梅西百貨 (M) 2009 Q2 法說會逐字稿

Good morning, and welcome to today's Macy's conference call.

Today's call is being recorded.

I would now like to turn the call over to your host, Ms.

Karen Hoguet.

Please go ahead, ma'am.

Thank you.

Good morning, and welcome to the Macy's conference call scheduled to discuss our second quarter earnings.

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 and Form 10-Q.

This morning, I'm going to first take you through the key components of our second quarter performance, and then I will discuss our outlook for the back half of the year.

After that, I will open the call for your questions.

Sales in the second quarter were $5.164 billion, down 9.7% versus last year.

On a comp store basis, sales were down 9.5%, which is consistent with our annual guidance of minus 6% to minus 8%.

While we all wish the economic environment was stronger, we feel very good about our performance relative to our peers in the second quarter.

What we are particularly pleased about is the fact that the sales in the pilot My Macy's districts, which were those that had My Macy's implemented a year ago, continue to outperform the rest of our stores; and in fact, the out-performance accelerated in the second quarter.

For the spring season as a whole, the My Macy's districts in total outperformed the remaining stores by 2.6 percentage points.

And in the first half of the year, eight of our top 10 districts were My Macy's pilot markets, with the remaining two being the Houston/Louisiana area.

Remember that it is going to become less meaningful to compare the pilot districts to the legacy stores going forward, since we have now implemented My Macy's everywhere.

And as important as the numbers are, we are as excited about the level of enthusiasm we are hearing from the field.

There are so many great ideas being generated to help meet the needs of our customers.

This local feedback, combined with the energy in the stores coming from their feeling empowered, is absolutely terrific.

In the quarter, our sales were strongest in moderate apparel, both men's and women's, housewares, cosmetics, and kits.

Our business was also very strong in our private brands and our exclusive brands, Tommy Hilfiger and Martha Stewart.

We are also very excited by the early selling of our newest exclusive line, Rachel by Rachel Roy.

We expect this line to be very successful, helping us to drive business with the young contemporary customer.

The weakest families of business in the quarter were furniture, mattresses, and handbags.

Geographically, our best performance was in the Midwest and in Texas, and the weakest performance was in California and the Southeast.

Our sales at Bloomingdale's improved in the second quarter relative to the first quarter, but were still below that of Macy's.

Our online sales continued strong at plus 9.4%, as we continue to develop a more integrated store and website strategy at both Macy's and Bloomingdale's.

The gross margin rate in the second quarter was 41.5%, which was flat with last year.

Given the promotional environment and continued weak economic climate, we feel good about that performance.

We ended the quarter with inventory down 7.5%.

We have been able to balance the need to reduce our inventories in relation to the sales trends, while still flowing fresh merchandise into the stores.

And with our inventories down 7.5% and our comp sales projected down 5% to 6% for the back half of the year, we are in very good shape to be able to offer the customer new assortments.

SG&A in the second quarter was $1.861 billion, down $176 million or 8.6% versus last year.

As a percent of sales, SG&A was 36%, up 40 basis points from a year ago.

This was better than we expected.

We were able to achieve some of the consolidation savings earlier than we had anticipated.

We also shifted some advertising expense into the fourth quarter, which helped the second quarter.

Versus last year, our SG&A performance in the quarter was helped most by the impact of the division consolidation, but in addition, we had lower Workers' Comp and general liability insurance expense; lower selling costs as a result of the lower sales; and as mentioned, lower advertising expense.

These favorable variances were partially offset by higher stock-based compensation expense, higher medical insurance costs, and lower credit income.

Operating income, excluding division consolidation costs, was $282 million versus $335 million a year ago.

Interest expense was essentially flat to last year at $139 million.

Excluding the division consolidation- related costs, tax expense in the second quarter was $59 million or approximately 41%.

As you know, our tax rate will vary quarter-on-quarter due to settlements, discrete items, and the required spreading of reserves based on profit forecasts for the balance of the year.

As I will discuss in a few minutes, we're actually now expecting the tax rate for the year to be below our previously expected 37%.

Diluted earnings per share, excluding division consolidation costs, was $0.20 in the quarter, as compared to $0.29 last year.

This was better than we had expected.

In the quarter, we booked $34 million of division consolidation costs.

