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Macy's, Inc. (NYSE:M)
Q1 2018 Earnings Conference Call
May. 16, 2018, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Macy's First Quarter 2018 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead.

Karen Hoguet -- Chief Financial Officer

Hi, good morning, everyone. And Jeff Gennette, our Chairman and CEO, and I would like to welcome you to the Macy's Call to discuss our first quarter earnings and our outlook for the remainder of the year. 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 reconciliation 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 risk specified in the company's most recent Form MA and other SEC filings. I am now going to turn the call over to Jeff.

Jeff Gennette -- Chairman and Chief Executive Officer

Thank you, Karen, and good morning everyone and welcome to the call. As you saw in this morning's release, we continued our momentum from the holiday season into the first quarter. In fact, exceeding our own expectations on most measures. We delivered adjusted earnings per share of $0.48. Comparable store sales were up 4.2% on an owned plus license basis, and when adjusted for the estimated impact of the shift in Friends and Family from the second quarter to the first quarter, comparable store sales were up 1.7% for owned plus license.

I'm pleased to report strong performance across all three brands, Macy's, Bloomingdale's, and Bluemercury, across all families of business and all regions of the country. And it's very encouraging to see the continued improvement in our brick and mortar business. We still have a lot of work ahead of us, but store by store, quarter by quarter, we are on the path to return Macy's Inc. to consistent comparable store sales growth. Based on the strong start to the year, and the healthy macro environment, we are raising both earnings and sales guidance for the year. We now anticipate annual comparable store sales in the 1 -- 2% range for owned plus licensed, which is a one-point lift from our prior guidance. And we anticipate that annual earnings per share will be in the $3.75 -- $3.95 range, which is up $0.20 from our prior guidance.

Karen will take you through the details of the quarter, and give you some additional context on guidance, but before she does, I want to give you some perspective on the first quarter and an update on our strategic initiatives.

So, looking at the quarter, we did have the wind at our back as consumer spending remained strong and we saw significant improvement in international tourism spending. We anticipate this to continue through the year. But in addition to healthy spending trends, the team is also executing really well. We have a very healthy inventory position, which helps our margins and our fashion freshness. Our focus merchandising strategies have resulted in great assortments and great strong fashion in our stores. The new loyalty program is having the intended impact on the spending patterns of our best customers. And we're taking the necessary steps to improve the customer journey, both in our stores and when she's shopping online and it's starting to pay off. Average Unit retail, or AUR, was up 5% in the first quarter compared to last year.

It is encouraging to see the continued improvement in brick and mortar. We also continue to see sales pick up in nearby stores and markets where we've closed stores last year. And our digital business continues with double-digit growth. We also saw strong performance across all regions of the country and all families of business. In center core, fine jewelry was a standout performer, including our proprietary Star Signature Diamond Collection. We also saw improvement in accessories, handbags, and sleepwear, largely driven by our private brands. In beauty, we found meaningful lift in AUR for the quarter driven by fragrances for both men and women, as well as skincare. We also saw standout performance in men's tailored clothing, in kids', dresses, active, and home.

So, all in, the first quarter was a good one for us. And I'm pleased to see our fourth quarter momentum continuing into the new year. So, when we look ahead at the rest of 2018, our growth plan is built on ongoing improvements and execution, continued strength in merchandising, and key strategic initiatives. I want to take a few minutes to take you through the five strategic initiatives.

So, first is our Star Rewards Loyalty Program. You'll remember in October that we launched the first stage of the Star Rewards Program, and our customers are responding enthusiastically. At the platinum level, our most valuable customer is spending more with us. And while it is still early, we are starting to see improvement at the gold and silver levels, as well. Last week, we rolled out the second phase of our loyalty program, which includes a tender-neutral option, allowing customers to participate in the loyalty program without having a Macy's credit card. This is what we call our bronze tier. There are no spending qualifications and this program is open to all customers, no matter how they pay.

We're also adding more unique, experience-based benefits for our platinum customers. For instance, we're offering -- or we did offer -- private early store hours for our iconic flower show [audio cuts out] New York, and Chicago, and San Francisco locations. These new benefits will increase brand engagement and customer retention.

The second initiative is our Backstage expansion. Last quarter, we said we would open approximately 100 additional Backstage locations within Macy's stores in Fiscal 2018. In the first quarter, we opened 18 Backstage locations. We expect to open approximately 40 more locations during the second quarter. We're expanding Backstage to some of our premium malls and to the Westcoast for the first time. We also announced that we're opening a new distribution center in Columbus, Ohio, dedicated to Backstage. This will allow us to move merchandise to our Backstage location faster and with more flexibility.

The third initiative is the expansion of products available for sale on our website, shipped directly from our vendors, or what we call, "Vendor Direct." We're significantly increasing our online assortment in select departments. In stores, our customers will continue to find curated, localized assortments. And on Macys.com, they will have access to an endless aisle curated through personalization.

In the first quarter, we started the Vendor Direct expansion and expect to have it fully under way by the fall season.

The fourth initiative we were focused on this year is store pickup. We're offering more options for pickup and delivery, including the expansion of buy online, pickup in-store, and the implementation of buy online, ship to store, or what we call BOSS. In the first quarter, we're focused on the rollout of At Your Service counters, which makes picking up orders in our stores, be it BOPS or BOSS, quick and easy. By August, these will be in almost every single store.

Our fifth initiative is what we call the Grow 50. These are 50 stores where we are implementing the best of what we tested in 2017. This work will complete in time for the fall season and we intend to come out of the year with a model that we can scale. We're making a point of visiting each of the Grow 50 stores, and I'm very excited by what I'm seeing. From merchandising strengths and strategies, more staffing in key areas, facility upgrades, as well as local marketing plans. And what's really striking is the renewed energy of our colleagues that they are putting into serving our customers.

So, those are our 2018 strategic initiatives. We do anticipate that much of the impact of these initiatives will fall into the second half of the year, but we're already beginning to see some benefits, including from the earlier Backstage openings. While the strategic initiatives are key components of our 2018 growth plan, we're also looking more broadly at what we need to do to improve the customer experience.

