So, we have confidence that, to your question about beauty, we can chase into beauty. We have obviously built very aggressive strategies for the fall season, based on our trends and our merchandising teams and the strength of those brands, and where our customer expects us to be. So, some we plan and some, we’re going to react to and chase into.
Tony Spring: And Alex, let me add that we have strength and beauty across Macy’s, Bloomingdale’s and Bluemercury. So that’s digitally and physically on-mall and off-mall. And fragrance is an important category for us and trending well in all three nameplates. So we’re bullish in the business for the fall.
Alexandra Straton: Thanks a lot.
Operator: Thank you. The next question is coming from Lorraine Hutchinson of Bank of America. Please go ahead.
Lorraine Hutchinson: Thank you. Good morning. I wanted to focus for a minute on your cost savings programs. You have spoken about a $300 million to $350 million run rate of savings in fiscal ’24, but it seems that you’re outperforming that early. How much of these savings are included in the 2023 guidance versus how much will be incremental in 2024?
Adrian Mitchell: Thank you for your question. It’s a good question, Lorraine. So, as we referenced, the $200 million this year is a combination of both gross margin and SG&A expense. What we spoke to on the last call was that there is an annualized benefit of about $300 million to $350 million. Now, the reality is that we’re continuing to benefit from those opportunities and those initiatives this year. So, we’re pretty excited about what we’re seeing here. The key thing I would say is that the initiatives are real. And as an organization, we’re continuing to lead into these expense opportunities. We have not given specifics on how this will materialize as we get into next year. We’re still working through kind of how we think about our growth profile and margin profile for next year. But we’ll definitely keep you posted and give you much greater clarity on those puts and takes as we get into 2024.
Lorraine Hutchinson: And then I just wanted to follow up on credit. It sounds like the second quarter numbers included pro-rata recognition for the updated annual bad debt outlook. But it looks like you’re guiding second half down to a similar decline. Can you talk about the dynamics of this revenue stream going forward?
Adrian Mitchell: Yep, absolutely. So, the leading indicator on bad debt write-offs are the delinquency rates. So, we look at it at 30 days, 60 days, 90 days, and 30-day increments, all the way up to 180 days, which is when the write-off actually happens. So from our perspective as we think about past purchases and we see the level of delinquencies that has been increasing across all aged balances, we’re actually projecting what we believe to be the bad debt levels, given the trends that we see. So given those leading indicators and what we see with other factors in and around the consumer, that gives us a perspective and a greater level of confidence around what we believe our credit card revenues will be based on our bad debt levels.
Lorraine Hutchinson: Thank you.
Adrian Mitchell: No problem.
Operator: Thank you. Our last question for today will be coming from Jay Sole of UBS. Please go ahead.
Jay Sole: Great. Thank you so much. Just two questions from me. One, on the delinquency rate that you cited for June and July, was the delinquency rate higher in July than what you saw in June or was June the peak and then it slowed in July? And then secondly, just on the small stores, can you just elaborate a little bit on the proof points that you’re seeing that give you confidence to open up more small stores? And how many small stores you see the company opening up over the next, say, six months to 12 months to 18 months? Thank you.
Adrian Mitchell: Thanks so much for your question. So, on delinquencies, the thing to keep in mind is that we did plan for higher delinquencies this year. We have spoken a number of times over the last 18 months about the credit environment really normalizing. But this was the first time in the second quarter where we actually saw that our projections were more conservative than the actuals. So what we’ve done with the acceleration, particularly that we saw in June and July, is that we’ve adjusted our trajectory per Lorraine’s question that I spoke to a few moments ago. But effectively, what we’ve been doing is looking at that on a regular basis and making the appropriate adjustments for the trajectory of the return to a more normalized environment.
As we think about small-format stores, there are kind of three key things that we think about. The first is the quality of the customer experience. And as we look at a number of factors, including the availability of product, the quality of the experience, there’s quality of service, all these different factors what we’re seeing are very healthy numbers as we think about the performance of these stores and the quality of the experience for the customer. The second thing that we look at is the financial trends of the business. And so, for stores that are comped, we’re seeing healthy year-over-year growth in this portfolio, and we’re getting better. We see lots of opportunity around product, around how we engage customers in the local market.
But even in spite of our learning experience, we continue to see growth in stores that are actually comping. The third thing that we’re excited about is the potential that’s ahead. And so when we think about where customers are, where we can invest, we see a portfolio of healthy big box stores, where we’ll continue to invest, complemented by a large number of small-format stores. We do believe that there is an opportunity to accelerate over the next several months in the time frame that you described, but we’ll be able to share more specifics on that, hopefully, in the coming months and quarters.
Tony Spring: Yeah. And, Jay, I would add that we’re excited in the Macy’s small-format that we now have Polo and Levi’s and Finish Line and Sunglass Hut and now Nike added to those stores. And as Adrian mentioned, looking very carefully at traffic, conversion and a whole host of other metrics to make sure that we are seeing the proof points necessary to expand the portfolio of small doors.
Jay Sole: Got it. Thank you so much.
Adrian Mitchell: Thank you.
Operator: Thank you. At this time, I’d like to turn the floor back over to Mr. Gennette for closing comments.
Jeff Gennette: So, thanks, operator, and for all of you who’s still on the call, I hope that you enjoy the last days of summer, and we look forward to updating you on our results on the third quarter on our November call. Thanks, everybody.
Operator: Ladies and gentlemen, thank you for your participation and interest in Macy’s. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
