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WHEN: Today, Friday, November 24, 2017
Following is the unofficial transcript of a FIRST ON CNBC interview with Macy's CEO Jeffrey Gennette on CNBC's "Squawk on the Street" (M-F 9AM-11AM) today, Friday, November 24th. Following is a link the full video from the interview on CNBC.com: https://www.cnbc.com/video/2017/11/24/macys-ceo-we-have-a-5-week-marathon-ahead-of-us-weve-got-to-earn-our-dollar-every-day.html?play=1.
All references must be sourced to CNBC.
CARL QUINTANILLA: WELL, LET'S GET STRAIGHT TO IT. THANKSGIVING SHOPPERS GETTING AN EARLY START TO THEIR SHOPPING SPREES. MACY'S OPENED THEIR DOORS LAST NIGHT AT 5:00. AND WE'RE JOINED THIS MORNING, FIRST ON CNBC, BY MACY'S CEO JEFF GANNETTE FOR MORE ON BLACK FRIDAY AND THE HOLIDAY SHOPPING SEASON. JEFF, WATCHED YOU CUT THE RIBBON WITH AL ROKER YESTERDAY MORNING – WHAT A GREAT PERK IN YOUR LINE OF WORK. IT'S GOOD TO HAVE YOU WITH US. I WONDER YOUR TAKE ON WHAT THE JOURNAL AT LEAST, AND WHAT ADOBE IS TELLING US ABOUT THE JUMP OF PEOPLE SHOPPING ON THEIR PHONE AHEAD OF BLACK FRIDAY. IS THAT GOING TO BE EVIDENT TO YOU AND THE WAY IN WHICH YOU TRACK FOOT TRAFFIC?
JEFFREY GENNETTE: YOU KNOW, WE HAD A GOOD START TO THE FOURTH QUARTER. AND BLACK FRIDAY WAS VERY STRONG ONLINE, AS WELL AS THE TRAFFIC THAT CAME INTO OUR STORES LAST NIGHT AND THAT ARE HERE TODAY IN OUR STORES. SO A GOOD START TO THE WHOLE BLACK FRIDAY SHOPPING SEASON.
QUINTANILLA: DOES IT FEEL THOUGH LIKE LESS OF A CRUSH IN THE STORE ITSELF?
GENNETTE: YOU KNOW, ACTUALLY, DEPENDING ON WHERE IT IS IN THE COUNTRY. SO WE'RE BLESSED RIGHT NOW WITH COLD WEATHER. SO IN THE NORTHERN PART OF THE COUNTRY AND IN CERTAINLY HERE IN THE NORTHEAST, THE TRAFFIC IN OUR STORES IS SLIGHTLY BETTER THAN LAST YEAR.
MELISSA LEE: JEFF, I'M WONDERING HOW COMMITTED YOU ARE AT MACY'S TO MAINTAINING PRICE DISCIPLINE WHEN IT COMES TO PROMOTION. WE ALWAYS SEE THIS BIG SURGE OVER BLACK FRIDAY AND SHOPPERS TEND TO WAIT AND THEY KNOW BARGAINS ARE GOING TO COME, SO THEY WAIT UNTIL THE 40% SIGNS COME UP ON A PERMANENT BASIS. ARE YOU COMMITTED TO REMAINING DISCIPLINED OR WILLING TO BANK ROLL DISCOUNTS IN ORDER TO BRING SHOPPERS IN?