A few weeks ago, we announced that we had acquired Story, a concept store in New York City. For those of you that are not familiar with Story, the space reinvents itself every 6 to 8 weeks, highlighting new themes that bring new customers in and keep existing customers coming back to see what's next. We're not in the commodity business. We're in the experience business. And Rachel Shechtman, who is Story's founder and CEO is now Macy's first Brand Experience Officer. Rachel has a clear vision of how merchandising and marketing strategies come to life in a store and we're very excited to have her and the Story team join us at Macy's.

In the first quarter, we also introduced new technology both on our mobile app and in our stores that will help us eliminate friction from store visits and improve the shopping experience. One of these initiatives is mobile checkout. We know that the checkout process can be a pain point for our customer. With mobile checkout, we are speeding things up. Customers can scan a product with their Macy's app, pay with a stored credit card, and then go to a dedicated counter to remove security tags. We call it, "Scan, Pay, Go." We've been testing and fine-tuning Mobile Checkout, and we plan to roll it out to every Macy's store by the end of the year.

We're also using virtual and augmented reality to help grow our furniture business. We like this business because it's high margin, but it's also a very high touch business. And like many of our competitors who have been looking at VR and AR, in furniture, we have found a practical application. We're piloted VR in three of our furniture stores and found that it significantly increased transaction size and also reduced returns. Using VR allows us to offer a full range of furniture in roughly half the space. So, we're now scaling this to 60 more stores this year.

We've also launched an augmented feature -- reality feature -- on our mobile app that allows customers to see furniture in their actual living spaces. We've rolled it out to a portion of our app users as we test and learn, and today it's been very well-received.

So, as you can see, a lot is happening with the Macy's brand. But let me take a minute to touch on Bloomingdale's and Bluemercury. Both had a great first quarter. So, Bloomingdale's opened its newly remodeled shoe floor at the flagship 59th Street location in New York City. All women's shoes have now been relocated to a single floor that's more than 25,000 square feet. This is a 40% increase over prior shoe floors. There are more than 100 brands, 17 that are new to Bloomingdale's and 34 that are exclusive. It's aligned with what Bloomingdale's customers want and love, and initial feedback has been very positive.

Bluemercury also had a great quarter. It's [audio cuts out] part of our business, but it's growing at a rapid pace. They launched a number of new products under their private labels, Luna Aster and M61, which have performed well. We continue to see potential for Bluemercury stores, both freestanding and within Macy's stores. We anticipate opening approximately 25 additional freestanding Bluemercuries this year.

Before I hand it back over to Karen, I do want to note that a significant factor in our improved performance is that we have the organization aligned, focused, and rowing in the same direction. On our last call, I described a path to growth incentive that we've implemented this year. This puts every Macy's colleague, full-time, part-time, hourly, and seasonally on an incentive program tied to our growth plan. And I'm pleased to say that about three-quarters of our eligible colleagues made bonus in the first quarter. I'm both proud and encouraged by the energy and engagement that I see that are out in the stores, in our call centers, and in our warehouses.

So, overall, we feel good about the quarter and the path we are on for 2018. This is the most competitive retail environment I've ever seen. And we know that we need to get up every morning committed to winning our customers' business. We're making the right investment in the business, focusing on areas where we see the best returns and are confident this will support our commitment to growth in 2018.

And now I'm going to hand it back over to Karen, who will take you through the numbers.

Karen Hoguet -- Chief Financial Officer

Thanks, Jeff. So, as Jeff said, sales, earnings, and cash flow all surpassed our expectations in the first quarter. Sales in the first quarter were $5,541,000.00, up 3.6% versus last year. We're up 4.2% on a comp-owned plus licensed basis. As Jeff mentioned, we benefited from the timing of the shift of our Friends and Family event. We estimate that this shift is worth 250 basis points. So, excluding the shift, comp sales on an owned plus licensed basis are estimated to have been up 1.7%.

We are getting lots of questions this morning about whether this adjustment includes the calendar shift, as well. It does not. This is consistent with what we experienced in 2013. It's, frankly, hard to measure that because when we follow a 53-week year, we shift promotional events around. We do not think the impact is meaningful, although there is a slight benefit in the first half and a slight negative in the second half of the year.

As Jeff said, we saw improvement in both our digital and store's business with particularly strong performance at Bloomingdale's. In addition to our improved execution and our North Star Strategy, we believe we benefited from both stronger customer spending and an increase in international tourist business. International tourist sales were up close to 10% in the quarter, which is only the second time since 2014 when we experienced an increase.

Total transactions were up 1% in the quarter with average unit retail up 5%, and units per transaction down 2%. This increase in average unit retail reflects the higher regular price selling and distorted growth in our strategic businesses, like fine jewelry, dresses, handbags, and furniture. Additionally, as a result of having significantly less, and also much fresher inventory this year, there was less selling in the quarter of deeply discounted clearance merchandise.

Credit card revenue net was $157 million in the quarter versus $161 million last year. This, too, was better than expected, primarily due to higher balances. This is resulting largely from higher credit sales and new accounts, also, in part due to our new loyalty program, which as Jeff said, was launched last fall. Penetration on our private label cards was approximately 45.5% in the quarter, which is just slightly above last year. This compares, though, to the 90 basis points decline in penetration that we experienced both in the fourth quarter and the full-year of 2017.

Gross margin as a percent of net sales for the quarter was 39%, up 70 basis points over last year. We benefited from the much-improved inventory position during the quarter and we ended the quarter with 5% less inventory on a comp basis.

SG&A dollars in the quarter were $2,083,000,000.00, or 37.6%of sales. This compares to $2,057,000,000.00, or 38.5% last year. This increase in dollars is driven primarily by the investments we're making to support the North Star strategy such as digital, to grow 50 stores, Backstage, and the new Path to Growth Incentive Plan. The savings from the change in the tax law is helping to offset these sales-driving investments. Asset sale gains were $24 million in the quarter, $44 million lower than last year. Remember that this year's asset sale gains are expected to be backend-loaded into the fourth quarter when we are assuming that we will sell the I. Magnin Building on Union Square in San Francisco, as we discussed last quarter.

