梅西百貨 (M) 2014 Q3 法說會逐字稿

Good morning.

Welcome to Macy's, Inc.

third-quarter earnings release conference call.

As a reminder, today's call is being recorded.

I'd now like to turn the conference over to Karen Hoguet.

Please go ahead.

Thank you, Tim.

Good morning.

I'm 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 discussion and reconciliations of any non-GAAP financial measures discussed this morning.

Please 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.

We are very pleased with our earnings in the third quarter, especially in light of the weaker than expected sales.

Some of the strength in earnings relates to timing shifts with the fourth quarter- some asset sales happened earlier than anticipated, and some expenses, most notably in marketing, were delayed in order to drive sales in the fourth quarter.

However, earnings in the quarter still would have been strong without these shifts.

As to the sales trend, we knew that year rounding on last year's very strong third quarter sales performance would be challenging.

In fact, on a two-year basis, our trend in the third quarter was essentially the same as it was in the first half of the year.

Nonetheless, we were disappointed with our sales.

We found that we were not immune to the weaker than anticipated consumer spending, which has been acknowledged or reported by other retailers.

Clearly, the warmer temperatures throughout much of the country also hurt sales, but that alone does not explain all of our sales shortfall in the third quarter.

As we look to the fourth quarter, however, we are still feeling positive about our outlook and the opportunity for improved top line performance.

Our M.O.M.'s strategies, My Macy's, Omnichannel and MAGIC Selling, and our tactics for the fourth quarter will enable us to compete effectively.

In addition, economic conditions do seem to be strengthening.

And we had a relatively weaker fourth quarter last year, which should be easier to improve upon than was the case in the third quarter.

More on our fourth-quarter assumptions in a few minutes.

Let's talk first about the third quarter.

Sales in the quarter were $6.195 billion, down 1.3% versus last year, and on a comparable basis, including licensed businesses, sales were down 0.7%.

Excluding the licensed businesses, comp sales were down 1.4%.

Remember that last year our comp sales, including the licensed businesses were up 4.6%.

So, on a two-year basis, we were up 1.9% per year.

And this is about the same as the spring season trend.

Our strongest businesses in the quarter were handbags, fragrances, active and millennial apparel.

Our men's business also strengthened through the quarter.

We were disappointed, however, that we did not sustain the momentum of the strong start to our back-to-school business in kids.

Other weak categories in the quarter included our soft home businesses, most notably housewares and textiles, as well as women's shoes, cosmetics, and non-millennial feminine apparel.

Overall in the quarter, the number of transactions were down slightly versus last year.

Units per transaction was down a little more, and our average unit retail was up slightly.

We believe that the flattish-ish number of transactions in the quarter is in part due to the shift in marketing spend from the third quarter to the fourth quarter.

Our strongest performing markets continue to be in the South, and as always there were stores and markets outside the South that also performed well, most notably Herald's Square and Colorado.

The omnichannel activity on desktops, tablets and smartphones continued strong in the quarter, and the interaction between all the various channels continues to increase, as customers shop and buy in new ways.

Buy Online Pick-up in Store is gaining momentum, and we believe it could be very important during the holiday period.

Bloomingdale's also fell below expectations for top-line sales in the third quarter.

The gross margin rate in the third quarter was flat to a year ago.

Our merchandise margin was down a 10th, and delivery expenses were higher than last year, but those factors were offset by the increase in the commissions earned on the sales of licensed businesses.

We ended the quarter with inventory up approximately 1% versus last year.

As always, we took the needed mark-downs to keep our inventory current.

SG&A dollars in the quarter were $2.007 billion, down 4.4% from last year, or as a percent of sales, down 110 basis points.

We were very pleased with our ability to flex expense on the lower sales during the quarter.

We also continue to benefit from the approximately $100 million in annual cost reduction initiatives that we implemented at year end 2013, as well as lower retirement income and strong credit performance.

Included in the third quarter were net gains on asset sales of approximately $48 million.

These gains were mostly expected this year, but not until the fourth quarter.

And remember that last year we had $58 million of gains on asset sales in the fourth quarter.

