梅西百貨 (M) 2011 Q4 法說會逐字稿

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

Today's call is being recorded.

At this time I would like to turn the conference over to your host, Karen Hoguet.

Please go ahead.

Thank you.

Good morning.

I am Karen Hoguet, CFO of Macy's Inc., and on behalf of our Company I would like to welcome you to our conference call scheduled to discuss our fourth-quarter earnings.

Any transcription or other reproduction of the statements made in this call without our consent is prohibited.

A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes.

Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning.

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

2011 was another record year for Macy's Inc.

We're very proud of our team and the momentum we have built up.

Our sales grew approximately 5% in comp stores for the second year in a row while increasing the profitability of the company.

This results from the combination of great strategies and terrific execution, which has helped us to gain market share.

Our EBITDA rate as a percent of sales increased 80 basis points in 2011 on top of last year's 100-basis-point increase.

And we have strategies to increase it further to the 14% to 15% targeted level while continuing to invest in driving topline sales.

We also increased our return on invested capital by 230 basis points in 2011, almost reaching 20%.

And our return to investment grade ratings in all agencies speaks to the strength of our balance sheet, our performance, and the sustainability of our strategies.

It is great to be entering the new year with so much positive energy throughout our organization.

I will outline the key aspects of our fourth-quarter and the full-year 2011 performance, and then discuss some of our key assumptions for 2012.

Sales in the fourth quarter were $8.724 billion, up 5.5% over last year.

And on a comp store basis, our sales in the quarter grew 5.2%.

Sales in the fourth quarter exceeded our expectations, reflecting a very strong holiday performance.

Our sales performance continued to be balanced.

We were pleased with our performance at Macy's as well as at Bloomingdale's, online and in stores.

In fact, all regions across the country produced sales growth this year for both the quarter and the full year.

All year long, our Southern regions across the country performed best, and that continued in the fourth quarter.

And the Northeast also had strong sales growth in the fourth quarter.

By family of business, we saw strength during the quarter in so many categories including cosmetics and fragrances, shoes, handbags, watches, men's, textiles, housewares, and furniture.

And the areas with the most notable weakness in the quarter were the cold-weather merchandise areas, juniors, and traditional casual women's apparel.

Average unit retail in the quarter was up 9% while transactions were up approximately 1%, and units per transaction down approximately 4%.

For the second half of the year, our average unit retail was up approximately 7%, which is at the high end of the 5% to 7% that we had anticipated.

All in all, we did a great job in anticipating and planning for the merchandise cost increases that we had experienced.

Gross margin in the fourth quarter was 41%, down 30 basis points from last year.

Merchandise margins were flat in the quarter while we were negatively impacted by the free shipping, as expected.

Inventory at year-end was up 7.5% over a year ago.

This is a little higher than the 6-7% we had expected, due to the decision to keep cold-weather merchandise in the stores longer than usual, so it would be available for the customer when the weather has historically turned coldest.

While you might not know it on the East Coast, winter isn't over yet.

And by the end of the first quarter, this merchandise will be gone and our comp store inventory will be again below expected sales growth.

Also, remember, the year-end inventory continued to be impacted by the higher in-transit discussed each quarter in 2011.

We've now year-rounded on the change so it will no longer be a factor as we enter 2012.

In the fourth quarter, SG&A in dollars was $2.314 billion, or 3% over last year.

As a percent of sales it was 26.6%, down 60 basis points from a year ago.

This is better than expected due to various year-end adjustments and lower depreciation relating to the timing of capital expenditures.

Credit profitability in the quarter increased by $59 million over a year ago, which is within the range of what we had expected at the beginning of the quarter.

We clearly continue to benefit from the stronger portfolio performance.

At the end of the quarter, we sold four store leases to Lord and Taylor that they had been subleasing from us since the 2006 divestiture.

We booked a $54 million gain on this sale.

