Karen M. Hoguet - Chief Financial Officer

Deborah L. Weinswig - Citigroup Inc, Research Division Jeffrey S. Stein - Northcoast Research Paul Swinand - Morningstar Inc., Research Division Robert S. Drbul - Barclays Capital, Research Division Matthew R. Boss - JP Morgan Chase & Co, Research Division Paul Trussell - Deutsche Bank AG, Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Michael Binetti - UBS Investment Bank, Research Division Heather N. Balsky - Morgan Stanley, Research Division Lizabeth Dunn - Macquarie Research Dana Lauren Telsey - Telsey Advisory Group LLC Bernard Sosnick - Gilford Securities Inc., Research Division David J. Glick - The Buckingham Research Group Incorporated Wayne L. Hood - BMO Capital Markets U.S. Priya Ohri-Gupta - Barclays Capital, Research Division

Good day, everyone, and welcome to Macy's Incorporated Fourth Quarter Earnings Release Conference Call. Just a reminder, today's call is being recorded. And now it is my pleasure to turn the conference over to your host, Karen Hoguet. Karen, please go ahead. Karen M. Hoguet: Great. Thank you, and good morning. And welcome to the Macy's call scheduled to discuss our fourth quarter and full year 2012 performance and to outline our key planning assumptions for 2013. 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. As you saw a few weeks ago, we ended 2012 very strongly with an outstanding January sales performance, which was far ahead of our expectations. We actually made up much of the November, December shortfall and achieved a 3.9% comp growth in the quarter, just short of our original guidance. It was a good quarter and a very good year. In fact, it was the third year in a row in which we've produced very strong sales, profit and cash flow. We are clearly operating on all cylinders. When we reorganized the company in 2009, we began instilling much more of a growth culture that is now beginning to take hold, and our strategies are being executed very successfully. Our 3 key strategies are still what we affectionately call MOM. I'll talk more about each of these later on the call, but just to list them now, the first, My Macy's. This was actually our fourth holiday season since putting the My Macy's structure in place. We continue to build on our success and find new ways each year to satisfy customers through greater localization. This is so critical and frankly, it cannot be emulated by the competition. The second key strategy, the O in MOM, omnichannel. This strategy offers so much opportunity for us. We have been building these capabilities for years and yet, there is so much more to come on this subject. And three, the last M, MAGIC Selling. We are improving the selling capabilities of our store associates while also empowering more local decision-making. The momentum continues to build, and we have a very long runway in front of us. Sales in the fourth quarter were $9,350,000,000, up 7.2% over last year. But remember, part of this is due to the extra week in the 2012 calendar. On a comp basis with the same number of weeks, the fourth quarter sales were up 3.9% over last year. The categories of business that were strongest in the fourth quarter were handbags, watches, shoes, women's suits, active, men's overall, home textiles, luggage and furniture and mattresses. And the weaker businesses were housewares and junior's. Private brands also had a good quarter, with particularly good growth coming from the Millennial classic apparel and home textile brands. Geographically, we performed best during the quarter in our southern markets, as well though at some markets in other parts of the country such as western New York, Oregon and Colorado. Bloomingdale's had a decent quarter, especially considering the fact that the Bloomingdale's stores were disproportionally hurt by Sandy given their geographic footprint. Average unit retail increased approximately 4% in the fourth quarter, with transactions up about 1% and units per transactions down about 1%. As anticipated, the increase in AUR did moderate in the back half of the year, and we were very pleased though to see the number of transactions increase. Sales transacted over the Internet were very strong, up 48% in the quarter on a comp 13-week basis. We are very pleased with how both macys.com and bloomingdales.com are helping us to both grow our customer base and also to increase spend with existing store customers. We are benefiting from very large increases in traffic on the website but also in conversion. The increase in conversion is particularly encouraging given the growth in mobile traffic, where conversion does tend to be lower than on desktops. More on this later. Gross margin in the fourth quarter was 40.6%, down 40 basis points versus last year. Merchandise margin was up slightly in the quarter, but the success of our omnichannel approach with the shipping costs impacts our reported gross margin. Inventory at year end was up 3.3% on a comp basis. This increase is below our first quarter expected sales. It might, though, be a little bit higher than what you had expected. This is because of a conscious decision to bring in more transitional merchandise into our stores so that they would be fresh for post-Christmas selling. We believe in fact that this was a key factor behind the success in January. SG&A expenses were $2,004,000,000 in the fourth quarter, or 3.7% above a year ago. We benefited in the quarter from higher credit income, which was $44 million favorable to last year. This was more than offset by increased spending to fuel omnichannel sales, the expense for the 53rd week and $16 million higher in pension and surf expense. But as a percent of sales, SG&A in the quarter improved 90 basis points, which more than offset the lower gross margin rate. Operating income, excluding store closing costs and impairments in the quarter, was $1,396,000,000, or 14.9% of sales. This is up 11% over last year, or as a percent of sales, up 50 basis points. Store closing cost impairments and gain on sale of leases were a loss of $5 million this year as compared to an income of $25 million last year. Interest expense was $106 million in the quarter, and we booked an additional $133 million in the quarter related to the debt tender that we completed in November. The tax rate in the fourth quarter was 36.6%, approximately the same as last year. Net income, excluding store closing cost, impairments and the interest expense associated with the tender, was $818 million. Average diluted share count was 399 million shares. And EPS on this basis was $2.05, up 21% over last year on this basis. Including the store closings, impairment and the tender premiums, EPS in the fourth quarter was $1.83. The full year's results are actually quite similar to those in the fourth quarter. Comp store sales increased 3.7% for the year. We had a slightly lower reported gross margin rate due to the impact of free shipping. We had good SG&A rate improvement, lower share count due to the buyback, all similar to the fourth quarter. And when you put all of these factors together, for the full year, operating income was 12% above last year, excluding store closing costs, impairments and gain on the sale of leases. And as a percent of sales, EBIT on this basis increased 60 basis points. EBITDA as a percent of sales for the full year was 13.4%, up 30 basis points over last year. Return on invested capital was 21.2%, up 50 basis points over last year. Cash flow from operations net of investing activities was $1.4 billion. And we utilized $1.35 billion of cash to buy back 35.6 million shares in 2012. And we also doubled our quarterly dividend to $0.20 a share. EPS grew 20% over last year, excluding store closing cost, impairments, the gain on the sale of leases last year and the debt tender. And our EPS on this basis was $3.46, which compares to our expectation that we said at this time a year ago of $3.25 to $3.30. We are very happy with these results. The consistency of our strong sales growth combined with improving profitability over the past 3 years is something of which we're quite proud. As we look back on 2012, it was a big year for the company. In addition to it being the third year of very strong financial performance, we made some big steps strategically that are positioning us well to continue our good performance in the future. Let's go back to those 3 key strategies, MOM. First, My Macy's. In 2012, we instilled renewed energy into My Macy's by simplifying some of the processes and executing some very successful strategies, including warm weather, Latino, a small store prototype and what we call extreme growth stores. Each of these, and there are more, would convince you, I think, that we will continue