Karen Hoguet - Chief Financial Officer and Executive Vice President

Bernard Sosnick - Gilford Securities Inc. Dana Telsey - Telsey Advisory Group Michelle Clark - Morgan Stanley Robert Wilson Robert Drbul - Barclays Capital Lizabeth Dunn - FBR Capital Markets & Co. Adrianne Shapira - Goldman Sachs Group Inc. Kenneth Stumphauzer - Sterne Agee & Leach Inc. Wayne Hood - BMO Capital Markets U.S. Jeffery Stein - Soleil Securities Group, Inc. Paul Swinand - Stephens Inc. Deborah Weinswig - Citigroup Inc Michael Shrekgast David Glick - Buckingham Research Group, Inc. Lorraine Hutchinson - BofA Merrill Lynch Charles Grom - JP Morgan Chase & Co

Good morning, and welcome to Macy's Incorporated Fourth Quarter Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Ms. Karen Hoguet. Please go ahead.

Okay. Thank you very much, and good morning, and welcome to the Macy's conference call. I am Karen Hoguet, CFO of the company. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes. Please refer to the Investor Relations section of our website for 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. 2010 was a great year for the company. It was the first full year of our new structure and the My Macy's strategy, and we are very pleased with our results. We are successfully establishing more of a growth culture and focusing more than ever on the customer. Since comp store sales growth is the best proxy for how the customer grades our performance, we are particularly happy with our performance on that metric this year. The 4.6% annual comp store increase was our best performance in at least 15 years, and it also compared favorably to our key competitors. At this time last year, we expected comp store sales growth of 1% to 2% for 2010, and we obviously far exceeded that. That delta is important and enabled us to produce higher-than-expected earnings and cash flow. The Macy's customers are reacting very favorably to our new strategies. I'd like to list four as being particularly important to driving sales. First is the My Macy's localization strategy. I hope that as you are in our stores across the country, you are seeing the evidence of our better meeting local needs for sizes, colors, vendors, et cetera. Sometimes, the contrast can be best seen when you walk our store and then compare it to the competition in the mall. We have made lots of progress, but we believe there is so much more to achieve. Number two is private brands and exclusive market brands. We had another great year with our private brands and exclusive market brands. And the penetration of private brand sales grew to 20% this year, and the percentage of our business done in private, exclusive and limited distribution brands is now approximately 43%. The third key strategy would be M.A.G.I.C. selling. This is our training program, which is designed to increase engagement with our customers on the selling floor, and it is supported by intense coaching. We have trained over 130,000 associates, which is something we have never done before. This is all part of the shift in our culture to being more customer-centric. People often ask what M.A.G.I.C. stands for. The M stands for meet and make a connection. The A, ask and listen. G, give options, give advice. I, inspire to buy and sell more. And the C, celebrate the purchase. This has been really powerful in helping our associates better engage with the customer, but we have a long way to go. In fact, all associates will be going through a refresher course this spring. And the fourth key strategy driving our sales is our omnichannel offering. We still are only at the early stages of maximizing the opportunity from having strong websites and digital marketing capabilities. Our Internet businesses grew far faster than expected this year, causing us to accelerate the expansion of one of our distribution centers, as well as the start of construction of a fourth major fulfillment center. We continue to invest in this business, both at Macy's and at Bloomingdale's, given its potential for driving sales growth both online and in-store. And we were able to achieve these great sales results this year while also improving our profitability and generating significant cash flow. Our operating income grew 32%, excluding asset impairment, store closing and division consolidation costs. And earnings per share grew 55% on that same basis and also excluding charges relating to the early retirement of debt. We ended the year with $1.5 billion of cash, having repurchased or paid off at maturity $1.2 billion of debt and having contributed $825 million to our pension plan during the year. And our return on invested capital grew to 17.4% this year from 14.9% last year. It truly was a year of great progress on all dimensions, and fortunately, there is lots more to come. Let's go back now and talk a bit about the fourth quarter results, and then I'll move on and discuss our key planning assumptions for 2011. Our sales in the fourth quarter, which increased 4.3% in comparable stores, were on the high end of the aggressive sales guidance we set for ourselves. EPS also exceeded our updated expectations, primarily due to lower SG&A than anticipated. As we look back on the fourth quarter, so many of our strategies at Macy's were successful. The focus on private and exclusive market brands, the gift strategy, directed merchandise moves into what we call whitespace and the focus on key headquarter store businesses like Men's apparel and accessories, Women's shoes, cosmetics and fragrances, watches and luggage. Where we did less well, as you've heard, were the traditional parts of Women's apparel. Geographically, our business did well in the fourth quarter in all eight of our Macy's regions with Florida deserving a special callout for very strong results there in the quarter and also for the full year. Bloomingdale's also had a terrific quarter and year. Sales performance compared favorably to the direct upscale competition and exceeded our expectations. bloomingdales.com grew far faster than expected. We successfully opened a very exciting store in Santa Monica. And we initiated a licensing arrangement for Bloomingdale's in Dubai and opened what I am told is an absolutely magnificent store in one of the world's best shopping malls. And we also launched the Bloomingdale's Outlet concept by opening four stores towards the