Karen Hoguet - Chief Financial Officer, Executive Vice President

Adrianne Shapira - Goldman Sachs Mitchell Clark - Morgan Stanley Charles Grom - JPMorgan Chase Dana Cohen - Banc of America Securities Christine Augustine - Bear Stearns Liz Dunn - Thomas Weisel Partners Jeff Stein – Stein Research Robert Drbul - Lehman Brothers Deborah Weinswig – Citigroup Uta Werner - Sanford Bernstein Michelle Tan - UBS

Good morning and welcome to the Macy’s fourth quarter Earnings Call. This call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead.

Thank you. Good morning and welcome to the Macy’s 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 concludes. Please refer to the investor relations section of our website for discussions and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company’s actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company’s most recently filed Form 10-K and Form 10-Q. We had hoped for better sales performance in the fourth quarter. But we, like others, were impacted by the weak macro economic environment. Our comp store sales declined 2% in the fourth quarter, which represented the low end of our guidance. Total sales in the quarter were $8.6 billion, 6.2% below last year due to one last week in the quarter this year, the comp-store sales declined, as well as closed store. And while disappointing, our sales performance compared well to our peers in the quarter, giving us comfort that our strategies are appropriate and our execution is on track. We were pleased with our earnings, excluding integration cost of $1.83 in the quarter, given the sales performance. Recurring gross margin in the fourth quarter was 41.6%, up 70 basis points versus last year. Remember, we had told you when we released our second quarter earnings that due to the calendar, we expected a lower gross margin rate in the third quarter and a higher rate in the fourth quarter related to the timing of taking clearance mark-downs. Nonetheless, we are very pleased with this result, particularly given the weakness in sales and we ended the year with inventory down 5% versus a year ago and with comparable aging to a year ago. In other words, both the quality and the quantity of our inventory were in good shape as we entered 2008. This demonstrates our ability to manage our inventories well during uncertain times. During the fourth quarter, our SG&A in dollars was $2.282 billion, down 1.3% from last year. And while that is lower in dollars than we expected, the rate was more than a point above last year, primarily due to the weak sales. In addition to the low sales, this increase in rate was due to higher depreciation expense, higher retirement expense and a higher investment in our online business. Depreciation and amortization was $327 million in the quarter slightly below the expected $335 million but above last year's $320 million. This leads to operating income, excluding the May integration cost of a $1.291 billion. As a percent of sales, the operating income rate was 15% which is down 0.7 points versus last year. May integration costs in the quarter were $69 million. Interest expense, as you saw, was a $136 million and tax expenses $336 million, benefiting from the $78 million non-cash settlement for returns from prior year. Average diluted share count for the quarter was 435 million shares. During the fourth quarter, we spent approximately $320 million to buy back 13 million shares at an average price of $24.50. Once Christmas was over and we were comfortable with our cash position, we decided to take advantage of what we considered to be a great value in our stock. We have approximately $852 million of our authorization remaining. EPS on a diluted basis excluding May integration cost in the quarter was $1.83 compared to last year's $1.66, and while above the upper end of our guidance, the result included $78 million or $0.18 per share of the tax settlement. If we exclude the tax settlement from this year's earning and the gain on the debt tender from last year's earnings, the comparison would be a $1.65 this year versus a $1.60 last year, so up a little over 3%. Given the sales performance, we are pleased that we could still grow earnings per share which was true even excluding the benefit of the tax settlement. Before moving on to 2008, I want to step-back for a minute and just make a few comments about the full year 2007. As we started last year, in February and then in March, you'll recall that sales in the legacy Macy’s stores continued quite strong and at the time we were focused on improving the new Macy doors or the former May doors. However, starting in April, while the performance in the new Macy doors or the former May doors did start to improve, the ready-to-wear business started to soften throughout the company and that softness continued into the back half of the year. Additionally, the general trend in the business began to soften beyond ready-to-wear as we move through the year. But in spite of the overall weakness in sales in 2007, there was some good news on the sales spot. Let me mention five items. First, the former May doors in many markets improved through the year. In fact, in the fourth quarter, the former May Doors outperformed the legacy Macy’s doors in some of our divisions. Two; the big ticket home business, furniture and mattresses had a fabulous year in spite of what has been happening in the housing market. This was due to a change in marketing strategy where we incorporated more online advertising, the introduction of these categories on macys.com, and the overall improvement in our assortments and executions. Three; the Martha Stewart launch across all the Macy's doors was successful. The product itself not only sold well, but also we believe with the launch generated traffic throughout the store by adding excitement to our home selling floors. Fourth; Bloomingdale's had another great year in 2007. And in addition to strong performance in our existing store base Bloomingdale's performed very well in all of their new stores, which gives us added confidence in expanding this brand more aggressively. And fifth, macys.com produced tremendous results in the year. Our investments to improve the shopping experience as well as the new warehouse are all paying off. I should also mention that while sales were disappointing in some of our private brands, they still in total outperformed the market brands and our penetration grew to 19%. The brands with the best sales results were American Rag, First Impressions, Hotel, The Seller, the men’s part of INC, Club Room, Tasso Elba and John Ashford. But as with the store as a whole, the ready-to-wear brands on the private brand side did have the toughest performance. For the full year, our recurring gross margin rate was down 20 basis points, and the SG&A rate was up 30 basis points, which are both disappointing. But given the 1.3% comp store sales decline and the unexpected weakening of the trend mid year, especially in women's apparels, it should not be unexpected. For the full year, our EPS on a diluted basis, excluding integration costs and the gain on the sale of receivables last year, was $2.32 compared to $2.30 a year ago. And if we exclude the tax