Karen M. Hoguet - Chief Financial Officer, Executive Vice President

Charles Grom - J.P. Morgan Adrianne Shapira - Goldman Sachs Deborah Weinswig - Citigroup Dana Cohen - Banc of America Securities Jeff Stein - Soleil Securities Steve Kernkraut - Berman Capital Liz Dunn - Thomas Weisel Partners Robert Drbul - Lehman Brothers Dana Telsey - Telsey Advisory Group Lorraine Maikis - Merrill Lynch Todd Duvick - Banc of America Securities Analyst for Michelle Clark - Morgan Stanley Michael Exstein - Credit Suisse Uta Werner - Sanford Bernstein David Glick - Buckingham Research Group Wayne Hood - BMO Capital Markets

Good morning and welcome to the Macy’s second quarter earnings release conference call. I would now like to turn the conference over to your host, Karen Hoguet. Please go ahead, Madam. Karen M. Hoguet: 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 a 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. While reporting negative comp store sales is never something to celebrate, we do feel good about our second quarter performance for three key reasons: one, relative to many of our key competitors, we have continued to perform very well. This gives us confidence that our four priorities are still keeping us focused on the right issues -- differentiated and edited assortments, simplified pricing, improved shopping experience, and distinctive and cost efficient marketing. Two, given the sales decline, we are very pleased with the earnings and cash flow that we produced and I’ll discuss this more in a few minutes. And three, since February we have been consistently tracking towards our expectations for annual sales and EPS, albeit at the low end of our original guidance. In the current environment, we are pleased to have had this stability and greater predictability than we had experienced last fall and that clearly helped us produce the earnings and cash flow that we did in the second quarter. Sales in the second quarter were $5.718 billion, down 3% below last year. On a comp-store basis, our sales were down 2.1%, a little stronger than last quarter’s 2.6% decline. And on a two-year basis, adjusted for event shifts -- remember, in 2006 we moved a friends and family event from the second quarter to the first quarter, so on a two-year basis adjusting for this event shift, the second quarter was slightly better than the first quarter. Geographically, our sales were strongest in the Northeast and Texas and they were weakest in the West and the upper Midwest. Bloomingdale’s, Bloomingdales.com and macys.com all continued to have very strong growth in the quarter. The strongest categories in the quarter were jewelry, cosmetics, shoes, men’s furnishings, men’s collections, housewares, and mattresses. The weaker categories were ready-to-wear, intimate apparel, men’s tailored clothing, men’s classification sportswear, children’s, textiles, and tabletop. I should also add that our sales were hurt by the lower levels of clearance merchandise we had on the floor this year relative to a year ago and while this did hurt our sales performance, it was a positive for gross margin. While we have had some quick wins in the regions with the new My Macy's structure, it is still too early for the changes to be big enough to move the needle but we are very excited about the structure and our increased focus on trying to meet local needs and desires. I will update you more on My Macy's after I summarize the quarter’s performance. Gross margin in the second quarter was 41.5%, up a full point from last year. This is primarily a function of managing our inventories well and the lower levels of clearance inventory that I had just mentioned. Also, I should remind you that we were up against a very weak gross margin rate performance a year ago in the second quarter. We ended the second quarter with inventory 3.7% below last year, and I should add the currency or the quality of our inventory is very good. SG&A excluding consolidation expense and asset impairment charges in the second quarter was $2.037 billion, or 35.6% of sales. In dollars, this was essentially flat to last year but due to the sales decline, the rate is up 100 basis points. SG&A dollars benefited in the quarter from the consolidation related expense savings and lower depreciation. These were offset by lower income from credit due to higher bad debt and write-offs and higher expenses needed to support our high growth .com businesses. The division consolidation costs were $26 million in the quarter, or $113 million year-to-date. We are still tracking to our $150 million annual budget for the division consolidation costs. We also booked in the quarter a $50 million non-cash asset impairment charge related to the Karen Scott and John Ashford private brand names. These were both prior May company private brands and they have not produced the sales that we had expected when we purchased the May company. Operating income in the quarter was $259 million, up from $250 million last year. Excluding consolidation and integration costs, and the asset impairment charges, operating income was $335 million, down from last year’s $347 million. But as a percent of sales, operating income excluding those same items was 5.9%, which was flat with last year. We consider that to be very strong performance, given the 2.1% comp store sales decline. Interest expense in the quarter was $138 million. Tax expense was $48 million, and net income was $73 million as compared to last year’s $74 million, so essentially flat. Average diluted share count in the quarter was $422 million shares, down from last year’s $458 million shares. Diluted EPS was $0.17 versus $0.16 a year ago. Excluding consolidation and integration costs and asset impairment charges, EPS in the quarter was $0.29, which is flat with last year on this same basis. Our year-to-date cash flow has been strong, in spite of the weak sales. This year we generated $592 million in net cash from continuing operating activities, as compared to $412 million a year ago. And cash used by investing activities was about the same this year versus last year, but keep in mind that last year included the disposition of after hours and a higher-than-normal asset sale level due to the disposition of the May company duplicate stores. In fact, our investment in property and equipment, plus software, was $106 million less this year than a year ago. We generated cash this year of $430 million from continuing financing activities as compared to a net use of over $1 billion last year. We ended the second quarter with cash and cash equivalents of $1.293 billion, as compared to $249 million last year. Remember though that $650 million of that cash will be used to fund the maturing debt in the third quarter. So as I mentioned earlier, we feel very good about our earnings performance and cash generation, given the environment in which we are operating. Now, as we look to our outlook for fall, we continue to be on track towards the low end of our original guidance, an annual comp store decline of approximately 1% and an EPS excluding one-time items of approximately $1.85. This implies a comp store sales trend for the fall that is flattish, and while this represents improvement versus the