GENNETTE: YOU KNOW, I THINK THIS FOURTH QUARTER WAS VERY PLANNED. AND SO WE DIDN'T HAVE ANY CARRY OVER REALLY FROM ALL OF OUR THIRD QUARTER INVENTORIES. OUR INVENTORY WAS IN A REALLY GOOD PLACE. SO WHEN YOU LOOK AT ALL OF THE PROMOTIONS, THEY WERE PLANNED. WE START THE PLANNING PROCESS FOR BLACK FRIDAY AND ALL OF OUR HOLIDAY VALUES, YOU KNOW, A YEAR OUT. AND SO WE'RE IN GOOD PLACE. AND THE PROMOTIONS HAVE RATIONALIZED. WE HAVE LESS PROMOTION THAN LAST YEAR. WE'VE GOT GREAT VALUES PLANNED. IT WAS GREAT TO SEE THE CROWD SHOW UP LAST NIGHT AND ONLINE RESPOND TO ALL THE SPECIALS AND GREAT VALUES THAT WE HAVE. BUT WE'RE IN A GOOD PLACE WITH THAT.
MICHAEL SANTOLI: JEFF, YOU AND OTHERS IN THE INDUSTRY TALK A LOT ABOUT TRYING TO CHANGE THE IN-STORE EXPERIENCE, OR MAKE IT MORE OF A DRAW. WOULD THERE BE A NOTICEABLE DIFFERENCE IN HOW SPACE IS USED, HOW THINGS LOOK IN YOUR STORES ACROSS THE COUNTRY THIS SEASON VERSUS LAST, OR IS THAT JUST SORT OF A BROADER ONGOING PROJECT?
GENNETTE: NO, IT'S A BROADER ONGOING PROJECT, BUT CERTAINLY DIFFERENCES THIS YEAR VERSUS LAST YEAR. WE HAVE A LOT MORE LEASE OPTIONS THAT WE HAVE IN OUR STORES. SO IF YOUR'E HERE IN HERALD STORE AND YOU SEE WHAT WE'VE DONE WITH BETA AND WHAT WE'VE DONE WITH THE SAMSUNG EXPERIENCE, LENS CRAFTERS IS TAKING UP SPACE IN OUR STORES THAT WE DIDN'T HAVE LAST YEAR. IT'S A BIG SERVICE THAT CUSTOMERS EXPECT WITH A STORE LIKE MACY'S SO WE'RE VERY HAPPY TO WITH THAT. BUT WE'RE GONNA CONTINUE TO BUILD ON THIS. WE HAVE OPPORTUNITIES TO BE MORE PRODUCTIVE IN OUR STORES. WE'RE CONSTANTLY LOOKING FOR THE NEXT THING THAT WE CAN BRING BRING IN – EITHER NEW CATEGORIES THAT WE'RE GONNA OWN OR A NEW LEASE PARTNERSHIP THAT WE'LL BRING IN WITH PARTNERS. SO EXPECT THAT WE'RE GONNA GET MORE EVEN INTERESTING IN YEARS TO COME, BUT DEFINITELY WE MADE INROADS AND WE'RE A BEST DESTINATION WITH A BETTER EXPERIENCE THIS YEAR THAN LAST YEAR.
QUINTANILLA: SPEAKING OF MAKING STORES MORE PRODUCTIVE, TIMES DID A PIECE A FEW DAYS AGO ABOUT THE VALUE OF YOUR REAL ESTATE EXCEEDING YOUR MARKET CAP AND THE SUGGESTION THAT THERE'S ROOM TO DEVELOP AT LEAST UPPER FLOORS OF SOME OF YOUR FLAGSHIP PROPERTIES. HOW FAR ALONG ARE YOU IN THAT AND IS THE STREET – DO THEY UNDERSTAND YOUR INTENTIONS, WHERE YOU WANT TO TAKE THAT?
