Karen M. Hoguet - Chief Financial Officer

Matthew R. Boss - JP Morgan Chase & Co, Research Division Deborah L. Weinswig - Citigroup Inc, Research Division Kimberly C. Greenberger - Morgan Stanley, Research Division Paul Lejuez - Wells Fargo Securities, LLC, Research Division Jeffrey S. Stein - Northcoast Research Paul Swinand - Morningstar Inc., Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Priya Ohri-Gupta - Barclays Capital, Research Division Robert S. Drbul - Barclays Capital, Research Division Bernard Sosnick - Gilford Securities Inc., Research Division Lizabeth Dunn - Macquarie Research Paul Trussell - Deutsche Bank AG, Research Division Michael Binetti - UBS Investment Bank, Research Division David J. Glick - The Buckingham Research Group Incorporated Rob Wilson - Tiburon Research Group, Inc. Rick L. Snyder - Maxim Group LLC, Research Division Dana Lauren Telsey - Telsey Advisory Group LLC

Good morning, and welcome to Macy's Incorporated First Quarter Earnings Release Conference Call. Today's call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead, Ma'am. Karen M. Hoguet: Great. Thank you, and good morning, everyone. 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. Sales in the first quarter were $6,387,000,000 or up 4% over last year. On a comp basis, sales were up 3.8%. Given the unusually cold weather in the quarter, we were very pleased with our sales performance. Our business was weakest in the quarter with our most budget-conscious customers, as well as our upscale customers at Bloomingdale's. On the other hand, sales in the core of the Macy's business remained quite strong in the quarter as reflected in our overall comp performance. Remember also that as we transition our athletic footwear business to become a licensed department operated by Finish Line, this will negatively impact our reported sales performance throughout the year. This was particularly relevant in the year during which the businesses converted because sales of athletic footwear were obviously included in last year's sales numbers, but are not in this year's. In addition to Finish Line, as you know, we have also licensed some of our apparel and accessories space at Bloomingdale's, and we have added licensed shops for a few luxury vendors here at Herald Square. So if we calculate comp sales, including the sales of licensed businesses in both years, our comp sales performance would have actually been 6/10 higher or 4.4%. Our strongest merchandise categories continued to be handbags, watches, active apparel, men's, home textiles, luggage, furniture and mattresses. Cosmetics and shoes both had a good quarter, but not as strong as the other businesses mentioned. Women's apparel and our Millennial business remained challenging in total, but we have seen some encouraging signs in parts of these categories. For example, we did see strength in opening price point apparel, suits and dresses, junior dresses and in many of our major market and private brands. Geographically, our business continued strongest in the South. We believe this in part resulted from the unseasonably cold weather in the northern half of the country. Our Internet and omnichannel businesses also continued to fuel added growth. As you know, we are no longer breaking out online sales because of the integration in our business between online and in-stores. The more we collaborate between our channels and utilize inventory across the company to satisfy customers, the more opportunities we are finding to improve our overall performance. Average unit retail in the quarter was up 2.5%, with transactions up 1.7% and units per transaction down slightly. Gross margin rate in the quarter was flat with last year at 38.8%, with merchandise margin up slightly. Inventory at the end of the quarter was up 3% over last year, consistent with our expectations. SG&A in the quarter was $2,041,000,000, up 2.3% over last year. And as a percent of sales, SG&A was 32.0%, reflecting 0.4-point improvement versus a year ago. We are continuing to invest in the growth of our dot-com businesses, store fulfillment and other omnichannel strategies. These investments were offset in part by stronger-than-expected credit performance. Credit income in the quarter was $166 million or roughly $23 million over last year, due primarily to lower losses, particularly bankruptcies. This increase is in fact above what we had expected for the full year. We now expect the credit income to be up over last year by a similar amount in the second quarter, and up but by a whole lot less in the fall season. Our penetration of our proprietary card was 45.3% in the quarter, which is flat to a year ago. Operating income in the quarter was $435 million, up 11% over last year and 40 basis points as a percent of sales. Interest expense was $97 million, $15 million below a year ago, and pretax income was 21% above a year ago. The tax rate in the quarter was 35.8%, up slightly over last year. We still expect that the effective tax rate for the year to be approximately 36.95%. But as you know, the rate in any quarter is going to be impacted by the timing of settlements and other discrete items. Net income in the quarter was $217 million, up 20% over last year. Average diluted share count was 30 -- 394.5 million shares, which is 30 million or 7% below last year due to our ongoing repurchase activity. During the first quarter, we bought back approximately 8.4 million shares for a total of approximately $360 million. So earnings per share were $0.55 on a diluted basis, which represents a 28% increase over a year ago. We are very pleased with this result because it combines a strong operating performance, driven both by increases in sales and in profitability, along with the benefits of utilizing excess cash to buy back shares. We believe this quarter demonstrates the power of the Macy's story. Cash flow continued strong as well, and in the quarter, we generated $191 million of cash from operating net of investing activities. This compares to $63 million last year. Because of our strong results and our confidence in our future, we increased our quarterly dividend by 25%, up to $0.25 per share. And in addition, we increased our buyback authorization by $1.5 billion, which is added to the $1.1 billion remaining at the end of the quarter from our prior authorization, so a total of $2.6 billion. As we look forward, we are not changing our outlook for the year. We are still expecting comp sales of 3.5% for the year and EPS on a diluted basis of $3.90 to $3.95. I would add, though, that while we still expect the second quarter sales to fall below that in the first quarter, we now expect the spread between the first and second quarters to be by less than the 200 to 300 basis points we had mentioned in February. We believe we will get a benefit in the second quarter as the weather finally begins to get warmer. As I said during our last conference call, we are confident and determined. We are a company that excels at multitasking. We are structured and aligned to improve our performance simultaneously on a number of fronts. So when you think of the potential for us to continue to outperform, you shouldn't just look at one element of the business. Our potential spans categories, stores, online and mobile, Macy's and Bloomingdale's, private, exclusive and market merchandise brands. We are engaging with customers no matter how they shop us; reaching out to diverse multicultural customer groups, whether they are Millennials or part of other demographics; and of course, we continue to manage expense very carefully, optimize our inventories, invest capital wisely and work hard to maximize cash flow. We have so many great assets and so many opportunities for further improvement. I am very proud of our unfolding story of growth at Macy's, Inc. Thank you all for your interest. And now, what questions can I answer?