In addition, as previously mentioned, we shifted marketing expense to the fourth quarter.

Retirement expense was $42 million below last year in the third quarter.

This is actually better than expected, and we're now trending to approximately $165 million lower retirement expense than last year for the full year versus our prior guidance of $150 million reduction.

And depreciation and amortization in the quarter was $263 million, or up $6 million over last year over last year as expected.

Credit income was $182 million, $12 million higher than last year.

Usage of our proprietary cards increased 10 basis points over last year in the quarter, reaching 48.7%.

And while on the subject of credit, I want to point out that we signed a renewal and extension of our partnership with Citi that now goes until 2025 instead of the 2016 expiration of our original contract.

We are very pleased to be able to continue this very important partnership, and to do so on substantially the same economic terms.

Operating income in the quarter was $422 million, up 17% over last year and 110 basis points above last year as a percent of sales.

Interest expense was $96 million, or equal to a year ago.

And tax expense was $109 million, with an effective tax rate of 33.4%.

Net income was $217 million, or up 23% over last year.

Average diluted share count was 357.7 shares, or 6% below a year ago.

During the third quarter we utilized approximately $534 million to buy back 9 million shares.

We have bought back over 25 million shares year to date for close to $1.5 billion.

EPS on a diluted basis in the third quarter was $0.61, or up 30% above last year's $0.47.

Cash provided by operations net of cash used for investing activities was $181 million year to date, approximately $97 million below last year.

There are lots of ins and outs on the cash flow, but the big changes were the $112 million more in CapEx, the purchase of property and equipment as well as the capitalized software, which is consistent with our planned $1.1 billion of CapEx for this year.

Also, the impact of the pension changes impact the cash flow that we made at the end of last year, that impacts other assets and other liabilities when looking at it on a year-over-year basis.

So overall, I would say that the third quarter was disappointing on the top line, but strong in terms of the bottom line.

So let's move on to the fourth quarter.

As I said earlier, we have optimism surrounding our strategies and the strength in our execution capabilities.

We also see positive factors in the economy: lower gas prices, lower unemployment, and healthy financial markets.

We are, however, balancing these factors with the reality of the recent trend, caused in part by customers spending more of their disposable dollars on categories we don't sell like cars, health care, electronics, and home improvement.

So as we evaluate all of these factors, the positive and the negative, we are assuming the comp sales including licensed businesses will increase by approximately 2% to 3% in the fourth quarter, or 1.8% to 2.8% if we exclude our licensed businesses.

Assuming we achieve this fourth quarter growth, the comp growth including licensed businesses for the fall season would be 0.9% to 1.5% up, or 0.5% to 1.1% without the license departments, and this compares to our prior guidance of 2% to 3% for the fall season.

Some of the strategies behind our confidence in the outlook include the following:

One, we have lots of newness this year in our Star Gift program, with greater exclusivity and more better and best products.

We have new vendors included this year, including Kate Spade, Marc Jacobs and Kiehls.

And our Gifts Program this year will be content versioned for different parts of the country.

So a Star Gift from a vendor could be a heavy sweater in the north, but a woven shirt in a hot or tropical door.

Or it could be different color pallets in, say, cashmere, depending on the part of the country.

Or half-zip fleece in the north could be a half-zip nylon jacket in the south.

The importance of having the most wanted, well curated assortments location by location can absolutely not be overlooked.

A second key strategy is a wholly revamped and very powerful transition approach as we move from late December into January when self-purchasing becomes key.

Third, our biggest brands are healthy, and that offers great news for us in the fourth quarter gift-giving.

Fourth, our marketing will be key in communicating our value and newness messages.

The calendar is loaded, as it always is at this time of year, but the greater integration of the increased digital spend should help us drive business in all channels.

Fifth, our store teams have our stores looking better than ever, and our associates are ready to engage with our customers and help deliver great experiences throughout the season.

And sixth, as I mentioned a few minutes ago, Buy Online Pickup in Store has the potential of driving lots of last-minute gift purchasing, as convenience becomes so important to our busy shoppers.

