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

Deborah Weinswig – Citigroup Michelle Clark - Morgan Stanley Liz Dunn – Thomas Weisel Partners Robert Drbul - Barclays Capital Analyst for Charles Grom - J.P. Morgan Todd Duvik – Bank of America/Merrill Lynch Bernard Sosnick - Gilford Securities Lorraine Hutchinson - Bank of America Merrill Lynch Jeff Stein – Soleil Securities Adrianne Shapira - Goldman Sachs Kenneth Stumphauzer – Sterne, Agee & Leach David Glick - Buckingham Research Group Lance Vitanza – Knighthead Capital Dana Telsey - Telsey Advisory Group

Welcome to Macy’s Incorporated first quarter earnings release conference call. 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 Inc. I am Karen Hoguet, CFO of the company. : 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. On today’s call I will summarize the key components of our performance in the quarter and then talk a bit about our outlook for the remainder of the year. At the end I will then take your questions. As we discussed at our analyst meeting a few weeks ago we are feeling increasingly confident our strategies are right and our execution is better than ever before. The combination of My Macy’s with its focus on customer centricity, localization and field empowerment combined with the One Macy’s unified structure is even more powerful than we had expected. Total sales in the first quarter were $5.574 billion and our comp store sales increased 5.5% which is well above what we had expected at the start of the year. As you recall the total sales now include revenue associated with the sale of private brands to third parties and sales of unsold goods at the end of their selling period. These items do not, however, impact comp store sales. In the quarter sales exceeded our expectations in virtually every Macy’s market, at Bloomingdales and also from the internet. Sales from the internet were up 34% in the first quarter. We are continuing to expand our view of the internet opportunity to make it even more a part of a multi-channel strategy for both Macy’s and for Bloomingdales. Customers are increasingly using both channels for parts of their buying decisions regardless of where the transaction itself occurs. We believe our internet operations will continue to fuel significant growth for both of our brands. Other than Herald Square, which is performing exceptionally well, it was our smallest volume stores that achieved the biggest increase versus last year in the first quarter. This is very exciting to see and it shows that My Macy’s is working. Overall our sales were strongest in Men’s and in Home along with many businesses in women like updated apparel and fashion watches which were also very strong. Private brand and exclusives continue to have very strong performance in the first quarter. Our sales were less strong in the young businesses during the first quarter. The gross margin rate in the quarter was 39.4%, up 130 basis points over last year and 80 basis points over 2008. The accounting changes hurt us by 10 basis points in the quarter so we actually did a little bit better on a comparable basis. We are very pleased with this performance which resulted from a combination of strong sales, good inventory management and the strong private brand performance. Inventory at the end of the quarter was down 2%. SG&A in the quarter was $1.993 billion which was $37 million above last year. This was below our original expectation even with the higher than expected sales. As a percent of sales SG&A was down 180 basis points or 170 basis points excluding the accounting change versus last year, demonstrating the leverage in our business. Operating income was $203 million, up from $24 million excluding division consolidation [from] last year and $117 million in 2008 on that same basis. As a percent of sales, operating income was 3.6% this year compared to 0.5% last year and 2.0% in 2008. We had a great first quarter relative not just to 2009 but to 2008 as well. Interest expense in the quarter was $162 million and remember the quarter included $27 million of $0.04 per share of costs associated with the $500 million of debt we repurchased earlier in the quarter. Taxes in the first quarter were $18 million which includes $4 million for the reduction in deferred tax assets due to the enactment of the recent healthcare reform and the elimination of the deductibility of retiree healthcare payments. Net income in the quarter was $23 million or $0.05 per share on a diluted basis. The diluted share count for the quarter is 426.2 million shares. This earnings per share compares to last year’s loss of $0.16 excluding the costs associated with division consolidation or a $0.21 improvement. With the better than expected sales and profits, cash flow generation was strong as well. Cash flow before financing defined as cash used by operations and investing activities was a use of $193 million in the quarter which was about $136 million worse than last year though remember this year we accelerated a pension contribution of $325 million into the first quarter. So the pension contribution this year versus last year was $295 million. So had we not accelerated that contribution the cash flow would have been $160 million favorable to last year. Also in the quarter we used cash to repurchase $505 million in debt and we still ended the quarter with over $980 million of cash on the balance sheet. We feel great about how we have started this year which is why we raised our annual guidance a few weeks ago. While we continue to see strong sales trends we don’t want to get ahead of ourselves. This is why we feel it is premature to raise annual guidance further at this time. We do expect to have more visibility on the back half of the year once we get further into the second quarter. As you think about the monthly sales in the second quarter remember that sales in the month of May will be negatively impacted by the timing of Memorial Day. The Sunday and Monday of the holiday weekend moves into Fiscal June as compared to being in May last year. This is assumed to hurt our sales in the month of May by 2.5-3.5 points. This shift will obviously benefit June but remember June is a 5-week month so the percentage benefit will not be the same as what we get hurt in May. All of this washes out for the second quarter. Let me share with you a few of our planning assumptions for the second quarter. First, we expect gross margin in the second quarter to increase over last year. Remember that the accounting change negatively impacts gross margin in the second quarter. In fact, had the changes been in effect last year our gross margin rate would have been 50 basis points lower as you can see on our website. However, we are expecting the increase to be enough that it will still be higher than last year on a reported basis. SG&A is expected to be relatively flat in dollars to the first quarter and like in the first quarter this will mean higher dollars than a year ago. Part of this relates to the accounting changes. Interest expense in the quarter is now expected to be approximately $130 million benefiting both from strong cash flow and debt repurchase completed earlier this year. This hopefully helps you understand some of our key planning assumptions for the second quarter. We are off to a great start this year and we have every expectation it will continue. Our organization has just recently passed its first anniversary together. We couldn’t be happier with our new team, the progress we have already made and the potential that lays in front of us. The My Macy’s culture and its structure are making an enormous difference in our business. With that I will open the call up for any questions you may have.

