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

Robert Drbul - Barclays Capital Charles Grom - J.P. Morgan Bernard Sosnick - Gilford Securities Adrianne Shapira - Goldman Sachs Lorraine Hutchinson - Banc of America Securities Jeff Stein - Soleil Securities Wayne Hood - BMO Capital Markets Dana Telsey - Telsey Advisory Group Virginia Tremblay - J.P. Morgan Lance Vitanza – Knighthead Capital Deborah Weinswig - Citigroup Mike Schrekis - Wallmaker Meredith Cantente - Broadpoint Capital David Glick - Buckingham Research Group

Good morning and welcome to today’s Macy’s conference call. Today’s call is being recorded. I would now like to turn the call over to your host, Ms. Karen Hoguet. Please go ahead, Madam. Karen M. Hoguet: Thank you. Good morning and welcome to the Macy's conference call scheduled to discuss our second quarter earnings. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes. Please refer to the investor relations section of our website for 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. This morning I am going to first take you through the key components of our second quarter performance and then I will discuss our outlook for the back half of the year. After that, I will open the call for your questions. Sales in the second quarter were $5.164 billion, down 9.7% versus last year. On a comp store basis, sales were down 9.5%, which is consistent with our annual guidance of minus 6 to minus 8. While we all wish the economic environment was stronger, we feel very good about our performance relative to our peers in the second quarter. What we are particularly pleased about is the fact that the sales in the pilot My Macy's districts, which are those that had My Macy's implemented a year ago, continue to outperform the rest of our stores and in fact the out performance accelerated in the second quarter. For the spring season as a whole, the My Macy's districts in total outperformed the remaining stores by 2.6 percentage points and in the first half of the year, eight of the top 10 districts were My Macy's pilot markets, with the remaining two being the Houston, Louisiana area. Remember that it is going to become less meaningful to compare the pilot districts to the legacy stores going forward, since we have now implemented My Macy's everywhere. And as important as the numbers are, we are as excited about the level of enthusiasm we are hearing from the field. There are so many great ideas being generated to help meet the needs of our customers. This local feedback, combined with the energy in the stores coming from their feeling empowered is absolutely terrific. In the quarter, our sales were strongest in moderate apparel, both men’s and women’s, housewares, cosmetics, and kids. Our business was also very strong in our private brands and our exclusive brands, Tommy Hilfiger and Martha Stewart. We are also very excited by the early selling of our newest exclusive line, Rachel by Rachel Roy. We expect this line to be very successful, helping us to drive business with the young contemporary customer. The weakest families of business in the quarter were furniture, mattresses, and handbags. Geographically our best performance was in the Midwest and in Texas and the weakest performance was in California and the Southeast. Our sales at Bloomingdales improved in the second quarter relative to the first quarter but were still below that of Macy's. Our online sales continued strong at plus 9.4%, as we continued to develop a more integrated store and website strategy at both Macy's and Bloomingdales. The gross margin rate in the second quarter was 41.5%, which was flat with last year. Given the promotional environment and continued weak economic climate, we feel good about that performance. We ended the quarter with inventory down 7.5%. We have been able to balance the need to reduce our inventories in relations to the sales trends while still flowing fresh merchandise into the stores. And with our inventories down 7.5% and our comp sales projected down 5% to 6% for the back half of the year, we are in very good shape to be able to offer the customer new assortments. SG&A in the second quarter was $1.861 billion, down $176 million or 8.6% versus last year. As a percent to sales, SG&A was 36%, up 40 basis points from a year ago. This was better than we expected. We were able to achieve some of the consolidation savings earlier than we had anticipated. We also shifted some advertising expense into the fourth quarter which helped the second quarter. Versus last year, our SG&A performance in the quarter was helped most by the impact of the division consolidation. But in addition, we have lower workers’ comp and general liability insurance expense, lower selling costs as a result of the lower sales, and as mentioned lower advertising expense. These favorable variances were partially offset by higher stock-based compensation expense, higher medical insurance costs, and lower credit income. Operating income excluding division consolidation costs was $282 million versus $335 million a year ago. Interest expense was essentially flat to last year at $139 million. Excluding the division consolidation related costs, tax expense in the second quarter was $59 million, or approximately 41%. As you know, our tax rate will vary quarter to quarter due to settlements, discrete items, and the required spreading of reserves based on profit forecasts for the balance of the year. As I will discuss in a few minutes, we are actually now expecting a tax rate for the year to be below our previously expected 37%. Diluted earnings per share excluding division consolidation costs was $0.20 in the quarter as compared to $0.29 last year. This was better than we had expected. In the quarter we booked $34 million of division consolidation costs and including division consolidation costs, our diluted earnings for the second quarter was $0.02 per share, as compared to $0.17 last year. The seemingly odd tax impact of the one-time costs in the second quarter results from the need to allocate the tax reserve based on our annual forecast of pretax income and the fluctuation that is created by the one-time costs. These fluctuations are not nearly as dramatic excluding the consolidation costs. And for the year as a whole, the tax impact will be as you would expect. Cash flow year-to-date has also been stronger than expected. Cash provided by operating activities net of investing activities was $254 million this year as compared to $280 million a year ago. The lower capital spending almost offset the entire impact of lower cash from operating activities resulting from the lower sales. And as a result of this cash flow being so strong, we have not yet borrowed on our working capital facility even after having paid down $950 million in debt this spring. So given the very challenging economic environment and the fact that we are in the midst of a major transformation, I would say it was a very encouraging quarter for Macy's. Our new central team is working very hard to execute effectively while they get acclimated to their new positions. We are experiencing very little, if any, disruption to the business which is a real tribute to our organization and to our vendor partners. Our senior team is so proud of how our people have responded to all the change. We talk a lot in the company about attitude and our people have clearly demonstrated 10-plus attitudes this spring, with 10 being the highest score. We are also so pleased with the energy being exhibited by our field team now operating under the My Macy's structure. As we head into the fall season, and especially the critical fourth quarter, we are therefore feeling cautiously optimistic that we can begin to make some progress on the top line in spite of the expected continued economic weakness. So let’s talk for a minute about the fall -- the short answer is that we are on track to achieve fall sales and operating income as we had originally planned it. We have performed better in spring, largely because we have achieved consolidation savings sooner. Given our drop of 9.3% in the spring, many of you have asked if we expect to maintain our annual guidance of minus 6 to minus 8, and as you saw in our press release this morning, we are actually narrowing the range to minus 7 to minus 7.5%. What this means is for the fall, we are assuming comp store sales to decline approximately minus 5% to minus 6% and given last year’s 6.6% comp store sales decline, we believe this to be reasonable and on a two-year basis, the spring is about what we are projecting for the fall. We are assuming an increase in gross margin rate for the fall season, driven by our fourth quarter expectations. SG&A is assumed to be down slightly in dollars for the back half of the year. This is less favorable than the year-over-year comparisons in the first half of the year in part due to the fact that we have shifted some of the advertising dollars into the fourth quarter, as I mentioned a minute ago, and also we have decided to invest in selling expense in the fourth quarter. Also the better sales expectations relative to a year ago will result in more expense dollars and last year, we benefited from insurance proceeds from Hurricane Ike and the reduction of bonus accruals, as we discussed with you last year. Stock-based compensation costs are also projected to increase year over year. Interest expense is still assumed to be approximately flat for the year, which means it will be slightly below last year in the fall season. And tax expense in the fall is expected to benefit by approximately $10 million due to the realization of solar credits and the earlier than anticipated settlements of state tax examinations. As a result, we now expect our effective tax rate for the full year to be just under 35.5%. As a result of the better-than-expected results in the first half of the year and this tax benefit, we are raising our annual diluted EPS excluding consolidation plus guidance from the $0.40 to $0.55 we had given you earlier in the year to $0.70 to $0.80 per share. We are still anticipating CapEx of $450 million for the year and a total pension contribution of $295 million to $370 million. This includes quarterly contributions totaling approximately $120 million. We had thought we would need to contribute the additional $175 million to $250 million by September 15th in order to be 80% funded. We are still finalizing our estimate of this contribution but we are now expecting it to be only approximately $60 million to $75 million. We are therefore planning to make this contribution, the $60 million to $75 million, before September 15th and then we plan to make an additional contribution late in the year after we have more visibility into the fourth quarter sales. So for your annual models, I would still assume the $295 million to $370 million for the year but the only -- but we may if the business doesn’t materialize, which of course none of us are expecting, we may not make that second contribution later in the year. But for now, I would assume that we are going to make that contribution. We are still expecting total one-time costs to be $400 million but we are now anticipating that the cash portion will come in lower by approximately $50 million to $75 million. So all in all, on an unchanged sales expectation for the year, we are now expecting higher earnings and higher cash flow for the year than we expected and that’s a good place to stop and I will now take your questions.

