Karen M. Hoguet - Chief Financial Officer

Michelle L. Clark - Morgan Stanley, Research Division Lizabeth Dunn - Macquarie Research Matthew R. Boss - JP Morgan Chase & Co, Research Division Michael Binetti - UBS Investment Bank, Research Division Paul Swinand - Morningstar Inc., Research Division Deborah L. Weinswig - Citigroup Inc, Research Division Charles X. Grom - Deutsche Bank AG, Research Division Robert S. Drbul - Barclays Capital, Research Division Paul Lejuez - Nomura Securities Co. Ltd., Research Division Adrianne Shapira - Goldman Sachs Group Inc., Research Division Bernard Sosnick - Gilford Securities Inc., Research Division Jeffrey S. Stein - Northcoast Research David J. Glick - The Buckingham Research Group Incorporated Priya Ohri-Gupta - Barclays Capital, Research Division

Good day, everyone, and welcome to the Macy's, Inc. Conference Call. At this time, I'd like to return the call over to Ms. Karen Hoguet. Please go ahead. Karen M. Hoguet: Thank you. Good morning. I'm Karen Hoguet, CFO of Macy's, and on behalf of our company, I'd like to welcome you to our conference call scheduled to discuss our first quarter earnings. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately 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. 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. The team at Macy's continued to produce great results in the first quarter. We are very proud of our performance and the consistency in our results. The strategic investments we are making are working, and we continue to find new strategies to grow. We achieved a comp store sales increase of 4.4% in the first quarter, well above our expectation at the start of the year. Our operating income grew 18% above last year and 80 basis points as a percent of sales. And our earnings per share grew 43%. I will take you through some of the details behind these numbers and give our current view of the second quarter and the rest of the year. And then I'll open the call for your questions. Sales of $6.1 billion in the quarter continued to be strong in both of our brands, at Macy's and at Bloomingdale's and also in-store, as well as online. We are seeing more and more opportunity to satisfy demand from customers when they're in the store with inventory that comes from other locations and from our direct-to-customer distribution centers. We are also beginning to be able to satisfy online demand with store inventory when the distribution center runs out of a particular item. It is really very exciting to watch. We now have over 80 stores equipped to fulfill orders from other stores or from online demand and by the holiday season, we'll have over 290 store fulfillment locations. We think the sales potential from this omnichannel approach is enormous. In addition, over time, it should enable us to also improve the productivity of our inventory, as well as our store square footage. We have barely scratched the surface here, and we are very optimistic about the possibilities. Our strong sales performance in the quarter was also very broad-based in terms of merchandise categories. Sales continued to be strong in Men's, Center Core, meaning categories like watches, jewelry, handbags, cosmetics, shoes, et cetera, and also in home. The feminine apparel business was stronger in February/March than in April, but we are feeling better about these categories, particularly the classic parts of the business. We saw strength during the quarter in what we call the impulse apparel area, which is geared at the older millennial customer, women aged roughly 22 to 30, although the junior business, which is aimed at the younger millennial customer, continued to be weak. Private brands continue to perform well throughout the store, providing newness, exclusivity and value. Amongst our strongest private brands have been Hotel, Charter Club and Bar III which, as you'll recall, just launched last year. Our new Ideology brand, which is geared to the active customer, was recently launched and is doing very well. Geographically, sales were also strong across the country, although the southern markets in general continued to outperform, including markets in Florida, Texas and Hawaii. But it is important to note that we also saw strength in markets not in the south like Cleveland, Ohio, Columbus and Long Island. This demonstrates to us the power of My Macy's. We are working hard to figure out how best to tailor our offering locally, and the results are paying off market-by-market. Average unit retail in the quarter was up 8%, with units down about 4%. Gross margin in the quarter was 38.8% or 30 basis points below last year. Merchandise margin was flattish with last year. We have year-rounded on the impact of free shipping, but the growth of the omnichannel business continued to put some pressure on gross margin in the quarter. But keep in mind, that's great news. The more business we can do, omnichannel and on macy's and bloomingdales.com, the better for the bottom line. And in fact, you saw that with the increase in the EBIT rate, which we'll talk about in a minute. Inventory at the end of the quarter was up 6%, driven by an increase in in-transit merchandise. Inventory net of payables, which adjusts for the in-transit, was up 3%, below expected sales to the second quarter. Expense in the quarter was $1,995,000,000 or 32.4% of sales. This is 1.1% above last year in dollars, but 110 basis points lower than last year as a percent of sales. Relative to last year, credit was the biggest factor favorably impacting expense, with a $43 million benefit this year versus last. As we explained at the start of this year, we expect credit profitability to increase by $15 million to $20 million for the full year and that it would vary greatly by quarter. I'll talk more about this later, but the first quarter was consistent with the higher end of our annual guidance. We also benefited in the quarter from $12 million in lower depreciation and amortization expense. Offsetting some of the favorable variances relative to last year was higher expense related to our investments in