Having said all that, we do expect the competition to be fierce.

But we are ready, and we believe that we can deliver our sales expectations.

We had discussed at the end of the second quarter that we had an expectation for a flat to slightly down gross margin rate in the back half of the year, and that expectation has not changed.

Which means that the fourth quarter margin could be flat or could decline.

We are expecting a slight decline in merchandise margin, compounded by an increase in delivery expense.

But we're hoping to be able to offset those factors again through the license income.

SG&A in the fourth quarter will be negatively impacted, due to the timing of items mentioned earlier.

Remember that last year in the fourth quarter we had $58 million of asset sale gains, which we don't expect to repeat given the $48 million in gains that occurred this year in the third quarter.

We also shifted, as I mentioned, some of our marketing spend from the third quarter into the fourth quarter.

So while we expect SG&A as a percent of sales to improve versus last year for the fall season as a whole, it will likely not do so in the fourth quarter.

Our EPS guidance for the year is now $4.25 to $4.35 on a diluted basis, and this compares to our prior guidance of $4.40 to $4.50.

This reduction is entirely due to the impact of the reduced sales performance in the third quarter and our assumption for the fourth quarter.

This new guidance equates to fourth quarter EPS of approximately $2.30 to $2.40.

As in prior years, we are not including in our guidance any store closing related costs or asset impairment charges that could be incurred at year end.

So to summarize, it may be an understatement to say that we have our accelerator pedal pushed to the floor this holiday season.

You will see this in our stores, on our website, and in our new apps.

We have very carefully strategized how to maximize each element of M.O.M.

so the customer gets the fun, fashion, convenience, individualized service and value that she wants and expects from us.

You should not overlook the fact that giving a gift from Macy's or from Bloomingdale's means something special to many customers, and we know that many shoppers come to us first at this time of year.

We take this natural competitive advantage very seriously, and we are using every chance to excite our customers at every turn.

We have all witnessed a fair amount of negativity and skepticism about the economy in the air, much of it amplified by the recent election campaigning.

Going forward, we see signs that we might gain a bit more tailwind from improved customer sentiment, higher employment, and lower gas prices.

We're not counting on a lot of help from the economy this holiday, but every little bit will help.

But as always, and as you've heard me describe, we have focused our energy and our resources on what we can control, which means executing a great game plan in the fourth quarter.

The table is set, and we are all well prepared to drive the business as we convert customer traffic to profitable sales.

And I'll stop here now and take your questions.

(Operator Instructions)

We'll take our first question from Matthew Boss with JP Morgan.

Hey, Karen.

Good morning.

Good morning, Matt.

Clearly, business has been more choppy the last 12 to 18 months.

It's not Macy-specific.

As we look beyond the holiday, if we assume that current conditions hold, and maybe we don't see some of these gas price benefits and things like that, is it best to think about Macy's as a 1 to 2 comp model?

Or can you walk through some of the drivers to outperform this threshold?

Just trying to think about the go-forward.

We're spending a lot of time thinking about that.

A lot of it, we believe, relates to assortments and making sure that we have the best products in all categories.

The license businesses have helped us in some categories where we couldn't get the right assortments, like Finish Line or Sunglass Hut.

And obviously omnichannel is critical, and all the new things going on both at Macy's and Bloomingdale's in terms of our site.

I would say we continue to focus on the fundamentals of retail and expect that we can do better, compounded with all of the added benefits of being omnichannel.

Great.

And then a follow-on to that -- if you look at the expense structure, and assuming again that this challenged top-line environment holds, what kind of flexibility do you have?

Can Macy's lever at a 1 to 2 comp?

And any room or opportunity for us to think about in terms of cost saves similar to this year that you had?

Well, I think you have found Macy's has the ability to figure out the right expense structure and the right way of flexing expense.

We did it in the third quarter.

That's something I think you can count on from us.

That's great.

Thanks.

We'll take our next question from Paul Swinand with Morningstar Inc.

Good morning, and thanks for taking the questions.

You bet.

Good morning.

Wanted to ask about all the omnichannel initiatives.

There was a press release on September 15.