(Operator Instructions) We’ll take our first question from Robert Drbul with Barclays Capital. Robert Drbul - Barclays Capital: Good morning, Karen. I just have a couple of quick questions -- first, can you elaborate a little bit more on Bloomingdale’s and maybe some of the New York City market and some tourism markets that are impacted and sort of how they are playing out within your sales trends? Karen M. Hoguet: Yeah, I mean, in terms of Bloomingdale’s, their performance has been less favorable than Macy’s but they did improve in the second quarter relative to the first quarter, and they continue to perform very well versus the other upscale retailers that you all track. In terms of the tourist markets in New York, they have done a little bit better in the second quarter, and particularly Harold Square has had a great trend in the last couple of weeks. Robert Drbul - Barclays Capital: Okay, great. And when you look at the sales expectations for the rest of the year, is it fair to say that when you look at the two-year run-rate, you are looking for over 100 basis point improvement in the back half -- is that how you are looking at the business in terms of the comparisons versus actually the terms that we are seeing right now? Karen M. Hoguet: On a two-year basis, the spring season was down 5.8%, so at minus 5% to minus 6% on a two-year basis, it would be minus 5.8% to minus 6% rate. Robert Drbul - Barclays Capital: Got it. Karen M. Hoguet: So with the better end of our guidance, it would be flat with this spring and at the lower end of our guidance, it would be slightly down on a two-year basis. Robert Drbul - Barclays Capital: Okay, great. Thank you very much, Karen. Good luck.

Our next question comes from Charles Grom with J.P. Morgan. Charles Grom - J.P. Morgan: Good morning, Karen. Can you just quantify that ad shift that went into the fourth quarter out of 2Q and also remind us what the benefit was from Hurricane Ike -- I am sure I can go into your K, but -- Karen M. Hoguet: Actually, we are not disclosing any of those numbers. It’s really not material in total but it does impact the SG&A comparisons. Charles Grom - J.P. Morgan: Okay, so it’s not material? Karen M. Hoguet: Correct. Charles Grom - J.P. Morgan: And then on the FIN-48 issue that we had here in 2Q, it’s my understanding that given that you are going to probably have an operating loss in the third quarter that we are probably going to see this issue again in the third quarter or the fourth quarter. Is that a fair assessment? Karen M. Hoguet: Yes. Charles Grom - J.P. Morgan: Yes? Okay. Karen M. Hoguet: But again, that only impacts the earnings including the division consolidation costs. Most of your models are done excluding the consolidation costs, so it’s much less of an issue there. Charles Grom - J.P. Morgan: Yes, no, I just want to make sure we model the charge properly in the back half. My last question would be when you look at the 2Q comps on a two-year stack basis, if you add them, you are about down 11.6, which is pretty commensurate with the first quarter, yet you are getting the benefit in the first half of the year from the first 20 divisions last year that you rolled out under My Macy's and I’m just wondering, that essentially implies the other 40 divisions got worse, or maybe Bloomingdales was a little bit worse of a trend. I am just wondering if you can kind of flush why the trend isn’t improving, given that the directionally the My Macy's is getting better. Karen M. Hoguet: Well again, it was only about 20% of the company so I’m not sure it could have as big an impact and excluding Bloomingdales, I think the Macy's trend did get a little bit better. Charles Grom - J.P. Morgan: On a two-year basis? Karen M. Hoguet: On a two-year basis. Charles Grom - J.P. Morgan: Okay. All right, thanks very much.