our Internet and omnichannel businesses, higher selling expense due to the higher sales, $16 million in higher pension expense and the year-rounding on last year's $12 million gains on the sale of our share of The Knot. Operating income in the quarter was $391 million, 18% above last year. And as a percent of sales, operating income was 6.4%, up 80 basis points over a year ago. Interest expense in the quarter was $112 million, slightly below last year. Book tax expense was $98 million or 35% of pretax income. This was below the annual expected tax rate of roughly 37% due to settlements during the quarter. These settlements were expected to occur sometime during 2012 and therefore, our expectations for the annual effective tax rate has not changed. Net income in the quarter was $181 million, and the average share count on a diluted basis was 423.7 million shares. During the first quarter, we utilized $214 million in excess cash to buy back 5.4 million shares. We currently have $1.1 billion of authorization remaining. Our earnings per share on a diluted basis was $0.43, up 43% over last year. Moving on to cash flow. Our cash flow from operating activities was $265 million versus $67 million last year. There are 5 major variances between the years that together make up the almost $200 million increase in cash flow from operating activities. They are one, the higher net income; two, last year we made a pension contribution of $225 million in the quarter; three, tax payments and the reduction in deferred taxes together were approximately $246 million unfavorable to last year. This is a result primarily from the big increase in profitability in 2011 and resultant higher extension payments. Four, inventory net of merchandise payables was $118 million favorable this year versus last year; and fifth, the reduction in prepaid expenses was due to the use of the Lord & Taylor proceeds which we had put in escrow at year end to purchase 2 key parcels of our flagship location on Union Square in San Francisco. The leases on these 2 parcels, which face Geary Street and Union Square itself, were close to expiring and we felt that controlling them was critical. As a result, our capital budget will go up by approximately $100 million, but the expected cash flow should not go down since this purchase was funded through the escrow fund, as well as proceeds from the sales of closed stores. That purchase explains why CapEx in the quarter was so much higher than a year ago. Largely due to this, the cash flow from investing activities was $138 million unfavorable to last year. But cash flow from operating activities net of investing activity was still $60 million over last year. During the first quarter, we repaid $795 million of debt and utilized $214 million of excess cash to repurchase the 5.4 million shares. And at the end of the quarter, we had $1.9 billion of cash on the balance sheet, which is $739 million more than we did at the end of the first quarter a year ago. So all in all, it was another great quarter. We demonstrated again the sustainability of our good results, as well as the earnings and cash flow potential that flows from strong sales performance. As to our outlook for the rest of the year, we are staying with our earlier guidance of approximately 3.5% comp store sales growth for the remainder of the year, or 3.7% for the full year when you include the first quarter's actual sales results. As a result, our annual earnings guidance also remains at the $3.25 to $3.30. We feel great about the quarter. But remember, it is only the first quarter. Also as previously mentioned, CapEx is now expected to be approximately $950 million, although next year it will return to this $900 million level that we had previously discussed for 2013 and beyond. For the second quarter in specific, we're assuming sales growth to be consistent with the 3.5% guidance, with May expected to be a little higher and June and July a little lower due to the shift of Mother's Day. The gross margin rate in the quarter is expected to be flattish, even with the pressure from higher net delivery expense. SG&A is expected to increase more in the second quarter relative to last year than it did in the first quarter. This is primarily because the credit profitability is only expected to be up slightly versus last year, unlike in the first quarter. Remember that we are year-rounding big increases in credit profitability last year in the second quarter, and even more so in the third quarter. In fact, in the third quarter, credit profitability is expected to be lower than last year by approximately $40 million to $45 million. But again, for the year as a whole, we're still expecting a $15 million to $20 million increase in credit profitability. We feel great about our performance and the outlook for the company. As Terry said in the press release, "We are as excited about the future as we have been about the significant progress we've made over the past few years." We continue to see such potential to increase sales and profitability from our 3 key strategies: One, My Macy's, which continues to offer so many ongoing opportunities to better tailor our assortments to local needs; two, omnichannel. This is really changing the face of retail, providing us with so many interesting ways to better satisfy customer demand; and three, MAGIC Selling, which is allowing us to increasingly differentiate ourselves amongst our direct competitors. Having sales associates with stronger selling skills and product knowledge combined with managers who are learning to be better coaches is clearly paying off. Our team is working together in unprecedented ways, and we are investing in growing the business strategically. I've heard so many sports analogies in our meetings lately talking about our progress, whether these analogies come from rowing, soccer, baseball, football, or even basketball. But regardless of the sport, the key is that we are winning, and we are all committed to continuing to build on our strong performance. And with that, I'll open the call up for your questions.

