梅西百貨 (M) 2009 Q4 法說會逐字稿

Good morning and welcome to Macy's, Incorporated's fourth quarter earnings release conference call.

This call is being recorded.

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

Please go ahead, ma'am.

Thank you.

Good morning, and welcome to the Macy's, Inc.

call scheduled to discuss our fourth quarter performance and our outlook for 2010.

I am Karen Hoguet, CFO of the Company.

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 discussions 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.

Given the major transformation that we executed in 2009 , Terry Lundgren, our CEO, has joined me on today's call.

He will start our remarks by providing an overview of all that we accomplished in 2009 and what our key priorities are for 2010.

I will then discuss our financial results and our outlook for 2010.

And then, Terry and I will respond to your questions.

Good morning, everybody.

Thanks for joining us on the call.

I hope you share our enthusiasm for all that was accomplished in 2009 and the financial results that we were able to produce during what was certainly a challenging economic environment.

I think we reacted appropriately to the downturn with expense reductions that we had planned and inventory management and lowering our capital expenditures.

We were able to completely transform Macy's by eliminating our historic division structure, some of which was our own and some of which we inherited through acquisition.

Plus putting in place a very innovative My Macy's structure that we are quite excited about.

As important as the change in the structure itself is the change in culture.

It has been critical and critically important to see the transformation of the way we are just thinking about localizing our assortment offering and becoming much more of a customer-centric Company.

You will recall that my saying in February of last year that we would use 2009 to implement all the organization changes and put in the best talent in all of the key positions from around the various divisions that we had and to make any other changes, structural or otherwise, that we thought would be the right thing and that we had contemplated in the past.

We wanted to do all of that, as much as possible in 2009, so that we would be in a great position to take advantage of a leaner, meaner organization going into the 2010 period.

And not everybody thought that was a good idea.

In fact, some predicted a major disruption for 2009 and poor results to follow, and I am just glad to report that that just did not happen.

Our sales performance was strong relative to most of our competitors, and we improved our EBIT rate by 60 basis points.

We grew EPS by 12%.

We increased our return on invested capital by 30 basis points, and we generated approximately $1.4 billion in cash before financing activities.

I am just incredibly proud of our organization and my senior management team that lead us through all this change while staying focused on executing the business.

We are just beginning to see the potential of our new, unified organization with the My Macy's field structure.

The new team is working more closely with our vendor partners than ever before, most of whom are here in New York City.

So they are just down the street from us.

It makes it very easy for us to meet with our vendors on a very frequent basis.

And we are making decisions faster as a result of that, and marketing our ideas more effectively.

The My Macy's structure, especially in our original pilot districts, enabled us to eliminate the regional divisions without losing sales in those markets.

We had never been able to do that before.

Whenever we were consolidating in the past, we were always worried about losing sales, and this time, we held on to the sales in a very effective way.

We know it worked.

We know the My Macy's structure was the reason for that to happen.

This structure with the 69 districts and eight regions now that's fully operational across the country has actually brought us much closer to the customer than we were with our former division structure.

I am also encouraged by what I have seen in the stores that I have visited over the past six months which have been many.

I just made it a high priority for myself to be in stores every single week.

That has been without fail.

The My Macy's structure and changes in culture is just very powerful.

I am even more excited now than I was last year when we were putting this together because I have seen it at work.

There are three key benefits of how we are operating our My Macy's structure.

First, it is just greater attention to detail.

There are just more experienced eyes and ears and hands that are on the floor.

Remember, these are people living in the 69 districts -- many of them are former buyers and former planners from central organizations that we relocated to these cities.

They have got just a different set of eyes and ears when they are walking through the floor.

Just in terms of their experience and what they bring to these new roles.

This allows us to do a much better job meeting the local needs of our assortments because they have a sense about what is available.

That they are zeroing in on size and color and fabric weight differences.

And we are now able to do a much better job of making our floors look more exciting, again with this experience that they are bringing to the store's organization.

Secondly, we are maximizing the opportunities of providing localized assortments, including those supporting local events and holidays.

First birthdays is something that was brought to our attention in Hawaii that we are responding to them on a local basis.

We are getting good at taking care of these big events.

This year was no exception.

We sold a ton of merchandise in New Orleans around the Super Bowl.

We were ready for it.

We were ready for either team to win, but when New Orleans won, we were fast into action and sold a ton of inventory before the game and after.

And then, Kentucky Derby.

Now we are responding locally to the local opportunities of dresses and hats and the like in that particular market.

So there are lots and lots of these opportunities of maximizing local activities.

We can utilize local vendors like Patricia Locke Jewelry which is based in Chicago for our Chicago stores or Betsy Ann Chocolates in Pittsburgh, brings that localization and uniqueness to another level when we do that.

Third is, we are executing the central ideas better and faster as a result of our new structure.

We saw an opportunity in the fourth quarter, as an example, with fashion watches, particularly in the sport digital looks and the color category.

We were able to expand caseline presentations, negotiate for exclusive styles, and position these goods in higher traffic locations.

And we're able to react quicker -- respond quicker.

Work with our vendors with one order and one buyer making these decisions.

As a result of all of that, we were able to execute this across the country in a much more consistent fashion.

As a result, that business category of these fashion watches was up 10% for the fourth quarter, and that is clearly a result of taking action as we did.

So, those are just three ways of how it is working, but let me give you a few examples of some of the My Macy's successes of this recent period.

Just taken from one single category, just women's footwear.

There is a little bit of men's footwear in here, too, but primarily women's.

But again, I want to just give you a sense of the potential because, again, this is just a little -- minor piece of all the activity that is beginning to happen.

First, at our State Street, Chicago location, where our selling associates called out to our district team that there was high demand for basic wear-to-work pumps.

The State Street customer is heavily skewed to business professionals.

As the districts, merchants, and planners walked the selling floor, we were in great shape with fashion shoes and a great boot selection, but we didn't really have this basic pump -- this comfortable, basic pump that this woman was looking for.

The selling associates called it out to us.

So our customers told us exactly what they wanted.

So we partnered with our central merchants and central planners in New York.

They went to the market.

They specifically asked the vendors to provide them with what they were looking for in the store.

We sent the -- e-mailed digital photos to the State Street store, and they had the selling associates along with the district planners work together with customers and show an assortment digitally.

And say, "If we had these -- would these be the kind of shoes that you would be looking for?" Long story short, we put this inventory that was directed by the store and the selling associates and basically the customers into the State Street store, and we got an instant response from this product.