Our next question comes from Bernard Sosnick with Gilford Securities. Bernard Sosnick - Gilford Securities: Thank you. Good morning. Terry had said a while ago that the objective of advertising was to get as good in terms of image projection as Target is and the best of the industry. Could we expect to see the development as early as the fourth quarter? Karen M. Hoguet: Development -- I’m not sure I understand. Bernard Sosnick - Gilford Securities: In terms of image projection -- Karen M. Hoguet: Yeah, we have been working hard at building the national brand of Macy's. Remember it wasn’t that long ago that we converted all of the individual store names to Macy's. We’ve had some fabulous feedback on our branding campaigns and there will be another two great ones as we head into the fall, so we continue to put a focus on that. Bernard Sosnick - Gilford Securities: And secondly, dunnhumby, is there anything that you could report to us with respect to their recommendations or what we might be seeing? Karen M. Hoguet: No, you know, when we signed up with them, they told us and we told you it would be 18 months before we would have a lot to talk about. We are hoping this fall to begin testing some things with them. The early discussions we are having based on the data that they are pulling are spectacular but it’s really too early to talk about. Bernard Sosnick - Gilford Securities: And finally, could you give us one or two examples of the exciting feedback that you’ve gotten from the field that might have influenced decisions centrally? Karen M. Hoguet: Yeah, I mean, one example that I’ve heard about recently related to women’s shoes in size 11, which was a request that came up from the stores. And we are finding there’s actually a huge demand for size 11 shoes and we are merchandising it differently on the floor, so not only having the size 11s but showing them to the customer and stocking them in the stockroom in a way that it makes it easy for an associate to help. And as a result, where we have done this, we are seeing in some cases double-digit pairs of shoes bought at a given time when they can find their size. Bernard Sosnick - Gilford Securities: Well that’s great -- so you are saying that not only is it a merchandising decision but it’s a method of improving the execution at the store level all the way through? Karen M. Hoguet: Absolutely. Bernard Sosnick - Gilford Securities: Great. Thank you very much. Karen M. Hoguet: And what’s helpful is because so many of these ideas come from the field, they are obviously going to take ownership in making sure that they do well both in terms of selling and presentation in the stores, so that’s [inaudible]. Bernard Sosnick - Gilford Securities: Great. Thank you.

Our next question comes from Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs: Just a few questions, first on SG&A -- it sounds as if the pull forward continues -- perhaps give us a sense of how much, where it’s coming from, and then help us think about as you do pull forward, how we should think about opportunities in 2010? Karen M. Hoguet: Well, I think the key is that in the first half of the year, we did achieve more savings than we had anticipated. The benefits from the consolidation came on quicker than we had thought and that’s all good news. What we are trying to do now is assess did we get more of the $400 million this year or is the $400 million next year going to be higher? I think at this point we would tell you we’ve gotten more of the $400 million of annual expected savings earlier and not that it will be more than $400 million but we are looking for opportunities. One of the I think good news surprises that has come from the consolidation though is just how much opportunity there is in executing best practices. So I am hopeful that we will find more savings than the $400 million but at this point, I would not count on it. Adrianne Shapira - Goldman Sachs: Okay and so more within the same areas of opportunity -- it’s not as if we are let’s say going more into incremental sources of opportunity, it’s just what you’ve identified? Karen M. Hoguet: No because the original consolidation estimates touch every aspect of the company. Adrianne Shapira - Goldman Sachs: Okay, great. And then the second as it relates to gross margin, understanding that the spring was better due to the better SG&A but help us think about gross margin a little bit better in Q2 versus Q1, what the drivers were, IMU versus merchandise margin and how we should think about the fourth quarter as you are up against obviously a much easier comparison with much cleaner inventories? Karen M. Hoguet: One of the reasons Q2 would have done better is if the inventories were more in line with sales. Remember that when we bought the first quarter, it was last fall before the sales really deteriorated as far as they had, so it’s taken us a while to get the inventory levels back in synch with sales, which benefited us in the second quarter relative to the first. Obviously that should help us as we go through the fall season, particularly as you said in the fourth quarter. Having said that, this remains a very promotional environment and so we’ll have to see what happens on the margin line. Adrianne Shapira - Goldman Sachs: But as everyone seems to be getting their act together on the inventory side, just comment on the degree of discounting -- any more or less than you would have thought at this point? Karen M. Hoguet: I would say it’s as expected. Adrianne Shapira - Goldman Sachs: Okay, and then just the last -- you know, you call out moderate as being strong across men’s and women’s. We’ve definitely seen the [EVV] program proliferate in the stores. Could you talk about the success there? Is that really what is helping drive that category? And then also maybe talk about any signs on better, any signs of stabilization there? Thanks. Karen M. Hoguet: First off, EVV crosses both moderate and [some in better], so it’s not all necessarily moderate. And the EVV program is doing well, as is moderate though. And part of it is through My Macy's, we have found opportunities to put moderate in places where we hadn’t had it before and it’s doing quite well. Now in terms of better, as I mentioned earlier in the call, one of the highlights right now is the Rachel by Rachel Roy launch, which will be in over 80 stores this fall and a lot more than that next spring. And as I had said, it is exclusive to Macy's and we are really very excited by that. Adrianne Shapira - Goldman Sachs: Great, and then just on the EVV, where are you now in terms of percent sales and where you would like to take that to? Karen M. Hoguet: I don’t have that for the spring. It’s around 6% of the store. And we don’t really have a target per se. We do look at it business by business but where we see a natural opportunity, you know, we employed EVV. Adrianne Shapira - Goldman Sachs: Great. Thank you.