And including division consolidation costs, our diluted earnings for the second quarter was $0.02 per share, as compared to $0.17 last year.

The seemingly-odd tax impact of the one-time cost in the second quarter results from the need to allocate the tax reserves based on our annual forecasts of pretax income and the fluctuation that is created by the one-time cost.

These fluctuations are not nearly as dramatic, excluding the consolidation costs.

And for the year as a whole, the tax impact will be as you would expect.

Cash flow year-to-date has also been stronger than expected.

Cash provided by operating activities, net of investing activities, was $254 million this year as compared to $280 million a year ago.

The lower capital spending almost offset the entire impact of lower cash from operating activities resulting from the lower sales.

And as a result of this cash flow being so strong, we have not yet borrowed on our working capital facility, even after having paid down $950 million in debt this spring.

So, given the very challenging economic environment and the fact that we are in the midst of a major transformation, I would say it was a very encouraging quarter for Macy's.

Our new central team is working very hard to execute effectively while they get acclimated to their new positions.

We are experiencing very little, if any, disruption to the business, which is a real tribute to our organization and to our vendor partners.

Our senior team is so proud of how our people have responded to all the change.

We talk a lot in the Company about attitude, and our people have clearly demonstrated 10-plus attitudes this spring, with 10 being the highest score.

We are also so pleased with the energy being exhibited by our field teams now operating under the My Macy's structure.

As we head into the fall season, and especially the critical fourth quarter, we are therefore feeling cautiously optimistic that we can begin to make some progress on the top line in spite of the expected continued economic weakness.

So let's talk for a minute about the fall.

The short answer is that we are on track to achieve fall sales and operating income as we had originally planned it.

We've performed better in spring largely because we've achieved consolidation savings sooner.

Given our drop of 9.3% in the spring, many of you have asked if we expect to maintain our annual guidance of minus 6% to minus 8%.

And as you saw in our press release this morning, we are actually narrowing the range to minus 7% to minus 7.5%.

What this means is, for the fall, we are assuming comp store sales to decline approximately minus 5% to minus 6%.

And given last year's 6.6% comp store sales decline, we believe this to be reasonable.

And on a two-year basis, the spring is about what we are projecting for the fall.

We are assuming an increase in gross margin rates for the fall season driven by our fourth quarter expectations.

SG&A is assumed to be down slightly in dollars for the back half of the year.

This is less favorable than the year-over-year comparisons in the first half of the year, in part due to the fact that we've shifted some of the advertising dollars into the fourth quarter, as I mentioned a minute ago, and also we've decided to invest in selling expense in the fourth quarter.

Also, the better sales expectations relative to a year ago will result in more expense dollars.

And last year, we benefited from insurance proceeds from Hurricane Ike and the reduction of bonus accruals, as we discussed with you last year.

Stock-based compensation costs are also projected to increase year-over-year.

Interest expense is still assumed to be approximately flat for the year, which means it will be slightly below last year in the fall season.

And tax expense in the fall is expected to benefit by approximately $10 million, due to the realization of fuller credits in the earlier-than-anticipated settlements of state tax examinations.

As a result, we now expect our effective tax rate for the full year to be just under 35.5%.

As a result of the better-than-expected results in the first half of the year, and this tax benefit, we are raising our annual diluted EPS, excluding consolidation cost items, from the $0.40 to $0.55 we had given you earlier in the year to $0.70 to $0.80 per share.

We are still anticipating CapEx of $450 million for the year and a total pension contribution of $295 million to $370 million.

This includes quarterly contributions totaling approximately $120 million.

We had thought we would need to contribute the additional $175 million to $250 million by September 15 in order to be 80% funded.

We're still finalizing our estimate of this contribution, but we are now expecting it to be only approximately $60 million to $75 million.

We are therefore planning to make this contribution, the $60 million to $75 million, before September 15, and then we plan to make an additional contribution late in the year, after we have more visibility into the fourth quarter sales.

So, for your annual models, I would still assume the $295 million to $370 million for the year, but the only -- but we may, if the business doesn't materialize -- which, of course, none of us are expecting -- we may not make that second contribution later in the year.

But for now, I would assume that we are going to make that contribution.