spring trend on a one-year basis, the improvement is modest on a multi-year basis. And given the weakness in the past two fall seasons, and more importantly the strategies we have in place, we believe this to be achievable. Having said that, however, we recognize the uncertainty in the current environment and do see potential risks. And in this environment, there is no upside in being too aggressive. So as a result, we have tried to put a dimension on the risk for our internal forecasting process as well as for you. As we look at our business trends, we believe that our fall comp store sales could fall short of our flat expectation by approximately one point. This then would translate to a full year of comp store sales performance of down approximately 1% to 1.6%. And should that happen, earnings would most likely also be lower. Therefore, we would guide you to the range of $1.70 to $1.85 for earnings per share on a diluted basis excluding consolidation costs and the asset impairment charges. I should also mention that we are expecting a weaker third quarter than the fourth quarter. As we look at the fourth quarter, we believe it plays to our strength as a terrific gift store and we feel very good about our merchandising and marketing strategies for that time period. So while we are still hopeful that we will hit the minus 1% comp store sales trend for annual, and $1.85 in earnings per share, we are not ignoring the risks that so many of you have pointed out. We are managing our receipts and expense accordingly. The key to this subject lies in the details, by item, by vendor, by category, by store, et cetera, et cetera, and I believe that our strong spring performance demonstrates our organization’s ability to balance the risk and the opportunities in this very challenging environment. Before I open the call for your questions, I would like to update you briefly on My Macy's. As you know, the new organizations started in their new positions in early May. Therefore, during the second quarter most of the time has been spent for these new organizations to be trained in their new jobs and visiting the stores. We have lots of people in new positions and therefore we are putting a great deal of focus on training and on communication. We have assembled terrific teams in these regions and they are definitely enthusiastic about working to better localize our offerings and execute better at the store level. We have rolled out a terrific communication tool for use of the districts and the central merchandising organizations. So far, the four regions have made over 1700 requests through this communication tool. Over half of the requests have been to review future on order, given the strong sell-throughs in a particular category, department, or item. About a third of the request coming from the field relate to desired assortment changes like adding a vendor or a category, adjusting the style mix, or modifying replenishment parameters. These requests have all been the direct result of district planner and district merchant visits and discussions in the stores, and as I read the requests, they all appear to be reasonable and as importantly, are supported by data and facts. I should also add that very few of these requests are being declined. Here are a few examples of some of the opportunities that we are identifying in the districts, and as I said earlier, none of these in and of themselves are big enough to move the needle but cumulatively, they will start to begin to matter. One, licensed sports product -- this was requested in the Midwest. This is the first time we’ve had detailed insights to utilize customer and associate feedback on which sports and which teams are most important in a specific store. Some are college fans, some are high school fans, some are pro sports, et cetera, et cetera. And we are doing this not only in apparel but also in other areas of the store, like Christmas trim. In the two Midwest regions, licensed product is currently running more than 20% over its plan since the product has come into the stores. Here’s the second example, also from the Midwest -- the district Vice Presidents have been able to reallocate space in some markets and some stores where there are better trending men’s collection lines than others, and we’ve also been able to react with plus receipts for the added space and that already is doing very well in terms of the business. And three, we are working on jewelry and watch assortments and case line allocation by store. This will then be followed with attention to staffing behind these cases. This level of detailed execution in every store just was not possible before to this level of detail. And the last example comes from our home textiles area, where our regional planning managers have just reviewed the private brand offering for spring. I am told that the regional planners provided very specific data and input on color palettes and fashion desires in different parts of the country, and the merchants believe that this input will clearly help drive the business in the spring season. Those are just four examples. I could go on, and hopefully they are just the beginning. The district planners are focused now on planning spring 2009, which will be their first season for planning, and while people are still learning their jobs, we are optimistic that their insights will enable better planning, greater tailoring of our offering to local needs, both of which will help us accelerate our sales trends. We do expect to begin seeing improved trends in the My Macy's districts this fall, which remember represent about 20% of total Macy's Inc. sales, but the impact really will not be significant until next year. Supporting the customer-centric approach of My Macy's, we also announced this morning that Macy's has retained the customer insight firm, dunnhumby, to help us analyze sales data, develop customer segmentation models, and apply the learnings across the nationwide Macy's business. This will be a significant, multi-year process that we believe can lead to accelerated sales growth in the years ahead as the My Macy's initiative is refined and expanded. Note that the dunnhumby will work with Macy's exclusively in the department store category. In the near-term, we are being very aggressive and creative in marketing to our customer this fall. We are very excited about Macy's 150th birthday celebration activities that are planned throughout the third quarter leading up to the actual birth date of October 28th. And then in the fourth quarter, we have a holiday campaign that we believe represents a fresh and compelling approach to the customer. It’s too early to provide details today but we do look forward to announcing the campaign as we approach the fourth quarter. All of this adds up to indicate that as a company, we continue to move ahead in engaging the customer and improving our offering in stores and online. We believe this strategy will bear fruit when the economy recovers and in the meantime, we will operate with the same discipline and focused aggression where we see trends and opportunities that you have seen us operate with before. So with that, let me open the call up for any questions you may have.

