梅西百貨 (M) 2010 Q4 法說會逐字稿

Good morning and welcome to Macy's, Inc. fourth-quarter earnings release conference call. Today's call is being recorded. I would now like to turn the call over to your host Miss Karen Hoguet. Please go ahead.

Great, thank you very much and good morning and welcome to the Macy's conference call. 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 completes. Please refer to the Investor Relations section of our website for a discussion and reconciliation of any non-GAAP financial measures discussed this morning.

Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the Company including the risks specified in the Company's most recently filed Form 10-K and Form 10-Q.

2010 was a great year for the Company. It was the first full year of our new structure and the My Macy's strategy and we are very pleased with our results.

We are successfully establishing more of a growth culture and focusing more than ever on the customer. Since comp store sales growth is the best proxy for how the customer grades our performance, we are particularly happy with our performance on that metric this year.

The 4.6% annual comp store increase was our best performance in at least 15 years and it also compared favorably to our key competitors. At this time last year, we expected comp store sales growth of 1 to 2% for 2010 and we obviously far exceeded that. That delta is important and enabled us to produce higher than expected earnings and cash flow.

The Macy's customers are reacting very favorably to our new strategies. I would like to list four as being particularly important to driving sales.

First is the My Macy's localization strategy. I hope that as you are in our stores across the country, you are seeing the evidence of our better meeting local needs for sizes, colors, vendors, etc. Sometimes the contrast can be best seen when you walk our store and then compare it to the competition in the mall.

We've made lots of progress, but we believe there is so much more to achieve.

Number two is private brands and exclusive market brands. We had another great year with our private brands and exclusive market brands, and the penetration of private brand sales grew to 20% this year and the percentage of our business done in private, exclusive and limited distribution brands is now approximately 43%.

The third key strategy would be MAGIC selling. This is our training program which is designed to increase engagement with our customers on the selling floor and it is supported by intense coaching.

We have trained over 130,000 associates which is something we have never done before. This is all part of the shift in our culture to being more customer centric.

People often ask what MAGIC stands for. The M stands for meet and make a connection. The A, ask and listen. G, give options, give advice. I, inspire to buy and sell more. And the C, celebrate the purchase.

This has been really powerful in helping our associates better engage with the customer, but we have a long way to go. In fact, all associates will be going through a refresher course this spring.

And the fourth key strategy driving our sales is our omnichannel offering. We still are only at the early stages of maximizing the opportunity from having strong websites and digital marketing capabilities.

Our Internet businesses grew far faster than expected this year, causing us to accelerate the expansion of one of our distribution centers as well as the start of construction of a fourth major fulfillment center. We continue to invest in this business both at Macy's and at Bloomingdale's given its potential for driving sales growth both online and in store.

And we were able to achieve these great sales results this year while also improving our profitability and generating significant cash flow. Our operating income grew 32% excluding asset impairment, store closing and division consolidation costs.

And earnings per share grew 55% on that same basis, and also excluding charges relating to the early retirement of debt. We ended the year with $1.5 billion of cash, having repurchased or paid off at maturity $1.2 billion of debt and having contributed $825 million to our pension plan during the year.

And our return on invested capital grew to 17.4% this year from 14.9% last year. It truly was a year of great progress on all dimensions and fortunately, there is lots more to come. Let's go back now and talk a bit about the fourth-quarter results and then I'll move on and discuss our key planning assumptions for 2011.

Our sales in the fourth quarter which increased 4.3% in comparable stores were on the high end of the aggressive sales guidance we set for ourselves. EPS also exceeded our updated expectations primarily due to lower SG&A than anticipated.

As we look back on the fourth quarter, so many of our strategies at Macy's were successful. The focus on private and exclusive market brands, the gift strategy, directed merchandise moves into what we call whitespace and the focus on key headquarter store businesses like men's apparel and accessories, women's shoes, cosmetics and fragrances, watches and luggage. Where we did less well as you have heard were the traditional parts of women's apparel.

Geographically our business did well in the fourth quarter in all eight of our Macy's regions with Florida deserving a special callout for very strong results there in the quarter and also for the full year. Bloomingdale's also had a terrific quarter and year.