end of the year. Gross margin in the fourth quarter was 41.3%, down from last year's 41.5%, had the current accounting treatment been in effect. This decline was as expected. Starting in the first quarter of 2011, by the way, we will have year rounded those changes in accounting treatment so we can go back to comparing to reported numbers. We ended the year with inventory up 3.1%. This is a little higher than we had expected earlier in the year, but it was due primarily to a conscious effort to accelerate the receipts of replenishment goods to get back in stock after we took inventory in January. We saw this as a sales-getting opportunity, and it's still lower than our rate of comp store sales growth. SG&A in the fourth quarter was $2,245,000,000, up just 0.4% over last year, had the current accounting treatment been in effect. As a percent of sales, SG&A was 27.2%, 90 basis points below last year, had the current accounting treatment been in effect. This is better than expected due to solid expense control throughout the company as well as property tax settlements and other year-end adjustments. This year in the fourth quarter, we booked $18 million of asset impairment charges and $7 million of store closing-related costs for a total of $25 million. Last year in the fourth quarter, we booked a total of $186 million in asset impairment, store closing and division consolidation costs in the quarter. Excluding these items, operating income was a $1,169,000,000 or 14.1% of sales this year. On this basis, operating income was up 10% over last year and, as a percent of sales, up 70 basis points, had the current accounting treatment been in effect. Including these items, operating income was $1,144,000,000 or less the $25 million. Interest expense in the quarter was $118 million as expected, reflecting savings from the debt repurchases earlier in the year. Tax expense was $359 million in the quarter. This brings our annual rate to 36%. Most of the reason for the lower-than-expected rate is a change in the basis of recording deferred state income taxes from an estimated blended basis to a separate entity basis. We believe the revised methodology results in a better estimate of deferred tax liabilities and is more consistent with the accounting literature. We will be reflecting the effects of this change retroactively to 2008, and you can see the details of this change on our website. The 2010 expense was lowered by $9 million versus what it otherwise would have been. We had not anticipated making this change, which did help earnings per share in the quarter by $0.02 a share. This change increased last year's tax expense by $21 million or reducing the earnings per share by a nickel. This change has no impact on cash nor on operating earnings. Remember also, last year's tax in the fourth quarter included $21 million or $0.05 a share benefit due to favorable tax settlements last year in the fourth quarter. Net income in the quarter was $667 million. Diluted share count, 429 million shares. Earnings per share, therefore, on a diluted basis in the fourth quarter was $1.55 or $1.59, excluding the asset impairment and store closing costs. Our guidance for the quarter had been $1.44 to $1.49, which we far exceeded. On this basis, last year's earnings per share in the fourth quarter was $1.35. As discussed earlier, sales for the full year of $25 billion were up 4.6% over last year on a comp store basis. The gross margin rate for the year was 40.7% or up 50 basis points versus last year, had the current accounting treatment been in effect. SG&A dollars were up 1.2%, had the current accounting treatment been in effect. And as a rate, SG&A was down 110 basis points on that basis. Diluted EPS was $1.98 on a reported basis versus $0.78 last year. But on the adjusted more comparable basis, excluding store closing and division consolidation costs, asset impairment and debt premium costs, earnings per share on a diluted basis was $2.11, up 55% over last year's $1.36. Cash flow was also very strong in 2010. Net cash provided by operating activities was $1.5 billion, down from last year's $1.75 billion. Keep in mind that this year, we contributed $825 million to the pension plan versus $370 million last year. This explains more than the difference between the two years. Capital spending in the year, including capitalized software, was $505 million as compared to our budgeted $550 million. Including construction in progress, we did utilize our whole budget, but some of the cash won't be expended until after year end. We are not, however, increasing the budget in 2011 to cover this because it's our assumption we'll have a comparable carry forward at the end of 2011 into 2012. As discussed earlier, we used excess cash to pay down over $1.2 billion of debt, and again, we ended the year with a $1.5 billion of cash. This company continues to generate significant cash. Much of it has been used to reduce debt and to fund our pension liability. While we made significant progress last year in strengthening our balance sheet, we are still working towards regaining our investment grade ratings at Moody's and at S&P, and we'll continue to use some of the excess cash to reduce debt. Let's move on now to our key planning assumptions for 2011. We are entering the year with building momentum, which gives us confidence that we should have another strong year. As part of our transformation to having more of a growth culture, we are setting our targets for sales growth higher than in the past, and we have identified strategies that we expect will enable us to at least achieve and maybe exceed those targets. As we talk about our assumptions for 2011, the subject of commodity price increases is a key one. We are taking this challenge very seriously, but you need to keep this issue in perspective. As a better fashion retailer, we are less reliant on opening price point basics and have the ability to add quality features and fashion details that command a higher price point. Average unit retails in these categories will increase but into a lane in which we have successfully played prior to the recent recession. Also, remember that a significant portion of our business is in categories that are not impacted by the escalation in raw material prices. Having said that, here are seven things that we are doing to help address this