(Operator Instructions) We’ll go first to Charles Grom with J.P. Morgan. Charles Grom - J.P. Morgan: Just on the guidance, I think that’s the big topic of interest this morning; your guidance assumes close to, on my math, on the second half of the year close to 250 basis points of margin contraction, if you look at it on a two-year basis, and that compares to close to 50 basis points of contraction in the first half, so a much more conservative posture. Just wondering if there’s anything in SG&A or gross profit margin that’s leading to that, in addition to the assumptions for sales. Karen M. Hoguet: Again, I can’t comment on your model but as we look at SG&A for the fall season, we do expect the SG&A dollars to increase, largely due to the expense related to the continued growth of the dot.com business as well as the continued weakness in credit. So again, I don’t see anything new there, and in terms of gross margin, we do expect year-over-year improvement in the fall season but again, that could change depending on the sales trend. Charles Grom - J.P. Morgan: Okay, and just year-over-year improvement, just relative to the first half or in absolute basis points? Karen M. Hoguet: Well again, the second quarter last year was very weak, so I don’t think that we’ll be able to achieve the same kind of margin improvement that we have in the second quarter for sure. Charles Grom - J.P. Morgan: Okay, and then last quarter, I believe you shared month-to-date trends in May, so I was wondering if you could speak to how -- specifically how the 2.1 trended throughout the second quarter and then how are sales so far in August? Karen M. Hoguet: All I can say is you look at -- we had talked about May/June being down 1.9, so obviously on an absolute basis, July was weaker if we got to the 2.1 for the quarter. But again, as I have said, our sales had been trending as we had expected all quarter and have continued so in the beginning of August. Charles Grom - J.P. Morgan: Okay, great and then one last one, if I could -- just wondering how often your auditors evaluate the trade names and goodwill for impairment, and do you see any similar charges forthcoming in the back half of the year? Karen M. Hoguet: Typically that’s done once a year. Charles Grom - J.P. Morgan: Okay, and it was done in July, so you took the $50 million for the trade names. Karen M. Hoguet: It was done during the first and second quarter. Charles Grom - J.P. Morgan: Okay. All right, thanks very much.