Also in the quarter we booked $29 million in costs, primarily associated with the announced store closings, of which $22 million was non-cash asset impairment charges.

The net of these two items is the $25 million of income that you see on the P&L.

Interest expense in the quarter was $108 million, as expected.

The tax rate was 36.6% in the fourth quarter.

You'll recall that last year in the fourth quarter, our tax rate was 35%, so the year-over-year comparisons of fourth-quarter earnings is negatively impacted by the higher tax rate.

Average diluted share count in the quarter was 427.3 million shares.

During the quarter, we bought back the approximately 8.2 million shares.

So, since we resumed our stock buyback program during the third quarter, we bought back a total of 16.4 million shares for approximately $500 million at an average price of $30.57.

EPS in the fourth quarter on a diluted basis, excluding store closing costs, and the gain on the sale of Lord and Taylor, was $1.70, well above both expectations and last year.

Our cash flow was also very strong throughout the year in 2011.

During the year, operating activities generated $2.1 billion of cash as compared to $1.5 billion last year.

Our pension contribution this year was $375 million, versus $825 million a year ago.

And CapEx was $764 million this year, below the budgeted $800 million due to the timing of the cash outlay.

Cash flow before financing activities was $1.476 billion, up $435 million over a year ago.

In the financing section of the cash flow, you will note the $800 million of debt that we issued in January.

Given market conditions, we accessed the market in advance of the approximately $790 million of debt maturing during the first half of 2012 -- $617 million in March, and $173 million in July.

At the end of the year, we had $2.8 billion of cash on our balance sheet, or $2 billion excluding the debt issuance which we used to pay down debt.

This compares to $1.46 billion at the end of last year.

A return on invested capital in 2011 was 19.7%, up the 230 basis points over last year that I referred to earlier.

And our credit ratios, excluding the impact of the January debt issuance, were well within our targets with debts to EBITDA of 2.6, relative to our target levels of 2.4 to 2.7; and our EBITDA-to-interest of 7.1, relative to our target in the range of 6.4 to 6.6.

Maintaining credit ratios at least in the target range is very important to us, and you can check our website for the specific calculations.

Let's now move onto 2012.

As stated earlier, we expect the momentum to continue.

For planning purposes, we are assuming a comp store increase of approximately 3.5% on a 52-week basis.

Remember, our retail calendar includes an extra week in January in 2012.

So, for the full year, our total sales, including this extra week, are expected to be up approximately 1 point over our comp store sales increase.

Now, obviously, in the fourth quarter, given that extra week, we are expecting a much bigger gap, in fact 3.5 points higher total store growth in comps.

However, in the first three quarters of the year, total sales growth is expected to be slightly below our comp store growth, due to the locations that we closed at the end of 2011.

We are planning to open two new stores in 2012; both, in fact, next month -- one in Milwaukee and one in Salt Lake City.

We are also opening five new Bloomingdale's outlets during 2012, bringing the total number to 12.

We are assuming a flattish gross margin rate for the year, although we could have continued pressure from free shipping, given the sales growth expected in the Omnichannel business.

And, by the way, this may not be the case in every quarter, but over the course of the year we do expect the gross margin rate to be flattish.

On the SG&A front, we expect to be able to continue to improve our expense rate as a percent of sales.

We expect our income from the credit portfolio to increase approximately $15 million to $20 million during 2012.

But we are expecting big variances when we look at the comparison to last year in each quarter.

As we start this year, we're expecting a year of strong credit portfolio performance; and, therefore, the earnings will be more evenly distributed through the year.

This is obviously very different from 2011, when the good news ended up being much more backend-loaded, particularly in the third quarter of 2011.

For the year, we are expecting retirement expense -- pension plus SERP --to increase by approximately $65 million, while depreciation is expected to decline approximately $25 million for the year.

For interest expense, we're assuming approximately $435 million to $440 million for the year.

And we are assuming an effective tax rate of 36.95% for 2012, although it will vary by quarter.