issue. One, while some price increases are unavoidable, we are being very careful to maintain competitive value in highly sensitive commodities. Two, because we are a very important customer for most of our vendors, we are able to work very closely with them to optimize our mutual pricing strategies. And through our vendor collaboration efforts, we've been able to work closely together with specific vendors to increase efficiencies and take cost out of the system. This is enabling us both to offset some of the higher input costs. Three, we will increase the use of Search and Send to enable us to provide fringe color, size and assortment option to our customers while limiting inventory risks. Search and Send is when a customer comes to our store and we don't have what she wants in stock in that store. We now are able to send it to her directly from our direct-to-customer distribution facilities. We’re also expanding the ability to access inventory from other stores to increase the probability of meeting a customer's needs. Four, we will continue to drive key item penetration and editing peripheral assortments, which will enable us to improve the cost. Five, as to our private brand programs, we have a very experienced team of executives who live and work in countries where we produce goods. They are working very closely with our suppliers with whom we have very long relationships, and together, we’re dealing with the challenges that we’re both facing. Six, we are testing and monitoring price increases this spring to understand better price elasticity on programs and individual styles within programs. And seven, we now have a pricing team in place to provide more analysis on pricing decisions. With that as a backdrop, our assumption for comp store sales is approximately 3% for the full year of 2011. Total sales for the year will be up by approximately the same percentages comp, but it could vary slightly by quarter. At this time, we are planning to open three Bloomingdale's outlets and no new department stores. We are assuming a flattish gross margin rate for the year 2011. In addition to the pressure on margin from the added costs in some categories of merchandise, the decision to move to free delivery for purchases over $99 everyday on macys.com, as well as the growing use of Search and Send, is going to put pressure on our gross margin rate. We expect to be able to offset this impact, however, after the first quarter when we year round on the rollout of Search and Send. We are assuming that SG&A dollars will increase roughly 2% to 2.5% for the year. This, therefore, assumes that our SG&A rate as a percent of sales will continue to decline as sales rise. This increase in SG&A is a little higher than a normal run rate due to the investments we're making to grow our online and multichannel business, including the expanded warehouse and the construction of the new mega center and ongoing site and customer service improvements. Depreciation and amortization is assumed to be $1,110,000,000 for the year or down $40 million from 2010. Interest expense is assumed to be approximately $450 million in 2011 versus $574 million in 2010, which includes the $66 million premium on the debt repurchase. For tax expense, we still believe the rate should be approximately 37% for the year, although it will continue to vary quarter-to-quarter. We are assuming an average diluted share count for the year of 432 million shares. This all leads to the earnings per share guidance of $2.25 to $2.30 for the year 2011. And in terms of assumptions for forecasting cash, here are three that should help. The first, we're assuming CapEx of $800 million. Two, while we’re still finalizing our plans for a pension contribution this year, for now, we’re assuming a contribution of approximately $225 million, which should, again, approximately get us back to being fully funded by the end of 2011. Three, we plan to pay off the approximately $450 million of debt that matures in 2011. And while we’re on the subject of debt, as a reminder, we have approximately $1.1 billion maturing in 2012. As our team enters 2011, we’re focused on four key strategic imperatives. The first, to drive a growth culture. This involves encouraging risk, maximizing big ideas, mining whitespaces for opportunities that we see to fill in our offering, focus on vendor collaboration and continue to grow our private and exclusive market brand. Two, maximize My Macy's. We need to continue to respond to the local needs of our customer. This includes doing a better job on key subjects like sizing, climatic variation and multi-cultural differences. Three, we need to continue to embrace customer centricity. We need to continue to live M.A.G.I.C. selling, which focuses on engaging with customers, and we need to drive our coaching to support these efforts. We were also rolling out a new scheduling system that is designed to better match staffing to when customers are in a department. And through our new online customer survey, which is providing better and quicker feedback, combined with the use of dunnhumby analysis, we hope to be much better able to meet the needs of our customers. And fourth, drive the omnichannel business. We need to continue to align our store and our Internet merchandising and marketing strategies. And we need to continue to build our capabilities for getting customers what they want, whether it be fulfilled in a central warehouse or from a store. And we also need to do a better job of embracing technology in our stores and bringing more of our online learnings into the store. This whole area is very exciting and will continue to be a terrific source of growth for us. The bottom line, we had a great year in 2010, and we expect an even better one in 2011. Our new structure is enabling us to make faster, bigger and better decisions, while at the same time, staying very close to the customer at the local level. And there is so much progress we expect to make as we go forward because most of our key strategies are in the very early stages of producing the results we expect. At the same time, we are mining and testing new ideas and new ways of thinking to drive the business forward. And we are comfortable taking more calculated risks consistent with our interest in building a sustainable growth culture. And with that, I'll take any questions you have.