to gain benefits in future years from this focus on localization. This organization and the processes we've put in place that enable us to localize our offering are truly giving us a sustainable, competitive advantage. The second strategy, omnichannel. In the fourth quarter, we saw the beginning of the enormous opportunity in front of us from approaching our business from an omnichannel perspective. We are working to provide our customers with seamless experiences no matter how they choose to shop with us and to utilize the strengths of each channel to satisfy demand and service the customers' needs better than we could if we didn't operate multiple channels. It is really exciting, and our team is embracing the new possibilities and working very hard to improve our capabilities and maximize the opportunities. One area on which we're focusing lots of resources is how to best optimize the use of warehouses and our stores in an ever-changing fulfillment environment. As you know, we are filling many items that are ordered in our stores from the inventory either from other stores or from our online fulfillment centers. At the same time, we began in 2012 to fill orders that are entered online out of inventory in our stores. We currently have 292 stores enabled to fulfill goods, up from only 23, a year ago. And by the fall of this year, we expect to have a total of approximately 500 stores for filling orders. We're finding that customers don't really care from where we pull the goods, as long as we fill the order accurately and the delivery is timely. We've built algorithms to help us determine from where to pull the inventory, and we are learning more each day about how we need to refine these formulas. We are really just scratching the surface here. In fact, in the future, we expect these fulfillment locations will be key to offering faster and even same-day delivery, and also will enable the customer to buy online and pick up in-store. And our omnichannel initiatives extend far beyond fulfillment. We are busy improving both our website and our mobile app to make shopping easier and faster. We are taking new approaches to marketing that utilize digital technology and benefit from utilizing a 360-degree view of our customers' shopping behavior with us, and we are collaborating on our merchandise strategies between the channels. This is all very exciting. But remember, it all starts for us with great product and a great in-store experience. Our merchandise acumen and our ability to run great stores are central to our omnichannel success. The line between stores and the Internet is blurring so much that beginning in 2013, we are no longer going to break out our Internet growth when we report our results. The third strategy, the final M, MAGIC Selling. We are focused on training and coaching our associates to improve our engagement with the customer and our selling skills. Our Net Promoter Score keeps improving, indicating to us that progress is being made. We're also working hard to encourage our store associates to think omnichannel. This means selling customers merchandise that may in fact not be in that store, whether it be out of stock or not even carried in that particular location. It also means embracing the customer making a return. These changes aren't easy, but we're working hard to make them happen. We also began in 2012 to formulate our Millennial strategy, which includes active. Active, as you heard me mention a few minutes ago, was one of our best-performing categories in the fourth quarter. And as we move to 2013, we believe that will continue to build. The Finish Line partnership is bringing added credibility to Macy's as a destination for this category, and we're very excited about the very early results in our first store they converted. We are feeling very good about our strategy and the assortment that the Millennial customer is going to start seeing later in 2013. We are particularly excited about our product offering for the older millennial customer, what we call impulse, which is a customer for whom we frankly have not had as much to offer in the past. By the end of 2013, we expect to have launched 13 new millennial brands at Macy's and expanded 11 existing millennial brands. We believe we're laying the framework to make this a very important source of growth for us in 2014 and '15. So let's now move on to our outlook for 2013. As I have said repeatedly, we feel great about our strategies and the momentum with which we're entering the year. Our key planning assumptions for 2013 are pretty straightforward. One, we are assuming an annual comp increase of approximately 3.5% for the year on a 52-week against 52-week basis. And I should mention that it would be approximately 30 basis points higher were it not for the conversion of the athletic shoe business to a leased operation. While there are lots of calendar shifts by month this year resulting from the fact that 2013 follows a 53rd-week, there's really only one major calendar shift between quarters, but it happens to be between the first and second quarters. Due to the timing of promotional events and how they fall on this year's fiscal calendar, our first quarter is planned 2 to 3 points higher than the second quarter. We are opening 3 Macy's stores in 2013: 1 in Gurnee Mills outside Chicago; 1 in Victorville, California, in Southern California; and a replacement store in Bay Shore on Long Island. We're also expanding our Las Vegas fashion show store from Macy's by adding a new box, which will offer an expanded men's offering. And we're also opening a Bloomingdale's store in Glendale in Southern California and 1 Bloomingdale's outlet store outside of Chicago. Total store sales growth is expected to be approximately the same as comp growth for the first 3 quarters of the year. But remember, the fourth quarter will have 1 less week than it did in 2012. So as a result, the total sales growth for the fourth quarter is assumed to be approximately 330 basis points below the comp growth in the fourth quarter. For the year as a whole, that difference should be approximately 120 basis points. But again, it's all happening in the fourth quarter. Net-net, we are assuming an operating income rate increase in 2013. But I have to say that it is getting more challenging as our profit level rises. Plus, building our omnichannel capabilities requires an investment, and these transactions do require higher incremental expense, which, as you know, goes into gross margin due to the shipping cost. We are still committed to and very much focused on exceeding the 14% EBITDA target rate in the near future. We are assuming flattish to slightly down gross margin given again the expected growth in omnichannel transactions, but we assume that we will be able to continue to leverage our SG&A and improve as a rate, offsetting any reduction in gross margin rate. Included in the SG&A are the following assumptions embedded for 2013. Credit income is assumed to be approximately $10 million to $15 million better than 2012 in 2013. We're expecting about $10 million less in depreciation and amortization than in 2012. And our retirement expense, including the 401(k) match, is assumed to be approximately $5 million higher in 2013 than 2012. We're assuming interest expense of approximately $395 million and a tax rate for the year of 36.95%. We've budgeted CapEx for the year at $925 million and expect to make $150 million pension contribution during the year. Embedded in our guidance is our ongoing stock buyback program. And as you saw, the EPS guidance is $3.90 to $3.95. This would represent a 13% to 14% increase in EPS over 2012. So that's an overview of our 2012 performance and our outlook for 2013. Just to give a little bit of perspective, consider how far we have come over the past 3 years. Since 2009, we have added over $4 billion to top line sales. We've added more than $1.2 billion to operating income. And as a percent of sales, operating income increased 340 basis points to 9.6%. We've increased the return on invested capital to 21.2%, 630 basis points over the 14.9% in 2009. And our earnings per share grew from $1.36 in 2009 to $3.46 in 2012, or on average, 36% per-year growth. And as we have said repeatedly, we have a very long runway ahead of us for further improvement within the strategic framework that has been so effective in revolutionizing our business. You see this reflected in our 2013 guidance. If I was to pick 2 words to describe Macy's Inc. today, they would be confident and determined. Our very talented people continue to be very excited about what lies ahead. We hope that you too share our enthusiasm for the prospects in our vision. And now I'll take your questions.

