Karen M. Hoguet - Chief Financial Officer

Paul Lejuez - Nomura Securities Co. Ltd., Research Division Rob Wilson - Tiburon Research Group, Inc. Matthew R. Boss - JP Morgan Chase & Co, Research Division Charles X. Grom - Deutsche Bank AG, Research Division Steve Kernkraut - Berman Capital David J. Glick - Buckingham Research Group, Inc. Lizabeth Dunn - Macquarie Research Todd Duvick - Bank of America Corporation Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Michelle L. Clark - Morgan Stanley, Research Division Robert S. Drbul - Barclays Capital, Research Division Adrianne Shapira - Goldman Sachs Group Inc., Research Division Deborah L. Weinswig - Citigroup Inc, Research Division Jeffrey S. Stein - Northcoast Research Paul Swinand - Morningstar Inc., Research Division Bernard Sosnick - Gilford Securities Inc., Research Division Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division

Good morning, and welcome to Macy's Third Quarter Earnings Release Conference Call. Today's conference is being recorded. I would now like to turn the call over to your host Miss Karen Hoguet. Please go ahead. Karen M. Hoguet: Okay, thank you. Good morning, and welcome to the Macy's Call scheduled to discuss our third quarter earnings and some of our key assumptions for the fourth quarter. I am Karen Hoguet, CFO of the company. Let me start by first apologizing for the confusion this morning over the brackets that mysteriously appeared on our cash flow statement. Business Wire is responsible for the problem and frankly, still haven't figured out quite how it happened, but note that a corrected release is now posted on the Wire. On 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 2 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. And keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Form 10-K and Form 10-Q. We are very pleased with our performance in the third quarter. We achieved a 4% comp store gain on top of our 3.9% increase last year. Not only does this represent continued strong absolute performance, but it also compares very favorably to our key competitors. We achieved a 64% increase in operating income in the quarter and a 190 basis point improvement in operating income as a percent of sales. Earnings per share were significantly above last year and cash flow generation continued strong. And we feel very prepared for the fourth quarter. So I will discuss some of the factors behind this performance, as well as our outlook for the fourth quarter and then as always, we'll open the call for your questions. Sales in the third quarter were $5,853,000,000, up 4.1% over last year. On a comp store basis, sales in the quarter were up 4%, the lower end of our 4% to 4.5% guidance. Our sales exceeded our expectations in August and September, but in October, as you know, our sales fell a little short. This can largely be explained by weakness in cold weather merchandise like coats, sweaters and hats, scarves and gloves and of course, the snow in the Northeast on that last Saturday of October, obviously hurt us as well. We saw the business improve when the weather got colder, so we remain optimistic for the fourth quarter. Importantly, we continue to see sales growth at both Macy's and Bloomingdale's and both from stores and online. Our fourth quarter merchandising and marketing strategies are terrific, and should enable us to achieve our 4% to 4.5% comp store sales growth guidance. During the third quarter, our Internet businesses continued to perform very well, up 40% over last year. The growth of our omnichannel business is one of the key initiatives driving our success. We believe that the Internet and mobile sites are not only generating great results on their own, but they're also helping us to drive sales into the stores. In the third quarter, our strongest geographic region was the Southeast, followed by the South Central and Southwest. In addition, tourist stores in other regions like Herald Square in New York, State Street and Water Tower in Chicago, as well as San Francisco did very well. Bloomingdale's also had a great third quarter, although they too were hurt in October by the warm weather and the snowstorm. By family of business, our stronger performances where in Men's, cosmetics, handbags and watches. And our weakest sales trends continued in Junior's and casual traditional Women's apparel. Our home store sales in total were good, although not as strong as center core in Men's. Within Home, our strongest businesses were textiles, furniture and luggage. In the third quarter, the average unit retail was up 5%, with transactions up approximately 1% and units per transaction down approximately 2%, which means that units were down about 1%. As you recall, we had expected average unit retail to increase 5% to 7% this fall, with fewer units being sold and we still believe that to be the case. At the end of the quarter, inventory in the balance sheet was up 9.6% at the lower end of the 10% to 12% expected range that I had given you during the second quarter earnings call. Remember that we accelerated receipts into October from the first week of November, to facilitate the processing of this inventory at our stores. And we also accelerated receipts into the first week of all months as we discussed at the end of the second quarter, which increases in transit. That is why though, when you look at inventory net of payables, which also adjusts -- includes the in transit, our inventory net of payables was up only 6%, and excluding both the accelerated receipts and the higher in transit, comp store stock would have been up by approximately the same amount as the expected fourth quarter sales. Our stores are more set than ever for the holiday selling and we hope that, that pays off. Remember though that the higher in transit will continue to be a factor at year end and at this point we expect to end the year with balance sheet inventory up 6% to 7%, but comp store inventory up less than half of that amount. Gross margin in the third quarter was 39.4%, 60 basis points below last year, which is about what we had expected. This reduction is due to the introduction of free shipping at macys.com and the enormous growth of that business as well as Search and Send from our stores. The merchandise margin was flattish in the third quarter. SG&A in the quarter was $2,018,000,000 or 2.5% below last year. And as a percent of sales, SG&A was 34.4%, or 250 basis points below last year. This is better than we had expected, primarily due to the improved performance of our credit portfolio and to approximately $15 million of timing shifts, primarily in marketing, visual and selling expense from the third quarter into the fourth quarter. Our Credit business generated $108 million more income in the third quarter this year than last year. We had expected improvement as we discussed at the end of the second quarter, but not this much. This relates primarily to significantly lower write-offs. The portfolio has improved faster than we had expected and balances are remaining current or are only moving into early ages and not going to write-off. This is very good news. And we are estimating that the profitability of our credit business this year will actually be higher than that in 2007. Penetration of our proprietary cards in the third quarter was 48.8%, down 50 basis points from last year. This is due in part to the strength of our tourist stores, and in part