Obviously, you updated us on progress that pick-up in store is now available and rolled out, but you're testing same-day delivery.

Can you just update us on the progress, and any early reads, and what your expectation is for the impact of those?

Well, I think it's really early to give you an answer to that.

We had said earlier that it would probably take this fall and maybe into the first quarter before we could really address it.

But so far we're optimistic on all of it, Buy Online and Pick Up in Store.

Same-day delivery is available in eight markets.

In eight big markets, I might add; and seems to be picking up.

So again, we'll just have to see more as we get through Christmas.

But we're optimistic.

Do you think that those are competitive advantages?

In other words, can you actually do them better than other retailers?

Or is this just table stakes: everybody's going to have to spend for it, everybody's going to have to do it, and you're not going to be any different than anybody else?

I think our store footprint gives us a huge advantage with this, given where the Macy's stores are located.

And the technology that we've built in place to utilize our stores to fulfill internet orders, even if it's not somebody picking it up in store, I think gives us a huge advantage.

And we're working to take advantage of that as we go forward.

So I actually do think this gives us a competitive advantage.

Okay, interesting.

I'll let somebody else go ahead, and best of luck for the holidays.

Thank you very much.

We'll take our next question from Paul Lejuez with Wells Fargo.

Hey, thanks.

Hey, Karen.

Hey, Paul.

Just on the flat gross margin performance in the third quarter, just wondering if you would say that, that was because your promotions were actually consistent on a year-over-year basis?

Or is there a situation where you're getting a bit more help from vendors in terms of support?

And then totally separate -- just wondering, is there any examples, if there are any retail competitors out there where you've seen them close stores that you could look at and say, well, we're clearly seeing a pick-up in volume in one of your stores that are nearby to that closed store?

And what are those retailers, if you are seeing them?

Thanks.

I don't know the answer to the second question.

I have not heard of any pick-up from when a store closes.

Sometimes when an anchor closes in a mall we pick up a lot of business, and sometimes the traffic in the mall gets hurt so that it doesn't help us.

So I don't think there's any one answer that I can give you on that.

And when it's smaller retailers, we tend not to see a big impact on the total store.

And in terms of promotion, this business has been very promotional for a while.

And you're not going to see big increases in promotion in any given time period.

So I would say your statement on the third quarter is essentially true, which there is not a lot more promotional activity.

Okay, thanks.

And can you comment quick on big ticket performance, how that performed?

I think it was better in the second quarter relative to the first.

How did it do in the third?

Big ticket in the third did well.

It just was not one of the standout categories, but it certainly wasn't one of the weakest.

Okay.

Thanks Karen.

Good luck.

Thank you.

We'll take our next question from Oliver Chen with Cowen and Company.

Thanks, Karen.

Congrats on all the expense control.

Thank you.

Appreciate it.

It was nice that the AUR was up slightly this quarter.

Do you expect that, that trend may continue?

I know you're focused on value and you're also focused on newness and the omnichannel initiative.

So how might these metrics evolve as we think about the efforts you're making and the assortment?

AUR is a very hard number to predict because of all of the mix impacts.

It's a hard question to answer, but we're not expecting any significant change one way or the other in the fourth quarter.

Okay.

And could you comment briefly on the inventory freshness?

You guys were honest about what you were seeing this quarter and the trends.

And you're guiding to some caution on the merch margin side.

So how do you feel about the freshness, and where there are opportunities in terms of the composition of inventory?

This is something that Macy's does very well.

We're very focused on receipt flow, which involves clearing out the things that aren't selling so you can always bring in the newness.

And within that 1% increase, we think that we've got the appropriate level of freshness.

Now, that doesn't mean there aren't pockets of inventory that are higher than we'd like.

But overall, I think we do a terrific job on this freshness issue, and really do focus on making sure the quality of the inventory is good, not just the quantity.

Great.

Thank you.

Best regards for the holidays.

Thanks, Oliver.

We'll take our next question from Jeff Stein with Northcoast Research.

Wondering if you could talk a little bit about your experience with Buy Online, Pick Up in Store.