(Operator Instructions) The first question comes from the line of Deborah Weinswig – Citigroup. Deborah Weinswig – Citigroup: In your opening comments you said that SG&A was less than expected in the quarter. Can you elaborate or provide some additional color around that?

Part of it had to do with some timing shifts primarily in advertising. Some of it had to do with lower than expected real estate costs and utilities where we are getting slightly lower rates than we had expected and better consumption. Deborah Weinswig – Citigroup: Also we heard a little bit more at the analyst meeting about how the buyers are editing for growth. What is the timeframe for that? What categories are they starting with? How should we think about that impacting sales and just what are the overall implications of the editing at the store level?

I think we are just beginning in this process so the improvements we expect to see will probably not hit in a significant way until later this year. As we said we got benefits from the My Macy’s rollout as early as the fourth quarter. It happened in the first quarter as well as as we go forward but the edit for growth component of it will take a little bit longer. Deborah Weinswig – Citigroup: Obviously 2010 has been off to a great start. Would you say that has been driven more by traffic or ticket. How should we think about the component of sales and how that is played out?

It has been driven so far by traffic or items purchased. The AUR in the first quarter was down a little bit. So we are seeing customers coming back to the store quite strongly. I think part of it is from the economy being stronger than we had anticipated and I think part of it is things we have been doing in the stores that are attracting customers who may have been in other stores previously.

The next question comes from the line of Michelle Clark - Morgan Stanley. Michelle Clark - Morgan Stanley: Obviously the additional color on second quarter is very helpful. Can you give us a sense of what type of comp you are looking for and what is embedded in your assumptions for 2Q?

We really aren’t giving guidance for the remainder of the year on sales. Michelle Clark - Morgan Stanley: So sticking with the 3-3.5 for the full-year?

Correct. Michelle Clark - Morgan Stanley: If you take a look at your first quarter comp performance clearly outpacing now the peer group average. Can you give us a sense if you have been able to take a look and see where the biggest market share gains are coming from whether it commentary on specific competitors and/or merchandise categories?

Clearly we are winning across the board particularly in Home, Men’s and Women’s apparel. As I said the younger businesses were a little bit weaker so my presumption is we are gaining share particularly in Men’s, Home and Women’s which is the lion’s share of the store. Michelle Clark - Morgan Stanley: Any commentary on where you think that is coming from on a competitive standpoint?

I would really rather not comment. Michelle Clark - Morgan Stanley: Obviously other department stores in the space saying they are going to go out and take market share this year. I am wondering what you are seeing from a competitive standpoint if you take a look at pricing and the environment today.

We are really not seeing any changes in terms of pricing and promotion and don’t really expect to see it. Michelle Clark - Morgan Stanley: Any changes are you talking about relative to the fourth quarter?

I don’t expect any. Obviously I can’t predict what others are doing.