[Operator Instructions] Go first to Michelle Clark of Morgan Stanley. Michelle L. Clark - Morgan Stanley, Research Division: Can you update us on the competitive environment? And specifically, I know it's difficult to quantify, but how much comp lift do you think you saw at $0.01 in this quarter? And was there any change in trend as of late? Karen M. Hoguet: Well, I think the key thing is in markets where we're competing against Penney's, we have seen an uptick in business. To your point, it's hard to quantify how much. But clearly, we are getting a benefit from what's happening there. Michelle L. Clark - Morgan Stanley, Research Division: Okay. And then the renovation at Herald Square, that is underway. Can you tell us what you saw there in terms of disruption? And how big is Herald Square as a percent of total company revenue? Could it have an impact on the comp? Karen M. Hoguet: Well, it will have an impact on the comp, but I would say it's relatively small, and it has been considered as we've given guidance and plans for the year. We do think there will be disruption over the next 4 years. We're obviously doing everything we can to minimize it. But there will be big chunks of square footage taken out at various points. So it has some effect on the total, but not enormous. Michelle L. Clark - Morgan Stanley, Research Division: Okay. And then could you provide us with an update on what you're seeing in terms of product costs? Maybe differentiate between the first half and second half of this year? Karen M. Hoguet: Yes. I mean, I think as we get to the second half of the year, we are expecting to see some relief in terms of product costs. And much like last year, we were strategizing what to do when costs were going up. We're doing the same thing in reverse. But like last year, it's really not until later in the third quarter where that would even begin to impact us. Michelle L. Clark - Morgan Stanley, Research Division: Okay, great. And then just lastly, Karen, can you just discuss with us your appetite for buybacks? You mentioned $1.1 billion remaining in the authorization. Could you complete that this year? Karen M. Hoguet: We had not quantified exactly how much stock we will be buying back. But the idea is to use our excess cash to buy back stock. So frankly, you'll have some model and see from there, but there's -- you get some sense in the first quarter as to our buyback intent.