We booked $19 million in impairment and other costs in the quarter, primarily associated with a decision to end our China joint venture. We will continue to have an ongoing presence on Alibaba's Tmall platform, as well as social media channels in China, but it will now be managed by our digital operation in San Francisco. We expect to book an estimated additional $10 million over the next few quarters related to this change in approach.

Benefit planning comes next with $11 million versus $13 million last year. Consolidated EBIT in the quarter was $294 million, or $268 million before the impairment and other costs. This compares to $232 million last year. And excluding asset sale gains, EBIT on this basis was $80 million or 49% over last year. Interest expense was $66 million, down from last year's $84 million due to our debt reduction. Tax expense in the quarter was $52 million, or 28.4% of pre-tax income. This represents a $16 million reduction from last year, and approximately 19 points lower as a rate.

Net income attributable to Macy's Inc. shareholders in the quarter was $139 million versus $78 million last year. And excluding asset sale gains in both years, the impairment, and other costs this year, and the premium on early retirement of debt last year, net income was $93 million higher than last year. EPS on a diluted basis excluding the impairment and other costs in the quarter this year and the premium on early retirement of debt last year was $0.48 versus $0.26 last year. And when we exclude asset sale gains as well, EPS was $0.42 this year versus $0.12 last year.

Cash flow was strong, as well, in the quarter with an $85 million dollar increase in cash provided by operating activity. We spent $13 million more in CapEx and received $73 million dollars less in proceeds for property and equipment sales this year.

It really was a great quarter on every metric. We exceeded our expectations, and as a result, are increasing what we expect for the full-year.

[Audio cuts out] we are now assuming a comp owned-plus-licensed increase of 1 to 2% for fiscal 2018, as compared to the assumed 0 to 1% previously. Comp sales on an owned basis are assumed to increase by approximately 20 to 30 basis points less than the comp on an owned-plus-licensed basis. And total sales are now expected to be down 1% to up a 1/2 %, versus down 2 to down a 1/2%. Remember that total sales are impacted by the fact that fiscal 2018 has one week less than 2017. The comp sizes, however, is stated on a comparable 52-week basis.

We still expect comp sales on an owned, as well as owned-plus-licensed basis in the second quarter to be negative due to the friends and family shift. However, comp sales on an owned-plus-licensed basis are now expected to increase 1 to 2% for the first half of the year, the first and second quarters combined. And total sales for the first plus second quarter, or the first half of the year, are now expected to be flat to up 1%.

As we have discussed, we are benefiting from stronger than expected external factors, as well as the earlier execution of some of our strategic initiatives. We still expect the comp sales in the back half of the year, or what we call the fall season, to exceed that of the spring season due to the ongoing rollout of our strategic initiative. Remember though that last year we had a much stronger fall season than spring. So, that will impact the degree of improvement as we year-round on the stronger performance, particularly in the fourth quarter.

We are also increasing earnings guidance by $0.20 a share to $3.75-$3.95, excluding anticipated pension settlement, impairment, and other costs. This increase is the result primarily of the strong first quarter performance, the better second-quarter expectations, as well as an increase in our assumptions for annual credit card revenues to $675 to $690 million dollars. All of our other assumptions are unchanged.

Like I said earlier, it was just a terrific first quarter all around. It's encouraging to see the business getting stronger, and I feel good about both our own plans, as well as the external environment in which we're working. Spirits are up and this is an organization that is committed to winning and getting better every day.

So, with that, Jeff and I will take your questions.

Questions and Answers:

Operator

Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypads. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question.

We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Lorraine Hutchinson of Bank of America. Please go ahead.

Lorraine Hutchinson -- Bank of America -- Analyst

Thank you, good morning. Karen, I just wanted to confirm. So, you talked about the second half comp guidance now being better than the 1 to 2 in the first half. Is that correct?

Karen Hoguet -- Chief Financial Officer

Yeah, what we had said in February, and we would say again now, is that we do expect the fall season to exceed the spring. But want to remind people that the second half is a much harder comparison, so you really have to look to some degree on two-year numbers. So, we do expect the fall to be better, but maybe not by the magnitude that you might have thought for two reasons. One is the fact that the fall, and particularly the fourth quarter is a harder comparison. But secondly, the spring has gotten better, as well, with the earlier execution of some of our initiatives. So, we still expect Q2 to be higher than -- I'm sorry. The back half of the year to be better than the first half of the year. We're just cautioning on the degree of the difference between those two.

And again, all of that is reflected in our guidance. So, the big increase has been in the spring season, as opposed to the fall.

Lorraine Hutchinson -- Bank of America -- Analyst

Thank you. And then when you look back on the first quarter, were there any challenges posed by the very cold, weather, or is there anything you can talk about in terms of cadence or how the quarter unfolded versus your expectations?

Jeff Gennette -- Chairman and Chief Executive Officer

To Lorraine, it's Jeff. I didn't see, and we didn't see really any material difference in our business based on weather. You had some markets that were affected and you had some markets that were positive. So, in aggregate, it did not have a significant impact on business at all.

Karen Hoguet -- Chief Financial Officer

And the quarter was good every month, in fact, every week. So, the consistency of the good performance was really important as we're looking at the first quarter.

Lorraine Hutchinson -- Bank of America -- Analyst

Great, thank you.

Operator

We will now take our next question from Bob Drbul of Guggenheim Securities. Please go ahead.

Bob Drbul -- Guggenheim Securities -- Analyst

Hi, good morning. I guess, the question that I have is on the friends and family, the year-over-year, was the 30% off the same as it was last year? And can you just talk a little bit --

Jeff Gennette -- Chairman and Chief Executive Officer

Yeah.

Bob Drbul -- Guggenheim Securities -- Analyst

So, it was. And from the perspective of, like the trend throughout the quarter, you said weather didn't have an impact. But around the comparisons as you look into the second quarter, can you just talk a little bit about how much you feel like you pulled forward? I think you said it was going to be a negative comp.

Karen Hoguet -- Chief Financial Officer

Well, no. The only thing that we pulled forward was the friends and family even. So, in the first quarter, it's worth 250 basis points. In the second quarter, it's worth about 240 basis points because it's a bigger quarter, but roughly the same. So, whatever the second quarter turns out to be, add 240 basis points to that. And that would be the comparable to the 1-7.