settlements, in each year as well as the gain on the debt tender last year, the earnings per share this year would be $2.15 or up 3.4% over last year's $2.08. In spite of the challenging sales environment, we generated significant cash flow in 2007. Cash from continuing operating activities less cash used by continuing investing activity was a $1.442 billion. Relative to a year ago, the cash flow from operations less the cash used in investing activities was $3.5 billion lower this year. However, this difference can be more than explained by the $2 billion of net proceeds last year from the sale of accounts receivables and the $1.7 billion higher proceeds from the sale of Lord & Taylor and the Bridal businesses in ‘06 versus ‘07. And lastly, the asset sales of properties primarily associated with the May integration contributed approximately $452 million less in ’07 than in ’06. So, if you exclude those one time items associated with the May integration, the cash flow from continuing operating activities less investing activities was more than $650 million higher in 2007 then last year. In 2007 we bought back over $3 billion or 85.3 million shares of our stock. Our average diluted share count for the year was 452 million shares, down 17.5% from last year. We ended 2007 with no commercial paper outstanding and $583 million of cash on our balance sheet. Let’s move on now to 2008. But before I talk about our outlook, I want to make sure that all notice that we are no longer going to report monthly sales. This combined with not providing quarterly guidance could be misconstrued as trying to cutback on the information that we are providing to investors. That is not the intent. In fact, our hope is that you will find the information we do provide going forward will be just as meaningful and helping you to effectively judge our performance and our outlook for the future. Due to calendar and promotional shifts, we have found monthly sales to cause undue confusion and we believe performance is better evaluated on a quarterly basis. So, now to 2008. In the month of January and February, we have become more concerned about the economy and consumer spending. We have tried to reflect that concern in our plans, but we are also maintaining flexibility given this uncertainty. Our comp store sales guidance for the full year is a range of minus 1% to plus 1.5%. The first half of the year and particularly the first quarter could be below the low end of the guidance, but we are assuming that the economy picks up by the mid-third quarter. : We do, however, expect some improvement in gross margin rate for the full year, even though we are assuming a lower gross margin rate than a year ago for the first quarter. Costs associated with the consolidations are assumed to be $150 million and almost all of these costs are cash and all will be incurred this year. We are now assuming a capital budget of $1 billion. Over the past few weeks, we have reduced our budget by $100 million in response to business trends. Depreciation and amortization is assumed to be approximately $1.3 billion for the year. Interest expense is assumed to be approximately $560 million to $580 million. And the tax rate is assumed to be 37% for the year, although it could vary quarter-to-quarter. While we expect to generate significant cash flow again this year, we will probably not buyback stock until we see a change in our sales trend. In the current environment, we believe it is prudent to conserve cash. Before opening the call for questions, I want to take a few minutes to just quickly summarize the key aspects of the announcement we made a few weeks ago about our localization initiative in division consolidation. The objective of these changes is to both accelerate our sales growth and also to increase our profitability. The key, we believe, is to improve our execution at the local level. We are changing the field organization and the geographies currently served by Macy's North, Macy's Midwest and Macy's Northwest to help us deliver a more localized experience to the customer. The key components of this structure are the following: One, a shorter span of control for store supervision; 10 stores instead of 16 to 23 today. Two, more focus on tailoring assortments by location. This means vendors, sizes, colors, etcetera. People in the field will now have more input into this process. Three, more resources devoted both to store merchandising and also to product knowledge training. This should make the product look much more interesting on the selling floors and should better equip our associates to help customers. And fourth, last but not least, we intend to reinvest some of the savings to provide better coverage on the selling floor. As you know, we are funding these changes through some of the savings from the division consolidations and net of these investments, we still expect to save $100 million on an annual basis or $60 million in the fall of this year. Additionally, we expect these consolidations will enable us to make big merchandising decisions faster and also will simplify our relationships with our vendors. Improving our collaboration with vendors is very important to us and figuring out how to do this best will be a priority for us in 2008. We have been studying this subject of how to accelerate our comp-store sales growth for many months, and we are confident that the combination of the consolidations and the localization efforts will help us reach our desired 2% plus annual comp-store sales growth and 14% to 15% EBITDA rate objectives, over time. We will update you on our progress each quarter when we release our earnings. While we are excited about the changes that we are making, we can't ignore the fact that this year does look like it will be challenging for most retailers. We need to be nimble, disciplined and focused, but that does not mean we should not take risks. We need to work even harder at finding new desirable products, items, categories, vendors, and then we need to go aggressively after those businesses. Even in tough economic times and in fact you might say even more so in tough economic times, customers want fashion. And we believe that our combination of fashion and value could be quite a feeling. We just need to be sure that we are edited enough in our offering of basic merchandise. You should also continue to expect some great marketing from Macy’s in 2008, including a new spring brand TV campaign, the builds on the successful design celebrity spots, we launched last fall. The concept is to reinforce that Macy’s is a destination for fashion brands that are backed by the some of the most-watched celebrities. The quality and personality of the brands we carry really do separate Macy’s from other retailers. Our brand marketing will continue to be balanced with promotional marketing, designed to underscore the value of Macy’s merchandise, and drive store traffic. We are convinced with the financial strength of the company, the talent we have at all levels of the organization, and our experience and willingness to take appropriate risk will allow us to succeed whatever economic environment we might encounter. With that said, I will now take your questions.