to a reduction in new accounts. The approval rate of new accounts has declined, as we expected, because of more stringent abilit-to-pay standards. Our SG&A would've been pretty much as we expected in total without the great credit performance and that timing shift I had talked about. Operating income in the quarter was $291 million, 64% above last year, and 190 basis points as a percent of sales. Interest expense was $108 million in the quarter, down from last year's $164 million. Last year, however, did include $39 million related to the early retirement of debt. Without that, last year's interest expense would've been $125 million. So on that basis, this year our interest expense was $17 million lower. Our tax rate in the quarter was 24%. As discussed during the second quarter earnings call, we expected favorable tax settlements in the back half of the year. We had discussed this in August and said at that time they were likely to book in the third quarter, which is in fact what happened. Unfortunately, tax settlements are very hard to predict on a quarterly basis. These settlements were assumed, however, in our guidance of the approximately 37% tax rate for the full year. Net income in the third quarter was $139 million, average diluted share count was 431.8 million shares for the quarter. And during the quarter, we bought back 8.2 million shares of stock for approximately $221 million. Earnings per share on a diluted basis in the third quarter was $0.32 versus $0.02 last year or $0.08 per share excluding the comps associated with the debt retirement. Cash flow was strong and net cash provided by operating activity was $627 million versus $346 million last year. And even after the higher CapEx this year, cash flow before financing activities was $94 million more than a year ago. We retired $639 million less debt than last year and even after the increased dividend and the buyback, our net cash used year-to-date was $367 million, approximately $600 million better than a year ago. And our credit ratio has also continued to improve with our debt to EBITDA of 2.6 on a rolling 4 quarter basis, versus our target of 2.4 to 2.7 and EBITDA of -- to interest of 6.8, which is actually above our target of 6.4 to 6.6. We remain focused on keeping our ratios within our target range and being an investment-grade company. So it was another good quarter all around, sales, earnings and cash flow, we feel confident that the momentum we have heading into the fourth quarter combined with our holiday strategies bode well for that quarter. As discussed earlier, we continue to assume comp store sales will be up 4% to 4.5%. The extra day in December before Christmas should not only help December sales relative to November, but should also help the November-December combined time frame overall. With that, as our sales assumption, we are assuming EPS of $2.70 to $2.75 for the full year. This is $0.10 better than our prior guidance due to the improved credit performance and the stock buyback. And remember, this is $0.45 better than our initial guidance at the beginning of the year of $2.25 to $2.30. This would represent significant growth also over last year's $2.11, excluding asset impairment charges, store closing related costs and the premium on the early retirement of debt. For the fourth quarter, this guidance calculates to $1.52 to $1.57. And based on this assumed performance, our EBITDA as a percent of sales would be close to hitting the 13% mark in 2011. This would represent approximately 70 basis points of improvement over our 2010 EBITDA rate of 12.3%. That is great progress as we make our way to our objective of 14% to 15%. Here's a few other comments on our key planning assumptions. One, while we expect our merchandise margins to be flattish in the fourth quarter, our reported gross margin is expected to be down. The decline, however, is expected to be less than that in the third quarter because we will have just about year-rounded on the free shipping through the Internet. However, because of the rapid growth in that business, we are expecting it to still negatively impact our gross margin rate. Two, we are expecting SG&A excluding any asset impairments or store closing cost to be up by less than the comp store sales growth even after the timing shift of the approximately $15 million of marketing visual and selling expense discussed earlier. If we exceed our sales guidance, by the way, the expense increase could be a bit higher. We are investing in our stores to support our MAGIC Selling efforts, and we are funding additional resources to help our stores better recover after big days during the holiday season. We also are investing in our omnichannel strategy. Offsetting these investments is an assumption of approximately $55 million to $60 million of improved credit profitability versus last year in the fourth quarter. Depreciation and amortization is estimated at approximately $282 million, flat with the third quarter and slightly below last year. Interest expense is assumed to be approximately $107 million in the fourth quarter. And the tax rate is estimated to be approximately 38% in the quarter, which will result in the annual rate of approximately 37% as anticipated all year long. Last year, remember, there were favorable tax adjustments in the fourth quarter which led to a lower rate, approximately 35%. Had last year's tax rate in the fourth quarter been 38%, the EPS would have been $0.07 lower. So keep that in mind as you're comparing our fourth quarter guidance for this year relative to last year. Also our guidance for the fourth quarter assumes no additional stock buyback. We have said we would buy back some stock prior to the holiday season and not buy back a significant amount until the cash comes in from the holiday sales. Also our guidance assumes no cost associated with store closings or asset impairments at year end. Last year, you'll recall, that number was approximately $25 million and it is impossible though to estimate what it might be this year, since those decisions have not yet been made. And CapEx for the year is still expected to be $800 million. While not related to the fourth quarter guidance, I wanted to make sure you also saw our separate release this morning announcing 2 new Macy's stores and 1 replacement Macy's store. So at this time, we're planning to open 2 new Macy's next year. Downtown Salt Lake City and Southridge in Milwaukee. And then 4 in 2013 or early 2014, Gurnee Mills outside of Chicago, Bay Plaza in the Bronx, Victorville, California and a replacement store in Bay Shore, New York. And for Bloomingdale's, we've announced a new store in Glendale, out in Southern California. We are pleased that we're able to identify these great new store opportunities that will further improve our market position and continue to earn terrific returns on invested capital. All in all, we are pleased to be maintaining the momentum built over the past 2 years, in sales growth, earnings and cash flow, as well as in gaining market share. The fourth quarter is when retailers like Macy's and Bloomingdale's really shine and take on special meaning to customers. We have great fashions, exceptional gifts, memorable experiences and well-trained associates in our stores and online for shoppers this holiday season. We are all very excited about what the next 3 months will bring. And with that, I'll open the call up for your questions.