Bob Drbul -- Guggenheim Securities -- Analyst

Got it. Okay. Okay, great. And then just within the Backstage initiative, can you just provide an update on category learnings as you continue to roll this out versus what's in the traditional store?

Jeff Gennette -- Chairman and Chief Executive Officer

So, Bob, it's as we discussed on prior calls. The strength of Backstage continues to improve. The standout categories remain shoes and home store, but we're getting traction really across all categories, which would be beauty and the apparel areas in kids', women's, and men's. And so, what we're doing is we're tailoring the assortment depending on what building that we're in.

And we're strongly advantaged by having Michelle Israel, who basically leads Backstage. But she also leads Bloomingdale's Outlet. So, she's been at this for some time with the successful strategy that we're implementing in Bloomingdale's Outlet. And she has the full scope of a vendor menu that really spans all different price points that we can now [audio cuts out] on whatever store it's in.

So, as you heard us say earlier, our objective with Backstage is to start to test that in premium malls in 2018, as well as touring the Westcoast for the first time. So, we're still in the early innings of Backstage, and we're layering on another hundred-plus stores in 2018, 18 of which we opened in the first quarter.

Bob Drbul -- Guggenheim Securities -- Analyst

Great. Thank you very much.

Operator

We will now take our next question from Matthew Fox of JP Morgan. Please go ahead.

Matthew Fox -- JP Morgan -- Analyst

Great, congrats on a nice quarter. And Karen, if this happens to be your last quarter, congrats on moving to the next chapter.

Karen Hoguet -- Chief Financial Officer

Thank you.

Matthew Fox -- JP Morgan -- Analyst

Jeff, with two straight positive comps, I guess, if you broke down the drivers of the topline inflection that you're seeing, how would you rank the impact of the stronger consumer backdrop and some of the macro factors such as tourism versus what you're seeing and doing from a company-specific execution standpoint? I know you have a laundry list of initiatives. I guess, what's the best way to think about what are you seeing and where are you seeing the earlier than expected benefits? And what are you the most excited about incrementally for the back half?

Jeff Gennette -- Chairman and Chief Executive Officer

Okay, so I think the backdrop of a very healthy consumer is the tailwinds that Karen is referring to certainly helping us. I think that the international tourism, it's good to have that in the plus column. And what we started to see in the fourth quarter and what we certainly showed up in the first quarter, that trend, we believe, is going to take us all the way through 2018, at least.

As you get to the execution issue, let me just kind of step back a bit. I think when we made the announcement last August, we really announced two things. We announced the new massive simplification of three organizations that went down to one merchant organization, and we also announced the hire of Hal Lawton. And these two things have really helped our execution, starting with the kind of the structure, massively simplified the merchant structure. We have five great merchants that are leading each of the families of business that are veterans that I'd go into battle every day with them. And they're led by one amazing chief merchant, which is Jeff Cantor, who really is just breathing new life into our merchant organization.

And I think if you asked our partners or our vendors, they would say of Macy's that we're operating now with courage and more speed and more agility. That we're making calls, and the divisionals are making calls without oversight. There's less meetings and just more accountable people. So, I think the new structure is really helping us in execution. Then you add Hal to the mix and I think that Hal is a very disciplined, and he's just got very solid retail chops. I think we're getting on to a more disciplined operational cadence. And you couple that with his deep technology background that is really primarily focused on improving the customer experience. And he's just very comfortable and confident in making decisions and tough calls. And we're moving better and faster as a result of his leadership and his work with all of our veteran teams.

So, as you think about the back half of your question, which is which of these initiatives do I believe give us the most continued traction, you'd have to put on there, Backstage. Vendor Direct is a big opportunity for us. And we start picking momentum up on that. We've obviously done Vendor Direct in the past, but the idea about adding new contact and new categories onto that, which we will do a lot through our relationship and partnership with Commerce Hub, that comes on in the back half of the year, and in the new loyalty program is obviously bringing us new customers that are more engaged with us. And then the last thing I'd say, Matt, would be really the Growth 50, which is our brick and mortar initiative to get each of these 50 stores right. And you're going to see, and I can talk about that later. But that is really one of the most exciting things that we're doing right now.

Matthew Fox -- JP Morgan -- Analyst

Great. And then just a follow-up. Karen, on the gross margin front, can you just touch on the drivers of the outside merchandise margin this quarter? I guess, how best to think about 2Q, given we still have somewhat of an easier compare? And then as we think forward, what's the best way to think about the spread between inventory and sales on a multiyear basis?

Karen Hoguet -- Chief Financial Officer

Let me start with gross margin in the first quarter, the merchandise margin was actually up a little higher than the gross margins because, again, the gross margin gets negatively impacted by the growth in digital and the free shipping associated with the loyalty program. What we've said about margin for the year is that we expect it to be flat to up slightly. And so, again, I'd hold with that, and we'll see from there. But there's nothing that happened in the first quarter that should reverse in the second quarter. So, the first quarter is clean from that perspective.

In terms of inventory, one of our key initiatives is to improve our inventory turnover over time and over multiple years. So, Hal and Jeff Kantor and the teams are working very hard on that, in part to help working capital, but frankly, more so to improve sales and margin. And so, I'm pretty excited about that, but I don't yet know the magnitude of that over time. But you could see that to be an important initiative for us going forward.

Matthew Fox -- JP Morgan -- Analyst

Great. Best of luck.

Karen Hoguet -- Chief Financial Officer

Thank you.

Operator

We will now take our next question from Paul Trussell of Deutsch Bank. Please go ahead.

Paul Trussell -- Deutsch Bank -- Analyst

Good morning, Jeff, and congratulations, Karen. Wanted to just think about, in hindsight, if you could provide insight on what your internal expectations were for first quarter comps, gross margin, and EPS. Really just trying to better understand how we should think about the raise in full-year guidance, to what extent it was related to the beat in the first quarter performance, or your expectations or increased outlook for 2Q and beyond.

Karen Hoguet -- Chief Financial Officer

Yeah, I'm not going to tell you what our plan was for the first quarter. We did beat it on every line. But again, I would focus on the two key things we talked about. The increase in sales guidance with no change, really, in the margin and expense. It was really all driven by the extra point of sales. And also the change in the credit revenue, much of which happened in the first quarter, so that's not all incremental to the rest of the year.