We are still expecting total one-time costs to be $400 million, but we're now anticipating that the cash portion will come in lower by approximately $50 million to $75 million.

So, all in all, on an unchanged sales expectation for the year, we are now expecting higher earnings and higher cash flow for the year than we expected.

And that's a good place to stop, and I'll now take your questions.

Thank you, Ms.

Hoguet.

(Operator Instructions).

Bob Drbul, Barclays Capital.

Just had a couple of quick questions.

First, can you elaborate a little bit more on Bloomingdale's and maybe some of the New York City market and some tourism markets that are impacted, and sort of how they're playing out within your sales trends?

Yes, I mean, in terms of Bloomingdale's, their performance has been less favorable than Macy's, but they did improve in the second quarter relative to the first quarter.

And they continue to perform very well versus the other upscale retailers that you all track.

In terms of the tourist markets in New York, they've done a little bit better in the second quarter, and particularly Herald Square that's had a great trend in the last couple of weeks.

Okay, great.

And when you look at the sales expectations for the rest of the year, is it fair to say that when you look at the two-year run rate, you're looking for over 100 basis point improvement in the back half?

Is that how you're looking at the business, in terms of the comparisons versus actually the trends that we're seeing right now?

No.

On a two-year basis, the spring season was down 5.8%.

So, at minus 5% to minus 6% on a two-year basis, it would be minus 5.8% to minus 6.3%.

So with the better end of our guidance, it would be flat with this spring; and at the lower end of our guidance, it would be slightly down on a two-year basis.

Okay, great.

Thank you very much, Karen.

Good luck.

Charles Grom, JPMorgan.

Can you just quantify that add shift that went into the fourth quarter out of Q2?

And also remind us what the benefit was from Hurricane Ike?

I'm sure I can go into your 10-K, but --.

No, actually, we have -- [are] not disclosing any of those numbers.

It's really not material in total, but it does impact this SG&A comparison.

Okay.

So it's not material?

Correct.

Okay.

And then on the FIN 48 issue that we had here in Q2, it's my understanding that given -- that you're going to probably have an operating loss in the third quarter, that we're probably going to see this issue again in the third quarter and the fourth quarter.

Is that a fair assessment?

Yes.

Yes?

Okay.

But again, Chuck, that only impacts the earnings including the division consolidation costs.

Most of your models are done excluding the consolidation costs, so it's much less of an issue there.

Yes.

No, I just want to make sure we model the charge properly in the back half.

And then my last question would be -- when you look at the 2Q comps on a two-year stack basis, if you add them, you're about down 11.6, which is pretty commensurate with the first quarter, yet you're getting the benefit in the first half of the year from the first 20 divisions the last year that you rolled out under My Macy's.

And just wondering that essentially implies the other 40 divisions got worse, or maybe Bloomingdale's was a little bit worse of a trend.

I'm just wondering if you can kind of flesh why the trend isn't improving, given that the -- directionally, the My Macy's is getting better.

Well, I mean, again, it was only about 20% of the Company.

So, I'm not sure -- it could have as big an impact.

And excluding Bloomingdale's, I think the Macy's trend did get a little bit better.

On a two-year basis?

Okay.

On a two-year basis.

Okay.

All right.

Thanks very much.

Bernard Sosnick, Gilford Securities.

Terry had said awhile ago that the objective of advertising was to get as good in terms of image projection as Target is in the best in the industry.

Could we expect to see the development as early as the fourth quarter?

Development?

I'm not sure I understand (multiple speakers) --?

In terms of image projection (multiple speakers) [climate].

Yes, I mean, we have been working hard at building the national brand of Macy's.

Remember, it wasn't that long ago that we converted all of the individual store names to Macy's.

We've had some fabulous feedback on our branding campaign and there will be another two great ones as we head into the fall.

So we continue to put a focus on that.

And secondly, dunnhumby, is there anything that you could report to us with respect to their recommendations or what we might be seeing?

No, you know, when we signed up with them, they told us and we told you it would be 18 months before we'd have a lot to talk about.

We're hoping this fall to begin testing some things with them.

The early discussions we're having based on the data that they're pulling are spectacular, but it's really too early to talk about.

And finally, could you give us one or two examples of the exciting feedback that you've gotten from the field that might have influenced decisions centrally?

Yes.