[Operator Instructions] And we will go first to Matthew Boss of JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Karen, could you speak to online growth and the progression of the omnichannel effort as you move closer to 500 doors by year end, just what you're seeing today in the overall progression? Karen M. Hoguet: Well, what we're seeing is obviously the store fulfillment has been a huge success and has allowed us to greatly increase the amount of online orders that we're able to fulfill and satisfy customers. And it's also enabling us to satisfy demand in stores as we do the Search & Send we've talked about, where we utilize store fulfillment to satisfy orders in different stores. So it is a huge success, and is for sure helping fuel the sales growth we're seeing. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Great. And then second question, can you just talk a little bit about the mindset as it relates to capital allocation, particularly when I look at your 2.4 to 2.7 debt-to-EBITDAR target, sitting at the low end, and your actions today raising the dividend and buyback. What's the best way to think about this going forward? Karen M. Hoguet: Well, I think as we've said, maintaining a strong investment-grade rating is important to us. We think we're right about there, sort of in the mid-BBB category, and that's the ratings that we're going to aim to maintain as we go forward. Possible, we may go a bit higher, but I don't think you're going to see any dramatic change in our behavior as it comes to using excess cash. We believe that paying a competitive dividend is important. You saw that this morning with the increase in the dividend, and excess cash beyond that will be used to buy back shares.