Sales performance compared favorably to the direct upscale competition and exceeded our expectations. Bloomingdales.com grew far faster than expected. We successfully opened a very exciting store in Santa Monica, and we initiated a licensing arrangement for Bloomingdale's in Dubai and opened what I am told is an absolutely magnificent store in one of the world's best shopping malls. And we also launched a Bloomingdale's outlet concept by opening four stores towards the end of the year.

Gross margin in the fourth quarter was 41.3%, down from last year's 41.5% had the current accounting treatment been in effect. This decline was as expected.

Starting in the first quarter of 2011 by the way, we will have year-rounded those changes in accounting treatment, so we can go back to comparing to reported numbers. We ended the year with inventory up 3.1%.

This is a little higher than we had expected earlier in the year, but it was due primarily to a conscious effort to accelerate the receipts of replenishment goods to get back in stock after we took inventory in January. We saw this as a sales getting opportunity and it's still lower than our rates of comp store sales growth.

SG&A in the fourth quarter was $2.245 billion, up just 0.4% over last year had the current accounting treatment been in effect. As a percent of sales, SG&A was 27.2%, 90 basis points below last year had t he current accounting treatment been in effect. This is better than expected due to solid expense control throughout the Company as well as property tax settlements and other year-end adjustments.

This year in the fourth quarter, we booked $18 million of asset impairment charges and $7 million of store closing related costs for a total of $25 million. Last year in the fourth quarter, we booked a total of $186 million in asset impairment, store closing and division consolidation costs in the quarter.

Excluding these items, operating income was $1.169 billion or 14.1% of sales this year. On this basis, operating income was up 10% over last year and as a percent of sales, up 70 basis points had the current accounting treatment been in effect. Including these items, operating income was $1.144 billion or less than $25 million.

Interest expense in the quarter was $118 million as expected, reflecting savings from the debt repurchases earlier in the year. Tax expense was $359 million in the quarter. This brings our annual rate to 36%.

Most of the reason for the lower than expected rate is a change in the basis of recording deferred state income taxes from an estimated blended basis to a separate entity basis. We believe the revised methodology results in a better estimate of deferred tax liabilities and is more consistent with the accounting literature.

We will be reflecting the effects of this change retroactively to 2008 and you can see the details of this change on our website. The 2010 expense was lowered by $9 million versus what it otherwise would've been. We had not anticipated making this change which did help earnings per share in the quarter by $0.02 per share.

This change increased last year's tax expense by $21 million or reducing the earnings per share by a nickel. This change has no impact on cash nor on operating earnings. Remember also last year's tax in the fourth quarter included $21 million or $0.05 per share benefit due to favorable tax settlements last year in the fourth quarter.

Net income in the quarter was $667 million; diluted share count, 429 million shares. Earnings per share therefore on a diluted basis in the fourth quarter was $1.55 or $1.59 excluding the asset impairment and store closing costs.

Our guidance for the quarter had been $1.44 to $1.49 which we far exceeded. On this basis, last year's earnings per share in the fourth quarter was $1.35.

As discussed earlier, sales for the full year of $25 billion were up 4.6% over last year on a comp store basis. The gross margin rate for the year was 40.7% or up 50 basis points versus last year had the current accounting treatment been in effect.

SG&A dollars were up 1.2% had the current accounting treatment been in effect. And as a rate, SG&A was down 110 basis points on that basis.

Diluted EPS was $1.98 on a reported basis versus $0.78 last year. But on the adjusted more comparable basis excluding store closing and division consolidation costs, asset impairment and debt premium costs, earnings per share on a diluted basis was $2.11, up 55% over last year's $1.36.

Cash flow was also very strong in 2010. Net cash provided by operating activities was $1.5 billion, down from last year's $1.75 billion. Keep in mind that this year we contributed $825 million to the pension plan versus $370 million last year. This explains more than the difference between the two years.

Capital spending in the year including capitalized software was $505 million as compared to our budgeted $550 million. Including construction in progress, we did utilize our whole budget but some of the cash won't be expended until after year-end.

We are not however increasing the budget in 2011 to cover this because it is our assumption we'll have a comparable carryforward at the end of 2011 into 2012. As discussed earlier, we used excess cash to pay down over $1.2 billion of debt and again we ended the year with $1.5 billion of cash.

This Company continues to generate significant cash. Much of it has been used to reduce debt and to fund our pension liability.