There is longer lead time on this, but the majority of the inventory is still coming.

We are not waiting.

We are taking advantage of downtown Washington, DC and other cities where we know we have this career customer that is walking in the market and taking advantage of these things that we are learning.

So that is just one example of that.

But, next is -- by the way, the business in that category is up 20% in Chicago.

So again, in an environment we just come off to note that we are able to drive the business so successfully.

It is really because we are listening and responding to the customer, and we are in a position to be able to do that.

Second, is in fall of 2008, the new women's shoe district planner in the upper Midwest, noted that functional cold weather boots were always depleted right around the holiday season.

When we bought it, but they just sold it so consistently in that particular part of the country.

And we were never able to maximize, staying up with demand.

And particularly, after the holidays.

So, the stores continually talked about this to our district planners, and so we put into place an action to do this in advance -- to buy it in advance.

So that for fall 2009, since this was one of the pilot districts, we would be able to expand our offerings, set up a cold weather boot visual shop, shift deliveries, and keep the inventory moving longer after the holiday period.

Here again, we picked up 27% over the prior year just by focusing on the specific request of the store.

Once again, we asked the store to describe for us -- just what do you mean exactly when it comes to this functional footwear.

And they told us.

So we let them help choose the product.

And, another example is -- completely different category is the sandal category.

We identified an opportunity to distort sandals in Florida, and even though it was cold in Florida, we still sold a ton of sandals there.

It gave us a great test.

To test and react.

We brought it in in October and November and December and got a read from that.

As a result of what we learned in Florida, we picked up -- tested these -- embellished with sequined- and mosaic-topped flat sandals and bought two thousand for Florida.

And in one particular pair, ordered 120,000 for the rest of the country for April-May deliveries and the same thing for a second EDV program that we have.

We bought two thousand for Florida, and we're rolling out 220,000 for the country.

So we have got this test and react early read that we believe will give us some fashion trends, but we are able now to respond on a much quicker basis and do so on a national basis.

Before, Florida was its own division, and while we would report and mention it, the stores hadn't -- the buyer in Atlanta or the buyer in San Francisco -- it wasn't her buy or it wasn't his buy.

And it wasn't their experience, so they weren't actually sure that what would sell there would translate.

Now, it's the same buyer making these decisions, and they can tweak and adjust for certain markets, but they know flat, embellished sandals are going to sell in many parts of the country.

And so we can jump on these trends and move more quickly.

Those are just three examples from one category, just to give you a flavor of some of the activity that is going on.

Our top priority in 2010 is to continue to refine and fine tune all that we are doing here.

Keep learning -- keep understanding how we can do it better.

What examples should be shared, and just focus on executing and maximizing the potential of My Macy's.

We will also continue to focus on our four priorities, of course, that support My Macy's in our customer-centric culture.

In the four priorities, you might remember, differentiating our assortments is very important.

Having obvious value throughout our store.

Upgrading our shopping experience, and then, making sure that our marketing is unique in that we focus on both brand marketing as well as demand marketing.

And that we do that differently than our competitors.

Looking at the bigger picture, of course, I do worry about some of the macroeconomic issues.

I know that some people are saying those are behind us.

Look, business feels better.

There is no question about it, but we still have high unemployment.

And I still see tightening credit on consumers and issues of that nature.

I am not going to just bury those ideas and play ostrich.

Those are real, and a Company of our size must recognize that macroeconomics do matter.

But we are planning to grow the business at both Macy's and Bloomingdale's, and we will continue to fuel our online business.

And we are beginning an outlet strategy at Bloomingdale's as I think you know.

We feel really good that we are poised to aggressively go after any sales opportunities as we see them unfold and do so in a profitable way.

We feel real comfortable where we are at.

Our inventory position is in good shape.

It is fresh.

It is current.

And we are ready to strike as we see the opportunities in individual markets and individual stores open up for us.

So, let me turn it back over to Karen, and at the end of her comments, we will both be glad to take your questions.

Thanks, Terry.

I will just hit the highlights of our fourth quarter performance and then, on to 2010.

Sales in the quarter were $7.8 billion, and on a comp store basis, sales were down 0.8% which is better than the -1% to -2% we had anticipated.

This is a big improvement over the third quarter's -3.6%.

On a two-year basis, the fourth quarter improved to -3.9% from -4.8% in the third quarter.

This acceleration in trend is encouraging.

The key points to make about the strengths and weaknesses by family of business and geography are as follows.

First, the My Macy's pilots continued to out perform the other Macy's stores' sales growth, although the gap did narrow in the fourth quarter now that we are seeing the benefit in all the doors.

For 2009, all ten of our districts with the best sales performance versus last year were, in fact, pilot My Macy's districts.

I should add that this will be the last call when we talk about pilots because My Macy's is now functional across the whole Company.

Geographically, we had good business across the country in the fourth quarter with some of our strongest performing markets being Chicago, Oregon, and Salt Lake City.

All which were My Macy's pilot districts.

Bloomingdale's hit a terrific fourth quarter with a significant improvement in sales versus earlier in the year.

We are seeing more balance in the business with customers willing to buy brands that are better as long as the price relationship is fair.

This bodes well for our 2010 business.

By business, the major areas of strength in the quarter were shoes, men's and women's moderate apparel, missy updated collections, men's collections, and home, most updated collections, men's collections and home -- most notably, mattresses, luggage, housewares and textiles.

The common denominators of success included cold weather, private and exclusive brands, like Martha Stewart or Tommy Hilfiger, and affordable trend-right newness.

The weaker businesses in the quarter were dresses, traditional better women's sportswear, Christmas trim, men's suits, fragrances, and handbags.

The average unit retail was flat versus last year for Macy's in the quarter.

We believe we have done a very good job balancing moderate intensification where appropriate by location, while continuing to drive fashion and newness.

At Bloomingdale's in the quarter, the average unit retail was above a year ago.

Our Internet businesses continue to produce terrific results with a 27% increase in the fourth quarter.

We believe the ability to better integrate the Internet with our stores provides continued great growth potential for the Company as we go forward.

Gross margin in the quarter was 41.7%, up 240 basis points over last year's 39.3%.

This performance was terrific.

It is even ten basis points higher than in 2007.

We ended the year with inventory approximately 3% below last year.

And on a comp store basis, it was lower than that.