And we will hear next from Deborah Weinswig with Citi. Deborah L. Weinswig - Citigroup Inc, Research Division: In terms of inventory growth, I was impressed in terms of your management even with the very difficult quarter from a weather perspective. Can you talk about tools, processes, people you have in place in terms of how you were able to manage that so well? Karen M. Hoguet: Well, I mean, that's been a strength of ours, particularly since the reorganization. Our merchants are constantly forecasting and re-forecasting the business, and making sure we're taking the markdowns we need to keep the right age of inventory. Because the key to running a retailer is keeping the flow of fresh receipts. So if you're not maintaining the right inventory level, you get backed up, particularly in periods like we've seen with the unseasonably cold weather. So I think our merchants have done a terrific job managing the inventories and keeping fresh goods coming into the stores. Deborah L. Weinswig - Citigroup Inc, Research Division: Great. And then can you talk about the timing of the launch of the 13 Millennial brands, and I think the expansion of the existing 11 as well? Karen M. Hoguet: Yes -- no, I think we're probably midway through those launches. I haven't actually counted which ones, but having seen some of them in the stores last week, they look terrific, and so far so good in the stores where we're testing them. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then last question, can you talk about the licensing opportunity and how it's changing your model and access to product? Karen M. Hoguet: Well, where there's a category or a vendor, but let's speak category for a minute, where we don't think we can get the best product for our customers, a license deal like Finish Line makes a huge amount of sense. If you think about it, they have access to shoes that we couldn't get as Macy's. And so, it's obviously greatly enhancing our assortments, which as you know, is the key in our mind to being successful in retail. Also, they have a great selling model, which I think will also benefit us. So should there be other categories or parts of the business where those -- that situation exists, another one by way is obviously Sunglass Hut. We might license something else, but I don't see it becoming a huge part of the business.

And we will hear next from Kimberly Greenberger of Morgan Stanley. Kimberly C. Greenberger - Morgan Stanley, Research Division: If you could just speak to a little bit Q1 and if there was any sort of improvement as you worked your way through the quarter and we got some warmer temperatures, or if you can speak to the way Q2 started? And then, we're just trying to figure out how to think about Q1 and Q2 sales relative to one another. I know you expected less of a delta relative to the 200 to 300 basis points, but if you could give us any guidance on that, that would be helpful. Karen M. Hoguet: Yes, everyday we see warm weather the business gets stronger in those categories that are impacted by weather -- things like apparel, sandals, things like that. So we're fairly confident that when it gets warm, business will improve. At the end of the first quarter, we had expected first quarter sales to be increased to be higher by 200 to 300 basis points than the second quarter. We don't now think that delta will be as great. We still think the first quarter will be higher than the second quarter, but not nearly by that amount, again, because of the weather shift.

We'll go to our next question from Paul Lejuez with Wells Fargo. Paul Lejuez - Wells Fargo Securities, LLC, Research Division: Karen, just 2 questions. One, the weakness that you spoke of at the low end as well as the high end or with the Bloomingdale's customer, I'm wondering if that showed up as a traffic issue, perhaps conversion, maybe both, or was it more about the ticket size? And then second, you've talked in the past about your view of SG&A and credit and how you look at those 2 and manage expenses based on what credit is doing. And I'm wondering which specific buckets you feel that you can flex, as you look to the back half of the year where you expect credit to be less of a tailwind, what are the buckets that you can flex most easily? Karen M. Hoguet: Well, in terms of -- Bloomingdale's did have a challenging quarter. I can't speak to the question specifically that you asked. In part, because Bloomingdale's is a more contemporary fashion retail, they have been hurt more by the general weakness in the feminine apparel area. I think also the fashion today is quite a bit younger, which may be less appealing to the broader Bloomingdale's customer. That may be a piece of it. So again, we're not sure, but they did have a more challenging quarter. On the other end of the spectrum, we are seeing some weakness amongst our more budget-conscious, what we call deal-hunting customers. But the truth is, you really should be focusing on the overall strength of the Macy's business, because obviously we had a great comp in spite of this. On the SG&A side, we're constantly managing expense, and obviously the good news in credit helped us quite a bit in the quarter. But we would expect to continue to have good SG&A performance as well in the back half of the year. Paul Lejuez - Wells Fargo Securities, LLC, Research Division: Are there specific buckets, though, that you look to first to flex up and down as you see credit come in better or worse? Karen M. Hoguet: I don't -- we wouldn't -- we don't change the SG&A because of credit going up or down. I mean, I -- we just are constantly trying to manage SG&A as aggressively as we can, but not in response to what we're seeing on the credit side.