While we made significant progress last year in strengthening our balance sheet, we are still working towards regaining our investment grade ratings at Moody's and at S&P, and we will continue to use some of the excess cash to reduce debt. Let's move on now to our key planning assumptions for 2011.

We are entering the year with building momentum which gives us confidence that we should have another strong year. As part of our transformation to having more of a growth culture, we are setting our targets for sales growth higher than in the past and we have identified strategies that we expect will enable us to at least achieve and maybe exceed those targets.

As we talk about our assumptions for 2011, the subject of commodity price increases is a key one. We are taking this challenge very seriously, but you need to keep this issue in perspective.

As a better fashion retailer, we are less reliant on opening price point basics and have the ability to add quality features and fashion details that command a higher price point. Average unit retails in these categories will increase but into a lane in which we have successfully played prior to the recent recession. Also, remember that a significant portion of our business is in categories that are not impacted by the escalation in raw material prices.

Having said that, here are seven things that we are doing to help address this issue. One, while some price increases are unavoidable, we are being very careful to maintain competitive value in highly sensitive commodities.

Two, because we are a very important customer for most of our vendors, we are able to work very closely with them to optimize our mutual pricing strategies. And through our vendor collaboration efforts, we have been able to work closely together with specific vendors to increase efficiencies and take costs out of the system. This is enabling us both to offset some of the higher input costs.

Three, we will increase the use of search and send to enable us to provide fringe color, size and assortment options to our customers while limiting inventory risk. Search and send is when a customer comes to our store and we don't have what she wants in stock in that store.

We now are able to send it to her directly from our direct-to-customer distribution facilities. We are also expanding the ability to access inventory from other stores to increase the probability of meeting a customer's needs.

Four, we will continue to drive key item penetration and editing peripheral assortments which will enable us to improve the cost. Five, as to our private brand programs, we have a very experienced team of executives who live and work in countries where we produce goods.

They are working very closely with our suppliers with whom we have very long relationships and together we are dealing with the challenges that we are both facing. Six, we are testing and monitoring price increases this spring to understand better price elasticity on programs and individual styles within programs. And seven, we now have a pricing team in place to provide more analysis on pricing decisions.

With that as a backdrop, our assumptions for comp store sales is approximately 3% for the full year of 2011. Total sales for the year will be up by approximately the same percentage as comp but it could vary slightly by quarter. At this time, we are planning to open three Bloomingdale's outlets and no new department stores.

We are assuming a flattish gross margin rate for the year 2011. In addition to the pressure on margin from the added cost in some categories of merchandise, the decision to move to free delivery for purchases over $99 every day on Macys.com as well as the growing use of search and send is going to put pressure on our gross margin rate. We expect to be able to offset this impact however after the first quarter when we year-round on the rollout of search and send.

We are assuming that SG&A dollars will increase roughly 2 to 2.5% for the year. This therefore assumes that our SG&A rate as a percent of sales will continue to decline as sales rise.

This increase in SG&A is a little higher than a normal run rate due to the investments we're making to grow our online and multichannel business including the expanded warehouse and the construction of the new megacenter and ongoing site and customer service improvement. Depreciation and amortization is assumed to be $1.110 billion for the year or down $40 million from 2010.

Interest expense is assumed to be approximately $450 million in 2011 versus $574 million in 2010 which includes a $66 million premium on the debt repurchase. For tax expense, we still believe the rate should be approximately 37% for the year, although it will continue to vary quarter to quarter.

We are assuming an average diluted share count for the year of 432 million shares. This all leads to the earnings per share guidance of $2.25 to $2.30 for the year 2011.

And in terms of assumptions for forecasting cash, here are three that should help. The first, we are assuming CapEx of $800 million.

Two, while were still finalizing our plans for a pension contributions this year, for now, we are assuming a contribution of approximately $225 million which should again approximately get us back to being fully funded by the end of 2011.

Three, we plan to pay off the approximately $450 million of debt that matures in 2011. And while we are on the subject of debt, as a reminder, we approximately $1.1 billion maturing in 2012.

As our team enters 2011, we are focused on four key strategic imperatives. The first, to drive a growth culture. This involves encouraging risk, maximizing big ideas, mining whitespaces for opportunities that we see to fill in our offering, focus on vendor collaboration and continue to grow our private and exclusive market brands.