I mean, one example that I've heard about recently related to women's shoes in size 11, which was the request that came up from the stores.

And we're finding there's actually a huge demand for size 11 shoes.

And we're merchandising it differently on the floor; so, not only having the size 11's, but showing them to the customer and stocking them in the stockroom in a way that it makes it easy for an associate to help.

And as a result, where we've done this, we're seeing, in some cases, double-digit pairs of shoes bought at a given time, when they can find their size.

Well, that's great.

So you're saying that not only is it a merchandising decision, but it's a method of improving the execution at the store level all the way through.

Absolutely.

Great.

Thank you very much.

And what's helpful is because so many of these ideas come from the field, they're obviously going to take ownership in making sure that they do well, both in terms of selling and presentation to the store.

So that's (technical difficulty) well.

Great.

Thank you.

Adrianne Shapira, Goldman Sachs.

Just a few questions.

First, on SG&A.

It sounds as if the pull-forward continues.

Perhaps give us a sense of how much, where it's coming from, and then how to think about, as you do pull forward, how we should think about opportunities in 2010.

Well, I mean, I think the key is that in the first half of the year, we did achieve more savings than we had anticipated.

The benefits from the consolidation came on quicker than we had thought, and that's all good news.

What we're trying to do now is assess -- did we get more of the $400 million this year or is the $400 million next year going to be higher?

I think, at this point, I would tell you we've gotten more of the $400 million of annual expected savings earlier.

And not that it will be more than $400 million, but we are looking for opportunities.

One of the, I think, good news surprises that have come from the consolidation, though, is just how much opportunity there is in executing best practices.

So I'm hopeful that we'll find more savings in the $400 million, but at this point, I would not count on it.

Okay.

And so more within the same areas of opportunity?

It's not as if we're, let's say, going more into incremental sources of opportunity; it's just what you've identified?

No, because the original consolidation estimates touched every aspect of the Company.

Okay, great.

And then the second as it relates to the gross margin, understanding that the spring was better due to the better SG&A, but how does [one] think about the gross margin a little bit better in Q2 versus Q1, what the drivers were, IMU versus merchandise margin, and how we should think about the fourth quarter, as you're up against, obviously, a much easier comparison with much cleaner inventory?

Yes, I mean, one of the reasons Q2 would have done better is that the inventories were more in line with sales.

Remember that when we bought the first quarter, it was last fall before the sales really deteriorated as far as they had.

So it's taken us awhile to get the inventory levels back in sync with sales, which benefited us in the second quarter relative to the first.

Obviously, that should help us as we go through the fall season, particularly as you said, in the fourth quarter.

Having said that, this remains a very promotional environment.

And so, we'll have to see what happens on the margin line.

But as everybody seems to be getting their act together on the inventory side, just comment on the degree of discounting -- any more or less than you would have thought at this point?

I would say it's as expected.

Okay.

And then just the last -- you call out moderate as being strong across men's and women's.

We've definitely seen the EDV program proliferate in the store.

Could you talk about the success there?

Is that really what is helping drive that category?

And then also, maybe talk about any signs on better -- any signs of stabilization there.

Thanks.

Well, first off, EDV crosses both moderate and some in better, so it's not all necessarily moderate.

And the EDV program is doing well -- as is moderate, though.

And part of it is through My Macy's, we have found opportunities to put moderate in places where we hadn't had it before, and it's doing quite well.

Now, in terms of better, as I mentioned earlier in the call, one of the highlights right now is the Rachel by Rachel Roy launch, which will be in over 80 stores this fall and a lot more than that next spring.

And as I had said, it's exclusive to Macy's.

And we're really very excited by that.

Great.

And then just on the EDV, where are you now in terms of percent sales and where you would like to take that to?

I don't have that for this spring.

It's around 6% of the store.

And we don't really have a target, per se.

We do look at it business by business, but whereas we see a natural opportunity, we employed EDV.

Great.

Thank you.

Lorraine Hutchinson, Banc of America.

Cash flow has been coming in a little bit better than expectations.

And I was just curious about priorities for cash flow.

I mean, will you try to pay down some of the debt?

Are there CapEx projects that you may want to bring forward a little bit?

How do you plan to use that cash?

Well, the cash that we're generating above what we had expected this year will all go to pay down debt in the future.