And our CapEx budget in 2012 is $850 million.

In terms of uses of cash, we are now planning to contribute $150 million to the pension plan during the year, and we will pay off the $1.1 billion of debt at maturity.

Remember that we, in essence, pre-funded the March and July maturities with the issuance in January.

And we have an additional $298 million of debt maturing in January of 2013.

With our excess cash, we expect to buy back stock on a regular basis throughout the year, depending on market conditions.

We have approximately $1.3 billion of authorization remaining.

So net-net, we are assuming earnings per share on a diluted basis of $3.25 to $3.30 for 2012.

This represents an increase of 13% to 15% over 2011's diluted EPS, excluding store closing costs and the gain on the sale to Lord and Taylor.

This does not include any store closing-related costs that we could incur in 2012.

The real headline from today's announcement is the significant back-to-back-to-back improvement in our results over the past three years.

When we first announced our new strategic direction in 2008 and 2009, we talked about the opportunity we saw to accelerate sales growth and improve overall financial performance.

And that is exactly what happened in 2009, 2010 and again in 2011 as our organization has executed superbly and captured market share from our competitors.

But as you have heard us say many times, we are not even close to being done.

We have in place a whole new set of activities, beginning this spring, to continue to refine our localization approach within My Macy's, and empower our organization to meet the specific needs of customers by location.

We are also forging ahead with experiments and innovations within our Omnichannel Strategy to serve customer needs in-store, online, and via mobile.

Not only is this driving sales, but it is also beginning to help us improve the management and velocity of our inventory.

In MAGIC Selling, we are strengthening the coaching process among sales managers and associates on the selling floor, so our customer engagement is consistent and leads to more items in her shopping bag.

And you will be hearing more about our initiatives to engage millennial customers in more comprehensive and powerful ways, as we sharpen our focus on what is now America's largest and most diverse generation.

We feel very good about our prospects in 2012, to strengthen our business at both Macy's and at Bloomingdale's.

We also feel very good about the groundwork we are laying now for continued growth beyond 2012.

The results we are generating are very real, and the momentum in our business has our organization ready to take the Company to the next level of success.

So now, what questions can I answer?

(Operator Instructions).

Deborah Weinswig, Citi.

Thanks so much.

And, Karen, congratulations on a great 2011.

In terms of store to door right now, how many stores are on that program?

What's the pace at which they will be ramping?

And what's the opportunity available?

23 stores were available this fall for us to be able to ship from a different store to the customer directly.

And in 2012, that number, by the fall season, should reach approximately 290.

Obviously, a big success this fall, and we think it's going to be a big opportunity for continued growth.

And then in-store, obviously, MAGIC Selling training has been a huge success.

Could you talk about online customer service?

Yes, actually, for the fourth quarter this year, that it was a very big priority.

Because, frankly, we had been disappointed with some of the service issues the year before.

And we think we did a much better job -- the customer service scores have improved significantly.

And so we'll continue to work both in making the site easier to navigate and also make sure that we have the customer service stacked up when there are questions or issues that come up.

Okay, and then, last question.

It sounds like the holiday season, overall, exceeded your plan.

What were the key drivers?

Well, it always starts with the sales line.

And when you can achieve sales growth over 5% that's always obviously a great thing.

We invested in certain ways to achieve that sales growth in the selling floor and some of the support functions in our stores, in marketing, and obviously also the investment in store fulfillment.

And it clearly all paid off in terms of the sales that we got.

Thanks so much, and best of luck in 2012.

Liz Dunn, Macquarie Capital.

Congratulations on a great year.

I guess in terms of getting to the 14% to 15% EBITDA margin, can you talk about -- I'm assuming most of that will come from leverage on continued strong sales?

And then, in terms of your 3.5% comp growth for 2012, can you talk about how price will play into that?

In terms of how we're going to get to the 14% to 15%, you're right, a lot of that will be leveraged from sales growth.