Two, maximize My Macy's. We need to continue to respond to the local needs of our customer. This includes doing a better job on key subjects like sizing, climatic variation and multicultural differences.

Three, we need to continue to embrace customer centricity. We need to continue to live MAGIC selling which focuses on an engaging with customers and we need to drive our coaching to support these efforts.

We are also rolling out a new scheduling system that is designed to better match staffing to when customers are in a department. And through our new online customer survey which is providing better and quicker feedback combined with the use of dunnhumby analysis, we hope to be much better able to meet the needs of our customers.

And fourth, drive the omnichannel business. We need to continue to align our store and our Internet merchandising and marketing strategies, and we need to continue to build our capabilities for getting customers what they want whether it be fulfilled in a central warehouse or from a store.

And we also need to do a better job of embracing technology in our stores and bringing more of our online learnings into the store. This whole area is very exciting and will continue to be a terrific source of growth for us.

The bottom line, we had a great year in 2010, and we expect an even better one in 2011. Our new structure is enabling us to make faster, bigger and better decisions while at the same time staying very close to the customer at the local level.

And there is so much progress we expect to make as we go forward because most of our key strategies are in the very early stages of producing the results we expect. At the same time, we are mining and testing new ideas and new ways of thinking to drive the business forward, and we are comfortable taking more calculated risk consistent with our interests and building a sustainable growth culture. And with that, I will take any questions you have.

(Operator Instructions) Michelle Clark, Morgan Stanley.

Thanks, good morning, Karen. Congratulations on a strong quarter. We had started to see very few but some select price increases in the stores from our store checks, and I know it's still very early days, but any learning thus far on elasticity?

You know, I think it's really too early to judge, Michelle.

Okay, that's fair. And then -- so that's very helpful commentary on how you're thinking about pricing in 2011. Any commentary, Karen, on how you are planning units for this year?

Yes, the answer varies category by category. In some areas where we're concerned that the price increases will impact unit growth, we're obviously planning units differently than we would normally. But that's not true across the store.

And then lastly, any thoughts here as to when we could see a reduction of share repurchases?

I think as you said, we are working hard to regain our investment grade status. We made huge progress last year and we're still generating lots of cash over and beyond what we need to satisfy debt maturities and pension liabilities. But having said that, it's hard to really give you any specific answers on what we might do beyond reducing debt further.

Okay, great. Thanks, Karen, and best of luck.

Thank you.

Deborah Weinswig, Citi.

Thanks, Karen, I think my wrists still hurt from typing so fast. In terms of the $800 million in CapEx, how should we think about the -- how that will be allocated and will there be any work done in 2011 on the Herald Square location?

You mean how do we break out the $800 million? Obviously there's very little going into new stores. A good chunk of it -- and I don't have the percentages in front of me -- obviously going to maintain our stores and remodel them and do what we call minimum standard remodels just to make sure all of our stores are brand right.

But a big chunk of the spending is obviously going towards technology and the construction of that fourth megacenter to support the direct-to-customer business. And in terms of Herald Square, if there's spending, it will be very small in 2011.

Okay. And then you said something that was very interesting during the call which was limiting your inventory risk and some of it was really the search and send but also accessing inventory at other stores. Can you elaborate on that?

Yes, I mean one of the things -- and often challenges cause you to be more innovative and think more differently about ways of doing the business. As a result of some of the conversations about categories where the prices are going up and trying to limit the risk in the store in terms of too much inventory yet wanting to have units if the customer wants to buy it, in some cases we may have fewer color choices in a store but show samples, and then you can access the inventory from a direct-to-customer warehouse or some of the bigger stores at the same time. Last holiday season, we tested in Northern California a couple of stores to see how we could do with store fulfillment and we're going to roll that out to more stores in 2011.

Great, and then you talked about on the call the gift shops. I was wondering -- I think you'd mentioned earlier that some of those would be year round. I didn't know how many stores that was in, and based on the success over the holidays season, could we potentially see that in more stores year-round?

I think the number is around 100 stores year-round and I think we are going to learn about how it works year-round through this year. But obviously we'd love to be able to expand it beyond those stores.

Great, well thanks so much and best of luck.

Thanks, Deb.

Charles Grom, JPMorgan.