And we'll take our next question from Jeff Stein of Northcoast Research. Jeffrey S. Stein - Northcoast Research: Karen, just kind of curious how your private labels performed during the quarter, and if the weakness that you saw at the low end was more in private label or in branded goods? Karen M. Hoguet: No -- well, actually, we had a very good quarter in private label and interestingly, particularly the opening price point. But often, the opening price point doesn't necessarily mean the lower-end customers. So you've got to be careful. Because again, our opening price point goods are really just giving great value to every customer, but private brands had a very good quarter. Jeffrey S. Stein - Northcoast Research: Okay. And your new collections in Millennial, I think you spoke very briefly to that, but just wondering if you can talk about some of the early reads and feedback you're getting? And if and when it has been positive, would it possibly affect or change your view of orders for fall, perhaps increasing the waiting in that category or... Karen M. Hoguet: No, I don't think so. I mean, we feel good about the brands. They look great on the floor, really bringing life both to the mstylelab or the junior floor. And the Impulse areas that we're creating look terrific, largely because the new product, and even the older products that we're buying differently, really making progress. But as we've said, don't expect it to have a big impact on growth until next year. This year, we're just rolling it out slowly and testing and learning. Jeffrey S. Stein - Northcoast Research: Okay. Got it. And final question, number of Finish Line departments at the end of the quarter? Karen M. Hoguet: That's a tough question. Jeff, I don't know the answer. We'll get back to you. I think it's around 20, but I'm not positive.

And we'll take our next question from Paul Swinand with Morningstar Investment Research. Paul Swinand - Morningstar Inc., Research Division: I guess as you look out, just maybe a couple of years, 3, 4 years on the online investment, do you feel like you're in a heavy investment period and then eventually that should start to slow down? Or do you feel like the way the business is going now, this is just kind of the ongoing run rate and you'll continue to invest online [ph], it will leverage with the sales growth, but not in a step or in a lumpy fashion? Karen M. Hoguet: Well, there are lots of lumpy investments being made, but I don't anticipate the total to come down into the future. As we model out our CapEx going forward, we are not assuming a reduction in investment in the online omnichannel world. Now, some of that investment goes into the stores, though, because it's increasing the use of technology within a store. But I don't believe it's going to go down as we move forward. Paul Swinand - Morningstar Inc., Research Division: Okay. But do you think it will leverage a little faster as the sales pick up? Or is it just kind of a steady state... Karen M. Hoguet: No, I think it's more dollars-related, I mean, how much we're spending. So I mean, again, as we look at our capital budget, we're going to spend about $925 million this year, and I would encourage people to model $925 million to $1 billion for the next couple of years. Paul Swinand - Morningstar Inc., Research Division: Okay. Great. That's very helpful. And then I feel like I've asked this question a number of times before, but it's always interesting to hear the incremental tactics that you're doing with the My Macy's or some of your operating strategies, and I know you in your prepared remarks said there are new things that you're finding. Can you give us more color on what we have to look for in the future? Karen M. Hoguet: Yes. I mean, it's interesting. We've been out in stores recently in 3 very different regions, 1 Northern California, 1 Southern California and San Diego, and then McAllen, Texas, last week. And in each region, the amount of opportunities each of the teams is finding to fine-tune their offering, whether it be inseams of pants, colors, size offerings, and even some brands and products, it just gets better and better each year as we go to visit. So continue to focus on that. In other parts of the country, there's other strategies going on. But I think the whole process and the way we're trying to localize what we offer is going to continue to help us drive sales growth as we go forward. Paul Swinand - Morningstar Inc., Research Division: So in essence, it's just smart, local merchandising that you're still finding new ideas on? Karen M. Hoguet: It is, and we learn more and more about the customers. And by the way, sometimes the customers change. If we look at the number of stores that are Latino-influenced, it's growing significantly since we started 4 years ago. So we also have to be nimble as customers change. Paul Swinand - Morningstar Inc., Research Division: Interesting. And then this is, I admit, maybe a little bit of a soft poll [ph], but I've talked to some people in your team about how this structure is hard to copy and how your competitors probably wouldn't be able to do it. Could you kind of elaborate on that a little for us? Karen M. Hoguet: Yes. There's 2 key reasons. Remember, we put the My Macy's planning organization and structure in place at the time we eliminated our regional divisions. So at the time, we were cutting significant expense and what we did is we reinvested part of the savings into building this organization. Had we not had the expense savings that we were generating, I don't think most companies would now add that much expense to their structure to bring this new organization online. More importantly, though, is as we eliminated these divisions, we had access to incredible talent that had been merchants, literally who had worked with vendors in New York no matter where they lived, and having this merchandise and merchandise planning experience going out into these district positions has allowed them to know how to localize the assortments. If we had started from scratch to hire these people, we never would have been able to get the talent that we have in the field.