We've also -- you know, are working to reduce expense where we can, in areas that obviously won't impact the sales that we're generating.

Also we see opportunities for gross margin rate as we go forward, both from markdown optimization that we've been working on.

And also as we are able to improve the inventory turns through our Omnichannel Strategy, that should help gross margin rate over time as well.

Not in 2012, necessarily, but as we go farther out.

So we feel good about that.

Okay, great.

And then looking at the direct-to-consumer business, I think you said about $2 billion is what you're looking for for 2012, or is that just over $2 billion?

Because it looks like with the growth that you had for 2011, that would suggest a little bit of a slowdown in the growth rate.

Could you help us think about that?

We do expect it to be more than $2 billion.

And, hopefully, it will continue to grow at the pace that it is.

Obviously, it's a pretty high rate to continue.

But we do expect it to be more than the $2 billion.

Thank you.

Good luck.

Steve Kernkraut, Berman Capital.

Great quarter.

I just had one question, just on the e-commerce business as well.

The way -- what impact does the growth of e-commerce business have on the overall inventory, where your inventory is up 7.5%?

You would think it will be able to grow less because so much of that online inventory is centralized, and you just [risk] centers?

Yes, I mean, the inventory turns for the online business are significantly higher than the store.

And one of the things that we are doing, as we enable the 290 stores to ship to the customer directly, will be the ability to supplement online sales using store inventories, which based on our tests, we think will be a big contributor to sales in 2012 and beyond.

Yes, I would think as time goes on, that your sales should be able to grow at a much faster rate than your inventory.

That's the expectation, Stephen.

We'll be utilizing our inventory better, whether it be in the warehouses or in stores.

Dana Telsey, Telsey Advisory Group.

Congratulations on a very solid year.

As we think about Omnichannel and CapEx, what CapEx initiative is involved in Omnichannel?

And what do you see that achieving in the operating margin, or EBIT margin goals, going forward?

Does it happen faster?

In two years?

What's your sense?

Thank you.

I think we will be investing in technology in Omnichannel for a long time to come.

There's different pieces to it.

There's a small piece that relates to the store fulfillment.

There's a bigger piece that relates to building incremental warehousing space; as you know, we are opening our next big mega center in West Virginia this year.

So that's a big chunk.

And there is a lot being spent in terms of software development to improve the site itself.

But we will be continuing to invest in that, plus store technology, as we go forward.

Paul Lejuez, Nomura.

Karen, can you maybe share with us what your specific assumptions are for how e-com factors into that 3.5% comp guidance?

And then just wondering if you could maybe talk about whether you have any new specific initiatives, on the e-com side of the business, that will act as a tailwind this year?

Thanks.

We don't break out that as part of our planning to disclose.

So, sorry, I can't give you that number.

And in terms of improvement in e-commerce, a lot of it will have to do with the merchandising on this site and getting greater alignment with the stores.

So I think that will be a big chunk of it.

And obviously, continuing to try to make the site easier to navigate.

Will you be increasing the merchandise available online -- stuff that you wouldn't necessarily have in your stores?

We do some of that.

But more of what we're trying to do is actually increase the alignment with the stores.

Got you.

Thanks.

Good luck.

Charles Grom, Deutsche Bank.

Karen, just to go back to Steve's question earlier on site-to-store-to-door in the comp -- do you expect that 3.5% comp to be consistent throughout the year?

Or do you expect it to be back-end weighted?

Because, I'd imagine if Nordstrom is any bit of a playbook for us, you would expect a pretty big comp lift as you get to 290 stores towards the end of the year.

At this point, I would say it's relatively even through the year by quarter in terms of the expectations.

But there is always hope that, as we get into the 290 stores, it does what we think it could do.

And obviously, that would help comps as we go through the year.

Okay fair enough.

Then you've always talked about this 14% to 15% EBITA target for longer-term goals.