Thanks, good morning, Karen. Just on the gross profit margin line, sounds like you think first quarter is going to be down. Would you say it's going to be down commensurate with what you did in the fourth quarter? And then can you give us a little bit of a sense for how you think the progression of the year is going to shake out to finish flat?

Yes, at this point, it's really hard to give you a precise number. It could be down by more than the fourth quarter was down in the first quarter again primarily due to non-merchandising margin issues. But I do think it will come back as we go through the year.

Okay and then the same question on the comp front. How do you think that 3% shakes out quarter by quarter?

I don't see any huge deviation quarter to quarter, but again we'll see how it goes.

And then last question I have for you. In the past when we've met, you've spoken to year three of the My Macy's program as an inflection year. I'm just wondering if you could elaborate on what you have seen in the original 20 pilot districts that you did three years ago that gives you that kind of confidence.

I'm not sure I would call it an inflection point because I think the progress will continue. But if I look at the top districts or the top regions for 2010, it's many of those pilot districts. And particularly if we look at the north which is the upper Midwest; Chicago, Minneapolis and Detroit; one of our best performing regions on a comp percent versus prior year and in fact had an increase over a two-year basis which was not true for the Company in total.

Okay, one last one if I could. Did you speak to what you thought the inventory levels would look like a year from now?

I did not. You know I think as we said, we're hoping to continue to improve turnover but not by the amount we had done over the past couple of years.

Okay, perfect. Thanks very much.

Liz Dunn, FBR Capital Markets.

I guess my questions were around the SG&A increase. Did you say how much of that was due to the online investment? And does that mean that going forward beyond this year we should look for SG&A growth to be below that? And then in characterizing that growth related to the online business, is it 725 jobs and what are the other components of that?

Yes, I did not give a specific number. The increases have to do with building out the new distribution facility, that you're not at full capacity in the beginning, so there's some sort of startup costs as you ramp up the facility with that. It's also more software amortization and development costs as well as obviously people.

Dana Telsey, Telsey Advisory Group.

As you talked about shifting to a growth culture and maximizing the big ideas and minimizing the whitespace, what does it mean in terms of product category shifts and penetration of [online outlook to] regular stores? Does it mean any shifts to your thoughts in operating margin over the long term or EBITDA margin on where you can achieve? Thank you.

I think what it really does -- and I can't speak, Dana, in terms of big shifts in terms of merchandise, but there's a lot of categories that we see opportunities that we're going after. So for example in home, it could be bath mirrors or hair care or scales.

There's other categories that we have gotten out over the years that we believe that because of the dot com business we can now get back into. For example, lamps where we can put samples in the stores and then ship them either direct from vendor or from our direct-to-customer facilities. So there's all kinds of new ideas being generated, but I don't think it will have a major impact on EBITDA margins as we go forward.

Paul Swinand, MorningStar Inc.

My first question is about the online sales, and obviously you've had some good increases. Could you guys just give us some more color on what is driving the increase and the way -- whether you're going to be able to lap that in the next year? So are you gaining new customers from online that you didn't have in the stores or is it more just advertising to existing customers that are already experiencing Macy's in the stores?

We are expecting to continue the growth that we have seen and it is a combination of more spent by existing customers, but we are gaining lots of new customers every year both on Macys.com and Bloomingdales.com.

And I think what's happening is customers are more and more using both channels, getting an idea online, going in the store and buying it, being in the store and buying it online. There is just much more of that happening. But I think customers in general are getting much more comfortable using the Internet to make these purchases.

So are your existing customers sort of buying the same mix online as in the stores?

No, traditionally we have done much better in categories like home online, so it's not exactly the same. Interestingly, sometimes items sell very well online that don't sell so well in the stores and vice versa. So it's not -- the same things don't always sell great in both channels.

Okay, thank you for that. And a quick question on the operational improvements like My Macy's and training and the continued runway.

I know you've talked about employees feeling empowered and feeling better about themselves because they're being successful. Have you seen any lower turnover in your employees as the My Macy's and as some of the training gains traction?

We have but I don't know the specific statistics.

Okay, and would that -- but I'm assuming some of the training will be ongoing, so some employees might retrain in a new area or add to their former training. Is that fair?

Absolutely and as new people come on board, we're obviously having to train them as well.

Okay, thank you very much and good luck.