We were very comfortable with both the level and the content of our inventory as we started 2010.

The fourth quarter margin was better than expected, benefiting from the stronger sales as well as terrific inventory management.

SG&A in the 4th quarter was $2.2 billion, or 28.2% of sales.

This is $44 million, or 2% below a year ago, and 20 basis points lower as a percent of sales.

SG&A was lower than expected due in part to better credit performance, the Visa settlement, and lower stock-based compensation expense from the lower than expected stock price.

Operating income, or EBIT, before consolidation costs and the asset goodwill impairment charges, was [$1.06 billion] (corrected by company after the call), up 22% over last year and well ahead of our expectations.

In the fourth quarter, we booked $71 million in consolidation and store closing-related charges.

This is the end of the consolidation-related charges.

And for the year as a whole, we booked $276 million, which when combined with the $30 million booked in the fourth quarter of last year, totals $306 million which is well below the $400 million we had anticipated.

We also booked $115 million in asset impairment charges in the fourth quarter this year related to approximately 20 of our properties.

In these locations, the projected cash flow did not justify their book values.

EPS on a diluted basis, excluding the unusual items, was $1.40, including the $0.05 tax settlement in the fourth quarter.

This represents a 32% increase over the $1.06 we reported last year on the same basis.

For the full year, EPS on a diluted basis, excluding the unusual items, was $1.41, up 12% over last year's $1.26.

We are very proud of that performance, given the challenging conditions under which we operated, combined with the Company transformation that we executed through the year.

Cash flow this past year also was very strong.

Net cash provided by operating activities was only $116 million below a year ago on $1.4 billion lower sales.

We more than offset that with reduced capital spending and higher asset sales.

Net cash before financing activities was $1.37 billion versus $1.07 billion last year.

Even after repaying over $950 million in debt, we increased cash by $300 million this year and ended 2009 with $1.7 billion of cash on the balance sheet.

Return on invested capital for the full year was 14.9% versus 14.6% last year.

Details of the calculation can be found on our website.

Given the comp store sales decline, we are very pleased with this performance.

So, let's move on to 2010.

As Terry mentioned, while not at all as uncertain as last year, there is still some concern about the economic conditions we will face in 2010.

We are, however, feeling cautiously optimistic, especially about what we can control.

We are assuming annual comp store sales growth in 2010 of plus 1% to 2%.

For the full year, we are expecting EPS on a diluted basis of $1.55 to $1.60.

We are expecting EBIT rate improvement in 2010 which should result from a combination of a higher gross margin rate and a lower SG&A rate.

While the SG&A rate is expected to improve, we are assuming SG&A dollars above last year.

We are saving at least the annual $400 million to which we committed last year, but there are, unfortunately, other increases that offset some of those savings.

For example, pension expense is planned up approximately $30 million in 2010.

Depreciation and amortization is estimated at $1.18 billion for the year with approximately $575 million to $580 million expected in the first half of the year.

We are expecting SG&A dollars to be up over last year in the first half of the year, and flattish in dollars relative to last year in the back half of the year.

Our expense savings exceeded our expectations in the first half of 2009.

In part, because people left earlier than we had assumed.

And hence, by the way, the lower severance in the one-time costs.

And also because people stopped spending money last spring on what I would characterize as non-critical activities during the early days of the transition.

We didn't fully understand the magnitude of this until we started planning spring 2010.

Also, the final piece of the expected savings coming from the transformation is the application of best practices to our stores.

That will take several months to be full implemented.

The reverse is happening with gross margin rate in terms of the timing of expected improvements.

We are assuming all of the improvements that we expect to happen in 2010 to occur in the spring season with a gross margin rate in the fall that is flattish to last year.

Interest expense for the year is assumed to be approximately $540 million with approximately $275 million to $280 million in the first half of the year.

And the tax rate should be assumed at 37% for the year as a whole, but as you know, it can vary by quarter.

Our capital budget for 2010 is $550 million.

We believe that by 2012, we will be spending at an annual level of approximately $800 million in capital.

But, given the lack of new store opportunities currently, we do not need to spend that amount yet.

Our current estimate for the 2010 pension contribution is $325 million.

In fact, given our excess cash position, we made this contribution yesterday.

We may or may not make an additional contribution later in the year.

So, that is a quick overview of the fourth quarter and our 2010 outlook.

We are obviously very pleased with our performance and very excited about the potential for the transformed Company.

And now, Terry and I will take any questions you have.

Thank you.

(Operator Instructions) We will take our first question from Deborah Weinswig with Citigroup.

Good morning, and congratulations on a great quarter.

Terry, thanks for joining the call.

You stated in the press release that you believe there is opportunity to gain market share by increasing same store sales.

Do you believe that is from new or existing customers?

And do you think that that is opportunity from inside malls, executing better, size optimization?

Where do you think the real opportunities lie?

Thanks, Deborah.

First of all, I think it is going to come from the local level.

Based on what we experienced from our pilot districts that had been up and running a year in advance of the rest of the country, and how well they performed versus the rest of the country.

It is my belief that we will capture market share not so much on a national basis -- of course, it will add up to that, but really on the local basis.

I think that comes from both in the mall and out of the mall.

Probably, the early opportunities are inside the mall.

But, we are looking at all of those opportunities.

They are not even looking at them.

There are a lot that are already underway.

Of course, keep in mind, 49 out of our 69 district teams started their jobs on May first.

So, they figured out what they were supposed to do for the next 60 or 90 days, and then really began to have an impact closer to the fall season.

So that product is now just being responded to in the receipts that are just in front of us.

So, I think it is going to come from multiple places, but it is not across the board.

It is really on what their opportunity is in a specific store or district.

Okay.

And then, Karen, when you had provided guidance for gross margins, I think you had said on the third quarter call that your expectation would be that it would be at least as great as the improvement in the third quarter which is about 70 basis points.

And obviously, the improvement today was significantly ahead of that.

What would you say were the main drivers there?

I think it is combination of the good sales and the power of having the lower inventory levels.

We were down, on average, 8% all year in comp store inventories.

I think the benefit of that really paid off in the fourth quarter.

And then, lastly -- .

Deb, one more thing I wanted to add is that I am thinking about your earlier question, and that is -- that I think a lot of the home furnishings opportunity that we have -- we were very encouraged by our recent home furnishings trend improvement.

I think there is real potential there.

So that, to me, is more likely to come from off the mall.