Our next question will come from Liz Dunn, Macquarie Capital. Lizabeth Dunn - Macquarie Research: I guess first question, just the inventory increase that we saw. Can you just discuss that and how it sort of ties into your omnichannel efforts and when we could potentially see greater efficiency in inventory? Karen M. Hoguet: Yes. I mean, if you think about it, the inventory net of payables is up 3%. So it's below what we're expecting for sales in the second quarter. So we are funding the businesses that are doing very well so that we will be ready for May sales and beyond. I think to your bigger strategic question, I think it's going to take us longer to figure out where's the optimal place category-by-category to keep inventory. So I think that is probably at least 2013 and perhaps longer before we'll see the impact from major strategic changes in inventory as a result of omnichannel. Lizabeth Dunn - Macquarie Research: Do you think that the strategies that you've employed already are adding greater inventory availability online? Are we already seeing that piece of the benefit? Because you seem to specifically talk about greater efficiency in sales per square foot. Karen M. Hoguet: Well, what we're -- I'm trying to think about the end of your question, sorry. But as we've been adding more and more categories online that are available to be fulfilled from the store when they run out, we are seeing that there's a big opportunity and increased demand. In other words at macys.com, we may not have been buying enough inventory to satisfy the demand that was out there. So I think that's going to help significantly. I'm not sure I understand the question, though, on the store. Lizabeth Dunn - Macquarie Research: Well, you talked in your prepared comments about greater efficiency of inventory and greater efficiency in sales per square foot. So it sounded to me like you were talking more about an ability to be more in stock in-store, but I was wondering if the piece of it that was online had already benefited because you're already doing some door-to-store. Karen M. Hoguet: No, that's just beginning. And there's one more piece to this strategy, the omnichannel strategy, that we'll begin to test this fall which is today, there are a big chunks of inventory that are in the store that are unavailable online. We've never sold them at macys.com because there wasn't a good use of warehouse space. But what we're going to start experimenting with is putting merchandise up on macys.com that you can buy that will be 100% fulfilled from the store, which I think is going to be hugely successful. When I talk about the store spacing more productive, that's, in many cases, taking advantage of an opportunity to perhaps take some inventory off the floor, use the direct warehouses and broaden the assortment that you're offering the customer on the store as opposed to using that space for inventory. There's lots of things we're thinking about category-by-category of how can we use the square footage better, where should we have inventory, how much inventory. It's really very, very exciting. Lizabeth Dunn - Macquarie Research: Okay, great. And then one final one, just want to understand the guidance. So is it fair to assume that the third quarter earnings would be down year-over-year? Karen M. Hoguet: We're not giving guidance by quarter. But clearly, having a $40 million to $45 million number to come up against is going to put a lot of pressure there.

And next we have Matthew Boss of JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Karen, excluding credit, can you walk through SG&A as we think about the second half of the year in 2013? And more specifically, how should we think about the difference between the spending associated with the rollout of omnichannel infrastructure versus the maintenance of the initiative in 2013 and beyond? Karen M. Hoguet: Well, I can't help you with your first question. And your second question I'm not sure I even understand. Matthew R. Boss - JP Morgan Chase & Co, Research Division: So I guess the question is the spending that's rolling through SG&A and has been over the last couple of years, related to the omnichannel rollout. How should we think about that spending as we are -- as we have the initiative in... Karen M. Hoguet: I mean, for the foreseeable future, we will be investing and growing the omnichannel business. Now I think it's important to keep in mind, though, that we're also committing to reaching the 14% to 15% EBITDA rate. And so even last year and again this year, where we are investing and growing, we're doing so without hurting the bottom line profitability in total. So I think the key thing to keep in mind, we do expect to continue to invest in growth. But we're also expecting to improve the EBIT rate, the EBITDA rates of the company. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Okay. And then second question, with the underlying core merchandise margin rate flattish today, how should we think about the aggregate gross margin as we begin this cycle the rollout of omnichannel in the back half of next year and as the initiative progresses into later innings and more so around the inventory management opportunity? Karen M. Hoguet: You mean the back half of 2013? Matthew R. Boss - JP Morgan Chase & Co, Research Division: Yes. Karen M. Hoguet: Matt, it's too early to be forecasting margin 1.5 years out. I think the key thing to keep in mind is we think there is huge opportunity, as I said to improve the inventory, productivity, which should help gross margin. So for example, one of the things that were putting in place this summer is a logic that when we are pulling inventory from either a warehouse or a location, we'll pull it from the place that's least likely to sell that item at regular price, which should help margin. But it's premature to be forecasting exactly what that will do, although I'm pretty sure it's going to be positive. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Okay. And last question. Any upcoming fall merchandise initiative to be watching for in the stores? And do your buyers believe we might be in the first inning of a real turn in Women's traditional? Karen M. Hoguet: Well, we're hoping so on the Women's apparel side. It may be too early to claim victory there yet, but we do feel very good about what we're seeing in terms of regular price selling of the new goods.