[Operator Instructions] We'll go first to Deborah Weinswig at Citigroup. Deborah L. Weinswig - Citigroup Inc, Research Division: Can you talk about how the Millennial strategy has changed the rest of your women's business and how you think about women's in the future? Karen M. Hoguet: I think it's early, Deb. We're just, as I said, bringing many of these brands in this year. But we do believe this is a customer we didn't previously serve, and we think it will be very helpful. We also think, by the way, that some of us older -- or at least I won't speak for you, I'll speak for myself -- older customers may also like these Millennial assortments. So I think it's going to be very exciting additions to our ready-to-wear floor. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then we're seeing many of your competitors or other department store retailers making big investments on the technology side, yet you're guiding for SG&A improvement. And also, we're not seeing a huge step-up in CapEx or tech. Can you talk about how your approach has been different over the past few years and why you're positioned for SG&A leverage in the future? Karen M. Hoguet: Well, we are investing just as aggressively than I think any of our competitors. We are trying to be balanced, and we think that, that's possible in this environment. And again, with the sales growth being so high, we are able to lever the SG&A. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then last question, you've been one of the pioneers in RFID. Can you talk about how you're utilizing the technology and what we should expect going forward? Karen M. Hoguet: I think our 2 priorities relating to RFID, the first would be replenishment. And by this -- by the fall, we're hoping to have roughly half of our replenishment business utilizing RFID. Our stores will all be enabled by early in the fall, and we're just waiting as the vendors come up and begin to tag the goods. But replenishment is roughly 30% of our business. So this could be very important as we go forward. The second key priority with RFID has related to our store display. We interestingly started this at Herald Square in the shoe department where we used RFID to be able to audit the shoes on display on the floor. Because as you imagine, they get moved a lot during a day. And it's been extraordinarily successful. We've rolled it out now to all of women's shoes across the company. And next up, to do the same -- utilize the technology the same way will be luggage and men's shoes, which will be up this summer.