We’ll go next to Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs: Karen, could you just perhaps shed some light in terms of the trends, Bloomingdale’s versus the Macy's customers? That Bloomingdale’s customer, are you seeing anymore trading down there? Karen M. Hoguet: You know something, we had -- I can’t comment on who is trading down. I mean, we don’t think that’s what’s happening. We just think customers are buying less. Adrianne Shapira - Goldman Sachs: So the performance gap between Macy's and Bloomingdale’s, has that remained unchanged, has that narrowed a bit? Karen M. Hoguet: What we have said is that Bloomingdale’s has continued to be one of our best performing businesses, and that has continued. Adrianne Shapira - Goldman Sachs: Okay, and then just moving to inventory management, that has obviously been a key to the margin strength. You were talking about buyers planning spring. How are the inventories being planned for spring? Karen M. Hoguet: Well, we are still working on that but obviously it’s in our interest to be conservative as we look out for 2009. This is obviously a difficult environment in which to plan but we would hate to be too optimistic as we look to 2009, as we are planning inventories at this point. Adrianne Shapira - Goldman Sachs: And then in terms of where you would expect inventories to end for the year? Karen M. Hoguet: I don’t know where that will be yet. Adrianne Shapira - Goldman Sachs: Okay, and then just lastly, you talked about you expect a better Q4 than Q3, but if we look at the margins, it looks as if there’s a tougher compare -- Karen M. Hoguet: Again, I was focused on sales and we’re not providing guidance to that level of detail by quarter, but I was focused on the sales line. Adrianne Shapira - Goldman Sachs: Okay, great. Thank you.

We’ll go next to Deborah Weinswig with Citigroup. Deborah Weinswig - Citigroup: Karen, with regard to My Macy's, can you talk about any changes with regard to the marketing plan in the back half of the year? It sounds like there’s already been some significant changes with regard to product offering. How are you supporting that from a marketing perspective? Karen M. Hoguet: I would say so far there’s minor changes in assortments for the back half of the year. There will be more significant ones next year, and the marketing will follow that, because obviously we have to communicate to the customer what’s in the stores. But I would say for the fall, the changes are relatively minor. Deborah Weinswig - Citigroup: Okay, so it sounds like there is still -- with regard to marketing, there is still a significant amount of opportunity with regard to ’09? Karen M. Hoguet: Correct. Deborah Weinswig - Citigroup: Okay, and then on the jewelry side, I was surprised with regard to the strength you called out there because we certainly haven’t seen that really across retail period. Is there anything specifically that Macy's is doing or Bloomingdale’s from a jewelry perspective that is allowing you to see the sales strength that you are there? Karen M. Hoguet: I have to admit I don’t know the answer to that question. I’ll get back to you. Sorry. Deborah Weinswig - Citigroup: That’s all right, and then last question -- two companies I follow, Kroger and Home Depot, both work with dunnhumby and have seen significant wins as a result. Have you A, talked to those retailers, and B, how was the decision made to work with dunnhumby and can you give us any kind of timeline in terms of when you expect to see some benefits as a result? Karen M. Hoguet: I don’t know about a timeline in terms of when we will see benefits but obviously we have spent a great deal of time with them and feel very comfortable that a lot of what they did at Kroger’s and Home Depot -- well, Home Depot is new but Kroger’s and other places has been very important to them in terms of accelerating sales trends and we obviously did all the due diligence you would have expected us to do. Deborah Weinswig - Citigroup: Congratulations. I think it’s a very -- Karen M. Hoguet: Thank you. We’re very excited. Deborah Weinswig - Citigroup: Yeah, no, it will be interesting to see how it all plays out but congratulations.

We’ll go next to Dana Cohen with Banc of America Securities. Dana Cohen - Banc of America Securities: Can you just help us a little bit bridge the gap on the SG&A quarter to quarter? Dollars were down what, $30 million in the first and then flat in the second. With the $60 million you had in hand, I would have expected it to be down. Can you just maybe just walk us through -- is the total reason the two pieces you cited in any order of magnitude on that? And then also, can you just go into a little bit more detail what you are seeing with respect to credit? Karen M. Hoguet: I think, Dana, we had said all along that we had expected SG&A dollars to rise this year in spite of the $60 million, so that’s not news to us. And in fact, we’ve done better than we had expected in the second quarter. So from that perspective it’s hard because based on what you had expected is different than what we had said you should expect. And in terms of credit, we continue to see very high levels of write-offs and delinquencies continuing. We had hoped at this point to begin to see those ratios come down and that has not happened. That’s the bad news. The good news is it doesn’t seem to be getting a lot worse but we would like to start seeing it improve and that’s just not happening. Dana Cohen - Banc of America Securities: Okay, great. Thank you.