GENNETTE: YES, I'D SAY WE'VE BEEN PRETTY CLEAR ABOUT HOW WE LOOK AT OUR REAL ESTATE PORTFOLIO, AND THE INDIVIDUAL ASSETS THAT WE'VE BEEN MONETIZING, THE BROOKFIELD DEAL THAT WE HAVE FOR THE 50 PROPERTIES AND THEN THE FLAGSHIP PROPERTIES THAT YOU'RE MENTIONING. SO IF YOU LOOK WHAT WE DID WITH SEATTLE, WHERE SOME OF THE UPPER FLOORS -- WE MONETIZED THOSE. WHEN YOU LOOK AT WHAT WE'RE CURRENTLY LOOKING AT AND WE'VE BEEN CLEAR ABOUT STATE STREET AND WE'RE WORKING ON THAT. AND THEN HERE IN HERALD SQUARE – THIS IS A VERY COMPLICATED PROPERTY – WE'RE LOOKING AT EVERY INCH OF THIS FLOOR TO MAKE SURE THAT WE'RE MONETIZING IT APPROPRIATELY FOR SHAREHOLDERS. NOTHING IS OFF THE TABLE, BUT IT'S A COMPLICATED PROJECT AND WE'RE GOING TO TAKE OUR TIME AND WE'RE GOING TO MAKE SURE WE'RE DOING IT RIGHT.
LEE: A WAY TO BRING TRAFFIC IN, JEFF, MIGHT BE A PARTNERSHIP OF SOME SORT. SO WHEN TAKE YOU LOOK AT WHAT AMAZON HAS DONE WITH KOHL'S FOR INSTANCE, WE JUST TALKED TO THE KOHL'S CEO ON POWER LUNCH LAST WEEK, AND HE SAID, IT'S, YOU KNOW, IT'S IN THE EXPERIMENTAL STAGE STILL BUT THE TRAFFIC HAS COME UP IN KOHL'S BECAUSE PEOPLE ARE COMING INTO THE STORE TO RETURN AMAZON GOODS. COULD SOMETHING LIKE THAT BE ATTRACTIVE TO YOU? DO YOU LOOK AT THAT AND SAY, "THAT'S SOMETHING WE COULD DO, TOO"?
GENNETTE: WHAT I'D SAY IS THAT WE'RE LOOKING AT ALL OF THOSE OPPORTUNITIES. ONE OF THE REASONS WEVE BEEN SO BULLISH ABOUT BUY ONLINE PICK UP IN STORE, WITH THE ROBUST ONLINE DEMAND IS FOR THAT EXACT REASON. IS THAT CUSTOMERS LOVE THE EXPERIENCE WHEN THEY COME INTO A BUILDING, BEING ABLE TO SEE THINGS WHEN THEY ARE PICKING UP SOMETHING THEY ORDERED ONLINE. BUT WE ARE LOOKING AT OTHER PARTNERS AND OPPORTUNITIES TO BRING NEW TRAFFIC INTO THE BUILDING IS ON THE TABLE.
LEE: HAVE YOU TALKED TO AMAZON?
GENNETTE: I'M NOT GOING TO COMMENT ON THAT.
SANTOLI: WHEN ARE YOU GOING TO KNOW TYPICALLY IN THIS SEASON IF YOU'VE GOTTEN IT RIGHT? IF THE MIX IS RIGHT, IF THE QUARTER IS PACING THE WAY YOU EXPECTED WITH THESE PLANNED PROMOTIONS?
GENNETTE: YEAH, WHAT I'D SAY IS THAT WE'VE HAD A VERY STRONG START TO THE FOURTH QUARTER. AND YOU KNOW, WE'RE FOUR WEEKS IN TO IT, WE'VE GOT FIVE WEEKS, BIG WEEKS AHEAD OF US. THAT'S A MARATHON FOR US. SO WHAT WE'RE REALLY FOCUSED ON MAKING HAPPY CUSTOMERS AND EARNING HER DOLLAR EVERY SINGLE DAY. SO WHAT WE LOOK AT IS OBVIOUSLY HOW THE REGISTERS ARE RINGING, AND HOW THE CUSTOMERS ARE EXPERIENCING THE BRAND AND WHAT THEY'RE SAYING ABOUT IT, AND WHAT OUR ASSOCIATES AND MANAGEMENT IS TELLING US ABOUT IT – ARE WE GETTING IT RIGHT. SO AT THE FINAL DAY, WE'VE GOT A BIG QUARTER AHEAD OF US, YOU SAW THAT WE REAFFIRMED GUIDANCE AT THE END OF THE THIRD QUARTER. FOUR WEEKS IN, STRONG START, FIVE WEEKS TO GO. WE WANT TO MAKE THAT CUSTOMER HAPPY AND EARN HER DOLLAR EVERY SINGLE DAY.