Moving on, we'll go next to Jeff Stein at Northcoast Research. Jeffrey S. Stein - Northcoast Research: Wondering if you could talk a little bit about -- again, going back to the Millennial strategy, reconcile kind of the weakness in junior's with your optimism that -- and I know junior's is only a piece of Millennial, but you're reconciling that with your optimism on the Millennial strategy. And wondering if you've tested any of these new brands that are going to be rolled out. And kind of -- what kind of reaction you've seen by the customer if you have tested? Karen M. Hoguet: Jeff, we test most everything that we do, but I'm not up-to-date on specific tests, vis-à-vis the brands. But we did a lot of research and testing as we've developed them. So I'm sure that, that is happening as we speak. If you think about the Millennial strategy, as I said earlier, that older millennial is where we saw whitespace. So we're really focusing a lot of attention on that customer. That's also a customer who's going to buy lots of merchandise beyond apparel. As you know, we've rolled out our Impulse cosmetics areas. Also, Impulse is an important part of our shoe strategy and other accessory areas. So all of that is in play. And again, we've talked about active. Jeffrey S. Stein - Northcoast Research: And finally, with rolling out to store fulfillment from online to 500 stores by fall, do you feel comfortable that you've got the store labor situation under control? And are you able to still leverage your store payroll with the, I presume, the increase in hours required to service that omnichannel customer? Karen M. Hoguet: The answer to that question is yes. Our store's team have done a spectacular job of doing this fulfillment very accurately, on time and budgeting accordingly. So we feel very confident of our store's organization ability to do this.