With -- while housing prices are -- I presume will remain depressed for some time.

They are beginning to turn over.

And as people buy new homes, a natural follow-up to that is to upgrade and update their home furnishings.

So, we are seeing some of that activity, and just communicating with our district teams.

That is the feedback we are getting from customers.

I just bought a new home.

I took advantage of this lower-priced opportunity and now I am going to upgrade my bedroom with textiles.

I am going to buy some new furniture, a mattress, and the like.

So I think that piece of the business will come from outside the mall.

Okay, and then last question.

It seems that you have two interesting growth vehicles.

One, that was newly announced, which was the Bloomingdale's Outlets.

Can you discuss your site location strategy?

And what do you need to see in the performance in 2010 in order to get more aggressive or excited in 2011 and beyond?

And then also with online, you are one of the retailers who was fairly early in terms of making investments online.

Maybe if you can walk us through your goal there?

How are you driving that business?

Outlet -- I think, frankly, we are late on this subject, and it's just because we have had so many other initiatives over the last five years from acquiring competitors to changing the names.

Obviously, the My Macy's -- we've had enough on our plate that we just haven't addressed this one.

I think we are a little late on the outlet strategy.

I don't regret that because I still think there is plenty of opportunity for us to participate there.

To me, this is really not a strategy that I have to wonder about -- will it work or not.

Because it has been proven by successful competitors, I think, particularly Nordstrom's Rack and Off 5th at Saks.

They have done a good job there.

There is a market for it.

Our vendors -- we work very closely with our vendors who run outlet businesses and talked to them about it.

They believe strongly that there is an opportunity there.

We feel very, very confident this is going to be a good strategy.

So what we just need -- the first four locations -- look, we went out and negotiated with a couple of the key real estate developers, and Simon, of course, being a big one here.

So, there was not any more complicated than that.

We worked with them on what would be the right locations to get started.

But we clearly have a goal of expanding this concept as soon as we get it right.

But we are new at the business.

We have got new people running the business for us.

We want to make sure we just get it right -- the size right, the content right.

What percent goes to this category?

What percent goes to that category?

Those learnings.

That's all we need.

To fine-tune the learnings for some period of time.

I don't know how long it will be.

Six months, 12 months, or something of that nature.

I don't think much longer than that before we understand how to get the most productivity out of the box, and then we will expand from there.

There is a very -- there are big, wide, open arms out there in the developer community for us to participate here.

As far as the online is concerned, I think we were early in setting up state-of the art fulfillment centers.

We have been continuing to upgrade our website and our talent pool here.

We feel very good about the growth prospects in front of us.

I do think Macy's is further along than Bloomingdale's, so we can -- have got much more opportunity to help Bloomingdale's with some of both the infrastructure and web navigation opportunities there.

But having said that, Bloomingdale's is very well developed as a percent of their store line business.

I think we have got tons more opportunity here, and a big, big, push for us in 2010 will be to go after the multi-channel consumer.

The consumer who is online, shopping with us, driving her to the stores.

I always tell my stores, when you get a return from an online customer -- give her a big hug because this is a chance for you to take this customer and turn her into a store customer.

And almost always, when she returns $100, she buys $130 in the store.

So I really want to encourage this multi-channel opportunity in 2010.

The same is true for the stores -- is using our systems in-store to be able to sell customers products online, as well.

Great.

Well, Terry, I share your enthusiasm, and best of luck in 2010.

Thank you, Deb.

We will take our next question from Adrianne Shapira with Goldman Sachs.

Thanks, Terry.

Maybe just following up on the share comment.

It seems as if many more are tearing a page out of your book going after share.

I'm must wondering, give us some of your initial thoughts in terms of what you are seeing out there.

How much more aggressive is the environment as many more are looking to rejuvenate share gains?

I don't really think people are being super-aggressive out here because of the macroeconomic headwinds that I described.

They are still out there.

But, at least, in our case -- I feel really good, Adrianne, about our -- we are sitting here in position with ability to launch inventory, to go after categories with communication coming from our field, and we just feel like it is a competitive advantage that cannot and will not be duplicated.

People are not going to start and put in another 1,600 people out there to manage a field of district structure that we have.

So we feel so strongly that it is a great advantage for us.

So, my belief is that we accomplished that in the initial rollout out of the pilot districts.

And as time goes on, we are starting to see the other 49 districts catching up with those opportunities.

I think market share comes from an individual store.

As I started to say earlier, I think rather than calling a market share a national strategy, I think market share comes from individual consumers, wallet share, and individual stores -- individual markets and districts.

That is where we are going to make progress is when we are more relevant to the consumer than our competitors are.

So, I still believe there is a lot more of that opportunity that is out there as opposed to just the general economics improving where all boats rise.

I think that some boats will rise, and I am counting on Macy's and Bloomingdale's to be among them.

Just following up on that.

The place of value.

You talked about it being the second in your four priorities.

Karen mentioned price value equation is still very important.

Obviously, you have made terrific strides this past year of striking that right balance.

Give us a sense of where the emphasis is going forward?

How much more are we -- have we struck the right balance?

And perhaps, should not expect year-over-year -- should we expect comparable level of promotions, year-over-year, and no more aggressive?

Or as you point out, the macro environment is still choppy, and therefore, we still should expect continued -- the value message to intensify?

I don't -- in our case, I don't believe we have to be more aggressive.

In fact, we were less aggressive in 2009 than we were in 2008.

That was appropriate because we, like others, were trying to get rid of excess inventory in the fourth quarter of 2008.

And a little bit of early 2009.

But, we were pretty aggressive in the fourth quarter of 2008.

So, I don't see a need for that.

I think that -- and the difference is, Adrianne, these promotions are planned promotions.

2009 , they were planned promotions.

And 2010 will be planned promotions.

So, I don't think it is going to be a significantly different promotional calendar this year than last, particularly the second half of last year.

We will tweak and fine-tune, of course, but I don't believe it will that much different.

It all has got to become more obvious to the consumer.

I use that word a lot internally that I shouldn't have to explain to you what the value is to the customer.

The customer should find it obvious.

I think we can do a much better job on that subject than we have.

I think we are not alone.

I think other retailers can do a better job, too.

But I know we can, and so to me that's the kind of message I want to give.

I don't believe it will be more promotional than last

Okay.

Helpful.

And Karen, on the expense side.

If you could just clarify, you talked about at least the $400 million.