Paul Trussell -- Deutsch Bank -- Analyst

Got it. And then while you've touched on this, in terms of kind of ranking the impact to the raise in the point of comp to the full-year, how would you break down or prioritize the impact of tourism, or the loyalty program, you've mentioned Backstage and merchandising. How should we think about that order?

Karen Hoguet -- Chief Financial Officer

Honestly, I can't give you a breakdown. I would just assume that's all in the mix as we raise the guidance.

Paul Trussell -- Deutsch Bank -- Analyst

Fair enough. And then lastly then, on gross margins, as you just spoke about the merchandise margins were very strong in 1Q. Why should the full-year still end up in the flat to just up slightly range? I was surprised that wasn't adjusted.

Karen Hoguet -- Chief Financial Officer

Well, remember, this includes the digital delivery. And as the platinum customers and gold customers in our Star Rewards program keep increasing their shipments with Macys.com, that does go through gross margin. We also had a good gross margin performance in the back-half of the year, and the first quarter, as you remember from last year was really not very good. Some opportunity in Q2, but it was really Q1, and the comparisons get harder as we get to the fall season.

Paul Trussell -- Deutsch Bank -- Analyst

Understood. Thank you and best of luck.

Karen Hoguet -- Chief Financial Officer

Thank you.

Operator

We will now take our next question from Chuck Grom of Gordon Haskett. Please go ahead.

Chuck Grom -- Gordon Haskett -- Analyst

Thanks, good morning. Jeff, incentivizing your employees is always a good thing. Curious how much you think that decision to tie comp to sales across the chain may have helped sales in the quarter?

Jeff Gennette -- Chairman and Chief Executive Officer

It made a difference, Chuck. It's hard to quantify that and I think as we saw in the incentive program that we did in the pilot that we basically did in the back-half of 2017 -- and that's what really informed our decision to do it companywide in 2018. What we found is once they get that first paycheck, these frontline colleagues -- and these are part-time dock associates, these are frontline associates that are serving customers, call centers, warehouses, these are our corporate colleagues -- that when they get that first paycheck for that quarter, that what it does is to kind of reinforce great behaviors and how they can live the North Star strategy the next quarter.

So, we think this is nothing but good news. And again, it was almost three-quarters of our full colleague population. We have 130,000 employees that benefited from this. They get that in their paycheck, particularly our frontline colleagues. They get that in their paycheck in the next week, or next two weeks. So, we know that's going to make a difference in reinforcing behaviors that we've seen them exhibit with such courage in this first three-month window of the quarter. So, I do think it's made a difference, but hard to quantify how much of our momentum right now is attributed to it. It's all part of it.

Chuck Grom -- Gordon Haskett -- Analyst

Alright, great. And then just on tourism, when you look back, when the business from tourism starts to turn, just how long do you think that benefit can last you and is it possible to quantify what the lift was?

Karen Hoguet -- Chief Financial Officer

It's really hard to know how long it's going to last. We know that the negative lasted a long time. So, my hope is that the positive does, as well, Chuck, but I don't know the answer to that.

Chuck Grom -- Gordon Haskett -- Analyst

Okay. And then one last one for you, Karen. Just leverage ratio's around 2.8 times. I think it's a touch above your comfort zone, but given back-to-back quarters of good sales here, how are you guys thinking about stock buybacks in terms of capital allocation?

Karen Hoguet -- Chief Financial Officer

I think the issue is we still need to get the leverage ratio to the target level. And that continues to be the priority. Should the EBITDA significantly improve versus what we would have expected, such that that happens faster, that could change. But at this point, we are still anticipating debt reduction being the use of excess cash.

Chuck Grom -- Gordon Haskett -- Analyst

Okay, congrats again.

Operator

We will now take our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great, thank you so much. Karen, I wanted to just follow-up on Lorraine's question on the monthly comp cadence here in Q1. And I think you mentioned every week was good, and there was consistent performance throughout the quarter. Is this compared to your plan? Or is this consistent performance relative to the 3.9% comp that you reported this quarter?

Karen Hoguet -- Chief Financial Officer

No, it's compared to our expectations. Obviously, depending on the timing of promotions it can be up and down relative to the 4-2 OL, but relative to our expectations, it was consistently a strong quarter, week in, week out, month in, month out.

Jeff Gennette -- Chairman and Chief Executive Officer

Kimberly, we had our [inaudible] obviously. So, the big shift for us in the first quarter was the Easter shift. So, when you look at the combination between March and April, we got the planning of this one right, and that's what Karen's referring to in terms of exceeding our expectations in the way we planned the weeks. We planned the Easter shift right, and the friends and family shift that we've described that's affected the first quarter performance. We planned that right, as well.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great, OK. That's super helpful. And then I think you mentioned that the average unit retail price in the quarter was up 5%. Karen, I think you said that was because last year contained a lot of markdown selling. I think looking back at the comments you made last year, it was because of the carryover inventory from the fourth quarter. But given that it was such a significant driver here in the first quarter, I'm wondering how we should think about the AUR throughout the rest of the year.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Karen Hoguet -- Chief Financial Officer

Well, I said it was due to two factors. One is the one you mentioned. The second was a much higher AUR in regular price selling driven by the growth in our strategic categories, fine jewelry, dresses, that I had alluded to and talked about on the call. So, it's really both factors. One is ongoing and the other is more temporary. So, we don't forecast AUR increases, but it isn't all due to the clearance merchandising less. What really encouraged us was the strong increase in AUR in the regular price selling.

Jeff Gennette -- Chairman and Chief Executive Officer

I think the merchants are doing a very good job of really putting all of our goods -- packing them with value and really going after the fashionable spender, which is really our sweet spot. So, the sell-throughs on that product at higher AURs is really healthy right now. So, just to amplify the second part of Karen's point. Fashion is selling. We're getting better sell-throughs and we're getting more value for it.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great. Thank you both so much.

Karen Hoguet -- Chief Financial Officer

You're welcome.

Operator

We'll take our next question from Paul Lejuez of Citi. Please go ahead.

Paul Lejuez -- Citi -- Analyst

Hey, thanks, guys. Karen, with the launch of the tender-neutral card, do you build into your expectations any decline in credit penetration or do you assume that that stays consistent?