And if you're tracking the percent of those customers who opt for that service, what percent are actually buying something else when they come into the store?

Well, we're still tracking it, and I think it's early to claim victory.

But we're finding a significant upspend in total on the customers that are coming into the store.

Now, what I don't know is how much of that is incremental, to be honest with you, because they may have bought it online had they not come in store.

But it almost doesn't matter, because the good news is, once they're in the store, frankly it's our job to see what else we can sell them.

And at least so far, it seems to be working.

Great.

And wondering if the dock workers' slowdown and strikes that we've seen on the West Coast pose any risk to the fourth quarter, given the fact that you are going in with some pretty lean inventories?

Yes, we've been obviously working extraordinarily hard on this situation, both in collaboration with the carriers but also our vendors.

We have seen some delays, but we don't think that it's really impacted our ability to meet the required arrival dates that we're expecting.

So, so far I think we're okay.

And we got a ton of receipts in, first week in November.

So we're feeling good about that.

But again, it's a lot of hard work on a lot of people's part, and fingers crossed, we'll be okay in total.

Got it.

Final question -- on the marketing spend shift, I'm wondering if you can quantify that a little bit for us because I'm wondering, obviously it raises expenses.

But if it's a big enough chunk, hopefully it also drives incremental sales as well.

So can you talk to us a little bit about the dollar movement between Q3 and Q4?

Yes, it's approximately $10 million, I think a little bit north of that.

So it's big enough that it could have an impact.

Great.

Thank you very much.

We'll take our next question from Paul Trussell with Deutsche Bank.

You mentioned the kids' business wasn't able to sustain a solid start to the quarter.

Could you give us a little bit more detail on the overall sales cadence throughout 3Q?

And is there anything noteworthy over the past few weeks to call out that gives you confidence heading into the fourth quarter, especially given your assumption of an acceleration in the two-year trend?

Yes.

I mean, we had talked in August about the strong start to the back-to-school in early August, end of July; and that in fact was the case.

But the kids' business trend didn't last through September and October, which was disappointing to us.

So that was the call-out there.

And as we look at the quarter, August was great and September and October were less so.

So that's really the trend there.

We started November on a great path, but again, the fourth quarter isn't made up from a week in November.

So I want to be careful there.

And Bloomingdale's -- was there a major spread between Bloomingdale's performance and Macy's?

Or any just color what you're seeing there.

Relative to expectations, it was about the same.

Okay.

And then lastly, just on the expense management, obviously that's been impressive, not just this quarter but over the past two years.

But asset sales have been a part of it.

Is this an ongoing opportunity, and therefore it won't be a hurdle, a major hurdle to cycle next year?

If you had asked me last year, I would have told you that $58 million was going to be really hard year round on this year, and this quarter we have $48 million.

So I don't know the answer to that.

It feels ominous as we go to 2015, but I hope that it's possible.

Thank you for the color, Karen.

We'll take our next question from Kimberly Greenberger with Morgan Stanley.

Great, thanks.

Karen I'm wondering if you can just look at the totality of 2014 so far as compared to 2013?

And aren't there categories that were stronger in 2013 that are just showing some fatiguing momentum?

And then I'm wondering, do the workhorses in the assortment really change between fall and holiday, or do you tend to see the items and the categories that are performing very well in the third quarter also continue into the fourth quarter?

Holiday does have some differences.

So for example, the fact that fragrances was so strong in the third quarter bodes well for the fourth quarter because that tends to be a gift business.

So there are categories that performed in Q3 that make us feel good about Q4.

So I would say there are some differences.

In terms of year to date and versus last year, it's the center core categories, most notably handbags, that has just continued to perform well, but it did last year also.

So that's been a consistent performer.

The non-millennial apparel, feminine apparel, continues to struggle.

But it did last year also.

So again, I don't think there's anything new with that.

Men's has been sort of more consistent.

And home had a better year last year than it is this year.

And again, the third quarter, as I mentioned, was tough in terms of soft home.

Big ticket has been pretty good both years, though.

Got it.

Okay.

Good luck for holiday.

Thanks.