It seems as if last year we saw more than the $250 million from some -- perhaps one-off items.

Give us a sense, should therefore, the $150 million in 2010 be less than that?

Perhaps sort that out for us?

And then beyond that, how should we think about what the normal run rate on expenses is on a go-forward basis?

And where should we expect you to see that spending pick-up?

I think the easier part of the question is the second part.

The run rate should be there by fall of this year.

That is when all the changes will have been instituted in the stores.

Maybe late second quarter, but I would say third quarter and fourth quarter.

And, in terms of reconciling to the $250 million or the $400 million, clearly this year, we are saving at least the $400 million.

In 2009, we did save more than $250 million.

Some of that would reduce the $150 million.

But not tremendously.

And some of that fell under the category of spending that people stopped doing earlier in the year which really isn't a permanent savings.

So, we did save more than $250 million.

We will save at least the $400 million this year and the delta between the two years is probably less than $150 million, but not tremendously.

Okay.

That is helpful.

And just the last question, as it relates to your mounting cash pile.

Give us your thoughts in terms of how you think about what the ideal capital structure is here?

I think we have been clear that we are working to delever the balance sheet and to work toward being an investment grade Company again.

Once you get past the strategic uses for cash, and we believe our capital budget in 2010 is more than adequate.

But once we get beyond strategic uses, we believe the best use of cash for now is reducing debt.

Thank you.

And we will take our next question from Michelle Clark with Morgan Stanley.

First question, your comp outlook for an increase of 1% to 2%.

Is that fair based on earlier comments that that is going to be driven, Karen, primarily by traffic increases?

Or that is the expectation rather than any increase in AUR?

I am hesitating before I answer, Michelle, because it really comes from a blend of increases in average unit retail and traffic.

And also, the answer differs by family of business.

So it is hard to generalize.

But I do expect that we should get an increase in traffic in 2010.

Fair enough.

Secondly, if you could comment on your credit card performance during the quarter and how that played out?

Our credit card performance was a little better than we had expected.

I would say that delinquency levels have stabilized although still above historic levels.

Penetration for 2009 as a whole was 48%, up 80 basis points over last year.

In the fourth quarter, it was a little bit below 2008's, but still well above 2007.

So, I would say, it continues to be very high, amongst the highest, if not the highest in the industry, and the profitability is stabilized and improving somewhat.

Okay.

Last question.

Your gross margin outlook for 2010, Karen.

Can you tell us what is embedded within that in terms of your product-cost outlook?

And how that breaks out for the first half of the year versus the second half?

I think the biggest benefit to happen with gross margin will be the lower inventory levels in the spring season.

As we entered the first quarter last year, we still had some inventory that was higher than what we had hoped, given how much the sales had fallen in the fourth quarter.

Also, as we went into the second quarter -- as we were transitioning to the new structure, we think there is probably opportunity to manage the inventory better this year than we did last year.

In terms of the cost of goods, there has been a lot of conversation about the potential for higher costs as we move into the back half of the year.

We are working very hard to manage around that without -- and this relates to our private brand product -- obviously, without impacting the quality of our goods.

But that will be more challenging in fall 2010 than it was in fall of 2009.

In part, that is why we are talking about flattish margins in 2010.

That is embedded in your outlook?

It is.

Great.

Best of luck.

Thank you very much.

We will take our next question from Charles Grom with JPMorgan.

Thanks.

Good morning.

Karen, on the interest expense assumption of $540 million.

I am assuming that is just to retire the $226 million of debt that you have coming due this year?

Is that correct?

That's correct.

And then, second question on cash.

Can you just remind us the funded status on your pension?

And if you could do it maybe pro forma for the contribution that you made yesterday.

I wish I could answer that.

Hewitt is still working on the estimated liability as of year-end.

So I know that it was higher than 80% based on the contributions we made in 2009 , but I don't know yet what it is.

As soon as we get the data -- probably by the end of the first quarter, Chuck, we will be able to talk about

That would be great.

You gave a lot of front-half, back-half analysis for the guidance, but you didn't touch on comps.

Just wondering, if you could give us a little bit of color on the 1% to 2%?

Particularly given that -- looking at two-year stacks can be pretty dangerous right now.

So I'm wondering if you can just hold our hand on what you expect for the front half versus the second half?

That is a hard question to answer, and somebody this morning was talking about how difficult the second quarter will be -- I'm sorry, the second half will be.

The problem with that logic is you probably have to go back more than two years.

Sitting here today, we don't expect huge deviation as we get through the year.

I would say that is right.

Because the first -- the way we are looking at it is, the first half, we are against weaker comps for at least on a one-year basis.

And the second half, we are going to be more experienced.

And we are going to be more -- we will have more of the My Macy's ideas underway and developed and executing against them.

So, while we are going against a more challenging fourth quarter, our view is, we just need to keep on piling on the opportunities, and the more time we have in advance, the better sight line we will have to being able to seed those specific opportunities.

So, that is how we came up with Karen's response.

It is a pretty similar first half, second half -- in that 1% to 2% comp range.

Okay.

One last one for you, Terry.

I think most of us can somewhat conceptualize the sales angle for My Macy's.

It's pretty intuitive, and you have been pretty good laying out the numbers.

But I know there is a vendors' side benefit for My Macy's that is a little less transparent.

And since you are on the call, I was wondering if you could walk us through what the benefits are on that front?

The benefits are more for the -- well, they're both.

Central organization for sure.

We have had this going for the last year.

The vendor collaboration meetings with our top -- we had originally our top 25 vendors in size, and we moved it to the top 50 vendors.

And we continued to expand it where we have regular meetings with top management -- our top management, their top management.

And think through the opportunities that we see for each other with the new structure.

I say, one of the most important things to our vendors is just the decisiveness.

We -- one of the things someone mentioned earlier, is the sizing opportunities.

What they have fed back to us is that we have asked for size changes by market in the past, but when we had Macy's East and Macy's West and Macy's Central and Macy's Florida -- I mean, we just couldn't agree.

And Macy's West was thinking about a size profile for San Francisco, but they were also responsible for Las Vegas.

They were very, very different.

So, they were trying to do their whole region and ask for size profile vendor ship packs.

That was so different in itself, but it was different from Macy's East's request.

So, now, we are not looking at it any more by parts of the country.

We are looking at it by individual store.

So we can say, look, we have all these stores.

There are 120 of them that look like this.

And there are 104 that look like this.