[Operator Instructions] Our first question comes from Michelle Clark with Morgan Stanley. Michelle Clark - Morgan Stanley: We have started to see very few but some select price increases in the stores from our store checks, and I know it's still very early days, but any learning thus far on elasticity?

I think it's really too early to judge, Michelle. Michelle Clark - Morgan Stanley: And then very helpful commentary on how you're thinking about pricing in 2011. Any commentary, Karen, on how you are planning units for this year?

The answer varies category-by-category. In some areas where we’re concerned that the price increases will impact unit growth, we're obviously planning units differently than we would normally, but that's not true across the store. Michelle Clark - Morgan Stanley: And then lastly, any thoughts here as to when we could see a resumption of share repurchases?

I think as you said, we’re working hard to regain our investment grade status. We made huge progress last year, and we’re still generating lots of cash over and beyond what we need to satisfy debt maturities and pension liabilities. But having said that, it's hard to really give you any specific answers on what we might do beyond reducing debt further.

Our next question comes from Deborah Weinswig with Citi. Deborah Weinswig - Citigroup Inc: In terms of the $800 million in CapEx, how should we think about how that will be allocated? And will there be any work done in 2011 on the Herald Square location?

You mean how do we break out the $800 million? Deborah Weinswig - Citigroup Inc: Yes.

Obviously, there's very little going into new stores. A good chunk of it -- and I don't have the percentages in front of me, obviously, going to maintain our stores and remodel them and do what we call minimum standard remodel, just to make sure all of our stores are brand right. But a big chunk of the spending is obviously going towards technology and the construction of that fourth mega center to support the direct-to-customer business. And in terms of the Herald Square, if there's spending, it will be very small in 2011. Deborah Weinswig - Citigroup Inc: And then you said something that was very interesting during the call, which was limiting your inventory risks, and some of it was related to Search and Send but also accessing inventory at other stores. Can you elaborate on that?

Yes, I mean, one of the things -- and often challenges cause you to be more innovative and think differently about the ways of doing the business. As a result of some of the conversations about categories where the prices are going up and trying to limit the risk in the store in terms of too much inventory, yet wanting to have units if the customer wants to buy it. In some cases, we may have fewer color choices in a store but show samples, and then you can excess the inventory from a direct-to-customer warehouse or some of the bigger stores at the same time. Last holiday season, we tested in Northern California a couple of stores to see how we could do with store fulfillment. And we’re going to roll that out to more stores in 2011. Deborah Weinswig - Citigroup Inc: And then you talked about on the call the gift shops. I was wondering, I think that you'd mentioned earlier that some of those would be year round. I didn't know how many stores that was in. And based on the success over the holiday season, should we potentially see that in more stores year round?

I think the number is around 100 stores year round, and I think we're going to learn about how it works year round through this year. But obviously, we'd love to be able to expand it beyond those stores.

Our next question comes from Charles Grom with JPMorgan. Charles Grom - JP Morgan Chase & Co: On the gross profit margin line, it sounds like you think first quarter's going to be down. Would you say it's going to be down commensurate with what you did in the fourth quarter? And then can you give us a little bit of a sense for how you think the progression of the year is going to shake out to finish flat?