(Operators Instructions) We’ll go first to Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs: Thank you. Karen, just following on your comments on your comp plans. Could you share with us, how you are planning inventory in terms of the first half versus the second half?

Obviously, we are planning inventory consistent with the sales, and as I said, we expected our comp store sales in the first half of the year, particularly the first quarter, to be weakest and get progressively better. Adrianne Shapira - Goldman Sachs: Obviously, you are heading into the first half clean in terms of inventory, but where we do hope to end inventory given the fact that comps are going to be weaker in the first half?

What we do, Adrianne, is we focus on receipts by family of business by items, so we really have a very good forecasting process. I am sure there are some areas where we might be heavy. But overall, we feel very good about our ability to adjust our inventory receipts to what’s happening on the sales line. Adrianne Shapira - Goldman Sachs: Okay, thanks. And then just Karen, could you give us any progression of the $100 million in cost savings?

That's for 2009. In 2008, we had said we were going to save $60 million, and most of that will come in the back half of the year. Adrianne Shapira - Goldman Sachs: Okay. Then just lastly on the May out-performance, could you give us any more color in terms of regions, categories what you are seeing, what signs of strength are you seeing?

Obviously, at this point we’re really no longer breaking out May versus Macy doors because the truth is that performance now is so mixed. There are some very good performing markets within May. Dallas and Houston for example. And so, at this point we’re just not going to be talking about it anymore. Adrianne Shapira - Goldman Sachs: Thank you.