The next question comes from the line of Liz Dunn – Thomas Weisel Partners. Liz Dunn – Thomas Weisel Partners: Looking at the small stores which are doing so well, or small volume stores, are they small volume stores because they have just historically underperformed or are they in smaller markets? How should we think about the opportunity with those small volume stores? Do you have any update on what we should expect for inventory and gross margin as we move through the balance of the year and your prior guidance was that gross margin would be flat in the back half?

We are not giving any more guidance on gross margin but we are really not seeing any major change from what we had said earlier. We had expected most of the gross margin improvement to happen in the first half of the year. In terms of the small stores, they are both. Some of them are smaller stores that have underperformed. Others are smaller markets. In all cases they didn’t get the proper attention because they were small so we see a lot of upside coming from those stores just trying to both understand them better and localize the assortments more and also from the reduced span of control. Huge benefits happening there. Liz Dunn – Thomas Weisel Partners: Any additional thoughts on your inventory plans as you move through the year?

Sorry, I didn’t mean to skip that. I think as we move towards the year we would expect to see, as you have already seen in the first quarter, less of a decline versus prior year so maybe flattish as we move through the year. Again, with comps 3-3.5 for the year that still would represent very good inventory turn improvement.

The next question comes from the line of Robert Drbul - Barclays Capital. Robert Drbul - Barclays Capital: When you look at a lot of the new exclusive arrangements you have been announcing the last few months can you talk about the margin implications of what you are bringing in as exclusives versus what you are editing out and how we should think about that from a gross margin perspective? Second, can you give us any updated thoughts on the sourcing costs for the back half of the year or even into next year?

On the exclusives as with our private brand the objective is really to build brands that carry high credibility with our customers and have sales potential. So it is really more focused on offering unique assortments to drive sales. Obviously that helps margins as well but that is not the primary purpose. Again it is less a gross margin issue and more how is it going to drive comp store sales. Does that answer that question before I move on? Robert Drbul - Barclays Capital: Yes.

In terms of the sourcing costs we are really not seeing any impact in terms of our gross margin for the fall season although we think it will be more challenging as we move into 2011. Fortunately we have a terrific sourcing operation and I think they will minimize whatever impact there will be as they manage through the situation.

The next question comes from the line of Analyst for Charles Grom - J.P. Morgan. Analyst for Charles Grom - J.P. Morgan: Given your comments earlier about SG&A expenses and there being some timing changes, how should we think about your second half outlook? Your previous view was for flattish SG&A.

Again we are not giving any guidance on the back half of the year. The one thing I would tell you is look at the website in terms of the accounting change because that naturally would lead to a higher SG&A just because of that accounting change. Analyst for Charles Grom - J.P. Morgan: Turning to cash obviously you in the first quarter spent on debt repurchases and the pension contribution. How should we think of your use of cash over the balance of the year? Should we anticipate any further retirement of debt?

I think the key thing is as we go through the year if cash is very strong and there is an opportunity maybe. If not we will hold onto the cash flow to pay down that debt as it matures in 2011 or 2012. So in either way that cash is being earmarked for debt repayment so either we will actually do it or we will hold onto it to pay it down as it matures. Analyst for Charles Grom - J.P. Morgan: I wanted to ask about your comments in the release this morning. You said you would hold guidance steady because of macroeconomic uncertainty. Is there anything to read into there? Anything you have seen recently that causes a pause?

Absolutely nothing for you to read into with that statement. The key is obviously the first quarter was considerably stronger than what we had expected as we started the year. Again that is why we raised our guidance just a few weeks ago. So we are continuing to see strong sales trends. We just don’t want to get ahead of ourselves. While the economy has been stronger than we anticipated it is unclear how strong it really is. However, for the part of our performance that is driven by things we have done internally, My Macy’s, One Macy’s that obviously will continue. So again we have just raised guidance a couple of weeks ago. I would not read too much into that.

The next question comes from the line of Todd Duvik – Bank of America/Merrill Lynch. Todd Duvik – Bank of America/Merrill Lynch: I think I know the answer to this based on your previous response but S&P just upgraded your credit rating to high BB yesterday. Congratulations on that. At the same time they put kind of a high bar in terms of what it would take to get to investment grade. The first question is, does that dampen your enthusiasm in terms of targeting investment grade credit rating?

We are still intending to become investment grade again so I guess the answer is no. Todd Duvik – Bank of America/Merrill Lynch: In terms of the near-term cash uses I think you just answered that. So if it makes sense to repurchase debt you may look at that this year, otherwise just wait until it matures?

Correct.