But it appeared to me that there's a lot of opportunity, and you kind of alluded to it on the first profit margin line with inventory productivity, as well as sales efficiency as you get more of your business online to maybe exceed that.

Have you guys thought about that as part of your long-term planning?

Yes, I've thought about it, Steve.

I don't see that we'll exceed it.

There is always that possibility.

But, remember, we're also trying to invest for growth.

So you've got to balance it all.

So I think getting to 14%, I can see pretty easily.

Getting to 15%, frankly, will be more challenging.

And if I were you, I would not count on getting above the 15%.

Again, not that it won't happen -- but it will be a ways out, is my guess.

Then just one quick question here.

The past couple of quarters, you have bought back, I think, 16 million shares.

And I know that there is some level of buybacks in your guidance -- just wondering if you could give us a little bit of sense for what you guys are thinking, as part of the $3.25 to $3.30 EPS view.

Yes, we are not breaking out exactly what we've assumed, in terms of the buyback.

But you should get a sense of what we've been doing.

And the idea is, it's just part of the story.

We're going to take our excess cash and buy back stock.

Great.

Nice quarter.

Michelle Clark, Morgan Stanley.

Congratulations on a great quarter.

Karen, you mentioned the 53rd-week impact.

Can you just detail for us what you're expecting in terms of the EPS lift in the fourth quarter?

No.

Actually Michelle, we really aren't breaking it out.

It's sort of a complicated calculation.

Obviously, it adds a lot to sales.

And it's a very profitable week, as you might imagine.

But we are not giving specific guidance as to the EPS impact.

Okay, great.

And then your comp outlook for 2012 of 3.5% -- I'm guessing that that assumes no pickup from any disruption related to JCPenney?

Well, we'll have to see how that plays out.

Our best assumption right now is the 3.5%, and we'll see.

Okay.

And then lastly, Karen, I was wondering or hoping that you could update us on price optimization -- when we should expect to see that impact your gross margin and topline results.

Yes, my guess is we'll continue to experiment this year.

It's proven to be a little more complicated than we originally thought.

But initial tests are looking good.

So my guess is, we're probably talking about back half of '13.

Adrianne Shapira, Goldman Sachs.

Thanks.

Karen, just specifically on some of the merchandise weakness -- obviously, very strong performance on many categories, but we can understand the cold weather items.

Just maybe if you could share some specific initiatives to help turn junior's and that traditional casual women's business around.

Yes, I mean -- I think on the casual women's traditional business, I think that's been a business that's been weak throughout the industry.

It's not just a Macy's issue.

And we have retooled some of the private brands that are in that area.

And, interestingly, initial selling on that is looking very strong.

So we have some hope that in 2012 that business will continue.

In the case of junior's, it's a very competitive marketplace.

As I alluded a few minutes ago, we've spent a lot of time this year evaluating our strategies for the millennial customer, which includes sort of two categories -- the young younger millennial which is the junior customer, and also the older millennial, where today, frankly, we see a lot of white space and opportunity for us.

And I think as we move on, we'll see improvement in that business as well.

Okay, great.

And then just a question on the fourth-quarter margins.

Obviously impressive flat margins -- merchandise margins -- given the holiday season.

But, if you connect the fact that inventory, a little bit heavier quarter-end, and your comment that maybe not every quarter we should see flat margins -- could we see some pressure in the first quarter, based on some overhang coming out of the fourth?

There's really no overhang coming out of the fourth.

As you might imagine, we take the markdowns when they are needed.

It doesn't mean there won't be pressure in the first quarter, by the way.

But it's for different reasons.

And the different reasons?

Well, no, I mean it just has to do with the promotional nature of the first quarter.

But again, we've talked about flattish margins, but we did not come out of the quarter with significant overhang.

Thanks.

Best of luck.

Matthew Boss, JPMorgan.

Karen, can you elaborate on My Macy's, and looking forward, additional layers of opportunity here?