Our next question comes from Lorraine Hutchinson with Banc of America. Lorraine Hutchinson - Banc of America Securities: Thank you. Good morning, Karen. Cash flow has been coming in a little bit better than expectations and I was just curious about priorities for cash flow -- I mean, will you try to pay down some of the debt? Are there CapEx projects that you may want to bring forward a little bit? How do you plan to use that cash? Karen M. Hoguet: Well, the cash that we are generating above what we had expected this year will all go to pay down debt in the future. When that happens depends on when the debt matures because we don’t have a big maturity next year but we are going to use the cash for that. Now, if the environment improves and we feel better about the sales trends in 2010 as we hope to do, the CapEx will go up from the $450 million level of this year but nowhere close to the $1 billion expectation we had had for annual CapEx in the past. I don’t think we’ll get back to that level. I think it will end up more in the $800 million level at some point but not in 2010 in any case. Lorraine Hutchinson - Banc of America Securities: Thank you.

Our next question comes from Jeff Stein with Soleil Securities. Jeff Stein - Soleil Securities: Karen, back to a question on SG&A -- an earlier caller asked about how much was pulled forward and I didn’t quite get that. I am wondering if you could just tell us roughly how much you think you may have accelerated beyond the $250 million of cost savings that you had originally expected to see this year? Karen M. Hoguet: I really can't give you that number, Jeff. I don’t know exactly what it would be. Jeff Stein - Soleil Securities: Okay. Can you talk for a moment about why you think sales are going to begin to get a little bit better in the back half of the year? Is there something about the early reads that you are getting from the new organizational structure that inspired perhaps more conviction in a narrower range or maybe just elaborate on that a little bit? Karen M. Hoguet: Well the guidance we’ve given is for essentially flat sales trends year over year between Spring and Fall on a two-year basis. So our guidance is not anticipating any enormous improvement. I did say that I am cautiously optimistic that we will start to get some benefit from the My Macy's rollout in the fourth quarter, as we did in the test 20 districts last year. But that remains to be seen and obviously a lot depends on the economic environment which I don’t think any of us can predict at this point. Jeff Stein - Soleil Securities: Okay. Thank you.