We’ll go next to Jeff Stein with Soleil Securities. Jeff Stein - Soleil Securities: Karen, I’m wondering if you might help us a little bit with P&L geography in terms of how a growing dot.com business is going to affect your gross margin and your SG&A? In other words, is the gross margin, which is typically true in a direct business, lower and your selling expense also lower? And how will that affect those two? Karen M. Hoguet: Well, the dot.com business is going to be a very good EBIT performer or rate performer as we go, but it is growing faster, therefore the expense dollars are growing faster. Jeff Stein - Soleil Securities: Are the expense dollars on the distribution side, on the marketing side? Karen M. Hoguet: Yes and yes. Jeff Stein - Soleil Securities: Okay. Karen M. Hoguet: But again, it’s keeping pace with the sales. Jeff Stein - Soleil Securities: Got it. Okay, and can you comment at all on private label sales during the third quarter? Karen M. Hoguet: Second quarter. Jeff Stein - Soleil Securities: Second quarter, I’m sorry. Karen M. Hoguet: That’s all right. Private label sales this year have been mixed. On balance, they have done well but there have been some that have been stronger than others, so I would say mixed performance. Jeff Stein - Soleil Securities: And I’m just curious -- can you call out any specific outlayers, good or bad and why that might be? Karen M. Hoguet: I think it relates primarily to the fact that, as I’ve said, more fashionable products have been doing better, so brands like Charter Club have struggled a little bit more, whereas more fashionable lines like Ink have tended to do better. Jeff Stein - Soleil Securities: Got it. Thank you.

We’ll go next to Steve Kernkraut with Berman Capital. Steve Kernkraut - Berman Capital: Really, it’s two questions, one is philosophical, one’s specific, but philosophically, are you and Terry rethinking the question of giving more specific guidance in terms of earnings and sales on a quarterly basis? And secondly, if you could maybe elaborate on your answer to Adrianne where you said the comment that you had where third quarter is tougher than fourth quarter, that was a sales comment, not an earnings comment. There’s no commentary there in terms of you made $0.10 last year in the third quarter, the street is at $0.02, that that’s reasonable or unreasonable? Karen M. Hoguet: Let me answer your second question -- I’m just not commenting on earnings, so my comment was more on the sales line than it was anything else. The earnings piece you all will have to model. And in terms of your philosophical question, no, at this point we are not reconsidering, and I think frankly it’s too soon to do that anyway. Let’s go through a year and see what we all think. Steve Kernkraut - Berman Capital: Okay. I was -- you said strongly considering. We’ll just have to -- okay, we’ll see at Christmas time. Thanks.

We’ll go next to Liz Dunn with Thomas Weisel Partners. Liz Dunn - Thomas Weisel Partners: Good morning. My question relates to the promotional environment. What are you seeing, what are you feeling about what other retailers are doing? And is that impacting your business at all? And related, what impact do you believe the chapter 11 filings from retailers like Mervyn’s, Goody’s, Boscov’s, will have for you? Do you expect that there is any opportunity for you to capitalize on weakness elsewhere? Karen M. Hoguet: Yeah, in terms of your second question, I really -- I mean, it can’t be bad for us but we do not see a big opportunity coming from that. Liz Dunn - Thomas Weisel Partners: Are you doing anything targeted to sort of address those markets where they are located? Karen M. Hoguet: Well, nothing more than what we would be doing normally, which should take care of the opportunity. And in terms of the promotional environment, this has been a very promotional business for as long as I have been with the company, so I really don’t see that there’s any tremendous increase in promotional activity that is happening. Some retailers have more inventory to clear but they are not necessarily increasing promotions. Frankly, I don’t know how we could, give the calendar already. So I really don’t see that having a big impact on us right now. Liz Dunn - Thomas Weisel Partners: Okay, and then just one more, if I may -- since you’ve suspended the buy-back program, when you get to the fourth quarter, and I know it’s difficult to say, but is there any possibility that you may shift your thinking in terms of capital allocation and think about paying down debt as opposed to buying back stock, or are you just going to sort of continue to be very conservatively positioned with cash until this rocky environment improves? Karen M. Hoguet: I don’t expect us to do anything with cash through the balance of this year. We’ll just keep it on the balance sheet. Liz Dunn - Thomas Weisel Partners: Okay, great. Thanks.