Appreciate it, Kimberly.

We'll take our next question from Steven Grambling with Goldman Sachs.

Good morning.

Just to follow up on some of the earlier questions on SG&A, it looks like the core expense growth rate there was likely flat this past quarter.

Just hoping you could maybe expand on some of the things that are being done in the store or with the omnichannel business to keep that down?

And also, has the flow-through changed as online has become just a bigger percentage of sales?

Well, the business model is changing with omnichannel.

We've talked about that for a long time -- that a lot of the online orders that are shipped have a higher variable cost component than when you walk in a store and walk out.

But that's sort of become part of the model at this point, and I think we're managing it quite well.

That's helpful.

And then changing gears, is there any update that you can provide on the opportunity from the Nike Training Club, or even activewear more broadly, as we move into the holiday and beyond?

Active has been, as you know, a very strong category for us, and it continues to do so.

Obviously, the Nike Training Clubs have been a big success.

But the business in total where we don't have those Training Clubs is also doing quite well.

So is there an opportunity to expand the assortment there, or is there plans in place that you can help quantify?

We are constantly looking for ways of growing the active business more aggressively with some new vendors, with some new approaches and new assortments.

So you will see that continue to be a focal point for us.

Great.

Thanks so much.

Best of luck.

Thank you.

We'll take our next question from Lorraine Hutchinson with Bank of America.

Thanks, good morning.

Hello, Lorraine.

Karen you made a comment that the economic conditions seem to be strengthening.

Could you just elaborate a little bit about what you're seeing out there?

Well, I think I'm seeing what everybody's also seeing, which is lower unemployment, lower gas prices, and relatively healthy financial markets.

So all of that should do well.

And have you found a strong correlation between gas prices and your consumer and their willingness to spend on discretionary items?

Well, I believe we've seen some relationship in terms of discretionary spending and gas prices.

But I think customers are choosing to spend their disposable dollars in different ways, and that's part of the reason why we're not more optimistic about the lower gas prices.

Okay.

Great.

Thank you.

We'll take our next question from Bob Drbul with Nomura.

Good morning.

Hey, Bob.

Good morning.

I just wanted to double-check a couple of numbers.

On the SG&A, was it $48 million from the asset sale gain, $42 million from pension, $12 million from credit?

So excluding those three numbers, SG&A was up $10 million.

Do those numbers check out --

Whoa, whoa, whoa.

Why would you exclude those numbers?

No, no.

I'm just trying to look at the core.

No, but credit is core.

Retirement is core.

Okay.

I'm just trying (multiple speakers)

No, no, no.

Seriously, the only thing that I wouldn't call core was the asset sales.

And then the question that was just asked is, is that becoming core?

The answer may be yes, but in any case, the $48 million you could take out, but those others are really part of the operation.

Okay.

Great.

You talked about the men's business, I think, strengthening throughout the quarter.

Could you just elaborate on what you're seeing there?

Yes.

No, I mean the business did pick up as we went through the third quarter, particularly in the sportswear area.

Okay.

And then on the new store openings, can you just give us an update on where you stand this year, but into next year as well?

Sure.

As we look at this year, we opened in August the new store in the Bronx at Bay Plaza.

And then we've just recently opened three stores: Summerlin in Las Vegas, the Macy's store; UTC, University Town Center down in Sarasota, which is a Macy's store; and then Bloomingdale's opened a replacement store at the Stanford Shopping Center out in Palo Alto.

And I admit I've not seen these, but I hear from the people who have that all four of them look spectacular.

And hopefully I'll get to see them before long.

As we go to next year, in 2015 we have two announced openings, one in Puerto Rico for Macy's and then a really exciting Bloomingdale's store in Ala Moana in Hawaii.

Great.

Then the last question I have is, you always share with us recent My Macy's victories.

Are there any stories that you can share with us in terms of what you're still doing on the My Macy's side that have been impactful?

I think the best example right now are some of the examples I gave in terms of the holiday gifting strategy.

We are doing, I think, what will prove to be a much better job in having the right gifts in the right stores, and thinking about color palettes by store, that just keeps getting better.