Our next question comes from Wayne Hood with BMO Capital. Wayne Hood - BMO Capital Markets: Karen, I just have a question related to the credit agreement that you have -- can you -- you probably don’t want to quantify but is the drag from the incentive income that comes back to you from that agreement, is the drag from that become less or is it pretty much stable in the second quarter? And when does that agreement expire? And the reason I asked that question, if and when it does expire you entered into that agreement when the environment was much different and the change in the environment would naturally cause someone to think that it would be less favorable to you once that agreement is renegotiated. Karen M. Hoguet: It’s not until 2016, so by then, I have a feeling the environment will change back, but we’ll see. Wayne Hood - BMO Capital Markets: So there’s no clauses in there that would cause them to come back in and renegotiate? Karen M. Hoguet: There’s no clauses that would cause them to renegotiate. Obviously to the degree that they are not happy with something, they will try but there is -- the contract is there until then. Wayne Hood - BMO Capital Markets: Okay. Can you also speak, because we are all interested, in has there been some stabilization in delinquencies and defaults in that portfolio as we enter the fourth quarter so that they would be willing to lend against the card to help sales, or no? Karen M. Hoguet: Yeah, I mean, it’s a complicated question. There has been some stability and we have taken some risk mitigation actions, as you would expect us to have done. But it does feel like it’s not getting worse. It would be hard to tell you it is getting better at this point but it does feel more stable. Wayne Hood - BMO Capital Markets: Okay, and my last question relates to the second quarter gross margin rate -- that looked like a record rate and not to get the cart before the horse, but as we get into next year’s second quarter, do you really think you are going to be able to cycle against such a high rate or do you think you are going to be able to take that even to another higher level? Karen M. Hoguet: Go back a couple of years in history -- you’ll see that is not as high as you think it is. Last year it went up a point but the year before it had been very low. Wayne Hood - BMO Capital Markets: Even with the May acquisition, I mean, holding those in -- Karen M. Hoguet: Yeah, no, I mean, the May acquisition shouldn’t impact that. Wayne Hood - BMO Capital Markets: Okay, great. Thank you, Karen.

Our next question comes from Dana Telsey with Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: Good morning, Karen. Can you talk a little bit about inventory expectations for the second half, how you are thinking about it? And any update on the new planning and allocation systems that you are putting in place and potential impact on margins, what are you seeing there? Thank you. Karen M. Hoguet: We are planning inventory to end the year consistent with our fall sales, where they expect to end. And obviously as we see more in the sales trends in September and October and we do more planning for 2010, we could refine that. And then in terms of the allocation system, what we call A3 and Affinity, we do think that over time they will help us improve margins. I don’t see that as a fall 2009 opportunity because the systems are still new. They were rolled out prior to the My Macy's change but not much before, so our merchants and planners are busy trying to utilize the features of the system and I think it will take a while before we get that full benefit. Dana Telsey - Telsey Advisory Group: Thank you.

Our next question comes from Virginia [Tremblay] with J.P. Morgan. Virginia Tremblay - J.P. Morgan: Thanks, Karen -- a follow-on to the question earlier about priorities for cash flow. And just curious, I know you don’t have a lot of debt coming due next year, a little bit more due in 2011 and then more in 2012 -- just wondering at this point, given that the capital markets have eased and opened up a little bit, I mean, has there been any contemplation that you might pre-fund some of those larger maturities that are coming up in a couple of years? Karen M. Hoguet: We could at some point and obviously we watch the markets. I mean, the key is though we really at this point do want to reduce debt levels so as we get closer to those bigger maturities, the refinancing becomes more of an issue but short-term, the intent is to reduce debt. Virginia Tremblay - J.P. Morgan: Okay, but any thought that -- I mean, given the window we are in now, we don’t know what the markets will be like say a year from now or -- Karen M. Hoguet: Well, it’s really two years from now, again because of the slight maturities next year, it’s less of an issue but -- and we’re hoping by then our rating improves but again, we do watch it closely and that could change. Virginia Tremblay - J.P. Morgan: Okay, great. Thank you.

Our next question comes from Lance Vitanza with Knighthead. Lance Vitanza – Knighthead Capital: Thanks for taking the call. I missed it earlier but could you just explain again the reason for the reduced September pension contribution? Karen M. Hoguet: Yes, as the [inaudible] refined the estimates, it came down significantly. Lance Vitanza – Knighthead Capital: Okay, so just a refining of the estimate? Karen M. Hoguet: Yeah, we had said we wanted to make a contribution to get us to 80% funded as of 1/1/09, so as they worked on the estimate, and I suspect it was harder for them to make the estimate, given all of the people reductions that have happened over the last year, I have a feeling that’s why there was movement in the estimate. But as a result, it came down significantly. Lance Vitanza – Knighthead Capital: Okay, and the other question I have is it possible to quantify the impact of the lower tax rate on the increase in the ’09 guidance? Karen M. Hoguet: Yes. I haven’t done it -- I mean, but it’s really just a $10 million tax benefit. Lance Vitanza – Knighthead Capital: Okay, very good. Thank you.