We’ll go next to Robert Drbul with Lehman Brothers. Robert Drbul - Lehman Brothers: Questions on the sales trends; in the second quarter, how did tourism impact your business in the New York area versus the first quarter? And what are you planning for the back half of the year? You mentioned the Northeast was good but maybe you can just give us some insights into how you are thinking about that aspect? Karen M. Hoguet: We have not seen a big change between the first quarter and second quarter and clearly the tourist business is helping us in New York and other major cities across the country. And so we are planning for that to continue. Robert Drbul - Lehman Brothers: And then a couple of questions on the inventory levels -- can you quantify the clearance level of inventory decline year over year? And what was the comp inventory level on a per-store basis at the end of the quarter? Karen M. Hoguet: We don’t disclose comp. It’s a non-GAAP measure, comp inventory, but it’s a little bit higher decline than total. And in terms of the decline of clearance inventories, I don’t have that in front of me right now but it’s double-digits lower. Robert Drbul - Lehman Brothers: And then just one final question -- when you consider the store base that you have heading into this year, are you still comfortable with the total number of stores or do you think that there’s some risk around further store closures as you look into the ’09 -- Karen M. Hoguet: From time to time, there’s been a rumor that we were going to close a large number of stores. I don’t see that happening but as we do every year, we will close poor performing stores, as we’ve done every year that I can remember, but I don’t expect any extraordinary store closing programs or announcements. Robert Drbul - Lehman Brothers: Thank you very much.

We’ll go next to Dana Telsey with Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: Can you talk a little bit about the performance of the national brands, exclusive brands, Tommy Hilfiger’s launch, obviously and is there any other categories you are looking for on the horizon? And also just expectations for the tax rate going forward. Thank you. Karen M. Hoguet: Let me do the easy one first, which is the tax rate -- we are assuming a 37% tax rate for the year, which we still believe to be the case. And quarter to quarter, there will be swings. But for the year, we are still anticipating the 37%. In terms of the exclusive merchandise, we continue to be very excited about that. Tommy is doing extraordinarily well and as you know, it is now going to be exclusive in our stores as well as their specialty stores, and we are expecting that merchandise to be in over 500 Macy's doors this fall, which is up versus about 350 a year ago. And as I said, both the men’s and women’s lines are doing very well and we are very excited about that. Martha too continues to perform very well. We’ve obviously learned a lot in the first year and have tweaked programs and -- as you would expect us to do with any line but we continue to feel very good about the performance of that as well. And as you would expect, I’m not really going to talk about any future possibilities but having these exclusive lines really is important to us. Dana Telsey - Telsey Advisory Group: Thank you.

We’ll go next to Lorraine Maikis with Merrill Lynch. Lorraine Maikis - Merrill Lynch: Just to touch on gross margin for another minute, have you seen any change in the willingness from your vendors to provide markdown support? Karen M. Hoguet: We’ve not seen any change, and these are longstanding partnerships and there has not been a change there. Lorraine Maikis - Merrill Lynch: Okay, and do you still expect CapEx to be $1 billion this year? Karen M. Hoguet: We are hoping and working to bring it down somewhat, perhaps in the 950 range. You know, we’ll see as the year goes on. Lorraine Maikis - Merrill Lynch: Okay. Thank you very much.

We’ll go next to Todd Duvick with Banc of America. Todd Duvick - Banc of America Securities: A quick question for you on the fixed income side -- obviously you pre-financed some notes that are maturing this fall. You are carrying the cash on the balance sheet and leverage according to our estimates is fine at 3.4 times, but both S&P and Moody’s have indicated its leverage goes up to about 4 times, rating pressure will build, and I’m just wondering if, given that you’ve lowered the guidance for the back half of the year, if your operating income and your cash flow declines more than expected, would you consider paying down some of the short-term debt to keep your leverage below four times? Karen M. Hoguet: Well, I think the key point to make is it’s very important to us to maintain our investment grade rating, and so we’ll look at any and everything we could do to make that happen, should there be an issue. Todd Duvick - Banc of America Securities: Right. Okay, that’s great. Thank you very much.