So I think those are some of the best examples of [like].

Great.

Thank you very much.

We'll take our next question from Michael Binetti with UBS.

Hey, Karen.

Good morning.

Hello, Michael.

Good morning.

I guess on the categories, just to follow up on two things -- you mentioned cosmetics is a little bit slower.

That's been such a nice area of productivity, and I think margin, for you guys over a long period.

Maybe talk about what you think is going on there?

And then any ideas on your recent comment there on why men's sportswear might have been improving in the quarter?

In terms of cosmetics, in some cases a couple of the vendors reduced the marketing spend, which had a negative impact on the business.

Some of the impulse parts of cosmetics, the younger brands, actually had a decent quarter.

So hopefully it will get better as we get to the fourth quarter.

And hopefully some of those issues will be addressed.

Okay.

And then sportswear in the quarter, you said improved?

Yes, it did, men's.

Any reason why?

We haven't heard that one in a little while.

I was just curious.

I think the assortment looks better from what I've heard, but again, I can't be specific brand to brand.

Is there any way you can help us think, as we look to 2015, what retirement expense should look like?

There's obviously a lot of moving parts in the cost structure this year that I think a lot of people are trying to figure out as we turn our eyes to 2015 here in the next --.

It will not be the improvements you've seen this year.

So I don't know what it will be yet, but obviously when we give 2015 guidance, we will share that.

Okay.

Thanks a lot.

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

As you think of private brands versus national brands, any update on how those are performing?

And then, in the execution of omnichannel and online, it certainly seems better than last year and just more advanced.

Where are you on the journey, delivery expense moving a little bit higher?

How do you see delivery fitting in?

And certainly with that press release with all the initiatives, where is omnichannel in the cadence?

And it seems like a bigger part of cap spend as we move forward?

Thank you.

Let me start on the second question.

There's no question that we are executing omnichannel better this year than last year, and we'll do better next year than this year, because it really is changing some of the fundamental ways we do business.

And so we do keep getting better and better.

And managing it in a way that makes it more profitable.

So I think on both of those counts we'll continue to do better.

And I don't know where we are in the journey, but there's no question it's going to continue to help give us ways to service the customers better and better.

As I mentioned earlier, I really do think our store footprint gives us a real benefit when it comes to servicing customers who like to shop online.

So I think all of that is good and very positive for the future.

And clearly we're spending a big percentage of our capital budget on technology and supporting this business.

Frankly, I don't know how you could compete as a retailer today without doing so.

So I feel really good that I think we're ahead of the game when it comes to bricks-and-mortar retailers.

As you know, we started Macy's.com approximately 15 years ago, and have been on a steady improvement ever since, interestingly under the same management of Macy's.com.

So I think that's going to continue to be a key competitive advantage for us.

And that's true for Bloomingdale's as well.

In terms of your question on brands, our private brands have done extremely well this year, and we just see more and more upside.

I think, as you all know, we're launching a major brand after the first of the year, I think in February, aimed at the Latino customer, named for Thalia, that we are extraordinarily excited about.

So I think the ability of our private brand team to work with our merchants really is going to continue to help us as we go forward.

Thank you.

And we'll take our next question from Richard Jaffe with Stifel.

Thanks very much, and thank you, Karen.

As you look into the pipeline, the deliveries that fortunately for you seem to be on time.

Wondering if there's anything that you're uncomfortable with?

Or just the opposite, is it a mix that you're seeing as very well assorted, based on 3Q trend?

Deliveries -- not sure I understand.

The goods that are yet to be put in stores, the merchandise --.

You're talking about the port issue.

Well, port issue on one hand, and then the content of what's coming in.

So port issue --.

In terms of our ability to have ordered the inventory properly and flowing it properly, I have a lot of confidence that the team did a great job.

In terms of any disruptions from the port, we have a spectacular team managing that situation and I feel really good about their ability to manage it to the best of their abilities.

I'm sure there will be some vendors and some product that doesn't get to us on time.

But I'm really hoping it doesn't become a major issue for the Company as a whole.

Great.

Thank you.

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

Thank you.