The next question comes from the line of Bernard Sosnick - Gilford Securities. Bernard Sosnick - Gilford Securities: I would like to clarify a little on SG&A. Going to the website for the second quarter your adjusted SG&A dollars were [1866]. If I heard you correctly you said second quarter SG&A in dollars should be about equal to the first quarter of this year.

That is what I said. Bernard Sosnick - Gilford Securities: The dollar amount over [1866] I come out to 6.8% increase. That doesn’t seem right to me.

That is what I said. Part of it relates to some timing shifts into the second quarter. Remember in the first quarter last year the divisions had not yet been consolidated so that in the second quarter those savings had already occurred. So we are up against post-consolidation last year. You are interpreting what I said correctly. Bernard Sosnick - Gilford Securities: The other point I wanted to make is you went over a lot in great detail at the conference with regard to merchandising and all of the great things you are doing .I am wondering though if you could crystallize just a little bit what you are doing to remodel the stores, improve what is going on. You did a great job with cosmetics at Bloomingdales but you are over 800 stores. What are your thoughts on improving the appearance of the stores with upgrading?

That is a hard question to answer quickly. We have a series of things going on to do that. At the lowest level would be what we would call minimum standard projects where we are going into stores that just frankly aren’t up to having the Macy’s name attached to them and cleaning them up. We have got programs to do that across the country and attack all of our stores that have what we call low asset scores. The second piece of it relates to putting money into parts of the store where we think there is a huge sales potential whether it be Men’s, whether it be Cosmetics or Accessories and that is happening in many stores across the country as well. So what you are going to see versus the company in the past is significantly more smaller remodels and fewer of the major redo’s and expansion of an entire store that are a lot more expensive. We find we get a much better return when we go in and focus on a brand or focus on a vendor or a category of business. The last place we are spending money is in the signature businesses we had talked about at the analyst meeting; cosmetics, jewelry and shoes. So we will spend extra money in those obviously because we think they are signature categories. I guess the last place where we are also investing or beginning to invest in the stores is also in the world of technology to also improve the shopping experience. For example, the new registers that will have been rolled out across the company as of the second quarter are enabling us to do what we call search incent so the customers can utilize the Macys.com inventory while they are in-store and we think the potential for that is tremendous. It is sort of a long answer to the question but we are trying to both maintain the minimum standards and go after sales growth opportunities where we see them across the country.

The next question comes from the line of Lorraine Hutchinson - Bank of America Merrill Lynch. Lorraine Hutchinson - Bank of America Merrill Lynch: You mentioned the AUR was down slightly. I wanted to try and get a little more detail into that. Is that just your customer making a decision to buy at a lower price point or is it a conscious inventory decision to skew towards the lower priced items?

I think it is a combination of lots of things including mix. I wouldn’t read too much into it. I suspect as we go through the year the AUR will go up somewhat. Lorraine Hutchinson - Bank of America Merrill Lynch: You mentioned the young businesses were a little weaker than the rest of the chain. Are there any initiatives in place to try to move those back up towards the chain average?

Yes there are. I can’t be specific because I confess I don’t know them but there is a lot of attention being paid to those businesses.

The next question comes from the line of Jeff Stein – Soleil Securities. Jeff Stein – Soleil Securities: You have been talking about the growing importance of the internet. I am wondering what percent of your customers would you estimate now are multi-channel customers?

I don’t know that statistic. We will try and get it for you but it is growing considerably and as you know there is a growing group of people that are back and forth all the time. Jeff Stein – Soleil Securities: Secondly, curious what percent of your sales would you estimate are generated by your smaller stores? Could you give us some sense in terms of what qualifies as a “smaller store?”

I don’t have the percentage in front of me. There is all different definitions whether it be under $25 million, under $15 million, the statistics for the first quarter are the same regardless. Jeff Stein – Soleil Securities: Any estimate at this point in terms of what the new healthcare reform may end up costing the company?

No. You see what it is going to cost us this year. That has already been included in the tax number for this year but we don’t see a significant impact until 2014.

The next question comes from the line of Adrianne Shapira - Goldman Sachs. Adrianne Shapira - Goldman Sachs: I wanted some clarification on the SG&A. It sounds like Q2 mid single digit increases is what we should expect. Maybe you could give us some color how much of that increase is related to the timing shift you referenced?

I don’t have that specific number. A piece of it is but obviously not all of it. Adrianne Shapira - Goldman Sachs: Again, into the back half when we think about the timing shift is it just in Q2 or does it bleed into the back half as well?