We'll move on to our next question, which comes from Michael Binetti of UBS. Michael Binetti - UBS Investment Bank, Research Division: So I guess on the comp guidance, as we think about the 3.5 guidance for second quarter, could you help us maybe just dimensionalize what you expect for AURs in the quarter versus units? It is significantly different than first quarter? And then the same question for the annual number I guess, just a little bit of help on how you're thinking about that with the guidance you gave us. Karen M. Hoguet: Yes. I don't really have a forecast for that. There's different ways of getting to that sales number. But I do expect AURs to be up this year. But beyond that, I can't give you a specific number. Michael Binetti - UBS Investment Bank, Research Division: Okay. Maybe just moving down I guess to the gross margin line a little bit, more color on the merchandise margins. As we think about all the puts and takes on that line, is the -- the comps, just the business changes, can you help us think about how you see the merchandise margin, specifically, flowing through the year as you roll off the higher input prices for apparel, but probably the AUR boost diminishes as we move quarter-to-quarter here through the year? Karen M. Hoguet: I think all I can say is stick with the guidance of we expect the gross margin to be flattish for the year. Michael Binetti - UBS Investment Bank, Research Division: Okay. And I guess on just a different topic, one thought is -- you mentioned that you saw some competitive responses in the markets your overlap with JCPenney. Are there time -- it seems like you should be doing better during discreet time periods like when you have promotional events like a holiday sale. And obviously, the April calendar really didn't have any with the Easter shifting into March and Mother's Day into May. I mean, do you feel like that's a better environment where you do have more promotions in the months around a discreet holiday like that with that brand -- with JCPenney's not really promoting via price point stimulus during holidays like you would be? Karen M. Hoguet: I think the best thing to say is that we are seeing a pickup pretty much across the board, but I'm not going to get into specifics day by day.

And next we have Paul Swinand with MorningStar Inc. Paul Swinand - Morningstar Inc., Research Division: I want to ask just about the credit portfolio. I know you're saying you're lapping several big increases. Are you noticing any difference in statistics from the online customer and their uptick of credit or use of credit or the way they use your card? And is that affecting the portfolio outlook at all? Karen M. Hoguet: Not really. The penetration on macys.com has done well, as has bloomingdales.com. Overall, we're seeing pressure on our penetrations or usage of our card, we think in part due to the challenges of getting new accounts approved with the increased regulations coming out of Washington. But I don't see huge differences in trend there. Paul Swinand - Morningstar Inc., Research Division: Okay. So that's still a pressure. But is there a chance that lets up as you lap that in the late half of the year? Karen M. Hoguet: No, I don't think so. Paul Swinand - Morningstar Inc., Research Division: Okay. And then just trying to follow-up on Michael's question about the units and AUR. It seems like if your inventory is well controlled, your units have to be down a little bit. But as you plan the back half of the year, are you actually going to be a little light on units? And are you going to plan that up? Or do you think the units will be tight in the back half of the year? Karen M. Hoguet: Well, the truth is this -- you have to look at it category-by-category and business-by-business. So I can't give you an overall comment. But I promise you, our merchants will make sure we have plenty of units to satisfy the demand.

And next we have Deborah Weinswig of Citigroup. Deborah L. Weinswig - Citigroup Inc, Research Division: Can you walk through some of the initiatives related the millennial customer? And what do you think you -- in terms of the differences between the older and younger millennial, what do you think are driving some of the differences you're seeing there in terms of performance? Karen M. Hoguet: On the millennial customer, our belief is it starts with product. And so we're -- as you know, we're spending a lot of time rethinking how we get that product selected to the stores, how fast we can accelerate our whole process to pick out the inventory and find the fashion. As you know, we also launched for our 3 last year as a way of using the private brand market to help as well. And as I said earlier, that's doing very well. Again, that's geared towards the older impulse customer. But the first priority is product. We're also reviewing all of our marketing to make sure we're reaching this customer through the appropriate way. Obviously, digital and the whole social space is a big part of that. And we're also reviewing a lot of the store environment, trying to make it more friendly to that customer, given the research we've done on his and her needs. The reason I think the junior's business or the younger millennial business is doing less well is in part the market overall, perhaps competition. But also, I think we just needed to sort of reload that strategy and start over. So I think a year from now, we're going to feel a whole lot better about the junior business, but it may take a while to redo that. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then with regards to MAGIC Selling training, obviously as the Macy's story continues to evolve, especially the omnichannel, how are you going back and kind of, I guess, retraining your sales associates to maybe get the word out to customers? How is that process taking place? Karen M. Hoguet: Well, we're going to continually train and develop and add new components to the MAGIC Selling training and product knowledge work that we're trying to do. As you might imagine, it takes a long time to change behavior and change culture. But we think we are making huge progress there. And our Net Promoter Scores are going up considerably, which we do believe is part of that. So Deb, I guess I could say it's just going to be a continual process, and we're thrilled with the progress we're making. And we do think it makes a difference in the store experience. Deborah L. Weinswig - Citigroup Inc, Research Division: Great. And then not to dive into one single marketing campaign, but I was pretty intrigued with the -- I think it was the Brazil, Brazil, Brazil campaign? If you could maybe elaborate on some of the results from that? Karen M. Hoguet: Well, it's frankly just beginning. But early read is it's extremely exciting. It actually hasn't completely launched yet, so you're early. But if you go into any of our stores across the country you'll see Brazil, whether it be products that actually came from Brazil, which is doing very well in-store, or if it's products from our normal vendors that's inspired by Brazil. So we've got a little bit of everything, and I'm very excited about it.