QUINTANILLA: I WANT TO GET YOUR TAKE ON – ON CATEGORIES AS WELL. THE JOURNAL HAS A STATISTIC THIS MORNING THAT LAST YEAR DISCOUNTS AT THIS STAGE WERE 6% DEEPER THAN THEY ARE NOW, ACROSS 17 CATEGORIES. YOU SAID THEY'LL BE LESS PROMOTION. DOES THAT NUMBER SOUND ABOUT RIGHT AND ARE THERE CERTAIN CATEGORIES WHERE PRICING POWER IS ESPECIALLY STRONG?
GENNETTE: YOU KNOW WHAT I'D SAY IS, LET ME TALK ABOUT WHAT – HOW WE'RE DOING. WHEN YOU LOOK AT THE COLD WEATHER CATEGORIES, WE'VE HAD A VERY STRONG START ON THAT. THOSE GENERALLY CARRY HIGHER UNIT RETAILS. SO IF YOU LOOK AT COATS, YOU LOOK AT SWEATERS, YOU LOOK AT BOOTS, THOSE ARE STRONG CATEGORIES THAT CARRY HIGHER AVERAGE UNIT RETAIL. THE ENTIRE FRAGRANCE CATEGORY, YOU KNOW, WE'RE THE NATION'S LARGEST PURVEYOR OF FRAGRANCE. A VERY STRONG START IN THE FOURTH QUARTER. BIG, BIG BRANDS THAT ARE WINNING THERE. IF YOU LOOK AT THE TECH CATEGORIES WHICH CARRY HIGHER AVERAGE UNIT RETAIL. YOU LOOK AT THE APPLE WATCH. AND THEN YOU LOOK AT OUR VALUES AND ALL OF OUR GREAT FASHION PRODUCT WE WORK WITH OUR MANUFACTURING PARTNERS, YOU KNOW, A YEAR IN ADVANCE, ALL OF THAT IS TRENDING WELL. SO, WHEN WE'VE GOT A BUILT IN PRODUCT THAT THEY ARE RESPONDING WITH THEIR POCKETBOOK. SO I'M SEEING AURs OR AVERAGE UNIT RETAILS, THAT ARE ACTUALLY HIGHER THAN LAST YEAR RIGHT NOW.
LEE: JEFF, YOUR DIVIDEND YIELD IS MORE THAN 7% RIGHT NOW, 7.3% TO BE EXACT. SOME PEOPLE MIGHT LOOK AT THAT AS A SIGN OF DISTRESS, SINCE YOUR STOCK IS DOWN BY MORE 50% OVER THE LAST TWELVES MONTHS. ARE YOU COMMITTED TO MAINTAINING THIS DIVIDEND AS IS?
GENNETTE: YES, WE ARE – YOU KNOW, OUR BOARD OF DIRECTORS LOOKS AT THIS REGULARLY. WE JUST CONFIRMED THAT GOING FORWARD WITH THE CURRENT GUIDANCE AND ON THE DIVIDEND GOING FORWARD/ SO WE'RE GOING TO CONTINUE TO REVIEW IT BUT WE'RE COMMITTED RIGHT NOW.
SANTOLI: SO THEN THIS QUARTER, THE WAY THIS QUARTER GOES FOR YOU IN TERMS OF CASH FLOW AND THINGS IS NOT NECESSARILY KIND OF MAKE OR BREAK EITHER FOR THE DIVIDEND OR FOR YOUR OUTLOOK FOR THIS YEAR?
