.

And you listed a lot of the reasons why we think we have advantages in the off-price business: the marketing prowess, obviously the way we run stores, the relationship with vendors, the private brand, on and on.

And do you think that has an impact on -- are you concerned that it might have an impact on your base business?

Obviously, the beauty initiatives you can see the synergies.

How would this initiative help your base business?

We think it may just because it may help bring a whole new customer to Macy's.

One of the things we found with the Bloomingdale's outlet business; initially we were nervous about putting one of the Bloomingdale's outlets too close to a Bloomingdale's store.

And what we found is it served as an entry point for the customer.

Instead of taking business away from the base Bloomingdale's store, we actually brought new customers who learned and got comfortable with Bloomingdale's from the outlet experience and then went to the Macy's store.

So it is very possible we could find that with Macy's as well.

Thanks for that color.

And just a housekeeping item; what is the dollar sales of the closed doors -- doors that you are closing in 2015 or the volume from 2014?

I don't know that offhand.

You can call Matt back later.

But be careful, because the difference between comp and total in 2014 is the store closures, but it's also the reduction of our private-brand sales to Aeropostale, which we've mutually agreed to not do going forward.

So it's not all the store closures.

Okay, great.

Thanks and good luck.

Michael Exstein, Credit Suisse.

Good morning, Karen.

I hope you get some tea after this call; it's long.

I know, my throat is dying as we keep going, but thank you.

So I apologize for asking this question.

No, no, no.

No problem.

One of the things -- a couple things; one is where is the Blue Nile acquisition cost?

Is that going to be part of CapEx or is it separate item?

It's Bluemercury.

Bluemercury, sorry.

Not Blue Nile, but Bluemercury, and my suspicion is it will be a separate item.

That's not part of the $1.2 billion.

Okay, great.

Then the other thing to notice in the press release today is there are a bunch of store consolidations; where you had multiple units in one mall, you consolidated down to either one or two additional units in the mall.

Is that part of an ongoing program?

How many store opportunities potentially is there to cut down the numbers of stores you operate in the same mall?

That has been something we've been doing on an ongoing basis where it makes sense, so that's not new; we have been doing those.

But, yes, that is important.

Obviously, you want the right square footage.

In some cases, for example, at Ridgedale, we expanded the base store, so while we closed one, we actually expanded the other store.

But it's obviously more efficient as a one-store opportunity.

And then do you have any thoughts in terms of the trend in the industry of these headquarters and flagship stores that some of your competitors have begun to invest heavily in?

We have them and we have been investing for years.

That's not new for us.

Laurent Vasilescu, Macquarie.

Great, thank you very much for taking my question.

I believe in the January 8 press release it was outlined that in 2014 about $1 billion of direct-to-consumer shipments originated directly from stores.

That's a pretty big number.

Can you possibly shed some light on how that grew year-over-year and how that portion of that business contributes to the overall company's margins?

I don't know how to answer the margin question; we wouldn't break it out separately.

But as I said a little while ago, it's obviously very important to us to be fulfilling from stores because we can get goods to the customer a lot faster that way.

Also, we don't have to build as many mega-centers.

Now there's obviously a lot of analysis and complicated algorithms to decide the right way of shipping what from what place, but store fulfillment is a very important part of our equation going forward and will continue to grow aggressively.

Any color on what categories are driving that business?

Which?

The store fulfillment?

Correct.

It's everything.

It's the whole store, it's whatever we carry.

Okay, thank you.

[Alexis Gold], HG Vora.

Just a quick follow-up, just a point of clarification actually.

There's a Bloomberg headline out right now that says that you will not be aggressive in stock buybacks, and what I had heard you say was, just to repeat the quote, while we don't give a specific buyback number you can expect us to continue.

That's correct, that's correct.

Thank you for asking.

I can't see the headline so, yes, thank you for clarifying that.

Great, thank you very much.

No, sorry about that.

At this point there are no further questions.

I will turn the call back to you, Ms. Hoguet.

Thank you all very much and we appreciate your interest in Macy's.

Obviously, don't hesitate to call Matt, Sarah, or me if you have further questions or need further clarification on any of this.

And as I said earlier, we look forward to updating you on our progress in the upcoming quarters and obviously years ahead.

Remember change your calendars, 9 o'clock going forward for these conference calls.

Thanks very much and have a good day.

Ladies and gentlemen, that does conclude today's presentation.

We thank you for your participation.