We’ll go next to Michelle Clark with Morgan Stanley. Analyst for Michelle Clark - Morgan Stanley: This is actually [Chili] calling for Michelle. Two follow-up questions on credit -- the first is does your second half outlook imply that credit conditions worsened from here? And secondly, have you seen any changes in the credit utilization rate in stores, 2Q versus 1Q? Karen M. Hoguet: Actually not. The proprietary penetration or the use of our cards has gone up an equal amount versus a year ago in both quarters, so people are continuing to use our card in the stores, and we are not looking for deterioration but we are certainly not looking for improvement at this point. Analyst for Michelle Clark - Morgan Stanley: Okay. Thank you.

We’ll go next to Michael Exstein with Credit Suisse. Michael Exstein - Credit Suisse: Good morning, Karen. Two quick questions; number one, can you give us an idea what the store comps were versus the total corporate comp ex e-commerce? And secondly, at the time you announced the My Macy's initiative, you talked about $150 million worth of charges in total between the charges for obsolete brands, May brands, and what you have done so far for My Macy's, you are above that number. Where do you think the charges -- Karen M. Hoguet: Well Michael, the 150 related to the division consolidation expense. We are still expecting that. The asset impairment was obviously something separate and a part that we hadn’t planned for, so that’s not part of the division consolidation expense. It had nothing to do with My Macy's. So we are still tracking the 150 for that, and then in addition there’s the $50 million non-cash asset impairment charge. Michael Exstein - Credit Suisse: So the total charge for the year will be about $200 million? Karen M. Hoguet: If you put those two together, yes. Michael Exstein - Credit Suisse: And then in terms of the actual brands themselves, are you going to flush that inventory through the system? Karen M. Hoguet: We still have the brands. We’re not discontinuing the brands. We’re still expecting them to sort of be a part of our moderate offering in both men’s and women’s. It’s just that the volume projections are less than what we had anticipated. So we’re not discontinuing the brands. Michael Exstein - Credit Suisse: But are you going to de-emphasize the brands? Karen M. Hoguet: No, not at all. Michael Exstein - Credit Suisse: Okay. And then in terms of the -- what are the retail store comps versus -- Karen M. Hoguet: I’m sorry; you know, the truth is you really can’t separate it out because returns from the Internet come back to the store. That’s why we don’t break it out. It’s just hard to do, so I can’t give you an answer to that. Michael Exstein - Credit Suisse: But you’ve had significant growth in the Internet. Karen M. Hoguet: We have -- we have but it’s still a small piece of the business. Michael Exstein - Credit Suisse: But you’ve talked publicly about it being a billion dollar business next year? Karen M. Hoguet: And we still expect that to happen, [except that it’s this year]. Michael Exstein - Credit Suisse: Okay. Very good. Thank you.

(Operator Instructions) We’ll go next to Uta Werner with Sanford Bernstein. Uta Werner - Sanford Bernstein: I was wondering if you can tell us a little bit about any possible differences in performance between May legacy and Macy's legacy stores. Karen M. Hoguet: We don’t even track that anymore, Uta, sorry. Uta Werner - Sanford Bernstein: Good. Karen M. Hoguet: Yes, no -- I mean, the good news is, as I’ve said for the last six months or so, the gap narrowed to the point where it was not really a subject that we needed to track or discuss. Uta Werner - Sanford Bernstein: Okay. The second question is I was reading in the footnotes that LIFO charges were not really relevant, I guess, for the first half of the year. Should I imply from that that you have not experienced any inflation in your merchandise? Karen M. Hoguet: Assuming the inflation -- we have not and we don’t expect to this fall, let me start there. But if the inflation that we begin to experience next year is within the range of what anybody is anticipating, we don’t expect to have a LIFO charge next year as well. Uta Werner - Sanford Bernstein: Okay, good. Another question related to cash flow here -- I saw the charges, the flow in from hurricane insurance as well as disposition of property. Does that flow through your income statement anywhere or is it just a cash flow item? Karen M. Hoguet: That’s cash. Uta Werner - Sanford Bernstein: Okay, so it wouldn’t be anywhere as an offset anywhere else? Karen M. Hoguet: Well, when you dispose of a property to the degree that there is a difference between book value and proceeds, you know, it would be a small item but not the total amount. Uta Werner - Sanford Bernstein: All right. I just wanted to make sure. And last question is when you provided the guidance initially of 185 to 215, were you already anticipating that the first and the second quarter together were going to be $0.30? Or were you surprised by the first and second quarter together, relative to that guidance you provided? Karen M. Hoguet: We didn’t give guidance by quarter so I can’t comment on that. Uta Werner - Sanford Bernstein: This is just I looked at for the third and fourth quarter what in combination you seem to be expecting, it’s $1.40 to $1.55, relative to what it was before, $1.55 to $1.85. That’s quite a decline. Karen M. Hoguet: How people choose to allocate by quarter I really can’t comment on. Uta Werner - Sanford Bernstein: Okay. Fair enough, thanks very much.