[Operator Instructions] And we'll take our first question with Michelle Clark with MS. Michelle L. Clark - Morgan Stanley, Research Division: So my first question, in the third quarter incremental credit improvement of $108 million, your fourth quarter outlook calling for improvement of $55 million to $60 million and while certainly positive, a notable slowdown versus 3Q, is there room for upside there? Is it conservative? Is that being factored into your outlook? What type of improvement are you assuming in the credit portfolio? Karen M. Hoguet: I don't think it's conservative, obviously we always hope to do better, but I don't think is conservative. The third quarter is larger than you might have expected, because the way that profit share works with Citi who owns our portfolio, is that we estimate for the year, and then we have a 3 quarter true up in the third quarter. So part of the reason that number was as large as it is, is it includes 3 quarters of catch-up. So you really can't look at the third quarter and expect that to be the same in the fourth quarter. Michelle L. Clark - Morgan Stanley, Research Division: Got it. That's very helpful. And then can you talk about, Karen, where your bad debt expense is today versus prerecession levels. Karen M. Hoguet: Our bad debt expense is still a little higher than it was in '07. Which still gives us some room to improve as we move into 2012, but the profitability, as I said earlier, overall, is more so largely due to lower funding costs now than in '07. Michelle L. Clark - Morgan Stanley, Research Division: And then you mentioned your fourth quarter EPS outlook does not include incremental share buybacks in the fourth quarter. Can you just discuss your appetite for buying back in the fourth quarter? Karen M. Hoguet: I mean we have said that we we're going to buy some back before the holiday season, but not a lot, which is I think is consistent with what you saw in the third quarter. And so we could buyback a little, but frankly, I think we're going to hold off in any significant way until we see and have the cash in from the holiday season. Michelle L. Clark - Morgan Stanley, Research Division: Great. And then last question, Karen, if you could. Updates on price optimization, what are you seeing there, and then the potential impact go forward to topline and gross margin? Karen M. Hoguet: I think we continue to be very excited by the opportunity to price goods scientifically using the system that we're putting into place. My guess is we're going to begin to see some of that benefit about this time next year. We've begun to test it, which is very interesting, but it takes a long time. You really have to get through a whole clearance cycle before you really understand how it's working. So I wouldn't expect it to be meaningful in any way until frankly 2013. But hope to begin to see some impact at this time next year.