We'll go next to Mitchell Clark with Morgan Stanley. Mitchell Clark - Morgan Stanley: Good morning. Karen, first question what would gross margin have been the rate of improvement in the fourth quarter excluding the favorable impact of the calendar shift?

As we said with the third quarter, we really can't quantify it. But clearly there was a factor there and in fact the third quarter margins were down. Mitchell Clark - Morgan Stanley: Okay.

And it's not all of the improvement, Mitchell. Mitchell Clark - Morgan Stanley: Right, it’s part of that. Even excluding that you would still have seen improvement in the gross margin rate?

Correct. Mitchell Clark - Morgan Stanley: Okay. And then the second question, you had mentioned that, you are more concerned about the economy following January and February. What gives you conviction that you will see improvement in the consumer environment in the back half for the year?

I am not sure, I used the word conviction. Mitchell Clark - Morgan Stanley: Okay.

I think like all of you, we really don't know, and again we've got people looking at this, we're reading, we think there will be some improvement as we get through the third quarter and into the fourth. And, obviously we're watching very closely. Mitchell Clark - Morgan Stanley: Okay. And then just one last question, Karen, your thoughts on retaining your investments grade credit rating?

Well I think in times like this particularly, but always we try to retain access to all of the capital markets. And we think investment grade does help us do that. So, obviously, we’re always balancing factors, but we would like to maintain that rating. Mitchell Clark - Morgan Stanley: Okay. Great. Thank you.

We'll go next to Charles Grom with JPMorgan Chase. Charles Grom - JPMorgan Chase: Thanks. Good morning, Karen. Could you provide a little bit more color on your decision, I think, in mid December to close the nine stores? We noticed that a couple were only open, I think, four or five years, which is surprising? And I guess second follow-up to that is it possible that there will be more closings as ’08 progresses, or are we done with the nine for this year?

Well, every year we are constantly reviewing stores that aren't performing well. And you'll notice that every year we closed a couple of stores, that’s nothing new. There were few more this year, largely because we had given the May stores a year before we made a decision to close them. So, we will always close the couple of stores every year. But I don’t expect a large number of closings, and certainly not in the near future. Charles Grom - JPMorgan Chase: Okay. And then just on CapEx, like you said roughly $100 million larger than your guidance, but your '08 outlook is back up to $1.1 billion. And I guess my question is, why is it going up in '09? And can you give us a little bit of color on mix between new stores, remodels, technology etcetera?

What we suggested is it, in ‘08; our guidance is for $1 billion. Charles Grom - JPMorgan Chase: Okay. So --

But I am not sure what -- Charles Grom - JPMorgan Chase: Okay, so it is roughly in line then?

Yes. Charles Grom - JPMorgan Chase: Okay. And then just on mix in terms of new stores renovations?

You know I don't have the number in front of me but it won't change materially from where it was in our last three-year plan which is in our FACS book. Charles Grom - JPMorgan Chase: Okay. And then, just last on the merger and integration line, $69 million, specifically, where would these costs have fallen in the P&L had you not broken them? Is it more in SG&A than COGS?

It's all SG&A because had it been in margin, it would have been that lot. Charles Grom - JPMorgan Chase: Okay. Alright, thanks.

We'll go next to Dana Cohen with Banc of America Securities. Dana Cohen - Banc of America Securities: Hey, Karen, couple of questions. Going back to the fourth quarter, you missed the middle of your original range lets say by $0.07 or something. How much of that was in gross margin and how much of that was in SG&A? I sort of thought the gross margin would have been a lot weaker coming into today. So can you just help us out as to where versus your plan it came in?

Yeah, I can't really give you where it would have been with the guidance because, when we give guidance, we look at multiple scenarios that could happen that way. Dana Cohen - Banc of America Securities: But it wasn't sales?

As I said Dana, we were pleased with the gross margin given the sales. So, I think we are saying the same thing that you are saying, which is that we were pleased. Had the sales been stronger though I would have expected a stronger gross margin. Dana Cohen - Banc of America Securities: So it really had to have been then on the SG&A side really?

What on the SG&A side? Dana Cohen - Banc of America Securities: The shortfall in terms of the earnings.