Bob Drbul, Barclays Capital.

On the gross margin guidance, can you give us a breakdown between free shipping impact and higher sourcing?

No. I don't have it in that kind of detail. And we're not expecting much of an impact from the higher sourcing in terms of the bottom line on the gross margin.

Okay, and as you look to 2011 with the comp guidance in the business, are there any new brand launches you're most excited about given the plan?

I'm hesitating a minute. I'm embarrassed to tell you I can't think of any offhand. We're very excited about the ones that we launched this past year, Material Girl and others. But I apologize, Bob, I don't know an answer to that.

Okay, and then the last question I have is can you also give us any estimate on how much Bloomingdale's added to the comp in 2010?

We don't break out Bloomingdale's separate from Macy's. Sorry.

Rob Wilson, Tiburon Research.

Yes, thank you. Karen, could you talk about the loyalty program test that you had going on in three markets over the last six or nine months? And also can you talk about the Credit Card Act tailwind that you said might surface in the second half of 2011?

Yes, on the loyalty program, we're continuing to test and learning a lot. So it's really too early to give you any conclusions about what we might do with that. In terms of the Card Act, it has had a negative impact on our business this year masked because obviously the delinquencies have gone down versus a year ago. So in total, there's not a lot of change in terms of the credit profitability. But it did in fact negatively impact credit in the back half of the year, the impact of the Card Act.

Do you expect a tailwind in the back half of 2011 from the Credit Card Act?

Well, we will begin to year-round the changes as we get through this year.

Okay. Well thank you.

Bernard Sosnick, Gilford Securities.

It's a pleasure to hear about the drive to become a growth-oriented company and all that you're doing in e-commerce. So I don't mean anything implying that you're behind things when I ask about Nordstrom's announcement that it added Wi-Fi by November and might be planning to add mobile checkout later this year. What might Macy's be doing along those lines?

As you might expect, we're looking at all of those things a lot more. So it was an exciting announcement they made, and clearly consistent with how we're thinking going forward.

We've begun a test using iPads in some stores for example in the Clinique area that is at least starting off very strong. There's some other iPad applications we're thinking about. So we're thinking down the same path but obviously haven't made any announcements yet.

That's great to hear, very assuring. Congratulations.

Lorraine Hutchinson, Bank of America.

Karen, you walked through a number of gross margin pressures that you are expecting this year and I was just hoping you could elaborate a little bit on the offsets of how you get to flat for the year.

Well, I think part of it is as we do a better job of sorting through the My Macy's process and organization, we should reduce our markdowns needed and clearance activity because the better you assort a store, the better you put sizing into a store, you should improve your margin because you're not going to have as much clearance goods to work through the system.

So that's probably the biggest offset against the pressures that we had talked about. The other is successful private brand merchandise helps margins a bit.

As you know, we develop our private brands not to drive gross margin rates, more to drive comp store sales and provide value and unique offerings. But having said that, when they do well, we do get a margin benefit. So that should help also.

Thank you, and my second question is you've done a great job of managing your working capital over the past couple of years. Do you expect that to still be a source of cash for you in 2011?

Well, as I said, we're going to begin to invest more into inventory. So hard to give you an exact answer. But from the inventory line, you will see us investing. Again improving turnover, so less than the increase in sales.

But it's part of growing sales and the growth culture. Obviously you've got to bring inventory in to make that happen.

Adrianne Shapiro, Goldman Sachs.

Karen, just on the 3% comp. Could you help us think about how much of that is driven by ticket increases as you selectively increase AUR?

You know, it's hard to get -- I mean we have assumptions now, Adrianne, but we have lots of different scenarios that all get to around the 3%. So I'm not sure which of them I put the highest probability on right now.

Okay, any help in terms of on average how we should be thinking of AUR?

No, it's hard. I don't expect it to go down as it has done the last couple of years. But you know again we'll have to see how much it goes up.

Okay, and then your comments about 3% sounds like consistently through the year. Maybe could you give us any help on the Easter shift, how we could quantify that in the first quarter?

That is going to make a very big difference in the March/April shift. We also at Macy's have shifted a major cosmetics promotion out of March into April, so it will be even more dramatic. So as you think about the three months, I would expect March to be negative and April to be a very good month.

And any quantification of that cosmetics event? How much that is hitting March?