Yes, at this point, it's really hard to give you a precise number. It could be down by more than the fourth quarter was down in the first quarter, again, primarily due to non-merchandising margin issues. But I do think it will come back as we go through the year. Charles Grom - JP Morgan Chase & Co: And then same question on the comp front, how do you think that 3% shakes out quarter-by-quarter?

I don't see any huge deviation quarter-to-quarter. But again, we'll see how it goes. Charles Grom - JP Morgan Chase & Co: In the past, when we've met, you've spoken to year three of the My Macy's program as an inflection year. And I'm just wondering if you could elaborate on what you've seen in the original 20 pilot districts that you did three years ago that gives you that type of confidence.

I'm not sure that I call it an inflection point because I think the progress will continue. But if I look at the top districts or the top region for 2010, it's many of those pilot districts, and particularly if we look at the North, which is the Upper Midwest, Chicago, Minneapolis and Detroit. One of our best performing regions on a comp percent versus prior year, and in fact, they had an increase over a two-year basis, which was not true for the company in total. Charles Grom - JP Morgan Chase & Co: Did you speak to what you thought the inventory levels would look like a year from now?

I did not. I think as we've said, we're hoping to continue to improve turnover but not by the amounts that we had done over the past couple of years.

Our next question comes from Liz Dunn with FBR Capital Markets. Lizabeth Dunn - FBR Capital Markets & Co.: I guess my questions were around the SG&A increase. Did you say how much of that was due to the online investment? And does that mean that going forward beyond this year, we should look for SG&A growth to be below that? And then in characterizing that growth related to the Online business, is it the 725 jobs? And what are the other components of that?

Yes, I did not give a specific number. The increases have to do with building out the new distribution facility that you're not at full capacity in the beginning, so there's some sort of startup cost as you ramp up the facility with that. It's also more software amortization and development costs, as well as, obviously, people.

Our next question comes from Dana Telsey with Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: As you talked about shifting to a growth culture and maximizing the big ideas and minimizing the whitespace, what does it mean in terms of product category shifts and penetration of online outlook to regular stores? Does it mean any shifts to your thoughts on operating margin over the long term or EBITDA margin on where you can achieve?

I think what it really does 00 and I can't speak, Dana, in terms of big shift in terms of merchandise, but there's a lot of categories that we see opportunities that we're going after. So for example, in home, it could be bath mirrors or hair care or scales. There's other categories that we have gotten out of over the years that we believe that because of the dot-com business, we can now get back into. For example, lamps, where we can put samples in the stores and then ship them either direct from vendor or from our direct-to-customer facilities. So there's all kinds of new ideas being generated, but I don't think it will have a major impact on EBITDA margins as we go forward.

Our next question comes from Paul Swinand with Morningstar, Incorporated. Paul Swinand - Stephens Inc.: My first question is about the online sales, and obviously, you've had some good increases. Could you just give us some more color on what's driving the increase and whether you're going to be able to lap that into next year? So are you gaining new customers from online that you didn't have in the stores? Or is it more just advertising to existing customers that are already experiencing Macy's in the stores?

We are expecting to continue the growth that we've seen. And it's a combination of more spent by existing customers, but we are gaining lots of new customers every year both on Macy's and bloomingdales.com. And I think what's happening is customers are more and more using both channels, getting an idea online, going in the store and buying it, being in a store, buying it online. There's just much more of that happening. But I think customers in general are getting much more comfortable using the Internet to make these purchases. Paul Swinand - Stephens Inc.: So are your existing customers sort of buying the same mix online as in the stores?

No. Traditionally, we've done much better in categories like home online, so it's not exactly the same. And interestingly, sometimes, items sell very well online that don't sell so well in the stores and vice versa. So it's not -- the same things don’t always sell great in both channels. Paul Swinand - Stephens Inc.: And a quick question on the operational improvements like My Macy's and training and the continued runway. I know you've talked about employees feeling empowered and feeling better about themselves because they're being successful. Have you seen any lower turnover in your employees as the My Macy's and as some of the training gains traction?

We have, but I don't know the specific statistics. Paul Swinand - Stephens Inc.: And with that -- but I'm assuming some of the training will be ongoing, so some employees might retrain in a new area or add to their former training, is that fair?

Absolutely. And as new people come on board, we’re obviously having to train them as well.

Our next question comes from Bob Drbul with Barclays Capital. Robert Drbul - Barclays Capital: On the gross margin guidance, can you give us a breakdown between the free shipping impact and higher sourcing?

No. I don't have it in that kind of detail. And we're not expecting much of an impact from the higher sourcing in terms of their bottom line on the gross margin. Robert Drbul - Barclays Capital: And as you look to 2011 with the comp guidance in the business, are there any new brand launches that you're most excited about, given the plans?