Good morning, Karen.

Just to follow up on a couple categories.

Obviously, it's tough to be successful overall if the ready-to-wear, the non-millennial ready-to-wear and women's shoes are challenging categories.

I'm wondering how much improvement you're really counting on as part of your Q4 plan?

How much you think weather may have played on those businesses in the boot category and some of the seasonal categories in ready-to-wear?

And are there any signs of life there in those categories as you look forward?

I disagree with your basic premise that we can't do well without ready-to-wear and shoes helping.

Having said that, we do hope that they will help, but not counting on huge improvement in trend.

Clearly, weather was a factor.

And if you think about the AUR of a boot versus a shoe, when you're not selling boots it's going to hurt your business.

Ready-to-wear obviously gets impacted by weather.

In our guidance for the fourth quarter, we are not counting on enormous numbers from either of those categories.

Okay.

Great.

Thanks for the clarification, and good luck.

Thanks.

Thank you.

We'll take our next question from Stacie Rabinowitz with Consumer Edge Research.

I actually wanted to ask something similar, but I guess in a very different way.

The strength in millennial apparel this quarter is really amazing, and you guys have had strategies for that category and put concentrated effort behind it.

Women's apparel's been weak for a while, and it's been weak across the space, but are there any specific plans to target that category for growth going ahead?

The older millennial -- I mean, sorry, the non-millennial?

The non-millennial women.

Yes, I mean, absolutely.

We have a team working on it.

They're very excited about some of the things happening in the spring, not necessarily the fourth quarter.

And we'll have to see.

In part it's that new brand that I talked to you about aimed at the Latino customer, which really came out of a lot of our My Macy's' work.

The real need for a brand that would address the fit, color, and style preferences of that customer.

So, yes, we have some things underway, and we're hoping that this time next year we'll be talking about non-millennial women's apparel as being a strong category.

Great, thanks.

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

Good morning.

Hello, Bernie.

The millennial strategy has worked very well, and I'm wondering -- you've cited that there is a change in consumer spending behavior more toward technology.

A lot of it, well you know, is being done by the millennials.

Is any thought being given at Macy to including new categories of merchandise, more in the technology area, getting back to what department stores used to be, at least in one small way?

Yes, I think you've seen us think about lots of new categories -- in technology; in some cases, others.

And obviously not always having to be controlled by us.

Finish Line, to me, is a perfect example of that, where we weren't able to do the active footwear business as well as we thought we needed to, but viewed that as a key part of our millennial strategy.

So we found a way to do that.

So I expect that there will be other opportunities like this to expand the breadth of categories that we carry within the store.

And you're including hard lines, perhaps?

Absolutely.

Anything -- we're really looking to see what is it our customers' buying, and what do they want, and where does Macy's have credibility?

Okay.

Thank you very much.

(Operator Instructions)

We'll take our next question from Laurent Vasilescu with Macquarie.

One of the recent press releases announced a partnership with Al Tayer for a Macy's International location in the UAE.

Is there a road map for how many stores you can see in the Gulf Region?

And could you see additional partnerships outside the Gulf Region over the next few years?

Yes.

I mean as you know, we have a Bloomingdale's in Dubai with this same partner.

So this is an extension of that partnership, which has worked extraordinarily well.

How many more stores could happen?

We don't know for either Bloomingdale's or Macy's in the Middle East, but we were extraordinarily pleased with Dubai.

Interestingly, one of the benefits of Bloomingdale's opening there was that it also helped their business in the US with the global tourists.

So we're excited that we'll hopefully get the same benefit on the Macy's side.

And it is possible that we could do partnerships like this in other parts of the world.

But again, at this point, the only place where we've got something to talk about is the Middle East.

Okay.

Great.

Best of luck.

And at this time, there are no other questions.

I'll turn it back over to Karen Hoguet for any closing remarks.

Great.

Well, thank you all for your interest, your support, and as always, if you have other questions call me, call Matt, Sarah, and we'll do our best to get you the answers as quick as we can.

Thanks, and take care.

And that concludes today's conference call.

We appreciate your participation.