(Operator Instructions) Our next question comes from Deborah Weinswig with Citigroup. Deborah Weinswig - Citigroup: Good morning, Karen. So lots of questions, I’ll keep it brief -- with your gross margin performance and inventories in great shape, are you flowing goods differently or what’s really changed there? Karen M. Hoguet: Well, I think -- I wouldn’t say that we are flowing goods differently. Obviously as we got the inventory level down consistent with sales, that helped. And it is flat with a year ago so I wouldn’t say the gross margin performance was as strong as what you are saying. Deborah Weinswig - Citigroup: Okay, it just seems that since -- between the first quarter and the second quarter, especially the difficult compare versus a year ago, that it was a good performance in the quarter. Karen M. Hoguet: And we feel great about it and again, our merchants are working very hard in this new environment to grow sales and at the same time, produce good margins. Deborah Weinswig - Citigroup: Okay, and then with the 20 pilot districts increasing their out performance this quarter, do you think this is being driven by the learning curve from the Macy's buyers or vendors or both or what do you think is really driving that? Karen M. Hoguet: I think it’s driven by a combination of things. It’s the district planners having more time in their jobs, also having more time to get the assortment changes made. You know, remember they’ve only been in place for about a year and in some categories of goods, there’s a longer lead time so I think they are being more effective in their requests. They are able to get the inventory from the vendors. The vendors are learning how better to partner with us. The stores are better equipped to merchandise the requests better -- I mean, it’s just all of those things that are all happening together and it just takes time. Deborah Weinswig - Citigroup: Okay, and then can you talk about the morale in the stores as a result of the My Macy's rollout? And do you believe the sales associates feel an increased sense of empowerment? And maybe what are the differences between the original 20 pilot districts and the rests of the stores? Karen M. Hoguet: I think the morale in the stores is really very good. I think that they feel as if they are being listened to and they are very encouraged by the changes happening. Deborah Weinswig - Citigroup: And then can you talk about how your relationships with the vendors have evolved as a result of My Macy's and obviously you are continuing to roll out new exclusives -- how should we just think about how things have evolved? Karen M. Hoguet: I would say one of the benefits of the division elimination that at least I had underestimated was the benefit we are getting from how we can now collaborate with vendors. The New York location of the central organization has allowed us to be with the vendors day-in, day-out on a very informal basis and that increased level of partnership has just been terrific. So I think that’s a benefit -- yes, [it comes], frankly, but I feel really good about that. Deborah Weinswig - Citigroup: Great. Well, thanks so much for the color and best of luck.

Our next question comes from Mike Schrekis with Wallmaker. Mike Schrekis - Wallmaker: Yes, I was just wondering -- could you just go back over your assumptions for SG&A for the back half? Are you saying that you think SG&A is going to be flat on a year-over-year basis? Karen M. Hoguet: No, what I said was that it is assumed to be down slightly in dollars, so that’s less favorable then the year-over-year comparisons we’ve seen in the spring and part of that is because the sales expectations are higher in the fall. We’ve also decided to invest in advertising and selling expense, stock-based compensation costs are going to be higher year over year, and last year we benefited from insurance proceeds from Hurricane Ike and the reduction of bonus accruals. Mike Schrekis - Wallmaker: Sure. How much was the insurance and the bonus accruals last year? Karen M. Hoguet: We’ve not given that detail. Mike Schrekis - Wallmaker: Okay. And then how much of the pension contribution do you still have to make this year? Karen M. Hoguet: Well, have to make -- I mean, truly required -- is $120 million of quarterly payments that we have been making. Mike Schrekis - Wallmaker: Right. Karen M. Hoguet: Want to make was the additional $60 million to $75 million that we are going to make before September 15th, take the plan to being 80% funded and then the want to make would be the additional that we may make at the end of the year, assuming the business holds up and the cash flow continues strong. And that would really just be pre-funding the requirement that we’d have to make in 2010 anyway. Mike Schrekis - Wallmaker: Okay, and so you -- out of that 120, you’ve already made 60, I assume, correct? Karen M. Hoguet: That’s correct -- roughly. Mike Schrekis - Wallmaker: Okay, and then the annual contribution or what you will make, it sounds like that won't be made until the fourth quarter, whatever you decide to contribute? Karen M. Hoguet: So the 60 to 75 will be made before September 15th. Mike Schrekis - Wallmaker: Okay. Karen M. Hoguet: And then the additional will be made post peak borrowing and after we see how the fourth quarter is materializing. Mike Schrekis - Wallmaker: Okay, and then will you be revisiting any kind of view on dividend or share repurchases anytime soon? Karen M. Hoguet: Not in the immediate future. I mean, again on the stock buy-back, we’ve said that the excess cash is going to go to reducing debt. Mike Schrekis - Wallmaker: Beyond what’s coming due? Karen M. Hoguet: No, well, what’s coming due or if there is an opportunity to tender or what have you but not to buy back stock. Mike Schrekis - Wallmaker: Okay. All right, and just wondering -- okay, no, that’s good. Thank you.