Our next question today is from Paul Swinand with MorningStar Investment. Paul Swinand - Morningstar Inc., Research Division: Just wanted to drill down a little on the online and the margin. I know you've talked about free shipping and some impacts to gross margin. But as you shift more to mobile and as it continues to evolve, could it actually be better for gross margins? I mean, are people buying more items? Is it higher AUR? And is there more full price, I guess? Karen M. Hoguet: Well, historically, that's all been true. But candidly, it's getting so hard to know what's a store sale and what's a mobile sale and what's Internet. But over time, we do hope to have a higher merchandise margin to offset some of those costs. But I think that's farther down the road. Paul Swinand - Morningstar Inc., Research Division: Is the mobile customer accelerating some of those trends or loosening any of them? I guess, I would speculate that the mobile customer wants convenience and will buy quickly and maybe more at full price? Karen M. Hoguet: I wouldn't speculate that.

Our next question is from Bob Drbul at Barclays Capital. Robert S. Drbul - Barclays Capital, Research Division: Is the -- the first question I have is in your assumptions for '13, I know you're going to stop providing the online growth. But can you just tell us how much online growth is assumed? And will it be higher or lower than what you experienced this year? Karen M. Hoguet: Well, as I said, it's getting harder to figure out the lines between them. So I really can't give you that number. I mean, I don't know it. But clearly, the growth is continuing very aggressively. But sometimes, it's being bought on a mobile device sitting in a store. So I'm not sure how to define that. Robert S. Drbul - Barclays Capital, Research Division: Okay. And on the 292 stores that you have, omnichannel stores, can you just talk a little bit about some of the learnings from that and any changes being made as you go up to the 500 stores fulfilling orders? Karen M. Hoguet: It's a lot of details, Bob, and I really don't know all of them. But clearly, the stores have compared best practices and are trying to do that. One of the early learnings was that we had thought we would have special-purpose people doing the fulfillment activity. And we discovered that we were better off using the support associates that we had, because they better understood the merchandise, and people who were putting merchandise on the floor are going to find it much quicker if they understand it. So we did change the staffing model some. But there's a lot of details that go into this, and our store operations group is just doing a terrific job as I said rolling out best practices. Robert S. Drbul - Barclays Capital, Research Division: Okay. And then my last question is can you just talk a little bit about the cold weather categories? Sort of how you've come through that and sort of your experience there over the last several months? Karen M. Hoguet: Well, January was good, as you recall, in cold weather. But for the fall season as a whole, it was another disappointing cold weather season. We thought that was impossible after 2011, but it happened again in 2012. Robert S. Drbul - Barclays Capital, Research Division: Your inventories -- I mean, is everything sort of cleaned up at this point as you move forward? Karen M. Hoguet: Well, we've actually consciously held goods over because as you know, the cold weather is still here. We had done that last year, and it was very successful. Sometimes, we clear our floors too early. And so, we have kept some of the cold weather merchandise on the floor to continue to be able to sell now. But we don't see any liability in terms of future markdowns.

Moving on, we'll go next to Matthew Boss at JPMorgan. Matt? Matthew R. Boss - JP Morgan Chase & Co, Research Division: Karen, about a year ago, we sat down at headquarters and talked about My Macy's, MAGIC Selling, door-to-store, all really in early innings. What would you say over the past year -- what's been your largest learning? And then looking forward, what do you think the largest opportunity is? Karen M. Hoguet: That's a hard question. I think the learnings have just been there's so much more to learn. There's still so much more we can do with My Macy's. And every year, we find new things. We're working with our vendors and MMG to specialize product even more for customer groups, geography stores. Omnichannel, obviously, there's a huge opportunity in front of us as we integrate our strategic thinking more across channels. And MAGIC Selling, again, it's on a trajectory to keep improving the level of service we're giving to our customers. So I think the biggest learning is just how much more we have to accomplish. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Not a bad problem to have. As you look forward, the continued merchandise margin improvement this quarter was encouraging. Can you speak to where we're at today versus prior peak? And then how should we think about door-to-store and what this could be -- what kind of opportunity this could be to gross margin going forward? Karen M. Hoguet: Well, our merchandise margins are at historic peak. The question on the table is, through this optimization of inventory, is there more potential through -- and we have to see from there. So we do expect there to be some improvement in merchandise margin as we go forward. Unclear if in '13 if it's going to offset the added delivery cost associated with omnichannel, as I said earlier. It very well may, but jury's still out.