The timing shifts bleed into the back half a little bit but it really doesn’t change the guidance that I had given earlier because of the magnitude of the expense save in the fall.

The next question comes from the line of Kenneth Stumphauzer – Sterne, Agee & Leach. Kenneth Stumphauzer – Sterne, Agee & Leach: That $15 million on the cash flow statement under “other” in the investing section I think in the past it at times has been proceeds from insurance. I was wondering if that was the case this quarter and if so whether that flowed through the income statement?

I don’t know and no in terms of the income statement. We will get you the answer as to what it is. Kenneth Stumphauzer – Sterne, Agee & Leach: At the analyst day there was a lot of time spent about the various systems that have been implemented over the past year and a half or so. I was wondering if you could maybe just talk about the long-term margin implications of those system implementations?

Our sense is it is going to be positive but I have no clue how to quantify how positive. Kenneth Stumphauzer – Sterne, Agee & Leach: Do you know maybe how long the residual benefit will be? Is it something that is going to be multi-year? Or something you will see the benefit over the course of the year?

I can’t tell you that. I don’t know. Kenneth Stumphauzer – Sterne, Agee & Leach: Finally, you had alluded to increasing the cooperation or interplay between e-commerce and the retail brick and mortar stores. I was wondering if you could just elaborate on that?

Not yet but we will when we can. We are working on an accelerated growth strategy that will grow both brands, Macy’s and Bloomingdales, regardless of channel.

The next question comes from the line of David Glick - Buckingham Research Group. David Glick - Buckingham Research Group: I will take one last stab at SG&A and then I have a question on the Home business. I think probably most analysts have been modeling about a low single digit increase for the year excluding D&A and based on the shift between Q1 and Q2 is that still a reasonable expectation for the year or should we be thinking about modeling a little bit higher? Secondly, your Home business clearly is a standout relative to your peers. I am wondering how much of that you would attribute to the various initiatives whether it is My Macy’s or the assortments, sales promotion, internet, etc.?

Let me answer the second question first. We are really doing a fabulous job right now on the home store. I would attribute it to a team that had been unified earlier so I think they were better able to take advantage of the My Macy’s opportunities because remember we had centralized Home a couple of years before we changed to the new structure. I think frankly it may be an indicator of just how much My Macy’s can help as the organization for the rest of the company has been unified for just one year does better. But Home is doing fabulously. Big ticket, small ticket, really across the board. David Glick - Buckingham Research Group: The SG&A question?

I don’t look at it excluding SG&A. I could but I can’t do it on the spot. There is really nothing that has changed from the guidance we had set before. We had told you when we ended the fourth quarter to expect increases in the first half and flattish in the second half. So the only thing that has changed in the second half is the accounting change. I would make the same statement if you restate the fall.

The next question comes from the line of Lance Vitanza – Knighthead Capital. Lance Vitanza – Knighthead Capital: I apologize if you already covered this but the 325 of payments that you made to the pension does that satisfy what you plan to do for the year? Or do you still anticipate making other payments over the balance?

It satisfies what we intend to make for the year. That doesn’t mean at some point we wouldn’t make a further contribution but there will be no additional required contribution. Lance Vitanza – Knighthead Capital: How will you evaluate whether or not, you have a lot of cash right now and certainly we expect you to generate more over the balance of the year. What sort of is the decision process in terms of whether or not you go ahead and make those voluntary contributions from here on out?

Again, all of the excess cash we are generating is being held to either pay down debt in 2011 and 2012 or increase the funding on the pension plan which is also required so it is just a question of what is the best economic decision.

The next question comes from the line of Dana Telsey - Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: You mentioned a lot and it seems like this quarter it has been mentioned a lot the smaller stores the improvement and the impact smaller stores have had. Any quantitative or qualitative examples of the uptick you are seeing and the sustainability of it?

I am not quite sure how to answer that. The sustainability though we think is real. Again with the greater attention these stores are getting we are seeing huge potential in terms of upside. By the way as we talk about the smaller stores I don’t want people to think they are doing so much better than the medium size or larger doors; they are doing better but all of our doors have been performing very well because it is our belief that My Macy’s actually helps all sized stores. It is just a group we have had trouble lighting the fire under had been the smaller stores and that now seems to be happening as well.

With no other questions in queue I would like to turn the call back over to Ms. Hoguet for any additional or closing remarks.

Thank you all for your support. If you have further questions just give Susan or me a call later today. Thank you.

That does conclude today’s conference call. Thank you for your participation.