No, but as we get through February, we will try to be more helpful on that March/April combined number you know which again should be like the quarter.

Right, okay. And then lastly, just coming out of the holiday season, your read of the competitive environment this holiday season and how that factors into your thought process for pricing in 2011.

We didn't really see much of a change in the competitive environment. Obviously there's lots of competition out there and we are always cognizant of what is going on. But as I said, we feel very good about 2011.

Great, best of luck.

Thank you.

Jeff Stein, Soleil Securities.

Just a couple things. First of all on the loyalty program, wondering if you're planning to expand the number of markets that you'll be testing that program in this year.

At this point, no, we are still learning.

Okay, and how about pension expense? How much is that expected to be up, down versus the prior year?

I don't have pension expense specifically in front of me, but total retirement expense which I suspect will be close to pension in terms of the increase is planned up about $18 million or $19 million. So less of an increase than last year but still significantly greater than the 2 or 2.5%.

Got it, and final question, Karen, can you talk to us a little bit about how the initial Bloomingdale's outlet openings went, how those stores performed relative to plan and kind of what you have learned from that?

Well, we've learned a great deal about how to operate that business. Having said that, they have performed very well. We've learned more about what kind of locations do better than others, what's important sizewise, merchandise mix,

Lots of learning, and only making us more excited about the opportunity. So as I said, we're currently expecting to open three more this year and I would expect it to accelerate greatly after that.

Okay, and the Material Girl line by Madonna, is that going to be expanded to more doors in calendar 2011?

You know something? I don't know the answer to that, Jeff. I'll get back to you.

Wayne Hood, BMO Capital Markets.

Karen, I just want to ask you a few questions, I guess. Can you -- do you have any initiatives underway that make your pricing message clearer about the out-the-door price given the number of credit events and promotional events?

It's somewhat confusing I guess what the ultimately out-the-door price is. Associates typically have to explain a lot behind these various events. So anything that you're working on to make it easier for the customer to understand what that true price is?

Yes, I mean we have been working for a while to try to figure out a way of simplifying our pricing and we have tested some things, Wayne, that could help with that. And we continue to work on it.

But as complicated and as confusing as it feels to us particularly with the couponing, customers repeatedly tell us they love the coupons. So on one hand, we're trying to simplify but on the other, we don't want to do anything to hurt the business. So more to come.

Also, there was a question earlier about various maybe merchandising initiatives, but you didn't really speak to changes in the contemporary business around the impulse areas and what impact that may or may not have on the comps in 2011 as you kind of go through that process.

And I'm so glad you asked that because after I said I wasn't sure of anything, the lightbulb went off that I had just seen a fabulous new private brand that we're just launching BAR III and there's actually a pop-up shop down at Fifth and 20th if anybody wants to go down and see it in New York.

It's just terrific. And one of the whitespaces frankly that we have been going after is the youth business and Impulse and BAR III is an example of one of the things we're doing to fill that niche. It's a very exciting new line.

Does it have an impact on comps though in 2011 or potentially even in 2012 or is it just too small to move the needle?

Well it's too small I think to move Macy's, Inc. needle; but in terms of helping the ready-to-wear business, it's not.

And, I guess I have two final questions. The SG&A dollar growth, can you give us some sense for what that might ex or just for the stores? The question was a little bit earlier around maybe overall SG&A, but just if you were to take out e-commerce and just what you're expecting just for the stores overall in 2011?

I don't have it in front of me broken out that way, but obviously it's less of an increase.

Yes, is there any impact from debit card usage proposed regulation as you kind of look at those, how that might positively impact that number in 2011?

We have factored something in for the back half of the year.

How much?

I can't give you that number.

Okay, and then my final question relates to e-commerce. Is it fair for us to assume that it adds about 1 to 2 points to growth in 2011 and that is embedded in your 3% forecast?

I think it's not at the upper end. I mean it's been running around a point, so as it grows faster, it will go up a little bit. But yes, not all the way to 2%, nowhere close.

Ken Stumphauzer, Sterne Agee.

First, I presume that you are in close contact with the rating agencies, so I'm curious to know what kind of credit metrics you are targeting to attain investment grade status and whether you have any timeline for attaining it.

You know something? I can't speak to what they are thinking. So they have ratios -- S&P has different ratios than Moody's.