GENNETTE: SO WE LOOK AT OUR CAPITAL STRUCTURE, THE FIRST THING TO MAKE SURE WE HAVE ENOUGH CAPITAL TO FUND THE BUSINESS. THEN WE LOOK AT OUR DIVIDEND, WE'RE COMMITTED TO OUR DIVIDEND. AND THEN MAKING SURE WE'RE WITHIN OUR -- WHEN YOU LOOK AT OUR LEVERAGE RATIOS, GETTING BACK TO OUR HISTORIC LEVELS. SO YOU'RE GOING TO SEE BUY DOWN DEBT THERE VERSUS NECESSARILY BUYING BACK STOCK. SO EXPECT THAT TO CONTINUE INTO THE NEW YEAR.
QUINTANILLA: IN THREE WEEKS, WHAT PRODUCT ARE WE GOING TO BE TALKING ABOUT IN TERMS OF SHORTAGES, CULT FASCINATION, SOMETHING THAT PARENTS OR ADULTS WANT AND SIMPLY CAN'T FIND?
GENNETTE: YOU KNOW WHAT I'D SAY, IS A LOT OF THE TECH PRODUCTS, YOU'RE SEEING THAT. SOME OF THE HOME PRODUCTS THAT HAVE TECHNOLOGY BUILT INTO THEM, YOU KNOW, THERE'S SOME INTERESTING ITEMS THAT WERE SELLING OUT OF IN OUR STORES. A LOT OF THAT WE CAN GET BACK INTO, SOME OF IT WILL BE A REDUCED SUPPLY OF IT. AND THEN IT COMES DOWN TO WHAT FASHION ND OTHER GIFT SHE WANTS, AND AGAIN MACYS, WE SPEND A LOT OF TIME WITH MERCHANTS AND CREATING THE BEST POSSIBLE VALUES AND FASHIONS. SO WE FEEL LIKE WE'RE IN GOOD SHAPE GOING INTO THE BALANCE OF THE HOLIDAY SEASON. THE MONTH OF NOVEMBER HAS BEEN STRONG SO FAR. BUT FIVE WEEKS TO GO. WE'VE GOT TO EARN OUR DOLLAR EVERY DAY.
LESS: AND PEOPLE WANT TO BUY APPAREL, JEFF? THAT HAS TRADITIONALLY OR RECENTLY BEEN THE CATEGORY THAT HAS SEEN SOFTNESS ACROSS THE RETAIL INDUSTRY. PEOPLE DON'T WANT TO BUY SWEATERS ANYMORE.
GENNETTE: YES, SHE DOES WANT TO BUY APPAREL. THERE IS -- THERE'S OBVIOUSLY A LOT OF COMPETITION FOR APPAREL BOTH ONLINE AND IN STORES. BUT WHEN WE GET OUR VALUES RIGHT AND WE GET THE RIGHT FASHION FOR OUR CUSTOMER, SHE RESPONDS WELL. SO AGAIN, AS I SAID ALSO, WHEN YOU LOOK AT APPAREL, PARTICULARLY DURING THE FOURTH QUARTER, WHEN IT IS COLD OUTSIDE, THAT REALLY HELPS OUR OVERALL APPAREL BUSINESSES. SHE COMES IN BECAUSE SHE NEEDS A COAT BUT THEN SHE'LL BUY OTHER THINGS, BUYS THAT SWEATER BUT ALSO BUY GIFTS FOR HERSELF OR GIFTS FOR PEOPLE ON HER LIST. SO APPAREL IS STILL A BIG DRIVER OF TRAFFIC, AND SHE'S STILL OUT THERE TRANSACTING.
QUINTANILLA: JEFF, CRAZY DAY FOR YOU. CRAZY DAY FOR SHOPPERS, WE APPRECIATE YOU SETTING SOME TIME ASIDE FOR US. WE'LL SEE YOU SOON.
GENNETTE: THANKS MUCH.
QUINTANILLA: JEFF GENNETTE OF MACY'S TODAY ON THIS BLACK FRIDAY.
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