I'm hesitating a minute. I'm embarrassed to tell you I can't think of any offhand. We're very excited about the ones that we launched this past year, Material Girl and others. But I apologize, Bob, I don't know an answer to that. Robert Drbul - Barclays Capital: And then the last question I have is, can you also give us any estimate on how much Bloomingdale's added to the comp in 2010?

We don't break out Bloomingdale's separate from Macy's.

Our next question comes from Rob Wilson with Tiburon Research.

Karen, could you talk about the loyalty program tests that you had going on in three markets over the last six or nine months? And also, can you talk about the Credit CARD Act tailwind that you said might surface in the second half of 2011?

On the loyalty program, we're continuing to test and learning a lot, so it's really too early to give you any conclusions about what we might do with that. In terms of the CARD Act, it has had a negative impact on our business this year. Mass, obviously, the delinquencies had gone down versus a year ago. So in total, there is not a lot of change in terms of the credit profitability. But it did in fact negatively impact credit in the back half of the year, the impact of the CARD Act.

Do you expect a tailwind in the back half in 2011 from the Credit CARD Act?

Well, we'll begin year round the changes as we get through this year.

Our next question comes from Bernard Sosnick with Guildford Securities. Bernard Sosnick - Gilford Securities Inc.: It's a pleasure to hear about the drive to become a growth-oriented company and all that you're doing in e-commerce. So I don't mean anything implying that you’re behind things when I ask about Nordstrom's announcement that it had added WiFi by November and might be planning to add mobile checkout later this year. What might Macy’s be doing along those lines?

As you might expect, we're looking at all of those things and a lot more. So it was an exciting announcement they made and clearly consistent with how we're thinking going forward. We've begun to test using iPads in some stores. For example, in the Clinique area that is at least starting off very strong. There are some other iPad applications we're thinking about. So we're thinking down the same path but, obviously, haven't made any announcement yet.

Our next question comes from Lorraine Hutchinson with Bank of America. Lorraine Hutchinson - BofA Merrill Lynch: Karen, you walked through a number of gross margin pressures that you’re expecting this year, and I was just hoping that you could elaborate a little bit on the offset of how you get to flat for the year?

I think part of it is as we do a better job of sorting through the My Macy's process and organization, we should reduce our markdowns needed and clearance activity, because the better you assort a store, the better you put sizing into a store. You should improve your margin because you're not going to have as much clearance goods to work through the system. So that's probably the biggest offset against the pressures that we had talked about. The other is successful private brand merchandise helps margins a bit. As you know, we develop our private brands not to drive gross margin rate, more to drive comp store sales and provide value and unique offerings. But having said that, when they do well, we do get a margin benefit. So that should help also. Lorraine Hutchinson - BofA Merrill Lynch: And my second question is, you've done a great job of managing your working capital over the past couple of years. Do you expect that to still be a source of cash for you in 2011?

Well, as I said, we're going to begin to invest more into inventory. So, hard to give you an exact answer. But from the inventory line, you will see us investing. Again, improving turnover, so less of an increase in sales, but it's part of growing sales. And the growth culture, obviously, you've got to bring inventory in to make that happen.

Our next question comes from Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs Group Inc.: Karen, just on the 3% comp, could you help think about how much of that is driven by ticket increases as you selectively increase AUR?

It's hard to get -- I mean, we have assumptions now, Adrianne, but we have lots of different scenarios that all get to around the 3%. So I'm not sure which of them I put the highest probability on right now. Adrianne Shapira - Goldman Sachs Group Inc.: Any help in terms of on average, how we should be thinking of AUR?

No, it's hard. I don't expect it to go down as it's done the last couple of years. But again, we'll have to see how much it goes up. Adrianne Shapira - Goldman Sachs Group Inc.: And then your comments about 3% sounds like consistently through the year. Maybe could you give us any help on the Easter shift, how we could quantify that in the first quarter?

Yes, that is going to make a very big difference in the March-April shift. We also, at Macy's, have shifted a major cosmetics promotion out of March into April. So it will be even more dramatic. So as you think about the three months, I would expect March to be negative and April to be a very good month. Adrianne Shapira - Goldman Sachs Group Inc.: And any quantification of that cosmetics of that, how much that’s hitting March?

No, but as we get through February, we'll try to be more helpful on that March April combined number, which again, should be like the quarter. Adrianne Shapira - Goldman Sachs Group Inc.: And then lastly, just coming out of the holiday season, your read of the competitive environment this holiday season and how that factors into your thought process for pricing in 2011?