Karen Hoguet -- Chief Financial Officer

We think it should stay consistent because you continue to get better benefits if you use our card. So, if you're a cardholder, you're going to always want to use your card versus take advantage of the tender -- the bronze level or where you don't have to use our credit card. So, while I would say that is a risk we've considered, we think we have the risk contained and that should not be an issue. And we're hoping that it gets further engagement from the half of our customers who don't use the credit card, which will help sales.

Jeff Gennette -- Chairman and Chief Executive Officer

I would just amplify that, Paul. We're staying very disciplined in making sure that the tiered benefits between bronze, silver, gold, and platinum are really clear and the customer clearly sees the step-up. So, the fact that they're a bronze player and they can pay in any payment type, we're going to make sure they're very clear about what they get if they were to change what level they go to, and those will be increased benefits. So, we're very hopeful that we're going to get new customers into our credit portfolio as a result of introducing the bronze program.

Paul Lejuez -- Citi -- Analyst

Got you. And then, Karen, I think the comp metrics that you gave for the quarter include that friends and family benefit. Is there any way you can talk about outside of that friends and family period? What were the comp metrics and the traffic ticket AUR [sic] basis? Thanks.

Karen Hoguet -- Chief Financial Officer

No, I can't. We'll give it to you when we finish the second quarter and we do the spring. We don't have that restated.

Paul Lejuez -- Citi -- Analyst

Okay, and how about if you look at friends and family versus the same promotion last year? How did it perform? Right, when we cross over quarters, now. But I'm just curious if you just separate that one event and look year-over-year, how did it perform?

Jeff Gennette -- Chairman and Chief Executive Officer

It performed better for both Macy's and Bloomingdale's. And to the earlier question, it was the same discount. But the customers responded better to it this year based on the fashion content that we had, as well as some of the exclusive product that we had at both Bloomingdale's and Macy's. So, we were pleased with its performance.

Paul Lejuez -- Citi -- Analyst

Great. Thanks and good luck, guys.

Karen Hoguet -- Chief Financial Officer

Thank you.

Operator

We will now take our next question from Brian Tunick of RBC. Please go ahead.

Unknown Analyst -- RBC -- Analyst

Good morning, thanks for taking our question. This is [inaudible] on for Brian. First, I wanted to ask about the Backstage lift you've been seeing as now you've added more stores. I believe in the past, you had mentioned a high single-digits lift to the overall store comp when you added a Backstage to an existing store. Is that, sort of, the lift you are still seeing? And do you still have new customers coming in for that concept where the Backstage store has been open now for over a year?

Jeff Gennette -- Chairman and Chief Executive Officer

So, your question is suggesting one of the things that we were most interested in seeing, which was how would Backstages within a Macy's perform in the second full-year after anniversarying its introduction. And what we've talked about is that the introduction means the seventh [sic] building versus buildings of that control set. And what we're seeing now are those where we opened up Backstage in 2016 and in the beginning of 2017 that we are getting positive comps in those stores in that Backstage location. So, that is really good news for us.

As to the conversation about existing versus new customers. So, existing customers are clearly -- when they're experiencing both Backstage and the full-price side on a store that has both, they're spending more and they're visiting more often. So, that is always good news for us. We have not marketed, really, Backstage outside of the inaugural opening in a particular market. We don't market it nationwide. And when we get to more critical mass, we will do that. And with that, we expect that we will be expecting more broadly new customers into it. But right now, it's working quite well with getting more spend with existing customers. And as mentioned, the growth rate of it is disproportional in those Backstage locations that have been open more than a year. So, that's all good news.

Unknown Analyst -- RBC -- Analyst

Oh, great. Thank you. Then I believe you mentioned the strong recapture of sales from closed stores here in Q1. Does this recapture opportunity and the very strong, obviously, e-commerce sales make you maybe reconsider the optimal store count for Macy's?

Karen Hoguet -- Chief Financial Officer

That's always in the math, is we think about the store count. So, I don't think it makes us reconsider the store count. But it is great news that we have been able to retain the sales in nearby stores as well as online.

Unknown Analyst -- RBC -- Analyst

Great, thank you very much.

Operator

We will now take our next question from Oliver Chen of Cowen and Company. Please go ahead.

Oliver Chen -- Cowen and Company -- Analyst

Hi, thank you. Nice, solid results. Congrats. Regarding the brand experience, and as you're thinking about what you can do there and through the lens of curation, culture, and convenience, what are your thoughts on what will be more short-term opportunities versus more long-term opportunities as you reinvent the store in a customer-centric basis? I think related to that is the Growth 50 and would love your hypotheses on which are the more profound differences in the Growth 50 which could be ported over to your larger store base. Thank you.

Jeff Gennette -- Chairman and Chief Executive Officer

Hi Oliver. Let me talk first. I think that if I had to, kind of, sum up, I think on the curation comment that you're making, that's certainly what we're looking to do with our brick and mortar portfolio is to make sure that we've got the best possible assortment localized at a store level, and you're seeing us make much more aggressive edits and really amplifying the fashion of the trends and the brands that remain. And we tested that all the way through 2017. You're seeing us do that in 2018. So, that continues. I think in terms of the convenience question, us being able to make sure that wherever a customer wants to shop, if she's browsing online but she wants to feel the fabric in store, if she wants to get into a store but get out, how can she transact without having to deal with any friction? That's why we have mobile checkout. Making sure that we've got all delivery models, including same day delivery for that last mile imperative. We've got that very well-focused.

In terms of making sure that the store experience is heightened, that just to lead you into how we're thinking about that is really the nexus of what we're doing with the Growth 50. And really, the recent acquisition of Story, and really all we're doing with marketed Macy's.

So, let's just start with Growth 50. So, Growth 50 was something where we sat down and looked at, how are we going to improve our trend in brick and mortar? It was all with the thesis that Macy's was going to do best when we've got robust digital growth, we've got healthy brick and mortar, and we've got a mobile platform that connects customers to all channels. And so, we had the mobile piece well on-way. We had the digital growth obviously percolating and we're driving that very successfully. Brick and mortar needed a lot of work.