Our next question comes from Meredith [Cantente] with Broadpoint Capital. Meredith Cantente - Broadpoint Capital: You mentioned quickly about having better ratings before maybe accessing the market -- do you have maybe a timeframe to get back to investment grade ratings? Karen M. Hoguet: No, because as you know, I can't control that. We are doing everything we can that makes sense for the company to get back to being investment grade. Some of that depends on what happens with the economy and the sales trend. Some of that obviously depends on the cash flow but we are doing what we can and again, I don’t know what that timeframe will be. Meredith Cantente - Broadpoint Capital: Okay. Thank you.

Our next question comes from David Glick with Buckingham Research Group. David Glick - Buckingham Research Group: Good morning, Karen. Just a follow-up on that topic of the benefits of the consolidation and centralization, it sounds like it’s leading to faster decision making. I’m just wondering how this will impact the pace and the number of exclusive brand rollouts for 2010 and 2011 and do you expect this category of exclusive brands to be a bigger relative growth category than private and national brands? Karen M. Hoguet: That’s a very good question and I would say today that as a result of the centralized structure, we are getting even more offers to do exclusive lines or exclusive parts of lines and because of the faster decision making, we are able to make those decisions and capitalize on it quicker. So I do think that over time, based on the success of the ones we have, that will be a bigger part of our mix. Will it be 2010 or 11 or how much, we don’t know yet but clearly that’s an opportunity. David Glick - Buckingham Research Group: Okay, and secondly, your merchants are now out making some commitments for spring in 2010 probably for some of your business in national and private brands -- what kind of direction are you giving them in terms of the kind of trends to plan the business at relative to your current trend and relative to the fall trend? Karen M. Hoguet: I think we’ve been conservative with our spring targets that we are giving them so that they can go out and make the initial buys. We really don’t want to find ourselves in a position like we did this year where the early buys were too high, given what ultimately happened but again, we hope to raise those as we get through the fall season. David Glick - Buckingham Research Group: So it’s fair to say that you would still have them make placements down relative to last year on a comp store basis, not ready to put up flat plans yet? Karen M. Hoguet: Correct. David Glick - Buckingham Research Group: Okay. Thanks a lot. Good luck, Karen. Karen M. Hoguet: Thanks, David.

We do have another question from Mike Schrekis with Wallmaker. Mike Schrekis - Wallmaker: Just wondering, in the My Macy's districts, the ones that are outperforming by I think you said was 200 and some basis points, could you talk about whether that’s pricing mix and also are those stores more profitable? Karen M. Hoguet: I think they are representative in terms of the profitability of the company and it’s really coming from improved merchandising and I think also energy from the sales associates in the stores. Mike Schrekis - Wallmaker: Okay, and just one other question on the SG&A -- are you thinking that -- will SG&A in the fourth quarter be up year over year? Karen M. Hoguet: I only gave guidance for the full fall, where we expect it to be down slightly. Obviously as I talked about items like the hurricane proceeds, that wasn’t a fourth quarter item so there will be more pressure in the fourth quarter than the third. Mike Schrekis - Wallmaker: Okay, thanks.

That was our last question. Karen M. Hoguet: Great. Well, thank you all and if you have additional questions, let us know as the day goes on.

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