We obviously look a lot better this year than we did a year ago. And our plans for the future obviously look better still, but I can't comment on their timeframe.

Okay, and then your bonds right now are trading very well and I understand that you have a priority of paying down debt first. But if you were to attain investment grade status, would you perhaps entertain the possibility of taking out the more expensive maturities to reduce interest expense?

You know something? I can't really comment on how we would use the cash should we become investment grade. That would be on a list along with dividends and buybacks and the typical uses.

Okay, and just one last thing, Karen. Historically kind of incremental SG&A when sales are growing typically is in that 10 to 15% range and your guidance would imply that it's significantly higher in 2011.

I know that it's an investment year to a certain degree. Should we see it revert back to that 10 to 15% range on a go forward basis or is that --

I don't know the answer to that. If the Internet business and the omnichannel business continues to give us the opportunity to grow and particularly grow sales per square foot as much as it has, we will continue to invest, but I don't know exactly what that SG&A increase would be in 2012 or 2013.

(Operator Instructions) David Glick, Buckingham Research.

Good morning, Karen. Just a quick question on the 2012 debt maturities that you referenced, the $1.1 billion. Is it still your current plan to pay that down or would you consider refinancing a portion of that?

We could do either. At this point, looking at our credit ratios, it may not make sense to pay it all down. The flipside is we may decide to. So it's frankly early to tell you that.

Okay, and then in terms of women's apparel, I know that was a challenge in Q4. Any signs of life there? Any reasons to be more optimistic? And how are you thinking about that business relative to the growth drivers in your center core business in men's going into 2011?

David, we feel really good about what we call the neo businesses like INC which had just a spectacular year last, year BAR III which we just talked about, the new launch, and some of the more fashion forward updated looks are doing very well. The traditional parts continue to struggle and we're doing major reworks of our brands that fall into those categories as are the vendors.

Hopefully as we get towards the back half of the year, that will improve. I'm not sure how much improvement we will see until then.

Okay, and that center core area is still a key driver for you in 2011? Any changes in your approach there?

No, it's still a fabulous business for us, obviously much less sensitive to the issue we were talking earlier about cost increases and just a fabulous business.

Great, thanks a lot and good luck.

Mike Shrekgast, Longacre.

Could you just talk about -- you're getting back to your sort of 2000 levels with regards to revenue, EBITDA. Can you talk a little bit about where there's still the greatest sort of opportunities now relative to back then, where you see the most growth maybe geographically now that you have put in place My Macy's? Because you are on the cusp there of some very good trends and we're sort of getting back to those levels.

Yes, you know one of the great things that's happened as a result of My Macy's is a lot of the smaller stores that tend to be less productive are gaining ground rapidly, and so that is obviously a very good thing to happen for the business. Frankly, the bigger stores are benefiting too though and so that is helping.

Okay, thank you.

Rob Wilson, Tiburon Research.

Hey, Karen, I just wanted to ask you about the marketing. Are there any changes in marketing plan for 2011 versus 2010 either as a percent of sales or total dollars?

I don't think there will be significant changes. There's obviously changes in mix, doing much more digitally than we used to. But in terms of total dollars spent, I don't see major changes.

One final question. Is it fair to say we will see additional store closings in 2011? Would you suspect that given your success with online sales that you might look to close more stores going forward than you have in the past?

I expect that every year we will close a couple of stores as we have done. I don't expect any major store closing announcements at all.

Every hear there's a couple of stores that either there's somebody who's offering us a lot of money for the store or it's underperforming and gets worse and therefore we close it. But I don't expect a major change in that.

The question you are asking on the online is actually an interesting one, but we believe at this point that while the Internet is growing rapidly, we think most of that business is actually incremental. And one of the things that we're busy doing particularly through technology is investing in the stores to again utilize online so that we grow store sales also. If all we do is transfer business from store to the Internet, that is not a success.

So what's been great this past couple of years is that both are growing faster than they have grown and we will continue to do that. So the short answer to your question is no. I don't expect to have a major list of store closings as a result of the Internet growth.

Alright, well thanks for taking my question.

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

I just want to thank you all for your interest and if you have any additional questions as the days go on, obviously feel free to call us. Thank you.

This concludes today's conference. Thank you for your participation.