And next we have Charles Grom from Deutsche Bank. Charles X. Grom - Deutsche Bank AG, Research Division: On the 2Q comp cadence by month, I'm a little bit surprised you expect May to be above the 3.5% range. Should we kind of read into that, that you guys have bounced back from the 1-1 in April? Or is it just the earlier Mother's Day that you expect to kind of help you guys out? Karen M. Hoguet: Well not to sound offensive, but we were thrilled with our April performance. So there was nothing that was bad about April. So it was clearly -- the April number was all a result of shift, Easter, the major cosmetics events, as well as the later Mother's Day. We expected it, we planned it, we told you, and there was again nothing bad about April. May has the benefit of the Mother's Day shift, so I'm surprised you wouldn't expect May to be better. Charles X. Grom - Deutsche Bank AG, Research Division: Okay. So at the end of day, it has bounced back? Karen M. Hoguet: I wouldn't call it bounced back, but okay. Charles X. Grom - Deutsche Bank AG, Research Division: Okay. And then just curious, your thoughts on the consumer, obviously a lot of volatility inter-quarter, but you guys have a lot much better data than we have at our disposal. Just wondering here if you could give us some thoughts on kind of what you think about the 4-4 relative to your plan and kind of your overall thoughts of the consumer. Karen M. Hoguet: Well, I mean the 4-4 was clearly above what we had expected, and that makes us feel very good about the consumer and frankly, the market share that we're gaining given the competitive environment which, by the way, we've been doing for the last couple of years. So it's hard to ferret out what's the consumer and what's -- our strategy is working. But we feel good about what we're seeing. Charles X. Grom - Deutsche Bank AG, Research Division: Okay. And you talked a lot about -- like site-to-door, but when do you guys anticipate rolling out site-to-store-to-door? And when you think about them combined, what do you think your inventory turns could look like down the road? It still looks like it's a real big opportunity for you guys. Karen M. Hoguet: Well, it is a big opportunity. But unfortunately, I can't give you a number yet because it's one of those strategies you really have to think about category-by-category-by-category, and we've not done that yet. We're just at the beginning stages here of even understanding the demand potential from that. Charles X. Grom - Deutsche Bank AG, Research Division: All right. And then on site-to-store-to-door, that's not a 2012 event? Karen M. Hoguet: Well, the site-to-store-to-door has 2 pieces, one is when the site is out of stock on something, using store inventory to satisfy that demand. What happens today, in most categories, is if we run out of the inventory at one of the D2C distribution centers, you can't buy it on Macy's or bloomingdales.com. We're beginning to roll out the functionality category-by-category, and we're frankly accelerating that rollout because so far it's been so successful of using store inventory to satisfy demand online. The piece that we haven't done yet and we're going to start to test hopefully this fall is for goods that macys.com never even bought but that are in the store. That's a little trickier, but I think there's huge demand that can come from that. So we would never have those goods in the D2C warehouses. It would only be fulfilled from store, but you still have the opportunity to buy it from your mobile device, from your PC at home or your iPad or what have you. So I think that's very exciting but again, premature to be quantifying the real upside. Charles X. Grom - Deutsche Bank AG, Research Division: And are your inventory systems, do they speak to one another? Are they on one platform at this point? Or are they still separate systems? Karen M. Hoguet: Well, no. And in fact, one of the things that we've been talking about that's included in our capital spending is the capital to improve the omnichannel communication across macys.com and the stores, similarly bloomingdales.com and Bloomingdale's. So I would say today, the systems are not with a need to be to fully take advantage of this. We've got lots of work arounds, but it will be much more efficient once these systems get build over the next couple of years. But again, it's not stopping the strategic discussion.