And we'll take our next question from Paul Swinand with MorningStar. Paul Swinand - Morningstar Inc., Research Division: Quickly, just a little housekeeping with the tax settlement. Obviously, you've got a 37% rate blended for the full year, is that something that we'll see year after year, or is this kind of a onetime year settlement and now go up next year? Karen M. Hoguet: Well, we're still working on our planning for next year, it's certainly our objective to try to stick to the 37% going forward. And that would be the best I could tell you today, as we give guidance for 2012, obviously if there's a change, we would update it. Paul Swinand - Morningstar Inc., Research Division: And then, just a follow-up question to Michelle's on the credit card portfolio, isn't the average customer a little better off since there are maybe fewer people being extended credit? So wouldn't it be logical that the average customer might just be a better payor compared to 2007 in general, or you don't want to go that far? Karen M. Hoguet: I don't know that I want to go that far. I mean I can tell you that the bad debt has come down faster than we had expected. So that may be what you're talking about, but we still have a little bit of room to go to even get to '07. So again, I think this will continue to some degree in 2012, but nowhere close to the magnitude of what we've seen this year. Paul Swinand - Morningstar Inc., Research Division: But the average quality of the -- each cardholder is probably higher though, right? As you cut out the bottom? Karen M. Hoguet: One would think. Paul Swinand - Morningstar Inc., Research Division: And then a question on the Online business, I know we've talked about it before on the call, but as you see such strong increases even lapping higher year increases, can you talk about whether it's more of a conversion thing, or are you extending reach and frequency of your online advertising to keep those online sales going? Karen M. Hoguet: Yes, it's very interesting, we're finding that even with the very strong online businesses, our store business is stronger than ever. So they're actually working in tandem. A lot of people were worried that it would not be incremental business. But what we're finding is that the omnichannel customer spends more with us, and some cases he or she will look at something online, come try it on in the store, sometimes vice versa. Sometimes they'll buy it online, return it in the store, buy other things. So it's actually a -- it's turning out to be far better in terms of generating sales growth than I think even we thought it would do. Paul Swinand - Morningstar Inc., Research Division: Does the online customer buy as much private and exclusive label, or is there different mix online versus in store... Karen M. Hoguet: I've never looked at that. It would have to do with what we offer online, but my guess is it's similar. We're not finding huge differences, if this is your question between our online customer and our in-store customer.

And we'll take our next question from Lorraine Hutchinson from Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Karen, just wanted to follow-up on CapEx. I know you confirmed to the $800 million for this year. With the New York flagship renovation coming on, what should we expect the longer-term run rate to look like? Karen M. Hoguet: Well, we think it'll probably be in the range of $800 million to $850 million, we're still working on the specifics for 2012. Obviously, as the EBITDA has increased, we do have more capacity to spend a little bit more. Also, with more great new store opportunities, you hate not to do those. I mean it, it'd be wrong not to, if they have good return. So it may go up a little bit, not because it's Herald Square but because of other opportunities. Herald Square, we've worked in within the $800 million. So next year maybe $850 million, I don't yet, we're still working on it. I wouldn't see it though going above $900 million, and that sort of gives you some range of where we're looking. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: AUR was up 5% this quarter, and you're still expecting 5% to 7% in the back half. Any categories, or can you talk a bit about your experience there, what's been working better or worse? Karen M. Hoguet: Yes, it's interesting. In most cases we've done a pretty good job of predicting the unit sales given the price increases. So it's hard to say there's any 1 category where we were wrong, there are programs here and there where we are -- we're finding pricing as we go. But overall, I think we get a pretty good job, our merchants really focused on this of predicting fairly closely. So I can't really tell you there's any categories where we were wrong.

And we'll take our next question from Todd Duvick with Bank of America Merrill Lynch. Todd Duvick - Bank of America Corporation: Had a follow-up question, I guess related to what you were talking earlier on, share buybacks. Now that you've met your leverage and coverage target ratios, it seems like your free cash flow is not going to be deployed towards debt reduction going forward. Can you talk about what you're expecting in terms of free cash flow deployment in 2012 and beyond, is that something the board's going to decide on after the end of the fiscal year? Karen M. Hoguet: Yes, this is something we'll look at once we've seen how this year ends. But clearly, with our credit ratios where they are, there will be much more cash being used for things like buy back, or the dividend or those kinds of uses. But also, I expect we'll continue to reduce debt also, just not with 100% of the cash flow going to debt. But I think we'll continue to be balanced as we have always said we would be. Todd Duvick - Bank of America Corporation: Okay, so as we look at some debt maturities in 2012, we could see some of that being refinanced, but maybe some of it paid down as well? Karen M. Hoguet: Yes, I think that's fair.