If you can produce size packs to respond to that group, then we are going to be -- it is going to be less markdowns for you and for us because we are going to have it right at the end of the season, selling through the right sizes.

So, that decision-making process and that overall look -- holistic look at the nation with specific detail by store as opposed to regions of the country under the former structure, is a huge advantage for our vendors and the quickness of coming to conclusions is helping in that regard.

As you know, we have several, exclusive, big vendor relationships now.

There are more of those brewing because they are watching what is happened with us with Tommy Hilfiger or Rachel Roy or these others.

They are seeing the fact that we can grow these businesses into a meaningful, sizable business.

Be all that they hoped for in their previous distribution structure, but doing it with one customer.

And making decisions and responding quickly and really working side by side to affect the business and to affect change and to plan for the future.

So, there is more and more of that happening on the vendor side.

Finally, back out to the stores, they have always had their vendor reps out in the stores.

Now they have somebody to talk to in the stores.

They have got the district team to talk to.

When I go visit our stores, I always ask the cosmetics person -- I say, who is the rep for Estee Lauder?

And boom -- she pulls up her cell phone and says here is her number.

Do you want to talk to her?

They are now linked in with the relationship with the vendor organization out in the field.

And in many cases, the vendors are duplicating our district structures.

They are trying to align themselves to have a point person for each of our 69 districts to help respond more quickly and locally.

I think the vendors and we are working extremely well together.

Great.

Thanks very much.

You're welcome.

We will take our next question from Bernard Sosnick with Gilford Securities.

Thank you, very much.

And Terry, I have to say, it is very helpful having you on the call.

With respect to your priorities, you spoke about having a unique marketing approach.

I am wondering if you can give us a little bit of color on what you see with regard to uniqueness?

And what we might be expecting during the first half of this year?

I think our uniqueness has been largely in our brand advertising.

So, the Believe campaign, where we raised millions of dollars for the Make-A-Wish Foundation was very unique to us.

And I think it really tugged the heartstrings, as well.

We are helping these kids with cancer, but at the same time we have Queen Latifah in the ad or Donald Trump in the ad.

Jessica Simpson in the ad.

That we are really connecting the dots, all these people -- all of these celebrities -- they have products sold at Macy's.

We connect the dots that way.

But I think tying them to our brand and then often to a charity cause -- in this case, Make-A-Wish, has been very unique.

We did -- I am not sure if all of you knew this, but the Yes, Virginia, There Is a Santa Claus which was the basis of that original Believe campaign.

We had our own animated film this year, and it ran on CBS.

CBS ran a 30-minute TV show called Yes, Virginia, There Is a Santa Claus.

That was us.

We and our marketing agency wrote that script and created it for television.

I don't know any other retailer who has ever done anything like that.

So, obviously, we are doing it to reinforce the Macy's brand image when people watch this.

It has already been picked up for next year because it was the number one-rated TV show in that time slot this past holiday season.

So, our hope is that we will have The Miracle on 34th Street, and then we will have this constantly reminding you of America's department store.

And that is Macy's.

I think those are some of the unique things we are doing marketing-wise.

I think we have to become more unique on the promotional side of the equation, and that is what we hope to grow and improve on in 2010 and beyond.

And where might you differentiate yourself with respect to loyalty programs?

We are working on some new twists to our loyalty program.

Right now, it is a cash back program in the form of a gift certificate.

The more you spend, the more you get back.

For both Bloomingdale's and for Macy's.

But we are working on a new program with Dunnhumby.

And that is their whole thing -- not their whole thing, but it's a big part of what Dunnhumby does is work on loyalty.

So we're going to be breaking into new territory here, and we're not ready to reveal everything yet, but it's -- we're breaking out of -- let's just say that we're breaking out of the department store loyalty programs.

And we're going further, and we're looking at other industries and how they have used loyalty to help attract customers.

We are going to be experimenting with that in the first half of this year.

But as we get ready to do it, we will want to talk to you about it because we are quite excited about some of the new work we're doing with Dunnhumby on loyalty.

Thank you again.

I really appreciate your presence on the call.

Thank you very much.

We will take our next question from Bob Drbul with Barclays Capital.

Good morning.

Good morning, Bob.

The two questions that I have -- first, Terry, on the test and react?

Have you had any issues in terms of inventory availability from some of the vendors as you go through this?

As you think about the plans for 2010, can you maybe comment a little bit around the plan to perhaps build inventories to support the positive comps sustainably throughout the year?

Okay.

Just writing this down here.

In terms of availability of test and react, we definitely have some of those where the vendors are just not able to get back into an inventory position, certainly in 2009 because the vendors were not taking any big risks either.

They got hurt in 2008.

So their inventory was lean in 2009.

There wasn't a lot of ability to test and react in-season.

So we had to do some of this work in different ways.

The example I gave in Florida with sandals was an easy way for us to do it.

Because what we did is we went to our vendors.

We went to our own private brands, and we went to some of the market brands.

And we said, let's put in some inventory that you were planning on thinking about for spring season, and let's just put in a broader assortment in the early fall before the season into Florida.

And next year, we will put it into Hawaii and parts of Arizona, Las Vegas, California -- they are warm weather climates -- and test and react.

In that case, it is really not a risk for them.

In fact, it is a big, positive help.

We will get several months of early selling because of, just simply, weather changes there and be able to respond to what we know we got a good reaction from three or four months later on their normal delivery cycle time.

So I think those tests and reacts are a lot easier to do than would be the case for the in-store.

However, I do think that you are going to start to see individual of our vendors starting to take a little bit more risk on things and items and subjects that they believe in -- that they will want to make sure that they have inventory to support.

Much more so than 2009.

So I do think there will be more in-season availability of product than there was last year.

And as far as building of inventory, I am not ready to do that in the spring season.

I just think that there is -- I have got to wait and see how these macro economics play out.

So, while I might take some risk in women's shoes if that is the hot trending in business.

Or in cosmetics categories where there is little or no mark-down risk or places like that, we certainly can do it.

But as far as the apparel business is concerned, I still think we want to learn from what was successful in this past year of managing our inventory, trying to push for a higher turnover, chase the business a little bit before we say -- let's load in the inventory and build the inventory.

Great.

And Karen, can you maybe talk a little about California and Florida trends in the last few months.

Yes.

I think Florida has improved, and I would say California has really stabilized.

Thank you very much.