We didn't really see much of a change in the competitive environment. Obviously, there's lots of competition out there, and we are always cognizant of what's going on. But as I said, we feel very good about 2011.

Our next question comes from Jeff Stein with Soleil Securities. Jeffery Stein - Soleil Securities Group, Inc.: First of all, on the loyalty program, wondering if you're planning to expand the number of markets that you'll be testing that program in this year?

At this point, no. We're still learning. Jeffery Stein - Soleil Securities Group, Inc.: And how about pension expense? How much is that expected to be up, down versus the prior year?

I don't have pension expense specifically in front of me. But total retirement expense, which I suspect will be close to pension in terms of the increase, is planned up about $18 million or $19 million. So less of an increase than last year but still significantly greater than the 2% or 2.5%. Jeffery Stein - Soleil Securities Group, Inc.: And final question, Karen, can you talk to us a little bit about how the initial Bloomingdale outlet openings went, how those stores performed relative to plann and kind of what you've learned from that?

Well, we've learned a great deal about how to operate that business. Having said that, they've performed very well. We've learned more about what kind of locations do better than others, what's important size-wise, merchandise mix. Lots of learning. And only making us more excited about the opportunity. So as I said, we're currently expecting to open three more this year, and I would expect it to accelerate greatly after that. Jeffery Stein - Soleil Securities Group, Inc.: And the Material Girl line by Madonna, is that going to be expended to more doors in calendar 2011?

You know something, I don't know the answer to that, Jeff. I'll get back to you.

Our next question comes from Wayne Hood with BMO Capital. Wayne Hood - BMO Capital Markets U.S.: Do you have any initiatives underway that make your pricing message clear about the out-the-door price given the number of credited events, promotional events. It's somewhat confusing, I guess, what the ultimate out-the-door price is. And associates typically have to explain a lot behind these various events. So anything that you're working on to make it easier for the customer to understand what that true price is?

Yes, I mean, we have been working for a while to try to figure out a way of simplifying our pricing. And we have tested some things, Wayne, that could help with that, and we continue to work on it. But as complicated and as confusing as it feels to us, particularly with the couponing, customers repeatedly tell us they love the coupons. So on one hand, sort of, we're trying to simplify. But on the other, we don't want to do anything to hurt the business. So, more to come. Wayne Hood - BMO Capital Markets U.S.: Also, there was a question earlier about various maybe merchandising initiatives, but you didn't really speak to changes in the contemporary business around the impulse areas and what impact that may or may not have on the comps in '11 as you kind of go through that process?

And I'm so glad you asked that because after I said I wasn't sure of anything, the light bulb went off that I had just seen a fabulous new private brand that we're just launching, Bar III. There’s actually a pop-up shop down at 5th and 20th, if anybody wants to go down and see it in New York that’s just terrific. And one of the whitespaces, frankly, that we've been going after, is the used business and impulse. And Bar III is an example of one of the things we're doing to fill that niche. It's a very exciting new line. Wayne Hood - BMO Capital Markets U.S.: Does it have an impact on comps though in '11 or potentially even in '12, or is just too small to move the needle?

It's too small I think to move Macy’s I.N.C. needle. But in terms of helping the Ready to Wear business, it's not. Wayne Hood - BMO Capital Markets U.S.: The SG&A dollar growth, can you give us some sense for what that might be x or just for the stores? The question was a little bit earlier around maybe overall SG&A, but just if you were take out e-commerce and just what you’re expecting just for the stores overall in '11?

I don't have it in front of me broken out that way, but obviously, it's less of an increase. Wayne Hood - BMO Capital Markets U.S.: And is there any impact from debit card usage proposed regulations that as you kind of look at those, how that might positively impact that number in '11?

We have factored something in to the back half of the year. Wayne Hood - BMO Capital Markets U.S.: How much?

I can't give you that number. Wayne Hood - BMO Capital Markets U.S.: And then my final question relates to e-commerce. Is it fair for us to assume that it adds about one to two points to growth in '11, and that's embedded in your 3% forecast?

I think it's not at the upper end. I mean, it's been running around a point. So as it grows faster, it will go up little bit. But again [ph], not all the way to 2%, nowhere close.

Our next question comes from Ken Stumphauzer with Sterne Agee. Kenneth Stumphauzer - Sterne Agee & Leach Inc.: First, I presume that you’re in close contact with the rating agencies. So I'm curious to know what kind of credit metrics you're targeting to attain investment grade status and whether you have any timeline for obtaining it?