And we'll take our next question from Deborah Weinswig with Citi. Deborah L. Weinswig - Citigroup Inc, Research Division: So as we think about holiday 2011 and I think there is some discussion about some marketing visual and selling expense shift. Can we -- as we elaborate in terms of the celebrity gift shops and the G shops and then the early opening on Black Friday, how should we think about Macy's approach to Holiday 2011? Karen M. Hoguet: I think it's just even better, refined way of approaching the business that we did last year. I think the My Macy's impact on holiday is far greater this year than it was last year. So I think you're going to see better assortments in all of our doors, which I think will be very exciting. And we learned a lot last year, and hopefully made those adjustments and we'll have a spectacular Christmas. Deborah L. Weinswig - Citigroup Inc, Research Division: And I don't know if you can talk about, I noticed just a few of them about the performance of the Bloomingdale's outlets and then also with the Gurnee Mills Macy's store, will that be the first full price store in an outlet center? Karen M. Hoguet: Yes, first on the Bloomingdale's outlet, that's performing well, some better than others, but we feel good about their performance and there will be more new outlets announced for next year, we just don't have the deals completed yet. But we're going to continue to expand that into '12 as well. As to Gurnee Mills, it is the first time we're going to have a full line regular Macy's store in an outlet or a mixed-use center, and we're actually quite excited by it. If it works, it obviously opens up lots more opportunities for stores like that. So we'll see.

And we'll take our next question from Adrianne Shapira with Goldman Sachs. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: A few questions. Just help us think about the marketing, in terms of that shift from the third quarter into the fourth quarter, that $15 million, what does that mean in overall year-over-year? The marketing... Karen M. Hoguet: No, what it means is that they had expected to pay for some things in the third quarter, they're getting paid for it now. So it really doesn't mean anything major in terms of the strategy. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Okay, so no shift fourth quarter year-over-year in terms of spend? Karen M. Hoguet: We are spending in the fourth quarter as you would expect, but that shift is not a function of that. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: And then as it relates to gross margin, I mean you had a flat merchandise margin in the quarter and it sounds like that's how you're planning for the fourth quarter. Maybe you could help to sort of characterize what you see out there, obviously you're opening earlier for Black Friday, others started to jump on the bandwagon, just give us your assessment. We know holiday's always promotional, but how you compare this year to past, to previous seasons? Karen M. Hoguet: Holiday periods are always promotional. And I don't think any of us could make them more so because I don't think you can find a day between now and January to act. So I -- and by the way, planned promotions tend to be profitable. It's only when inventory is out of line with sales, which in our case is not the case, where you get excessive markdowns and margin hits. But in terms of promotions, I think it's going to be pretty much as it's been the last couple of years, which is very heavy. But again, planned promotions are not unprofitable. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Sure for you, maybe not so much for others. Karen M. Hoguet: That's because they're not planned. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: And then just following on the margin topic, it sounds like the fourth quarter, there'll be some easing on the pressures, you lap free shipping year-over-year. But the ramp in that channel, it sounds like that will continue to be a pressure on margins. Just help us think about as that channel continues to grow, how we should think about gross margin, next year as we think about free shipping you will have fully anniversary-ed it, but does that headwind completely go away as the channel continues to grow in penetration? Karen M. Hoguet: No, the headwind will not go away. But again, what you all really should focus on is the profitability of this omnichannel business in total, the EBIT or the operating income, not just the gross margin. It's sort of an oddity of GAAP accounting in my opinion that it ends up in margin, that's a different issue. But there's been a lot of noise about the drain of profitability because the growth of free shipping. That's not the case. It's just where it is on the P&L.

And we'll take our next question from Jeff Stein with North Coast Research. Jeffrey S. Stein - Northcoast Research: Karen, just a follow-up on your last comment, can you tell us is there a material GAAP between the EBIT margin on your stores and online at the present time? Karen M. Hoguet: Well, it's one of those things, Jeff, that's really hard to quantify. Some would argue it's more profitable online that in the stores. I would argue perhaps we haven't allocated marketing expense properly when we look at it that way. So I would say today the online business is more profitable, but again, if you fully allocate it, expense, I'm not sure. But it's certainly not less profitable. Jeffrey S. Stein - Northcoast Research: Got it. And one additional question, Karen, because I'm a curious -- it's the first time that I can recall that you've made any comments regarding transaction growth in a quarter, and I'm wondering, is this something that we can expect to hear go forward, and perhaps maybe you can put a little color behind it in terms of what kind of sensitivity you are seeing in various categories, with respect to price increases and where you are seeing pushback from the consumer? Karen M. Hoguet: Well, I included it today because I thought it would be helpful. I'm, having had some conversations this morning, I'm not sure that it is. So I'll defer to you all on when we can talk about it. As I said earlier, there's not really any pushback category by category, it's item by item across the store.

And we'll take our next question from Paul Lejuez with Nomura. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Karen, just continuing on the gross margin theme, I just want to make sure I'm understanding completely as we think about '12. Maybe you can talk about what's working for you and against you on a gross margin line as we look out to next year? Karen M. Hoguet: Well, honestly, and again, it's early to talk about next year. I look now, our merchandise margins are flattish, which is sort of what I've been telling people to project going forward for us, there's lot of good things, there's a lot of bad things and we've got the hit to gross margin on top of the merchandise results from the free shipping. So when we give guidance after the end of the year, we'll obviously do what we can to be helpful. But I would expect gross margins, merchandise margins to be flattish, and there will be the continued headwind from the free shipping. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: And how does the cost environment factor into your merchandise margin assumptions? Karen M. Hoguet: That's just one of the factors we're dealing with. I think our merchants did a really good job of trying to merchandise around the cost increases and where they could hold onto their margins or in some cases take more, they did. Other places with greater price sensitivity, took a little hit on margins, but again it all balanced in the mix. This is when having an experienced organization like we do really helps.