Our next question today is from Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank AG, Research Division: First, just to clarify your comments earlier on the top line, the first quarter, we should expect same-store sales to be 2 to 3 points above the second quarter? Karen M. Hoguet: That's correct. Paul Trussell - Deutsche Bank AG, Research Division: But roughly about 3.5% still for the first half? Karen M. Hoguet: 3.5% for the year, but I don't see a lot of deviation besides that first and second quarter. Paul Trussell - Deutsche Bank AG, Research Division: Okay, that's helpful. And then regarding your cash, certainly, you have a lot of cash. What should we expect from a share repurchase standpoint in '13? Should it be a similar amount to what we saw in 2012? Karen M. Hoguet: Well, we don't comment on guiding to this amount of stock we're going to buy back. As we've said, that is what we use our excess cash for. But how much we actually buy back depends on the price of the stock, depends on the cash being generated from the business, market conditions, et cetera. But we've said that, that is what we're going to use our excess cash for.

Our next question is from Lorraine Hutchinson with Bank of America Merrill Lynch. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Karen, I was just wondering if you could give us your updated thoughts on the capital structure and if there's an opportunity to perhaps borrow to further fuel the buyback program this year? Karen M. Hoguet: There's always an opportunity. And I think, as we said in the past, our credit rating is very important to us. And we had set credit ratios a couple of years ago for debt-to-EBITDA and EBITDA-to-interest, and we still are living by those targets. So in 2012, we hit the low end of the debt-to-EBITDA target. So again, there is still potential to raise incremental debt in '13, given the improvements in the EBITDA. But we are working to maintain or even increase our credit rating as it is today. But that doesn't preclude increasing the debt level some. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Okay. And then looking at your $925 million of CapEx guidance, is that a good longer-term run rate? Or will we see that taper off as you complete more of the flagship renovation in the out years? Karen M. Hoguet: I would not expect it to taper off. And I think the unknown is whether or when we might build another mega center, which might cause that CapEx to go up over the $925 million somewhat in a year when we build that. But we don't know that yet. But I would not expect it to go down over time.

Our next question is Michael Binetti with UBS. Michael Binetti - UBS Investment Bank, Research Division: So I was wondering if you could just talk to us a little bit about the store-to-door, maybe ask the questions a little bit differently. But can you talk a little bit about the cost profile initiative and if it's a drag to margins beyond what we've seen in the past for e-commerce sales fulfilled from a warehouse? And has that profile changed as you started to scale the business up I guess? Karen M. Hoguet: I think the key thing to focus on is the improving margins we're talking about. It's so hard to define profitability by these individual transactions and allocate everything. If I were you, I would just focus on the fact the operating income is expected to continue to increase as a percent of sales. Michael Binetti - UBS Investment Bank, Research Division: And is that a function of -- I mean, I think you're one of the only ones that we can clearly say it feels like as your Internet scales, it's really becoming a contributor to the profitability. But I mean, 9.6 operating margin is [indiscernible]. Karen M. Hoguet: It's always been a contributor to the business. Michael Binetti - UBS Investment Bank, Research Division: Yes. And maybe, as you think about the comp guidance for the year and maybe the components that went into it as you built it, AUR has been coming down a little bit each quarter. Will 2013 be more about transactions and unit growth than 2012 was? And is there any changes to the way you plan the business differently with that being said? Karen M. Hoguet: Well, I think we expect the AUR increase to be similar to what it was in the fall.

And we'll go next to Kimberly Greenberger with Morgan Stanley. Heather N. Balsky - Morgan Stanley, Research Division: Karen, this is actually Heather Balsky on for Kimberly. I was wondering if you could just talk about some of your strategies and the progress you've made, in particular, price optimization. And also, your focus on sort of leveraging your store base to sort of do -- I guess showcase the items in the store but only ship from online? Karen M. Hoguet: Well, that's part of the omnichannel work. We've done a lot of experimenting this year with goods that are in the stores for which we don't have inventory backing it up. A lot of those initiatives have done very well. We've also experimented with putting merchandise online that we don't have inventory in the online warehouse, as the inventory is only in stores. In the fourth quarter, we had about 700 items that we tested this with very successfully. So we will continue to roll out and do more of showing goods online that we're not keeping in the online warehouses, which is a great thing for the customer, and also is good from a profitability perspective because these are typically goods whose economics don't do so well in big warehouses. So we continue to be very excited about that. In terms of price optimization, I think that's proven to be a lot harder than we had expected it to be, and we're still working on how to optimize pricing across the company. But that has not been as easy to do as we had hoped early on.