And so, we took 50 doors that are representative of a lot of other doors. And we're focusing on the 5 Ps, which for us are product, presentation, process, promotion, and making sure that they are right. And the fifth is really people. And so, what we're doing on each of those 50 doors is really looking at hyper-curated assortments, making sure that the facilities are in great shape. That we're putting capital into those buildings, but modest capital so that it can be scaled with what we learned. Really making sure that the marketing is localized. We're bringing communities into the store.

But the big win is really what we're doing with our teams. Great store managers, great operational and sales managers, great frontline colleagues, particularly in those businesses where the customer likes that touch, fine jewelry, big ticket, women's shoes, and beauty businesses. So, all of those, we're in process of completing all that work. We're going to be done with that by mid-third quarter and we expect to have strong growth in those 50 doors. If we do, based on the expense and the capital we're putting into those buildings, that will form our thesis for how we take that into more brick and mortar in future years. So, that is a very important initiative for us.

As it relates to Story and as it relates to marketed Macy's. So, Story is, obviously, you know the store in Manhattan. Rachel Shechtman, the founder of Story, is now the Chief -- she's basically the Brand Experience Officer at Macy's. And we believe that not only will we see opportunities for the expression of Story within Macy's stores, but also her work in really helping connect marketing and merchandising within the store experience, what she's really cut her teeth on over the years that she has been leading this subject. So, very excited about what her leadership is going to be. She reports directly to Hal. Her peers are running marketing, running stores, running merchandising. She's going to work very closely with all of that.

And then marketed Macy's is really our opportunity to take unknown brands or categories that can be hyper-localized in a space that we run and operate, and it brings new ideas into stores in a scalable way with this, kind of, movable feast of content. And so, far, so good. We have, like, 500 vendors and products that are in the queue to come into this. We've got it in ten stores and it's working quite well for us. So, expect to hear more about that in the future.

Oliver Chen -- Cowen and Company -- Analyst

That sounds really innovative, Jeff. As you think about Growth 50 and different CapEx decisions you'll make as you test, read, and react, how do you juxtapose that against thinking about different level productivity stores, whether they be A, B, and C stores, and what you think your footprint should look like in the context of stores really transforming as acquisition points and rethinking the bricks and clicks in a modern way?

Jeff Gennette -- Chairman and Chief Executive Officer

So, I think Growth 50 is representative of, not all of our store's portfolio, but a big piece of it, and certainly in all the premium malls of the nation and certainly the stores that make up the bulk of our business and the majority of our store profits. So, I think we've got -- our thesis on this is that we're going to test all this. We're going to take what works. But one of the driving ambitions of this thing was to make sure that whatever we did was scalable.

So, I've got confidence that we're going to come out of 2018 with what that looks like. There is going to be other stores, in which we're looking at new ways to operate them. They've got positive cash flow. But it wouldn't necessarily make sense for us to invest in them like the Growth 50. But there's new ways we can hit customer expectations, potentially operate them more profitably, and we're hard at work right now figuring out what we're going to do with that subject. So, more to come on that.

Oliver Chen -- Cowen and Company -- Analyst

And lastly, as you know, we've been focused on big data and data driving personalization and loyalty, and data also driving convenience. And you've made a lot of strides with prioritizing data in your organization. Could you just brief us on what we should focus on in terms of your priorities in this subject and how it may impact our models over time? Thanks a lot.

Jeff Gennette -- Chairman and Chief Executive Officer

Yeah, I think again, it's the notion that hyper-curation at a brick and mortar level is -- data will inform that. It's really going to be the crossroads of art and science, and great merchants to understand what's ahead but then also to look at past history, and to look at the particular community of that store and make sure that we're assorting appropriately. Endless aisle, though, online. And where Vendor Direct is taking us is the opportunity to massively expand our SKU count online and then use data to hyper-personalize that at a customer level. So, we're in the beginning stages of that, both in expanding the -- right now, we're at about a 6:1 ratio of online SKUs to an average store. You're going to see us take that ratio much higher, and you're going to see us use data to then personalize that messaging to a customer in the future so that that also is curated like their store, brick and mortar, experience would be. So, expect to hear more from that from us.

Oliver Chen -- Cowen and Company -- Analyst

Very helpful, thank you. Best regards.

Operator

We will now take our next question from Omar Saad of Evercore ISI. Please go ahead.

Omar Saad -- Evercore ISI -- Analyst

Thanks, great quarter, guys. Congratulations.

Karen Hoguet -- Chief Financial Officer

Thanks.

Omar Saad -- Evercore ISI -- Analyst

I wanted to actually ask you about a little bit deeper on the inventory. I mean, they've been running really lean for the last couple of quarters, and it seems like a lot of the initiatives you've put in, and the growing, centralized e-commerce business are you giving you a greater ability to, kind of, turn your inventories faster and do a little bit more with less. Can you expand upon that and how you're thinking about inventory management and how it's evolving in the new digital era, given the potential for single-view inventory, etc. Thanks.

Karen Hoguet -- Chief Financial Officer

I think as I said earlier, it is a high priority for us, but not prepared yet to tell us how low we think it can go. But we absolutely we agree with your premise that both through technology, as well as looking at our business in a way that focuses on curation more, we should be able to bring the inventories down. But again, I can't, today, tell you how much or on what timeframe.

Omar Saad -- Evercore ISI -- Analyst

Perfect. Thanks, Karen.

Operator

We will take our next question from Michael Binetti of Credit Suisse. Please go ahead.

Michael Binetti -- Credit Suisse -- Analyst

Hey guys, let me add my congrats on the performance on the quarter and, Karen, I'll add our best wishes for you, as well. I know. You wouldn't normally comment on May trends, but some other areas of retail this week have seen some really big growth rates as we get into the fiscal quarter. If we run the backout math that, Karen, you helped us with, it looks like you're pointing to about flat to negative 2 in the second quarter, which with the help you gave us on the shift implies that you guys feel like the core is just fine. Do I have the components there correct? And have you seen any context you could put around May, here, as we get into the quarter?

Karen Hoguet -- Chief Financial Officer

We're not going to comment on May. And again, the guidance for the spring season, you have to do your own math, you know, is the 1 to 2 comp and the flat to 1 total sales growth.