And we'll take our next question from Charles Grom with Deutsche Bank. Charles X. Grom - Deutsche Bank AG, Research Division: Just on the omnichannel, at what point do you think your brick-and-mortar inventory system and your Internet inventory systems will be able to speak to one another chain-wide and effectively allow you to site to store to door nationwide, somewhat of what Nordstrom did a couple of years ago. Karen M. Hoguet: Well, we're going to be able to do it very soon. We're testing it right now, and early next year, I think we're going to start doing it more and more, with the systems we have today. Having said that, we are going to invest over time in better systems that allow us to maximize the inventory easier. Without as much manual intervention, but it's not going to prevent us from doing the site to store to door. Charles X. Grom - Deutsche Bank AG, Research Division: And any learnings on the testing so far? Karen M. Hoguet: It's really a big opportunity. Charles X. Grom - Deutsche Bank AG, Research Division: I would expect so. And just my second question, just as you alluded to in your prepared remarks, October was a little bit softer than the prior 2 months and some of your year-to-date trends, just are you seeing anything abnormal in the day-to-day volatility in your business that would lead you to get a little bit more concerned, as we turn the corner on the holiday period, both at the Macy doors and Bloomingdale's? Karen M. Hoguet: I think the easiest way of answering it is we didn't change our guidance. So the answer is really no. Now, we're always nervous as we head into the fourth quarter, it's obviously a pretty important quarter, but nothing unusual. Charles X. Grom - Deutsche Bank AG, Research Division: And then last question it sounds like you're going to start buying back some stock last year, kind of, when you think of, the next couple of years, what your comfort level for cash to have on the balance sheet throughout the year, I guess particularly at the end of the third quarter as you build for inventory? Karen M. Hoguet: Yes, that's obviously our trough point. We're still working on those plans. For this year, obviously, we did not want to borrow from the working capital facility. I suspect we'll keep that guard rail in the future, but I don't know yet. So we'll have to see.

We'll take our next question from Matthew Boss with JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Hey, Karen, as we look at the fourth quarter and next year, can you speak to the areas of opportunity on the top line, how should we think about drivers online, Bloomingdale's, MAGIC Selling, omnichannel looking forward, curious how we should think about these drivers in terms of breaking down the overall comp and what your level of excitement toward each of these is going forward. Karen M. Hoguet: Well, I don't know how to help you quantify each one of the strategies, because they're all so interrelated. But clearly, we feel extremely excited about all 3 of our major strategies, My Macy's, which I think we continue to improve and get better at. Omnichannel, which we've been talking about this morning, and MAGIC Selling, where the culture is just building. Our Net Promoter Scores are increasing significantly and we think that's going to help sales a lot as we move into next year. So I would say we're equally excited about all 3, and we think it will be very helpful as we get beyond 2011 to continue the sales growth at good levels. Matthew R. Boss - JP Morgan Chase & Co, Research Division: When you think about the competitive environment heading into the holiday and then also into next year, anything you're seeing from competition peers, online retailers, any thoughts on Nordstrom's move to free shipping with no threshold looking forward. Just kind of anything out there that you think is worth noting and potentially impacts any decision going forward. Karen M. Hoguet: I don't think so. I think it's going to be other than perhaps the management change at Penny's, everything feels pretty much as it would have felt a year ago. Matthew R. Boss - JP Morgan Chase & Co, Research Division: And then last question, just the kind of touch on something Chuck mentioned, on the consumer behavior as you're seeing in your stores over the past few months, are you seeing anything from your higher-end customers versus the lower-end demographics, and along those the same lines, anything in a category-specific more discretionary areas such as Home, any changes of note? Karen M. Hoguet: We really haven't seen any changes. What we have been saying is that we do see in the world that the lower income customer is struggling more than the middle or upper end customer, and I think that's continuing. But I wouldn't say it's impacting anything differently now that it did a couple of months ago, and not anything that we're seeing necessarily category by category.