You know something, I can't speak to what they're thinking. So they have ratios. S&P has different ratios than Moody's. We obviously look a lot better this year than we did a year ago. And our plans for the future obviously look better still, but I can't comment on their timeframe. Kenneth Stumphauzer - Sterne Agee & Leach Inc.: And then your bonds right now are trading very well, and I understand that you have a priority of paying down debt first. But if you were to attain investment grade status, would you perhaps entertain the possibility of taking out the more expensive maturities to reduce interest expense?

You know something, I can't really comment on how we would use the cash should we become investment grade. That would be on the list along with the dividends and buybacks and the typical uses. Kenneth Stumphauzer - Sterne Agee & Leach Inc.: One last thing, Karen, historically, kind of incremental SG&A when sales are growing, is typically in that 10% to 15% range, and your guidance would imply that it's significantly higher in 2011. I know that it's an investment year to a certain degree, should we see it revert back to that 10% to 15% range on a go-forward basis or...

I don't know the answer to that. If the Internet business and the Omnichannel business continues to give us the opportunity to grow and particularly grow sales per square foot as much as it has, we'll continue to invest. But I don't know exactly what that SG&A increase would be in '12 or '13.

[Operator Instructions] Our next question comes from David Glick with Buckingham Research. David Glick - Buckingham Research Group, Inc.: Just a quick question on the 2012 debt maturities that you referenced, the $1.1 billion. Is it still your current plan to pay that down or would you consider refinancing a portion of that?

We could do either. I mean, at this point, looking at our credit ratios, it may not make sense to pay it all down. The flipside is we may decide to. So it's frankly early to tell you that. David Glick - Buckingham Research Group, Inc.: And then in terms of Women's apparel, I know that was challenged in Q4. Any signs of life there? Any reasons to be more optimistic and how are you thinking about that business relative to the growth drivers in your center core business in Men's going into 2011?

David, we feel really good about what we call the neo businesses like I.N.C., which had just a spectacular year last year. Bar III, which we just talked about the new launch, and some of the more fashion-forward updated looks are doing very well. The traditional parts continue to struggle, and we're doing major reworks of our brands that fall into those categories as are the vendors. So hopefully, as we get towards the back half of the year, that will improve. I'm not sure how much improvement we'll see until then. David Glick - Buckingham Research Group, Inc.: And then that center core area still a key driver for you in 2011? Any changes in your approach there?

No. It's still a fabulous business for us, obviously, much less sensitive to the issue we were talking earlier about cost increases and just a fabulous business.

Our next question comes from Mike Shrekgast with Longacre.

Can you just talk about -- you're getting back to sort of 2000 levels with regards to revenue EBITDA. Can you talk a little bit about where is still the greatest sort of opportunities now relative to back then, where you see the most growth maybe geographically now that you've put in place My Macy's? Because you're on the cusp there of some very good trends, and we're sort of getting back to those levels.

One of the great things that's happened as a result of My Macy's is a lot of the smaller stores that tend to be less productive are gaining ground rapidly. And so that's obviously a very good thing to happen for the business. Frankly, the bigger stores are benefiting too, though, and so that's helping.

And our final question comes from Rob Wilson with Tiburon Research.

I just wanted to ask you about marketing. Are there any changes in marketing plan for 2011 versus 2010 either as a percent to sales or total dollars?

I don't think there will be significant changes. There's obviously changes in mix, doing much more digitally than we used to. But in terms of total dollars spent, I don't see major changes.

Is it fair to say we'll see additional store closings in 2011? Would you suspect that given your success with online sales that you might look to close more stores going forward than you have in the past?

I expect that every year, we will close a couple of stores as we have done. I don't expect any major store closing announcements at all. Every year, there's a couple of stores that either, there's somebody who's offering us a lot of money for the store or it’s underperforming and gets worse, and therefore, we close it. But I don't expect a major change in that. The question you're asking on the online is actually an interesting one. But we believe at this point that while the Internet is growing rapidly, we think most of that business is actually incremental. And one of the things that we’re busy doing, particularly through technology, is investing in the stores to, again, utilize online so that we grow store sales also. If all we do is transfer business from store to the Internet, that's not a success. So what's been great this past couple of years is that both are growing faster than they had grown, and we'll continue to do that. So the short answer to your question is, no, I don't expect to have a major list of store closings as a result of the Internet growth.

At this time, I'd like to turn the conference back over to Karen Hoguet for any additional or closing remarks.

I just want to thank you all for your interest, and if you have any additional questions as the days go on, obviously, feel free to call us. Thank you.

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