Michael Binetti -- Credit Suisse -- Analyst

Okay. And then I guess, Kimberly asked earlier, but on the AUR -- and I know you don't forecast that either -- but that obviously, had kind of, a strange quarter last year in the first quarter. And the baseline, as this year rolls on, you said a couple of these components are continuing and some roll off, but you do start to accelerate Backstage, which I would imagine would be somewhat of a neutralizing impact on the strategic lift you're getting to the AUR that you think would continue. So, I guess the longer-term question is if that is something that you think fades from the 5% level through the year a little bit as we think about our models? And then maybe just a longer-term question is this the first positive transaction count quarter you've had in a while. Is that something that you see is sustainable? You added a lot of components here that you sound like you feel good about in the traffic in the stores. So, I'm just curious how you're feeling about that line.

Karen Hoguet -- Chief Financial Officer

Well, as I said earlier, we don't forecast AUR, so I'm not sure I can help you with your first question. The second question on transactions, I think we need to see the whole spring season before we can respond to that.

Michael Binetti -- Credit Suisse -- Analyst

Okay, fair enough. And then I guess just thinking out a little bit, getting away from the minutiae here in the near-term, are you ready yet to talk about more of how you're thinking about the margin outlook for the business over multiple years? I won't pin you down on a timeframe. I think as we look at the dollar amount that real estate is at, real estate gains have added the last few years, I'm assuming you'd say that probably we're past the peak on the gains there and that that will be less of a contributor starting in 2019 and beyond. So, it becomes more important for us to think about the multiyear margin outlook, and I was curious what you think about this.

Karen Hoguet -- Chief Financial Officer

Well, it's already forecast. Asset sale gains are already forecasted this year to be significantly less than last year. So, that's already happening, which is why you hear us talking more about net income and EPS excluding the asset sale gains, just so you'd see the comparables. But when you think about the fundamental profitability, the net income excluding asset sale gains should grow, particularly as we return the company to comp growth and growth. That's really the key message here. And that's what we're focused on.

Michael Binetti -- Credit Suisse -- Analyst

Got it. Okay, thank you very much.

Operator

We will now take our final question from Dana Telsey of Telsey Advisory Group. Please go ahead.

Dana Telsey -- Telsey Advisory Group -- Analyst

Good morning everyone and congratulations on the continued acceleration. Nice to see. On the private label side of the business, anything that you're seeing there or that we should be looking for as we go through the balance of the year? And Jeff, as you think about the store, the mix of apparel versus other categories, in the future, where should it be? And then, Karen, just on the platinum doors, was their performance more accelerated than the chain average? How do you look at it? Thank you.

Jeff Gennette -- Chairman and Chief Executive Officer

So, I'll take your first two, Dana. So, private brand is healthy. And you've heard us say that in the second of our five North Star Strategy points, which is, "It must be Macy's," It's really all about taking our host of private brands as well as exclusive product with other brands, up to 40% from its current 29%. And we're well on our way on that. And when you look at that and when we're doing it right with a number of our private brands, our margins are better, our supply chain is shorter, and we're getting more value in the products. The AUR is higher than the average. We're having some really great success with a number of our private brands and it's our objective to get all of our private brands performing that way. We feel like we have the right number that are spread across the right FOBs, they're addressing the right lifestyles for our customer. So, we feel good about that.

With respect to mix of apparel versus balance of store, we talked about the eight businesses that we're really focused on, and a number of those are apparel. We have some that are in the center core world, we have some that are in home. And what I tell you is that there's good success stories in each of those. When you look at the overall mix, apparel is not going to grow in the penetration because right now when you're thinking about Vendor Direct, our Vendor Direct first big initiative is to go after the Home Store because there's a lot of non-cannibalizing categories that we'll bring into the mix with that. But we're happy with our overall apparel business and very happy with our accessories business. And so, we're going to be looking at the individual components to grow them more profitably.

Karen Hoguet -- Chief Financial Officer

And relating to, you said Platinum Doors, I'm assuming you meant Growth 50 doors.

Dana Telsey -- Telsey Advisory Group -- Analyst

Yes.

Dana Telsey -- Telsey Advisory Group -- Analyst

Karen Hoguet -- Chief Financial Officer

The first thing I would say, stores of all sizes and flavors did well in the first quarter. As Jeff said, close to 75% of our associates made the bonus, which means they exceeded their sales plan. So, everybody did better across the company. Relative to last year, the Growth 50 doors are accelerating, beginning to, which as we said, is a bit earlier than we had anticipated. So, we feel really good about the outlook for those stores.

Jeff Gennette -- Chairman and Chief Executive Officer

And the other thing I'd say on it, Dana, is that the range of store sizes that are touched by Growth 50 is $20 million all the way to over -- to much bigger than that. So, we are testing, through the Growth 50, all store sizes.

Dana Telsey -- Telsey Advisory Group -- Analyst

Thank you.

Operator

As there are no further questions, I'd like to turn the conference back to your host for any additional or closing remarks.

Karen Hoguet -- Chief Financial Officer

Great, well, thank you all for your interest and support. And as always, if you have other questions, call Monica, call me and we'll do what we can to get your questions answered.

Jeff Gennette -- Chairman and Chief Executive Officer

Thanks, everybody.

Karen Hoguet -- Chief Financial Officer

Thanks.

Operator

This concludes today's call. Thank you for your participation. You may now disconnect.

Duration: 64 minutes

Call participants:

Karen Hoguet -- Chief Financial Officer

Jeff Gennette -- Chairman and Chief Executive Officer

Lorraine Hutchinson -- Bank of America -- Analyst

Bob Drbul -- Guggenheim Securities -- Analyst

Matthew Fox -- JP Morgan -- Analyst

Paul Trussell -- Deutsch Bank -- Analyst

Chuck Grom -- Gordon Haskett -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

Paul Lejuez -- Citi -- Analyst

Unknown Analyst -- RBC -- Analyst

Oliver Chen -- Cowen and Company -- Analyst

Omar Saad -- Evercore ISI -- Analyst

Michael Binetti -- Credit Suisse -- Analyst

Dana Telsey -- Telsey Advisory Group -- Analyst

More M analysis

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