And we'll take our next question from Liz Dunn with Macquarie. Lizabeth Dunn - Macquarie Research: I guess some questions about the renovation. During the renovation, are you expecting any sales disruption? And then, as you look out at your fleet in general, are you sort of happy with how the stores look and feel, can you give us any sort of updated thoughts on when certain number of stores has been touched, how we sort of used to go through that. At one point in time, talk about like 75% of the stores have been refreshed or anything like that we could know about the fleet? Karen M. Hoguet: First, on Herald Square, we do expect there to be some disruption next year, but we would still expect the store to grow year-over-year, and we're still obviously quantifying the details there. I think it's also important to say that the renovation of Herald Square is not coming at the expense of maintaining the rest of the stores. So we're continuing to invest, to try to maintain the fleet, as you call it. Year-by-year, we typically touch 40 to 50 stores a year, and that will continue. '08, '09 was a little less than that as you might expect as we brought the capital down, but we're back up to that level and I think that feels about right, so we'll continue to do that.

We'll take our next question from Robert Drbul with Barclays Capital. Robert S. Drbul - Barclays Capital, Research Division: I guess, Karen as you look at '12, given the credit results from this year, overall, for the full year, would you think credit would be, continue to be a tailwind or do you think it will be a headwind given some of the, especially the third quarter and what you're seeing for the... Karen M. Hoguet: As I said, we're still looking at 2012, but I don't expect it to be a headwind. I don't think we'll get the improvement again, because as I said we're already going to be more profitable this year than in 2007, but I think it will continue to be accretive to operating income next year, in terms of growth. But again, nowhere close to the magnitude. Now that's for the full year. By quarter, it may be quirky. So when we give guidance, we'll obviously update you, because as I explained that in the third quarter, we had a bit of a catch up for the first 2 quarters, so it may be the next year in the third quarter. The shift -- the income by quarter may be different, but we'll update you when we give guidance for 2012. Robert S. Drbul - Barclays Capital, Research Division: And then, just following on the Herald Square remodel, the ROI for the company, would you expect that to be impacted major league from the Herald Square remodel? How should we think about that? Karen M. Hoguet: Let me be clear, we would not be doing the Herald Square remodel if didn't exceed our hurdle rates for internal rate of return and ROIC. So it will be accretive to our hurdle rates and cost of capital.

And we'll take our next question from Steve Kernkraut with Berman Capital. Steve Kernkraut - Berman Capital: Just a couple of follow-up questions most of my questions have really been asked and answered already, but in terms of your buyback, just to try to parse through your language, I guess the big buyback would be in 2012, but given that the cash you've finished here with your cash needs. At this point, well you've hit your peak and you saw it taking the cash now in November, so there's no reason that we should be or you should be precluded from buying back shares come December, you don't have to wait for all the results to be tallied, is that correct? Karen M. Hoguet: I think that's correct, but as I said, I wouldn't expect anything significant. Steve Kernkraut - Berman Capital: And lastly, in terms of your e-commerce business, what percent of your overall business is on -- done on the Internet at this point? Karen M. Hoguet: Yes, I think -- I don't have that number in my head. I could sit here and calculate it, but I can call you later, Steve.

And we'll take our next question from Ken Stumphauzer from Sterne Agee. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: First, I wanted to touch on SG&A and in particular, credit's been a pretty significant tailwind, at least the past 2 quarters, and if you back out the number kind of looks like SG&A may have actually, would have otherwise delevered the past 2 quarters. So I'm curious to know, was there things that maybe you accelerated into these quarters, knowing that it was going to be such a tailwind, was there investments that were accelerated in the quarter, I should say? Karen M. Hoguet: I thought -- it's part of our business. And we manage the totality and we're very involved in the management of the credit business, and it's not something I just sort of push aside. Let me just sort of say that to start, some of you have sort of treated it as something different. That's really part of our expense management of the company. And in terms of the increase without the credit, it's all the factors we've been talking about all year, investing in selling, and omnichannel. But again, it's been a great quarter anyway. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: I guess the purpose of my question is just in the past, you get to significant leverage unlike a mid- single-digit comp and I'm just wondering if that kind of equation has been altered this year, or if it's just an instance where you saw an opportunity to kind of chase things? Karen M. Hoguet: We did not see an opportunity, let me start there. And I think we've talked about the fact that incremental omnichannel sales are sometimes a higher incremental expense rate than store sales where you're fully staffed already, but remember, I think what I would tell you is, look at the bottom line, and assuming we hit 13% this year in EBITDA, that's terrific and we'll only get better as we get to the 14% to 15%. So we're managing the whole business to get to that level. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: Okay, fair enough. And then understanding, of course, that you're going to evaluate all of this at the end of the fourth quarter, but you have very significant lumpiness in cash flow, I'm just curious to know whether you would perhaps entertain the prospect of an ASR towards the end of 4Q? Karen M. Hoguet: I'm not going to comment. Kenneth M. Stumphauzer - Sterne Agee & Leach Inc., Research Division: And then just one last comment, or excuse me, a question for you, specifically on price points, you indicated AURs were up kind of mid- single-digit range. That seems to be kind of below where inflation is trending at least for footwear and apparel. So is it an issue where you're having more private label on exclusive mix, is it willing decision not to raise prices as much as inflation is up? Karen M. Hoguet: It's yes, yes and a lot of other factors. So and again, remember the 5% is blended. So in areas where the price increases were greater, the AUR may be up more. I'm giving you the total store.