When that happens depends on when the debt matures, because we don't have a big maturity next year; but we are going to use the cash for that.

Now, if the environment improves and we feel better about the sales trends in 2010, as we hope to do, the CapEx will go up from the $450 million level of this year, but nowhere close to the $1 billion expectation we had had for annual CapEx in the past.

I don't think we'll get back to that level.

I think it will end up more in the $800 million level at some point, but not in 2010, in any case.

Jeff Stein, Soleil Securities.

Karen, back to a question on SG&A.

An earlier caller asked about how much was pulled forward and I didn't quite get that.

I'm wondering if you could just tell us roughly how much you think you may have accelerated beyond the $250 million of cost savings that you had originally expected to see this year.

No, I really can't give you that number, Jeff.

I don't know exactly what it would be.

Okay.

Can you talk for a moment about why you think sales are going to begin to get a little bit better in the back half of the year?

Is there something about the early reads that you're getting from the new organizational structure that inspire perhaps more conviction in a narrower range?

Or maybe just elaborate on that a little bit.

Well, the guidance we've given is for essentially flat sales trends year-over-year between spring and fall on a two-year basis.

So, our guidance is not anticipating any enormous improvement.

I did say that I'm cautiously optimistic that we'll start to get some benefits from the My Macy's roll-out in the fourth quarter, as we did in the tests 20 districts last year.

But that remains to be seen.

And obviously, a lot depends on the economic environment, which I don't think any of us can predict at this point.

Wayne Hood, BMO Capital.

Yes, Karen, I just had a question related to the credit agreement that you have.

Can you -- you probably don't want to quantify, but is the drag from the incentive income that comes back to you from that agreement, is the drag from that becoming less?

Or is it pretty much stable in the second quarter?

And when does that agreement expire?

And the reason I ask that question, if and when it does expire, you entered into that agreement when the environment was much different.

And the change in environment would naturally cause someone to think that it would be less favorable to you once that agreement is renegotiated.

It's not until 2016.

So I expect by then I have a feeling the environment will change back; but we'll see.

So there's no clauses in there that would cause them to come back in and renegotiate?

There's no clauses that would cause them to renegotiate.

Obviously, to the degree that they're not happy with something, they will try, but the contract is there until then.

Okay.

Can you also speak -- because we're all interested in -- has there been some stabilization in delinquencies in the fall from that portfolio as we enter the fourth quarter, so that they would be willing to lend against the card to help sales, or no?

Yes, I mean, it's a complicated question.

There has been some stability.

And we have taken some risk mitigation actions, as you would expect us to have done; but it does feel like it's not getting worse.

It'd be hard to tell you it's getting better at this point, but it does feel more stable.

Okay.

And my last question relates to the second quarter gross margin rate.

That looked like a record rate and as -- not to get the cart before the horse, but as we get into next year's second quarter, I mean, do you really think you're going to be able to cycle against such a high rate?

Or do you think you're going to be able to get even to another, higher level?

Go back a couple of years in history.

You'll see that it is not as high as you think it is.

Last year, it went up one point, but the year before had been very low.

Even with the May acquisition?

I mean, folding those in --?

Yes.

No, I mean, the May acquisition shouldn't impact that.

Okay, great.

Thank you, Karen.

Dana Telsey, Telsey Advisory Group.

Can you talk a little bit about inventory expectations for the second half, how you're thinking about it?

And any update on the new planning and allocation systems that you're putting in place and the potential impact on margins, what you're seeing there?

Thank you.

Yes, I mean, we are planning inventory to end the year consistent with our fall sales -- where they expect to end.

And obviously, as we've seen more in sales trends in September and October, and we do more planning for 2010, we could refine that.

In terms of the allocation systems, what we call A3 and Affinity, we do think that over time, they will help us improve margins.

I don't see that as a fall 2009 opportunity because the systems are still new.

They were rolled out prior to the My Macy's change, but not much before.

So our merchants and planners are busy trying to utilize the features of the system.

And I think it will take awhile before we get the actual benefits.

Virginia Chambless, JPMorgan.

