So, as we talk about the fourth quarter, we have confidence in our strategies. So, the trending businesses, like beauty and some of the gifting businesses, are a higher penetration of the fourth quarter business than it is the other three quarters. We should draft off of that. When you look at the amount of newness that we have in gifting, so high quality, great value — and that great value is built into our gross margin expectation for the fourth quarter. So, we’re going to be sharp on our values. We’re going to be competitive. As we’ve seen over the past couple of years, the customer is shopping earlier and they’re shopping all the way through Black Friday, Cyber Monday, taking the lull last 10 days. We’re ready for all that. We’ve built the promotional calendar so that we thought through all of where — the customer, where we expect them to shop in each of our brands.
I think specifically, when you look at the fourth quarter, in addition to the gifting strategies and the penetration of trending businesses, it’s also the add of Nike, it’s the Toys R Us and the Disney collaboration. Very importantly, just the liquidity to be able to respond to inventory that’s always in the system and this agile team that is responding in real time faster than ever. So that’s what — is what is built into our guide when we think about the back half of the year and the status of what we are — of where we’re at going into it.
Operator: Thank you. The next question is coming from Dana Telsey of Telsey Advisory Group. Please go ahead.
Dana Telsey: Hi, good morning, everyone. As you think about the bad debt expense and credit cards, have you looked at it versus 2008, what could be similar and what’s different in the trajectory? And then as you think about this current second quarter, how did — what was the cadence of the quarter? How did you exit? I know, Jeff, you mentioned just about third quarter and back to school. Anything on tourism that we should note? And then Tony, just on other brands, it’s nice to see Nike and Under Armour. Are there other categories that you want to enhance the brand assortments that we should be looking to? Thank you.
Adrian Mitchell: Good morning, Dana. I’ll start with regards to the — your question around credit card, and then I’ll have Jeff and Tony speak to the quarter cadence. So, look, we’ve looked at our credit card revenues and bad debt levels as far back as 2005 in our recent conversations. So, we have a good understanding of the puts and takes. We recognize that there have been evolutions in terms of our agreement with Citibank. But from our perspective, it’s continuing to control the controllables and continuing to navigate beyond controllables, as I mentioned a little bit earlier. Again, as I shared, so much of this is really around the health of the consumer and so much is also around what we consider to be the debt/service ratio.
As you think about the average household income in the US, you think about the average household income of our customers, particularly in the Macy’s brand, that consumer is experiencing a number of headwinds as they think about servicing their responsibilities and their liabilities. I referenced a little bit earlier credit cards, I referenced student loans, auto loans, mortgage. All those in a higher interest rate environment creates real challenges. Now, coming into the year, we did project bad debt levels to normalize, but they just normalized a little bit faster than expected. But as we continue to look at ways to mitigate by giving more personalized offers to customers, as well as increase usage on our proprietary credit card, acquiring new customers, and really leaning into the loyalty aspects, we’re working very diligently to find the best offsets we can.
Jeff Gennette: Dana, I’m going to — I’ll take on the cadence by month and the tourism, and I’ll hand it over to Tony on new brands and new categories. On the — as I mentioned in my conversation earlier, to the question from Blake, we’re not disclosing our monthly performance in that it was heavily markdown and promotional-driven. So, that is on the second quarter. As it relates to tourism, this is one that we still have not seen the return of the depth of the international tourists that we typically have at Macy’s and Bloomingdale’s. So, just to remind, our international tourism is generally 3% to 4%. That’s what it was in pre-pandemic sales. It’s now south of 2% of our overall business. So, that tailwind is coming in the future.
We’re not predicting yet when that’s going to be, but know that when you look at the second quarter tourism business versus the first quarter, it was pretty similar. It was pretty comparable from where we are versus the 2019 level. I’ll turn it over to Tony.
Tony Spring: Thanks, Dana. I think the introduction of Nike is just a good example of what’s possible as we go forward. It’s an important brand, the number one brand in the active category, and I think we obviously have built into our expectations the opportunity in Nike. The other benefit you have is, people who come to Macy’s for Nike don’t just buy Nike, they’re going to buy other things. So, I’ll tell you what I shared with the team last week as they took me through the spring merchandise assortments. First, I was excited to hear the level of newness and discovery and the interest in variety and the desire to bring more interest to our assortments. And I think that that level of curiosity, that level of newness is an important ingredient in our success going forward.
I think the other thing that’s important is looking at these categories that are adjacent. So, we have Marketplace, which allows us to test quickly, introduce brands and ideas that we haven’t had at Macy’s or Bloomingdale’s before. And then we can move quickly, whether we add those things to our stores or whether we keep them just as a part of the Marketplace. But I think the team is very focused on bringing more newness and more interest and more excitement to our assortments.
Dana Telsey: Thank you.
Operator: Thank you. The next question is coming from Bob Drbul of Guggenheim. Please go ahead.
Robert Drbul: Hi, good morning, and Tony great to talk with you. Best of luck with this undertaking. Two questions for you. I guess, the first one is, when you think about sort of the trend of digital versus the in-store, how are you thinking about that for the back half of the year? And then on the digital marketplace, is the sort of the ramp on the brands on the platform, especially at Macy’s, is that where you want it to be or will you be adding more brands sort of into holiday and into next year? Thanks.
Tony Spring: Thanks, Bob. I think we are excited about the growth of the brand assortment on Macy’s Marketplace and, as we mentioned, the early read on Bloomingdale’s Marketplace. We have Max Magni, who we mentioned, who joins us after a distinguished 20-plus year career at McKinsey, focused on the digital business, and he will be very helpful, I think, to accelerating our performance in the digital space, as well as in our overall marketplace business. I also want to just remind everyone that Macy’s and Bloomingdale’s and Bluemercury are omnichannel businesses. And while we will always have these accelerations and movements based on cycles between the channels, our focus is making sure that we satisfy the customer, no matter where they choose to shop.