And next we have Bob Drbul of Barclays Capital. Robert S. Drbul - Barclays Capital, Research Division: I guess the first question I have is on the overall macro environment, was -- is there a factor -- or what was the biggest factor for you guys for you to decide not to raise guidance? I mean was there one thing that you would call out or a concern that you would call out that you are most mindful of as you look at the remaining parts of the year? Karen M. Hoguet: No. The only thing I would call out is the first quarter, and I think our guidance for the year was more aggressive than usual. But I don't know that there's any factor per se, Bob, that impacted that. Robert S. Drbul - Barclays Capital, Research Division: Okay. My second question is from Q4 to Q1, can you talk a little bit about -- has there been a change on the trend at Bloomingdale's at all? Has it remained very strong? Or has there been a slowdown at all that you would call out or anything from that perspective? Karen M. Hoguet: I would say Bloomingdale's has continued to be very strong. So I'm not sure there's really any major callout there. Robert S. Drbul - Barclays Capital, Research Division: Okay. And my last question is, can you talk a little bit about the home business, the way you're planning home and maybe big-ticket trends and some of those items within the business? Karen M. Hoguet: Big-ticket has been unbelievably strong, and we think it's going to continue.

And next we have Paul Lejuez of Nomura. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Paul Lejuez, Nomura. Two questions. One, just wondering how the Brazil promotion, or focus, I should say, ties into the My Macy's localization strategy. Will all stores stress Brazil the same way? Or will you alter that by market and by stores within market? And then just second, just wondering how you've thought differently about your marketing plan, given the state of the competitive environment with JCPenney changing its pricing architecture and how you've changed your marketing dollars and focus. Karen M. Hoguet: I think the key thing is on the marketing strategy. We're winning. And as our marketing people look at our strategies and spending for 2012, we're sticking to our program, and we think that's the best way of continuing to win. In terms of the Brazil in My Macy's, while we are putting Brazil across the country, we are doing some tailoring by market, by location, mostly in terms of size of the Brazil campaign. Obviously, some markets will be bigger and more outsized than you would expect. But again, we think this is something that will have appeal across the country. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: So Karen, you never changed your marketing spend or focus once you heard officially what JCPenney was doing? Karen M. Hoguet: That's correct. Paul Lejuez - Nomura Securities Co. Ltd., Research Division: How come? Karen M. Hoguet: I'm sorry? Paul Lejuez - Nomura Securities Co. Ltd., Research Division: Why not? I'm just wondering why there hasn't been kind of a shift on the fly, maybe you smelled the blood in the water, maybe go after them a little bit harder than you would have otherwise. Karen M. Hoguet: I think we were going to go hard after them before.

And next we have Adrianne Shapira of Goldman Sachs. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Karen, you've cycled -- you've delivered 2 great years of spectacular beats and raises on sales and margins. And now, as you're continuing to make progress on the 3-pronged strategy and obviously some share up for grabs on the competitive landscape, where you sit now in terms of productivity and EBIT margins, where do you think -- where do you see the biggest levers of opportunity this year relative to your guidance? Karen M. Hoguet: I'm hesitating. I'm not 100% sure I see what you're asking. But I think the key thing is we think we're going to continue to perform on the sales line and drop a lot of that profit and cash to the bottom line. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Okay. I guess my question is basically where is the line item, where do you think there's probably room for greater upside than others? Karen M. Hoguet: I think with us, it always starts with sales. Adrianne Shapira - Goldman Sachs Group Inc., Research Division: Okay. And then my second question is you've previously spoken about an EBITDA margin target of 14%, 15%, well on track to get there, probably sooner than expected. As you think about, again, the changing competitive landscape and the spectacular online growth, does that prompt you to think differently about long-term EBITDA margin targets? Karen M. Hoguet: No. I think as I've said to people, that we have a game plan to get it to the 14% and that it will require new thinking to get to 15%. So I think that's where a lot of this omnichannel strategizing should help us. And we'll see. But at this point, our game plan is let's get to 14%, and then we'll figure out 15%.