Not in terms of dollars, in terms of rates. Dana Cohen - Banc of America Securities: Right but your comps didn't come in below your plan. So I am just struggling, given that it's not a sales issue versus your original plan?

Well, it is all kinds of different scenarios for getting there, but I don't really know how to answer the question. Sorry. Dana Cohen - Banc of America Securities: Okay. It sounds like even versus where you were a few weeks ago when you said the guidance for the year, things continue to be more challenging than you would have expected. I mean, help us to understand how you now think the year will progress? It sounds like you're pushing a bit into the back half?

Dana, I wish I had a crystal ball. Dana Cohen - Banc of America Securities: So do we all.

The only good thing I can tell you is, if you think about months in a retail year, if you're going to have weakness, January and February are pretty good months to have weakness. Dana Cohen - Banc of America Securities: Okay.

So, I really don't know anymore than you do and that's why we are trying to be flexible. Dana Cohen - Banc of America Securities: Okay. And then lastly on credit, obviously, you don't own it anymore but it does flow through. I mean it sounded like last quarter you were very pleased with credit in terms of penetration and what was going on there. Can you just give us an update?

Yeah, I mean from a penetration perspective, we feel very good about credit. For the year 2007, our penetration was almost 46% which was up 230 basis points over last year. So we feel very good about the card, we feel very good that the marketing relating to the card is working well. And so much of our economics today is based on credit sales. So that's a good thing. Obviously like others were concerned about bad debt because we don't own the portfolio, it doesn't impact us as directly as it would if we still owned the credit. But like others, we too are concerned about bad debt and delinquency. Dana Cohen - Banc of America Securities: And are you seeing that start to creep up?

No, it started creeping up in the third quarter. And we really haven't seen anything since then in terms of further creep. Dana Cohen - Banc of America Securities: Okay. So, it's about where it was tracking in Q3?

Correct. Dana Cohen - Banc of America Securities: Great, thank you.

We'll go next to Christine Augustine with Bear Stearns. Christine Augustine - Bear Stearns: Thanks. Hi, Karen.

Hi, Christine. Christine Augustine - Bear Stearns: I have two questions. The first is, in your sales assumption for '08, how much disruption, if any, from the divisional consolidation are you anticipating in the sales? And my second question is, when you start to anniversary, the more intense promotions, I think it’s May-June that you cycle those; what is the plan as you come around that reset of promotions? Thank you.

Well, the reset of promotion wasn't really a reset. We still have fewer coupon days in '07 than we did in '06. It was just more than what we had expected. So, there is not a major increase in promotional activity that we're concerned about year round for this year, which is I think what you're implying. Christine Augustine - Bear Stearns: Yes, I thought that you step that up?

Stepped it up versus what we had expected to do, not versus the prior year. Christine Augustine - Bear Stearns: Do you think you have to step-up then again just given what's going on with the consumer?

No, because we're planning to not reduce it this year or to that extent we might have otherwise given what's happening with the consumer. So, we are planning a similar promotional environment this year as last year. We might have hoped a year ago to be reducing it, but we don't think this is the environment in which to do that. Christine Augustine - Bear Stearns: Okay.

When you asked for your first question about disruption, we are not planning any disruption in those geographies, in-part that's what this new structure is intended to fight against as well as the additional investment in selling in those regions. Christine Augustine - Bear Stearns: Okay.

We'll go next to Liz Dunn with Thomas Weisel Partners. Liz Dunn - Thomas Weisel Partners: Hi, good morning.

Good morning. Liz Dunn - Thomas Weisel Partners: I was thinking about the decision to suspend the share repurchase until the environment improves. Are you talking about a return to positive comps or what exactly will you be looking for to return to repurchasing stock?

I can't really give you a specific number on that, but given the uncertainty in the environment and given the fact that so much of our cash flow comes in the back half of the year, we just have to be confident about what's going to happen in the back half of the year, before I'd want to buyback any significant amount of stock. So I don't know how to give you a specific number on that. Liz Dunn - Thomas Weisel Partners: Okay and then just a follow-up to Christine’s question. Are you able breakout how much you’re reinvesting? Obviously, there are savings and there is reinvestment in selling and then also these 250 positions. Can you give us any visibility in terms of how much the reinvestment is?