I think you've talked to the My Macy's initiative now in the fourth and fifth (technical difficulty), so just looking for any color on the second-half game plan here.

The key thing as you think about My Macy's -- three things are happening.

One is that people in jobs have been there longer, and so they are getting better and better at not only understanding the opportunities in their markets but also communicating with essential merchants to make them happen.

So I think the more time in job the district people have had, the better the two-way communication is happening.

The second thing is that we continue to find new opportunities as we study markets in a more refined way, whether it be differences in the tourist customer in different markets; whether it be new strategies, for example, the need for cold summer assortments in places like the Pacific Northwest or Southern living strategies across Atlanta and the Southeast.

So the second point is that we are continuing to find new opportunities strategically as we look at market by market.

And then the third point I would make is that we took a lot of time this summer and went back and surveyed all the store managers, like we had done back in '06 -- which was the beginning of My Macy's -- to try to understand how we could improve it further.

And we have -- I think it's roughly 13 initiatives that our teams are busily working on to even make it work better.

So, a combination of those three factors, Matt, makes me feel really good that there's still a lot more to come from My Macy's.

Wow, that's great.

Then, on the product side, you mentioned that a little bit around private-label.

But can you speak to current and some upcoming initiatives within the stores that we should keep our eyes on?

Particularly the Charter Club relaunch, and any others -- category-specific, noteworthy changes to just keep our eyes open for?

I think there's a lot that's gone on in the women's apparel area.

The Charter Club redo -- or refresh, probably a better word.

The Bar III launch has been terrific in the impulse arena.

And we've recently launched a new active line, Ideology, which just looks spectacular, and we think will be an important part not only of the millennial strategy but also for older women as well.

Okay, great.

Congratulations again.

Paul Swinand, Morningstar.

On the SG&A and the credit portfolio account, I think you gave some numbers in the prepared remarks.

Looking at 2012, is there an assumption that it will be sort of flattish.

Or do you think that that portfolio can keep getting better, even below pre-recession levels?

Is your question credit?

Yes.

I'm sorry, yes -- we had said that we expect there to be continued improvement in the credit profitability for us of $15 million to $20 million for the year.

I'm sorry, okay, thank you.

And then, on the inventory store-to-door, I know you said that that should improve turns because of the centralized inventory.

But the sale that you're missing -- that's in the store and not in the centralized inventory -- is that just a size?

Or is that is that something that you didn't have in the centralized inventory?

Because you did say you were going to make the inventory more like each other.

Well, I think the key thing is, as you think about shipping merchandise from stores, the logic that will be built into the system as of this summer -- which is consistent with the rollouts of the 290 stores -- is that there will be a logic built in, that will pull the inventory from the store least likely to sell the goods.

So, it's, frankly, a markdown that would've happened had we not sold it, as opposed to a lost sale.

I see.

Okay, great.

It's really quite cool if it works properly.

And there will also be a faster build in for distance to customer.

The compelling part of the logic, the key driving factor, will be where the goods are selling through the slowest -- to pull it from those stores.

Got it.

Okay, understood.

And then -- sorry to beat this horse a little more -- but on the credit side, realizing you gave the number, the $20 million.

But are you assuming that you go to better charge-off in delinquency ratios than you had?

And is that something that can keep going?

Well, the product portfolio has continued to improve.

But the major adjustment that happened in 2011 is done.

But we don't expect it to deteriorate from where we are.

David Glick, Buckingham Research Group.

A couple of questions.

I was wondering if you could give us an update on the renovation plans for Herald Square, and the timeframe that that will occur, and whether any disruption in sales are expected this year?

And then secondly, we talked about some of the challenging areas from a merchandising front.

But, clearly, the drivers have been in the accessories, men's, and part of the home area.

Are you counting on those areas to outperform, once again, in 2012?

Let me answer the second question first, and I'll go back to Herald Square.

Obviously, we're expecting the businesses that have been doing well to continue to do well.