And we will take our next question from Wayne Hood with BMO Capital Markets.

Terry, you hit on a subject just a second ago about inventory productivity.

It looks like you get a little bit of an improvement in 2010 based on your forecast.

But one wouldn't describe that as robust given the local initiatives.

So I'm wondering, to what extent do you think you can make improvement in that metric in 2010 and to ride that higher to put you close to the top tier because you are still well below where you should be probably.

You are exactly right.

I totally agree with you.

We can do a better job of inventory turn than we do.

That is one of the reasons why I am just saying I don't want to build the inventory.

I would rather chase the inventory.

To me, this is one of the good things that have come out of a challenging year like 2009.

You learn to live with less of a lot of things, and one of those things is inventory.

We just have to be more edited, and we have to be more fine-tuned.

The next challenge, and I am doing this in stages.

But right now.

My Macy's is all about is localization.

The next phase is, tell me what you don't need.

After you tell me what you need, now I want you in the district to tell me what you don't need.

The buyer may want to buy it because of a relationship with a vendor, but you need to tell me that you don't need this particular brand because you are really not getting the sell-through.

Or, if you had more of this other brand, you wouldn't need that particular brand.

So the editing process to allow us to get more productivity out of our inventory is available to us.

And then after that, I think it's -- how would you market different in Pittsburgh versus how would you market in Minneapolis.

We will get more of that flavor of localization in the marketing, in special events and donations budgets.

All of those kinds of things coming from My Macy's.

I see this thing evolving into just a great, detailed relationship into -- with our communities, but you are exactly right about the inventory issue.

We need to figure out what we can live without and edit and maximize our sales productivity.

Is there a goal, Terry, as we think about it?

You know how we like to hold people's feet to the fire.

But for 2010 and 2011 -- if we come back a year from now that you expect to be at with respect to turn?

And I have one last question.

Not that I am not prepared to share with you -- because you will hold my feet to the fire.

But just note, it is on my agenda for us to make progress on.

Okay.

And my last question, to what extent do you think there is an opportunity to make your pricing message and promotional messaging less confusing to the customer, and I think even to store associates to where you have less exclusions.

So they fully understand what it is and just better clarity about the out-the-door price?

You probably know, we have been testing some of these no-exclusions or significantly fewer exclusions coupons.

It is a tough subject.

It's complicated because we are not like Wal-Mart.

We are not everything is every day low price.

We have brands like Ralph Lauren that have a window of time to sell it regular price, and then it gets cleared at first markdown and then on second.

You are always going to have product in the assortment that is going to have a regular to clear.

Then we have the home store that has got on irons -- regular versus sale.

We put them out at the every day sale price.

Sometimes it works.

But a lot of times, the customer comes in and says I want to have a discount on top of that every day low price because I am used to getting it.

Not because it is not a great value but because I am used to getting it.

So I wish there was an easy answer to your question.

I tried eliminating the coupons dramatically after we bought the May Company, and it turned out to be a mistake.

And I had to go back and put them back in because it really hurt our business, particularly in the May Company doors because those customers had been trained to only buy on coupons.

So, trying to extract what you have got in place and have had in place for many years is a very difficult issue.

So I don't disagree that we want to improve the clarity of the value message.

That is why I call it obvious value internally, as an objective for our own organization.

But, it is a challenge.

And I know that my group, and we -- I -- spend a tremendous amount of time on this very issue.

In fact, a lot of the vendors did not like our simplified coupons, or we took the exclusions off.

Even though I tried to put it on just sale and clearance so we weren't taking it off of regular-priced merchandise, the vendors have a very strong point of view that they would like to be excluded here.

This is a work in progress.

The vendors have been very supportive.

We have worked together to do these tests, and the tests have been successful.

Customers do like these low, few exclusion ideas better, but we are not done.

We still have more work to do.

Thanks, Terry.

Yes.

And we will take our next question from Mike Shrekgast with Longacre.

Yes.

Could you comment a little bit on -- I think you said you're going to be making -- you just made a $300 million payment on the pension plan.

Are the quarterly pension contributions still going to be in effect?

In 2010, the $325 million covers the quarterly contributions as well.

So that is the all-in cost, yes?

Correct.

And just with regards to the guidance for the year, if you back into it on the EBITDA basis, we are much closer to about $2.8 billion.

Would you say that is about right?

We have not given guidance.

We have only given the earnings guidance in that range of $1.55 to $1.60.

Okay.

Thank you.

And we will take our next question from Lorraine Hutchinson with Banc of America-Merrill Lynch.

Thank you.

Good afternoon.

I was just hoping to hear a longer term view on gross margin.

I understand your guidance for this year.

But as you think about the next few years, where are your opportunities to improve that metric?

And how long do you think it will take to execute that?

It is a good question, Lorraine, and I don't know that we know the answer to that.

We are still coming out of the dip from last year.

And how high the gross margin will go over time, we are still trying to evaluate.

Okay.

Thank you.

We will take our next question from Lance Vitanza with Knighthead.

Mr.

Vitanza, your line is open.

Hello.

Sorry about that.

Two quick questions.

The first on the CapEx guidance.

Does that include what you anticipate spending on capitalized software?

Or would that be in addition to the $550 million.

That is included in the $550 million.

Okay, great.

And then, the free cash flow in Q4 was a bit better than I had expected, even taking your operating performance into account.

Could you walk through the components of your cash flow in the quarter?

I think you can see it right from the earnings release?

I am not quite sure what else you are looking for?

I guess, could you just talk a little bit about where you saw performance coming in a little bit better than you would have anticipated?

And if there were any timing impacts there?

Or anything that you think was pushed into Q1, or if it's really just outperformance in Q4.

No.

It is outperformance.

Thanks.

We will take our next question from Dana Telsey with Telsey Advisory Group.

Good afternoon, everyone.

Can you talk a little about how you see what a merger of GGP and Simon would mean either for you or for consolidation within the mall sector?

How do you see dealing with the landlords?

And just any breakdown of CapEx for 2010, Karen, and how you are seeing it?

Thank you.

I will just address the landlord question.

And I am going to run.

If Karen needs me, I will be down the hall in another meeting.

I have been asked that question, Dana.

I am not exactly sure yet.

We are already the largest tenant in the malls for Simon and for most of the major developers that we do business with.

So, I don't know that it - if it's going to change much with us.

I still think that we need the mall, and the mall needs us.

If we decided to leave the mall, that is bad for the mall.