NO, what we’ve said is that the net will be a savings of $60 million this year and a $100 million next year. Liz Dunn - Thomas Weisel Partners: Okay, thank you.

We’ll go next to Jeff Stein with [Stein] Research. Jeff Stein – Stein Research: First of all Karen, just a clarification on that last answer, the $60 million and $100 million, are those both incremental numbers, or is it $100 million run rate capturing $60 million of that $100 million this year?

The $100 million run rate capturing $60 this year. Jeff Stein – Stein Research: Got it, okay. And secondly, you’ve talked earlier about your long-term targets, 14% to 15% EBITDA margin, 2% comp growth. I'm wondering, can you get to a 14% to 15% EBITDA margin with just a 2% kind of trend line comp growth rate?

Again, we said 2% plus and I do think we can get there with the 2% comp, it will just take a little longer. Jeff Stein – Stein Research: Okay. And final question, can you tell us a little bit about the sales level you achieved in your direct marketing business in 2007? And you did allude to the fact that you have been investing in that business. Will the higher level of investment continue in 2008?

Yeah. This past year we opened a facility in Portland, Tennessee, and in '08 we’ll be opening another facility outside of Phoenix in Goodyear, Arizona. So, that investment will continue also in systems and improving the customer experience etcetera. Obviously, it’s the fastest growing part of our business. So for example, we went to cut CapEx, it did not make an impact on that investment. So we do expect to continue to invest in that business. Jeff Stein – Stein Research: And can you just tell us what the level of sales you achieved in that?

Yes. Sorry about that. We are on track, this year in '08 we had talked about doing over $1 billion in our online businesses and we are on track to do that. Jeff Stein – Stein Research: Got it. Okay, thank you.

We’ll go next to Robert Drbul with Lehman Brothers. Robert Drbul - Lehman Brothers: Hi, Karen.

Hi, Bob. Robert Drbul - Lehman Brothers: Two questions I guess, the first one is, and you talked about couponing levels. But can you talk about the advertising expense that you incurred in the fourth quarter and then how you are thinking about it for 2008?

Yeah, I think you will find that advertising expense for 2007 as a whole, I can't speak to the fourth quarter, was up just slightly. And my suspicion is, we will keep it flattish in 2008, again, reflecting the environment that we are in. Robert Drbul - Lehman Brothers: Okay. And then on the private label, can you maybe address a little bit the sourcing costs and if you are seeing any pressures overseas in terms of what's happening there?

We are beginning to see some pressures and thank goodness, we have a fabulous overseas organization, it’s all over this issue and trying to move production around and manage the process such that the customer won’t see those increases. But we are watching it closely. Robert Drbul - Lehman Brothers: Okay, thank you very much.

We will go next to Tino Jang with Citi. Deborah Weinswig – Citigroup: Hi, it’s actually Deborah Weinswig. So, Karen, you referred to the recently announced division consolidation launch of the localization initiative. Can you elaborate on what we might see with regards to more localized marketing and merchandising, and when should we see these results, and also are there systems upgrades or enhancements that are helping with the localization initiative or is it more of a change in processes and people on the field?

Well, there are systems that are being rolled out through all of the Macy’s division this year to help us better allocate assortments, as well as, do better assortment planning. Without those systems we wouldn’t be able to do the restructuring, so it’s facilitating it. But that was on track to be put into use this year in any event. So, yes, this technology is working with the restructuring. In terms of when we are going to began to see impact, my hope is that you will see small changes this fall. But my guess is any major impact on assortments really won’t happen until next spring. Just given these organizations won’t be in place until the second quarter of this year. Deborah Weinswig - Citigroup: Okay and then with regards to your real estate strategy going forward; one, should we expect more source to be of-mall going forward, and then also you alluded to expanding Bloomingdale’s more aggressively. Can you please provide some more additional color on that?