And we'll move next to Liz Dunn at Macquarie. Liz? Lizabeth Dunn - Macquarie Research: I guess my question is about Bloomingdale's. Can we just have a little bit more information? I know you said that they did pretty well in the quarter, but how are you feeling about their specific merchandising strategies and their outlook for 2013? And then also, an update on Bloomingdale's outlet? Karen M. Hoguet: Yes. I would say Bloomingdale's is doing well relative to its peer group, and we feel pretty good about it. It was a tougher year in 2012, but it was a really strong year in 2011. And when you put it together, we feel good about their merchandise strategies and what's ahead for Bloomingdale's in 2013. They very successfully launched the Loyalist, the new loyalty program last year at Bloomingdale's. And again, they just continue to make progress. On the outlets, I would say they continue to -- or refine the strategy and work on it to improve it. That's why you don't see us adding a significant number of outlets yet. But we expect that to start happening very shortly.

[Operator Instructions] Moving on, we'll go next to Dana Telsey at Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: So I can definitely tell the thought that's going into fulfillment and the channel convergence that's occurring. How do you think about the labor costs involved in fulfillment? And is there any update on mobile? Are the margins -- as you see long term, the margins as the combined business, do they have the opportunity to move higher with the labor costs that are involved? Karen M. Hoguet: Yes. I mean, as we've said, we are marching up to exceed that 14% EBITDA rate, and a lot of that is being driven by these omnichannel transactions. So we feel very good about the profitability of the business going forward. Dana Lauren Telsey - Telsey Advisory Group LLC: And how many fulfillment centers do you think there can be over time? Karen M. Hoguet: In the stores? Dana Lauren Telsey - Telsey Advisory Group LLC: Yes. Karen M. Hoguet: Well, we're going to have 500 up this year, which represents about 85% of our business. So a significant number, and we may increase it from there. Dana Lauren Telsey - Telsey Advisory Group LLC: And is mobile having an impact, Karen? Are you seeing that? Karen M. Hoguet: Well, mobile is clearly becoming more important, whether it be tablets or smartphones. And so we're spending a lot of time developing our mobile apps, working on those to make them easier to use, both to shop but also for information.

Our next question is from Bernard Sosnick with Gilford Securities. Bernard Sosnick - Gilford Securities Inc., Research Division: Could you speak a little bit about trends in women's apparel and amplify a bit on the success in activewear? Karen M. Hoguet: Yes. I would say, overall, women's apparel has continued to be tough. Every month or so, we see some light at the end of the tunnel, but it really hasn't overall produced that well. As you heard, we had a good fourth quarter in women's suits. Dresses has been improving. Some of the classic private brands did very well in women's approval. But overall, the numbers have not been as strong as the rest of the store. Now as I said, the Impulse business, which will be on our ready-to-wear floor as part of the Millennial, we think is going to be helpful. And hopefully, all boats [ph] will rise and women's apparel will do better as we get into the fall season. Bernard Sosnick - Gilford Securities Inc., Research Division: Could you amplify a little bit on the success in activewear that you noted? Karen M. Hoguet: I'm not sure what you mean. Bernard Sosnick - Gilford Securities Inc., Research Division: I thought you said that activewear performed particularly well. Karen M. Hoguet: Yes, it did, both in men's and women's. We think that the Finish Line addition will also help drive that business even further.