And our hope is that we could also layer in a stronger of the casual traditional women's apparel as well.

So, in part, we think the momentum will continue to build as a result.

In terms of Herald Square, there is really nothing more to report.

We continue to expect to spend about $400 million over the next four years.

And, yes, we are factoring in some disruptions, although we frankly don't think it's going to be tremendous.

But we continue to be extraordinarily excited about what we're going to be able to create here.

Are you seeing any changes in tourist traffic in the last two or three months in the quarter?

I don't believe so, David.

Jeff Stein, Northcoast Research.

Karen, good morning.

Wondering if you could tell us what the private label and branded exclusive penetration was for the latest fiscal year?

You know, I don't have it in front of me Jeff.

But I think it's still around the 20% for the private label and north of 40% for the limited distribution.

Okay.

And how about -- back to your capital spending budget for a moment, what percent of your budget will be IT-related this year, compared to prior years?

I don't know that offhand.

But my suspicion is, it's fairly similar to prior years.

We've been investing in a long time in Omnichannel, as well as improving our core systems.

Got it.

And I know, in each of the last two years -- and this relates to SG&A -- you've invested in the MAGIC Selling.

Is it going to be similar in terms of the dollars you are going to spend to that effort in 2012?

And then maybe you could address the issue of marketing spend year on year?

Yes, I believe that we will continue to invest in the MAGIC Selling at a comparable ratio amount that we spent in recent years.

And in terms of marketing, we are planning a flattish rate.

So dollars will go up, rate will not.

Got it.

Okay, thank you.

Bob Drbul, Barclays Capital.

It's Joan Payson, standing in for Bob today.

Congratulations on the year.

And just two questions.

In terms of next year on that 3.5% comp -- if possible, could you provide some sort of additional color on the AUR assumptions there?

Yes I mean we're expecting the AUR to continue to increase, particularly in the first half of the year.

A specific amount, I can't really tell.

It's hard to forecast.

Okay.

And then in terms of the Bloomingdale's outlets, just looking at how those have been performing and what you're targeting for store number penetration in the long-term.

Yes, you know, we are still developing how many we can add.

So it's hard to answer it.

At the end of this year we expect to have 12, and it will grow from there.

How many we ultimately have, I just don't know at this point.

Lorraine Hutchinson, Bank of America.

As you begin to plan your inventory for the back half, just knowing that you're coming up against a 7% increase in AUR, how are you thinking about unit velocity and growth versus pricing, as you come up against that very difficult comparison?

Yes, I mean, obviously we're spending a lot of time.

Last year, we spent a lot of time thinking about the unit plans, given the price increases that we experienced for the first time in recent history.

Now we're spending as much time thinking about, what do you do the second year?

So it's been thought through, category by category, much like we did last year.

And, hopefully, our planning will pay off as well this coming fall as it did this year.

And then as far as your credit penetration, does the guidance that you gave for credit income assume an increase in that?

And what are your strategies around growing that this year?

It actually doesn't.

It actually assumes a slight decline, which is what we've been experiencing.

In 2012, our penetration of credit was roughly 47.3%, down about 50 basis points from the year before.

Part of that, we think, relates to the challenges with the new account approval that relates to a lot of the regulations coming out of Washington.

I think, also, as our market share is growing we've got a lot more customers in our stores who don't yet have a Macy's card.

We hope to change that.

But, to some degree, it also relates to the new account approval process.

It also appears as if some of our customers are deleveraging and using debit cards more than their Macy's credit cards.

And then obviously, the strength in the tourist business that we've been seeing, where customers cannot -- especially the international stores tend not to have our credit card -- impacts us in some of the big tourist locations like Herald Square, Union Square, Florida et cetera.

So we are assuming it to be down slightly next year.

And it appears we have no further questions in the queue at this time.

Great.

Well, thank you all very much.

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

Again, that does conclude today's presentation.

We thank you for your participation.