The follow-on to the question earlier about priorities for cash flow -- and just curious, I know you don't have a lot of debt coming due next year, a little bit more due in 2011, and then more in 2012 -- just wondering, at this point, given that the capital markets have eased and opened up a little bit, I mean, is there any -- has there been any contemplation that you might pre-fund some of those larger maturities that are coming up in a couple of years?

We could at some point, and obviously, we watch the markets.

I mean, the key is, though, we really at this point do want to reduce debt levels.

So, as we get closer to those bigger maturities, the refinancing becomes more of an issue; but short-term, the intent is to reduce debt.

Okay.

But any thought that -- I mean, given the window we're in now, we don't know what the markets will be like, say, a year from now or [18] (multiple speakers) --?

Well, it's really two years from now -- again, because of the light maturities next year, it's less of an issue.

And we're hoping by then our rating improves.

But again, we do watch it closely, and that could change.

Okay, great.

Thank you.

Lance Vitanza, Knighthead.

Thanks for taking the call.

I missed it earlier, but could you just explain again the reason for the reduced September pension contribution?

Yes, as Hewitt refined the estimate, it came down significantly.

Okay.

So just a refining of the estimate?

Yes.

We had said we wanted to make a contribution to get us to 80% funded as of 1/01/'09.

So as they worked on the estimate -- and I suspect it was harder for them to make the estimate, given all of the people reductions that have happened over the last year.

I have a feeling that's why there was movement in the estimate; but as a result, it came down significantly.

Okay.

And the other question I had is, is it possible to quantify the impact of the lower tax rate on the increase in the '09 guidance?

Yes, I haven't done it.

I mean, but it's really just the $10 million tax benefit.

Okay.

Very good.

Thank you.

(Operator Instructions).

Deborah Weinswig, Citi.

So, lots of questions, I'll keep it brief.

With your gross margin performance and inventories in great shape, are you flowing goods differently?

Or what's really changed there?

Well, you know, I think -- I wouldn't say that we're flowing goods differently.

Obviously, as we got the inventory level down consistent with sales, that helped.

And it is flat with a year ago, so I wouldn't say the gross margin performance was as strong as what you're saying.

Okay.

It just seems that since -- between the first quarter and the second quarter, especially with the difficult compare versus a year ago, that it was a good performance in the quarter.

Yes.

I mean, we feel great about it.

And again, our merchants are working very hard in this new environment to grow sales and at the same time, produce good margins.

Okay.

And then with the 20 pilot districts increasing our out-performance this quarter, do you think this is being driven by the learning curve from the Macy's buyers or vendors or both?

Or what do you think is really driving that?

I think it's driven by a combination of things.

It's the district planners having more time in their jobs; also having more time to get the assortment changes made.

Remember, they've only been in place for about a year, and in some categories of goods, there's a longer lead time.

So I think they're being more effective in their requests; they're able to get the inventory from the vendors; the vendors are learning how better to partner with us; the stores are better equipped to merchandise the requests better.

I mean, it's just all of those things that are all happening together, and it just takes time.

Okay.

And then can you talk about the morale in the stores as a result of the My Macy's roll-out?

And do you believe the sales associates feel an increased sense of empowerment?

Maybe what are the differences between those original and 20 pilot districts and the rest of the stores?

I think the morale in the stores is really very good.

I think that they feel as if they're being listened to, and they're very encouraged by the changes happening.

And then can you talk about how your relationships with the vendors have evolved as a result of My Macy's?

And, obviously, you're continuing to roll out new exclusives -- how should we just think about how things have evolved?

Yes, I would say one of the benefits of the division elimination that at least I had underestimated, was the benefit we're getting from how we can now collaborate with vendors.

The New York location of the central organization has allowed us to be with the vendors day in and day out on a very informal basis.

And that increased level of partnership has just been terrific.

So I think that's a benefit yet to come, frankly; but I feel really good about that.

Great.

Well, thanks so much for the color and best of luck.

Mike Shrekgast, Longacre.

Yes.

Was just wondering, can you just go back over your assumptions for SG&A for the back half?

Are you saying that you think SG&A is going to be flat on a year-over-year basis?

No, what I said was that I'd assumed it'd be down slightly in dollars.

So that's less favorable than the year-over-year comparisons we've seen in the spring.

And part of that is because of sales expectations are higher in the fall.

We've also decided to invest in advertising and selling expense.