Sure. I think the reality of mall construction is such that more of our new stores will be in lifestyle centers as opposed to traditional malls. Not because we don’t want to be in traditional malls, but because there aren’t as many of those being built. So, we will do both, but I think most of our new stores are going to be in more of the open air lifestyle centers. In terms of Bloomingdale's, we are obviously looking for real estate sites across the country that we think fit with where Bloomingdale's would do best. There aren't 100 of these sites, but there are some and we are aggressively trying to find them, and get deals going. Deborah Weinswig - Citigroup: And then last question, I was especially impressed that your gross margin performance in the quarter, especially compared to your peers who reported so far, can you talk about the processes and procedures that kind of you took in terms of an approach in fourth quarter and maybe how that kind of translates into what we'll see for '08 as well?

It is hard for me to compare to our competitors because I candidly don't know what they do. But our merchants stay very close to sales trend and are constantly moving receipts relative to sales and it seems to have paid off up quite well in the fourth quarter. Deborah Weinswig - Citigroup: Okay. Well, congratulations in a tough environment and best of luck in '08.

Thank you.

We'll go next to Uta Werner with Sanford Bernstein. Uta Werner - Sanford Bernstein: Thank you. Good morning Karen. I've a question, first of all related to new store openings. I wondered if you could tell us a little about the number for the year, how the mix is between Bloomingdale's and Macy's and maybe from which regions do you see them coming? I also wondered about the temporary closings when we might expect those to open up again.

Okay. If I look at 2007, we will have opened 12 new stores and of those 2 were Bloomingdale's. In '08, I believe we are going to open 5 new stores and none of those are Bloomingdale's. Uta Werner - Sanford Bernstein: Okay. My second question relates to the credit card business. You mentioned that while you are not directly exposed to bad debt, you indirectly are. Could you comment a little bit about the magnitude of the EBIT stream coming from the credit card and the range within, which we might see fluctuations to the extent you can?

No, we really don't break that out, sorry. Uta Werner - Sanford Bernstein: Thank you.

You're welcome.

(Operator Instructions). We'll go next to Michelle Tan with UBS. Michelle Tan - UBS: Great, thanks. Most of my questions have already been asked, but I just had a few. You mentioned concern over sales trends in January and February, is it possible that you share with us any color on how February looks so far relative to January?

Yeah, I mean early February was weak as we've gotten through Valentine's Day, President's Day, business looks better. Michelle Tan - UBS: Okay.

And some of the spring fashions are selling. I am happy to report that [Inc.] which had a tough year last year on one of our major ready-to-wear brands, is on fire again which at least indicates to us when you have newness and you have fashion, it does sell even in these economic environments. But we'll have to see so, slightly more encouraged by the end of February than the beginning, but I think it's going to be a rocky year. Michelle Tan - UBS: Okay, great. And then, as far as the online business goes, anything you can share on where the profitability is on that business and at what point you start to leverage these incremental investments that you are doing to drive growth?

It's profitable already. Michelle Tan - UBS: Okay. Any magnitude relative to retail?

No, I mean it's a good business and it's all related to retail because we do so many things that, for example, the bridal business, how do you allocate the profits between the two. But it is a profitable business for us already. Michelle Tan - UBS: Okay, great. And is it leveraging now with your additional investments relative to the growth or --?

There are start-up costs and that's one of the things I had alluded to in the fourth quarter. Michelle Tan - UBS: Right.

As you make the systems investments and bring the warehouses on-stream. Michelle Tan - UBS: Okay. And then I guess just finally on the SG&A overall, you mentioned that you leveraged from the sales decline being the biggest piece of the SG&A increase. It does seem like a significant increase on a down two comp. Can you give us color on how much of it also came from the 53rd week last year, now being in the base this year and then also the store closings?

The SG&A was below last year. Michelle Tan - UBS: No, I know. I guess I am saying, when you look at the rate being up 140 basis points.

I'm sorry. I thought you meant dollars, I apologize. Michelle Tan - UBS: No.

-- a piece of it, too. But it is very hard in this business to lever expenses when you've got a negative comp. Michelle Tan - UBS: No, alright. I guess it's just surprising, 140 basis points. I guess any kind of incremental breakout you can give us specifically on how much was de-leveraged on the comp?

It's hard to do that. I am sorry. Michelle Tan - UBS: Okay, that's fine. Thanks for the help.

You bet.

It appears there are no further questions at this time.

Great. Well, thank you all very much.

That does conclude today's conference. We thank you for your participation. And you may now disconnect.