And next we'll go to Bernard Sosnick of Gilford Securities. Bernard Sosnick - Gilford Securities Inc., Research Division: You've outlined very impressively how Macy is changing and benefiting from omnichannel retailing, but there are also external events going on at the same time. And I'm wondering if you could give us some thoughts on Amazon's idea of getting into the higher end of apparel retailing? Karen M. Hoguet: Yes. The only thing I would say, and we're obviously -- we watch Amazon very closely. They're as much a competitor as Penney's or Kohl's or anybody else in terms of people we keep an eye on. I would say that in most of the businesses that we carry, the in-store experience is still very, very important to our consumer. And I think it will be very challenging for a pure-play Internet company if we do what we need to do in-store by the way, to keep up with technology and make the stores better and better places to shop, to compete. That doesn't mean that they won't do business, but I think that in fashion businesses, having stores is still going to be a competitive advantage. Bernard Sosnick - Gilford Securities Inc., Research Division: I would agree with that. You're also the largest customer for each of your most important vendors. But if these vendors were to sell online to Amazon and initial prices looked different than at normal retail, that could complicate matters. What are your thoughts on that? Karen M. Hoguet: Yes, we really -- I think it's premature to start discussing that. Obviously, we're watching the competitive environment but at this point, we feel very good about our positioning.

[Operator Instructions] We'll go next to Jeff Stein of Northcoast Research. Jeffrey S. Stein - Northcoast Research: Karen, 2 questions quickly. One, given the strength that you saw early in the spring season in sell-through, I'm a little bit surprised that your gross margins, merchandise margins, weren't a little bit better. Can we assume that perhaps maybe you've stepped up the level of promotional activity to try to take a harder swing against JCPenney in the first quarter? Karen M. Hoguet: Bad assumption. If you think about a strong first quarter selling, frankly, it helps your margin in the second quarter when you would've been clearing the goods that you sold in the first quarter. Also, you all need to keep in mind that while all the focus in February and March was on the positive from the warm weather, we actually did much less additional warm weather business in the first quarter than we lost in cold weather business from last year. So clearing the cold weather goods when the weather was so hot was what was costly. Jeffrey S. Stein - Northcoast Research: Got it. Got it. Okay. Let me turn it around and ask just one more question, which is let's assume you're picking up some business from JCPenney. Do you have any strategies that you're thinking ahead about regarding how to hold on that customer? Because clearly, they're losing right now but their plan, I'm sure, is to try to get that customer back in some way, shape or form by their merchandising changes. Are you making any changes in the segment of your merchandising mix that would tend to overlap with them to try to hold on to that customer that you're gaining now? Karen M. Hoguet: I think that the easiest answer is as you might expect, we've got strategies to make sure we keep winning. And that's really all I'm comfortable saying.

And next we'll move to David Glick of Buckingham Research Group. David J. Glick - The Buckingham Research Group Incorporated: Karen, just a question about the Center Core business. Obviously, that's been a big driver for your comps, your average unit retailers, your productivity, and investors seem to constantly worry that, that momentum could slow down. You called it out certainly as a strong performer in Q1. Are you continuing to see that momentum? And if the apparel business improves, is there a trade-off there? And is that -- will that potentially slow your momentum? Karen M. Hoguet: Well it hasn't happened yet, so that's really all I could say, David. We feel great about the newness in the category, and it continues to do well. And we are investing to continue to grow. So we're hopeful that, that momentum will continue. David J. Glick - The Buckingham Research Group Incorporated: Just one quick follow-up on home. Is there any update you can give us on how you're thinking about your vendor structure given the uncertainty over the Martha Stewart brand? Karen M. Hoguet: No. Nothing I can say there.

And now we'll move to Priya Ohri-Gupta of Barclays Capital. Priya Ohri-Gupta - Barclays Capital, Research Division: It's actually Priya Ohri-Gupta, Barclays. Just one quick one. You've had some recent ratings improvement this quarter, and I wanted to see if you had the opportunity to sort of start testing out the commercial paper market. And if so, could this potentially be a source to help support some of your share repurchase activity going forward? Karen M. Hoguet: We're beginning to test to see if it potentially could be a source. Having said that, because of our cash position, it's not something we would be doing this year. So we are beginning to test to see if in fact that would be available to us now.

And it does appear at this time we have no further questions. So Ms. Hoguet, I'll turn the conference back over to you. Karen M. Hoguet: Great. Well, thank you. And again, if anybody has additional questions, Matt, Terry and I are all available to take calls this afternoon. And thanks for your interest.

And again, that does conclude today's conference call. I would like to thank you for your participation.