Stock-based compensation costs are going to be higher year-over-year.

And last year, we benefited from insurance proceeds from Hurricane Ike and the reduction of bonus accruals.

Sure.

How much was the insurance and bonus accruals last year?

We've not given that detail.

Okay.

And then how much of the pension contribution do you still have to make this year?

Well, have to make -- I mean, truly required is $120 million of quarterly payments that we've been making.

Want to make was the additional $60 million to $75 million that we're going to make before September 15, take the plan to being 80% funded.

And then the want to make will be the additional that we may make at the end of the year, assuming the business holds up and the cash flow continues strong.

And that would really just be pre-funding the requirement that we'd have to make in 2010, anyway.

Okay.

And so, out of that $120 million, you've already made $60 million, I assume, correct?

That's correct -- roughly.

Okay.

And then the annual contribution or what you will make, it sounds like that won't be made until the fourth quarter, whatever you decide to contribute?

So, the $60 million to $75 million will be made before September 15.

And then the additional will be made post-peak borrowing and after we see how the fourth quarter is materializing.

Okay.

And then will you be revisiting any kind of view on dividend or share repurchases any time soon?

Not in the immediate future.

I mean, again, on the stock buyback, we've said that the excess cash is going to go to reducing debt.

Beyond what's coming due?

No, well, what's coming due -- or if there's an opportunity to tender or what-have-you; but not to buy back stock.

Okay.

All right.

And just wondering -- okay.

No, that's good.

Thank you.

[Meredith Contente], Broadpoint Capital.

You mentioned quickly about having better ratings before maybe accessing the markets.

Do you have maybe a timeframe to get back to investment grade ratings?

No, because as you know, I can't control that.

We are doing everything we can that makes sense for the Company to get back to being investment grade.

Some of that depends on what happens with the economy and the sales trends.

Some of that, obviously, depends on the cash flow.

But we are doing what we can and, again, I don't know what that timeframe will be.

David Glick, Buckingham Research Group.

Just a follow-p on the topic of the benefits of the consolidation and centralization.

It sounds like it's leading to faster decision-making.

I'm just wondering how this will impact the pace and the number of exclusive brand roll-outs for 2010 and 2011?

And do you expect this category of exclusive brands to be a bigger relative growth category than private and national brands?

That's a very good question.

And I would say today that as a result of the centralized structure, we are getting even more offers to do exclusive lines or exclusive parts of lines.

And because of the faster decision-making, we're able to make those decisions and capitalize on it quicker.

So I do think that over time, based on the success of the ones we have, that will be a bigger part of our mix.

Will it be 2010 or 2011 or how much, we don't know yet; but clearly, that's an opportunity.

Okay.

And then -- thank you -- and secondly, your merchants are now out making some commitments for spring in 2010 probably for some of your business in national and private brands.

What kind of direction are you giving them in terms of the kind of trends to plan the business at, relative to your current trend and relative to the fall trend?

I think we've been conservative with our spring targets that we're giving them, so that they can go out and make the initial buys.

We really don't want to find ourselves in a position like we did this year, where the early buys were too high, given what ultimately happened.

But again, we hope to raise those as we get through the fall season.

So it's fair to say that you would still have them make placements down relative to last year on a comp store basis -- not ready to put up flat plans yet?

Correct.

Okay, great.

Thanks a lot.

Good luck, Karen.

Mike Shrekgast, Longacre.

Yes.

Just wondering, in the My Macy's districts, the ones that are outperforming by -- I think you said it was at 200-and-some basis points -- could you talk about whether that's pricing, mix?

And also, are those stores more profitable?

I think they are representative in terms of the profitability of the Company.

And it's really coming from improved merchandising, and I think also energy from the sales associates in the stores.

Okay.

And just one other question on SG&A.

Are you thinking that -- will SG&A in the fourth quarter be up year-over-year?

I only gave guidance for the full fall, where we expect it to be down slightly.

Obviously, as I talked about items like the hurricane proceeds, that was a fourth quarter item; so there will be more pressure on the fourth quarter than the third.

Okay, thanks.

And Ms.

Hoguet, that was our last question.

Great.

Well, thank you all.

And if you have additional questions, let us know as the day goes on.

This concludes today's conference.

Thank you for your participation.