And we'll go next to David Glick at Buckingham Research. David J. Glick - The Buckingham Research Group Incorporated: Just to follow-up on the category trends. Clearly, accessories has been a big driver for the last few years. Are you seeing any signs of any loss of momentum there? And are you still planning that as one of the key areas, i.e. Center Core? And then secondly, if you can give us a little more detail on how the CapEx breaks down? How much is going to be Herald Square and some of the learnings you have from the transition you went through this year and what you applied to maybe minimize disruption this year? Karen M. Hoguet: Yes. In terms of the accessories, Center Core business, is they continue to be very, very strong, and we expect that to continue in 2013. In terms of the CapEx budget, it's really very similar to this year. Remember, Herald Square was going to be about $400 million over 4 years. So it's still going to be a significant chunk of the capital in 2013. We are thrilled that parts of the store are now open, which are helping to offset some of the disruption. The women's shoe floor has been doing spectacularly, and the jewelry areas are doing better and better now that the first floor is -- the Luxe shop's open. But the first floor, if you've been over here lately, is still very disrupted, both in the cosmetic side and also the men's side. So that disruption will continue. I am not up to date, David, on all the learnings, but I'm sure that the Herald Square team learned a lot last year about how to minimize the disruption, and they're doing everything in their power to do that. But there still will be disruption this year. David J. Glick - The Buckingham Research Group Incorporated: Are you as pleased on the handbag side of that first floor as you are with the shoe area upstairs? Karen M. Hoguet: Yes. The first floor has been a little harder to read because not everything is complete, and there's still disruption. The shoe floor is completely done, so it's easier to read. But we are pleased with all of the areas that have been completed so far.

And moving on, we'll go next to Wayne Hood at BMO Capital Markets. Wayne L. Hood - BMO Capital Markets U.S.: A couple of questions. Can you give us some sense of what percent of your sales are tied to free shipping and kind of what's embedded in the guidance? And is there any particular product classifications that are tied more to that? Karen M. Hoguet: I don't know the specific percentage, but it's -- those transactions are happening out of store and also the online orders. So it is obviously becoming a bigger percentage of the business. But don't forget, the lion's share of our business is still what I would call plain old store sales. So a lot of the growth and the attention is on dot-com and this omnichannel area, which is absolutely helping us tremendously in terms of growth. But the lion's share of our transactions are still what I would call in old-fashioned retail sale. Wayne L. Hood - BMO Capital Markets U.S.: Yes. And my last question I guess was just a discussion around credit. I think, coming into the year, you thought credit income would be about $610 million, and I'm just wondering where that landed and kind of what's embedded in your guidance for credit income in the coming year? And is there any nuances quarter-to-quarter as you adjust kind of the income coming in? Karen M. Hoguet: Well, credit this year, the income is about $663 million, which is obviously better than what we had expected at the beginning of the year. It was a combination of good performance of the portfolio, but also credit sales grew more than what we had anticipated earlier in the year. As we look to the guidance for 2013, we're expecting that income to still go up, but only by about $10 million to $15 million. So getting less help year-over-year in 2013, but still a positive.

And we'll go next to Priya Ohri-Gupta at Barclays Capital. Priya Ohri-Gupta - Barclays Capital, Research Division: Was hoping you could speak a little bit more about your credit ratings objective? You discussed sort of holding ratings at the current level or looking to improve. Should we now think of high BBB as a potential objective? Or is it just getting to mid-BBB ratings across all 3 agencies? Karen M. Hoguet: Well, we said repeatedly we'd like to be mid-BBB. But given the strength of the business and the cash flow, we could easily find ourselves above that. But our targeted has been to be a strong mid-BBB rating. Priya Ohri-Gupta - Barclays Capital, Research Division: So if you find yourselves above the mid-BBB, should we expect that you would come back down to the BBB [ph] over time? Karen M. Hoguet: I can't see that.

And we'll go next to Donald Palmer [ph] at Discovery Capital Management.

Your primary department store competitors had a challenging 2012, with the most challenged competitor handing over about $4 billion in sales to Macy's and others. Can you give us a sense for how much that dynamic contributed to Macy's 2012? And if you could, just help us quantify or factor in how much of that you factored in, in terms of your 2013 guidance? Did you assume a similar competitive tailwind? Or something else? Karen M. Hoguet: I really can't comment on that.

On either the 2012 or the 2013 guidance? Karen M. Hoguet: Either one. I mean, as you know, it's obviously helped us in '12. But remember, the overlap between customers isn't 100%. And so there's a lot of our customers that are well above shopping at Penney.

And that is all the questions we have at this time. Ms. Hoguet, I'd like to turn the program back over to you for any additional or concluding remarks, ma'am. Karen M. Hoguet: No, that's it. But thank you all very much. And if you have additional questions, just either call me, Matt or Sara, and we'll do what we can to be helpful today. Thank you.

And ladies and gentlemen, that does conclude our conference for today. I'd like to thank everyone for joining us and wish you a good day.