And we'll take our next question from Bernard Sosnick with Guildford Securities. Bernard Sosnick - Gilford Securities Inc., Research Division: Macy's has been investing heavily to be customer centric and in the MAGIC program and it's shown up quantitatively in your good sales. I'm wondering what you're finding qualitatively in terms of your market research, with regard to customer satisfaction, loyalty, the willingness to buy at full price? Karen M. Hoguet: Interestingly, we've just year-rounded on tracking the Net Promoter Score. And the increase was enormous year-over-year and the research that goes along with that has been very positive. So we feel good about that. And obviously, the bottom line tends to be the sales line, so we obviously feel great about the year-over-year sales growth that we've been able to achieve. Bernard Sosnick - Gilford Securities Inc., Research Division: With respect to loyalty and the willingness to buy at full price, are you seeing anything there? Karen M. Hoguet: Well, our regular price sell-throughs have been very strong, often due to the quality of the fashion and assortments we're bringing in. But potentially, it relates to MAGIC Selling as well, I hadn't really thought about that, but that could be part of it. Bernard Sosnick - Gilford Securities Inc., Research Division: And could you comment a bit on the Junior business and the Women's casual, traditional. Karen M. Hoguet: I think it's -- I think they're probably different. But in both cases, we're making changes to our offering to try to improve them. I would say both are highly competitive categories of business. And certainly, for casual traditional apparel, I think we're hearing about weakness elsewhere, but our expectations as we go to spring, at least for the private label component of that, we've retooled our Charter Club line, and we think it looks spectacular, but we won't know for sure until we get into the spring.

And we'll take our next question from Rob Wilson with Tiburon Research. Rob Wilson - Tiburon Research Group, Inc.: Karen, if we go back 3 months, what was your expectation for the credit benefit in Q3 versus the $108 million that you reported today. Karen M. Hoguet: Yes, we didn't give that at the time, we just said to expect continued improvement. So the second quarter had been $57 million better than a year ago, just to give you some sense, but we didn't talk about our credit plans. Rob Wilson - Tiburon Research Group, Inc.: Is it fair to say you were kind of thinking $57 million again? Karen M. Hoguet: It's not fair to say, I'm -- we're really not disclosing it. Rob Wilson - Tiburon Research Group, Inc.: You talked about the lower approval rates for your credit portfolio, could you give us some additional color, are the number of your accounts declining year-over-year or just the... Karen M. Hoguet: The new accounts that were down in the third quarter, and it's primarily driven by the approval rate being worse than a year ago, which is actually what we had expected to have happened, because at point of sale we're having to ask not only for income information but also housing information. Now what we're finding is, we've started referring more customers at point of sale into our credit granting group, just to make sure they understand what they're being asked and that they entered information correctly. And so what are finding in fact is that people are making mistakes as they're entering this information. So we hope we'll be able to improve on these statistics as we go forward. Rob Wilson - Tiburon Research Group, Inc.: Who's making the decision about the approval of credit accounts, is that a joint decision between you and your credit partner, or do you guys drive that? Karen M. Hoguet: No, it's really Citi, but it's our people, we take the phone call, but they're really controlling to whom we're granting credit and how much. Rob Wilson - Tiburon Research Group, Inc.: Okay, and one final question, marketing spend this year versus last year, is it increasing or decreasing? Karen M. Hoguet: I don't have the number in front of me. My suspicion is that it's about the same.

[Operator Instructions] And we'll take our next question from Priya Ohri-Gupta with Barclays Capital. Priya Ohri-Gupta: Karen, just sticking to some of the potential refinancing needs that you may have next year around your debt. As sort of market opportunities present themselves, heading into the tail end of this year, do you guys have an appetite to potentially look to pre-finance some of those obligations? Karen M. Hoguet: I'm not really sure I should answer that. We obviously watch the markets closely. So I wouldn't say never, but I'm not -- so I guess the best answer is no comment.

And we'll take our next question from David Glick with Buckingham research group. David J. Glick - Buckingham Research Group, Inc.: We saw some moderation in the trend at higher end department stores in October, and obviously there a lot of issues some of which you called out, but could you share with us how much of a deceleration you may have seen at Bloomingdale's? And do you still expect Bloomingdale's to outperform the overall business going forward? Karen M. Hoguet: Yes, I do. I think that's easiest way of answering that. David J. Glick - Buckingham Research Group, Inc.: And can you give us a sense for how much trend may have -- did it moderate consistent with the overall trend? Karen M. Hoguet: No, sorry.

And Ms. Hoguet, we have no further questions at this time. Karen M. Hoguet: Great. Well, thank you all very much.

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