And if the mall deteriorates, that is bad for us.

So, I don't know that in our case the relationship changes, or the economics change.

I don't think so.

But, of course, we are all standing by and interested as this discussion goes on.

I will let Karen answer the -- .

On the CapEx, there is very little being spent on new stores.

It is really being spread between technology which includes the direct-to-customer investment, maintenance of the stores, and remodels.

Mostly what I would categorize as smaller remodels.

Thank you.

We will take our next question from David Glick with Buckingham Research Group.

Good morning.

And congratulations on the progress in the quarter.

Karen, from a balance sheet perspective, is there any opportunity for early retirement of the your 2011, 2012 debt maturities?

Obviously, you have the big one in 2012.

Just wanted to get a sense for your thought process on how you look at retirement versus refinancing, particularly on the bigger slug in 2012?

I think what we have said is that we plan to pay down the debt in 2011 and 2012 as they come due.

Possibly, there is opportunity to do it sooner.

But we are not looking to refinance.

In terms of the My Macy's structure, I am just curious what the learnings were this year that are applying to the process going forward on the merchandising and the planning side?

You are probably starting your second planning cycle now for all 69 districts for fall 2010.

And just wondering, any thoughts you can share on some of the learnings that you are applying?

I think the first time out was, obviously, complicated.

Getting the right blend between the by-store plans and the by-family of business plans was challenging.

I think we did it much better in the spring.

We are now starting fall planning.

I think it will be better, still.

But we are trying to get all of the good input from the field into these plans which is obviously something that we had not tried to do in the past.

Thank you.

And last question.

Have the February snowstorms had a meaningful impact on your trend this month, or has it just not had a big impact?

Obviously, we would have done better had we not had the snow, but we are still doing well in February.

Okay.

Great.

Thanks very much.

Good luck.

Thanks, David.

We will take our next question from Meredith Contente with Broadpoint.

Thanks for taking my question.

I had to hop off for a little bit so my apologies if you already discussed this.

I was wondering if there was any potential to tender for the 2010 debt earlier like you did last year?

Or if you just plan to pay it down as it comes due?

At this point, we are planning to pay it down as it matures later in the year.

I guess there is always the potential.

Okay, fair enough.

Appreciate it.

Thank you.

We will take our next question from Michael Exstein with Credit Suisse.

Thank you very much.

A couple quick housekeeping questions.

Can you talk about whether you think there are any additional charges relate to My Macy's that will need to be taken in 2010?

And also, impairment charges that you think -- ?

There will be no more charges taken relating to My Macy's.

Now, some of the cash will come out in 2010 as we always anticipated.

But from an earnings perspective, there will be none.

Obviously, we don't anticipate any impairment charges, or we would have taken them.

So we are basically done at this stage of the game?

Well, we are done with the consolidation changes.

Impairment charges are harder to predict, but we don't anticipate any.

So the reported earnings will be much easier for those of us on the outside to understand going forward.

Let's say there will no longer be the consolidation expense line.

Right.

And then, are there any other looming tax items that can skew things one way or the other?

There are always tax settlements that happen during a year, and we plan them to happen in order to get the rate to the 37%.

But they tend to be choppy.

That's why it is hard to predict the rate by quarter.

Okay.

And then finally, when we think about depreciation and amortization going forward.

With CapEx down so dramatically, what do you think the run rate will be over the next two or three years?

I don't know that there is such a thing as a run rate with depreciation.

It will continue to come down given the significantly reduced capital.

Okay.

Is there a point at which you think it will start rising again?

CapEx?

Well, as we start spending up to the $800 million, obviously that will change that balance.

Okay.

That is terrific.

Thank you so much, Karen.

You bet.

Thank you, Michael.

(Operator Instructions) We will take our next question from Ken Stumphauzer with Sterne Agee.

Thank you for taking my question.

I was just wondering if you could discuss some of the store level best practices that you had intimated you were going to implement in 2010?

And further, if you could comment if that was related to the store level layoffs that was reported in the news recently.

We had always anticipated executing best practices across the stores, whether it is relating to staffing, or how we handle cash.

How we do some of the support functions.

Each division operated their stores differently.

So, we studied the best practices during the second and third quarter.

And obviously, you would never execute changes as you head into the fourth quarter.

So, that is what we are executing now.

That is the lion's share of the incremental savings from the $250 million to the $400 million that we had always anticipated.

Okay.

Just one other thing.

If you could help us understand the incremental pension cost of $30 million that we are going to be seeing in 2010?

I was a little surprised given the magnitude of the loss that was unrecognized from 2008, that it wasn't up more significantly?

Could you comment on what was potentially offsetting that?

If it was discount rate?

If it was contributions from last year?

I don't have all of the detail in front of me.

Part of it would be contributions.

Part of it would be change in the workforce as a result of all of the consolidations.

And part of it is, we are beginning to amortize the bad results of 2008.

Okay.

Thank you.

And we will take our next question from Jeff Kobylarz with Stone Harbor Investments.

Karen, curious about -- I may have missed this, but the cash contributions to the pension plan in this past fiscal year, how much were those?

You know something.

I don't have the actual number in front of me, but it was exactly what we had disclosed in the high end in the 10-K last year.

So, the $325 million that was just made this month, that is not a catch-up for what was done in this past fiscal year then?

We contributed more than we needed to contribute in 2009 to get us to the 80% goal we had set for ourselves.

But we are continuing to try to get it, obviously, up to 100% funding.

So as we looked at the requirement for 2010, based on very early estimates, it looked like $325 million.

And so, we have made that contribution already.

Okay.

Fair enough.

And then, a macro question.

Do you have any general thoughts about consumer spending?

To get to your comps, what are your general thoughts about the consumer spending trends for this year.

Is the second half going to be any better on a macro basis than the first half?

As you might imagine, we have multiple scenarios that have customer spending at all different levels and the impact of My Macy's also at different levels.

So if the economy does a lot better, and My Macy's hits on all cylinders, we should do better than the numbers that we've talked about for sales.

Conversely, you can play with the variables.

But we obviously don't have a crystal ball there.

All right.

Thank you.

That concludes today's question and answer session.

At this time, I would like to turn the call back over to Karen Hoguet for any additional or closing remarks.

I would just like to thank you all for your interest.

Obviously, call Susan or call me this afternoon if you have further questions.

And thank you.

That concludes today's conference.

Thank you for your participation.