(Operator Instructions) We’ll go next to David Glick with Buckingham Research. David Glick - Buckingham Research Group: A question on the home and the ready-to-wear businesses; home has been a relative tailwind for you guys over the last year, particularly in big ticket. And I was just curious, as you lap some of that success, you had I think a big event beginning in mid-July, whether you are still continuing to see that momentum in home. And then conversely, in ready-to-wear, which has been somewhat of a challenge and potentially an opportunity, whether you see any prospects for improvement there and whether you are counting on some improvements in your minus 1 to flat comp guidance for the second half. Karen M. Hoguet: Well, in terms of big ticket home, as I said mattresses has continued to be a strong business. Furniture as we year-round is having a little more difficulty but mattresses has continued strong. I think it’s too early to really judge on furniture and we’ll be able to talk about it more as we get through the third quarter. On the apparel side, unfortunately in total we still are not seeing strength there, although there are components of ready-to-wear, as you would expect, that are doing well -- denim is doing well, the skinny jeans, vests, knit tops -- I mean, there are good things. The tunic length silhouette is doing well, dresses has improved, so I don’t want to say that all of ready-to-wear is not performing well but in total, we still are not seeing the numbers we would like to at that part of the business. David Glick - Buckingham Research Group: Are you counting on that improvement for fall or do you have the business projected similar to how you have been running? Karen M. Hoguet: As we go through the third quarter, we are not expecting much improvement there, other than in the opportunity areas we’ve talked about. And as we get to fourth quarter, again we think some of the holiday buys will be very good but not expecting a dramatic turnaround in total. I hope it happens and we’ll see what goes from there. David Glick - Buckingham Research Group: Thanks a lot and good luck.

We’ll go next to Wayne Hood with BMO Capital. Wayne Hood - BMO Capital Markets: I just wanted to come back a second to the spring selling season -- for modeling purposes, would it be -- should we be thinking about the buyers are buying to current trend, which is down, which you implied as conservatively for the spring selling season? Or is it just too early in that process for them to make that judgment? Karen M. Hoguet: No, the buyers are out there buying to a number that we’ve discussed with them. It is too early to discuss it with you, however, because until we get a plan, I just don’t think it’s -- I think it’s data that won’t be helpful. Wayne Hood - BMO Capital Markets: Right. I guess if you assume the current trend persists for a while and you roll in the My Macy's benefits, how much do you think you can take the number of weeks applied down next year, assuming let’s say comps are flat or whatever number you want to use? Is there a number of weeks supply you could take out of the inventory and its impact on cash flow? Can you speak to that? Karen M. Hoguet: Right now, I don’t think that’s going to be a big part of My Macy's. We’ve done that already in the replenishment businesses, so again, turnover will be what it will be our weeks of supply. Right now we are just focused on making sure we bring in the right receipt levels to drive the business. Wayne Hood - BMO Capital Markets: My final question, the good news about dunnhumby is they are there; the bad news is companies typically will come out six months later and say we have all these consulting expenses that are showing up. Are we going to get into ’09 and we might be thinking about something like that? Karen M. Hoguet: No. Wayne Hood - BMO Capital Markets: So there’s no incremental expense? Karen M. Hoguet: Correct. We’re funding it from within our marketing budget. Wayne Hood - BMO Capital Markets: Great. Thank you, Karen.

Having no other questions, I would like to turn the call back to Ms. Hoguet for any additional or closing comments. Karen M. Hoguet: Great, well thank you all very much and if you have more questions, obviously you can call Susan or me, and take care and have a good day. Thanks.

That does conclude today’s call. Again, thank you for your participation and have a good day.