And we'll go next to Lorraine Hutchinson with Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Karen, I was just hoping to get your updated thoughts on gross margin for the rest of the year. Did you see anything in the omnichannel rollout that made you change your views on either where the shipping pressure would come in or -- and then secondarily, merch margins, do you think they will continue to be flat to up? Karen M. Hoguet: Yes, at this point, I really don't see anything changing there. The guidance we had given at the beginning of the year was flattish to down slightly. I'd say the same thing today. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Okay. And then we saw the total inventory number, but with these -- with the warmer weather in the first quarter, are there any pockets of inventory that you've carried over that you weren't expecting to? Karen M. Hoguet: Well, on any given day, there's pockets of inventory I wish we didn't have. I mean, that happens always regardless of the weather. But there is nothing that we're concerned about in terms of big pockets or major liabilities as we go into the second quarter. We're taking care of those on a timely basis.

And we'll take our next question from Priya Ohri-Gupta with Barclays. Priya Ohri-Gupta - Barclays Capital, Research Division: I just wanted to follow up a little bit on your ratings comment. I really appreciate the thoughts there. But as we think about your leverage target and you've now been trending sort of at the low end of that 2.4 to 2.7, is that where you're comfortable operating? I know in the past you've alluded to the possibility of adding debt, particularly as EBITDA grows, but could we see you in the market to help fund some of your share repurchases? And then just secondly... Karen M. Hoguet: Yes, you could, but we would stay within the ratios. Priya Ohri-Gupta - Barclays Capital, Research Division: Okay. That's helpful. Should we see the potential for you to trend towards the higher end? Or do you want to stay at the mid to low end of that? Karen M. Hoguet: I think all I can say is, you know I've said what ratings we'd like to have, we've talked about no dramatic change with what we're doing. But beyond that, I think that's all I really can say. Priya Ohri-Gupta - Barclays Capital, Research Division: Okay. And just one administrative question. Where do you need your cash balance to be to run the business on an ongoing basis? Karen M. Hoguet: I don't even know how to begin to answer that. It changes based on the season and the time of year. Maybe call Matt, and we can take you through it on a month-by-month basis. It's just different.

Then we'll go to our next question from Bob Drbul with Barclays. Robert S. Drbul - Barclays Capital, Research Division: Just a couple of questions. On -- in the first quarter, the promotional event that moved from the second quarter, was that -- did that trend as expected? Are the consumers still responding to the big promotional events that you're running? Karen M. Hoguet: Yes. This was Friends and Family, and it was very successful. Robert S. Drbul - Barclays Capital, Research Division: Okay. And then on the -- I guess back to the low-end weakness or even the high-end weakness, are you seeing any competitors be irrational around the weather-risked -- in the categories that have weather risk in them? Karen M. Hoguet: I can't speak to anything major that we've seen. Robert S. Drbul - Barclays Capital, Research Division: Okay. And then the last question is just, on the women's business, like within women's apparel, just elaborate a little bit more there around the trends that you're seeing, any changes in the trends and sort of, I think, within the suit business, anything that you're doing differently there? Karen M. Hoguet: Well, the suits and suits separates is a category that I think we're finding better product for, that's more appealing to a working woman, which I can attest to myself. So that looks a lot better. So it's -- I think it gets to better assortments. The opening price points are looking better and better, giving value out of the private brands. Active has been very strong, which is part of our Millennial strategy. And some of the major brands, in addition to the private brands had great first quarters. So I say this with some trepidation, but there is some hope that perhaps there'll be improvement in the apparel business as we go through the year and the weather warms up, which obviously would be very helpful.

And moving on, we have a question from Bernard Sosnick with Gilford Securities. Bernard Sosnick - Gilford Securities Inc., Research Division: The omnichannel investment, I'm wondering if you can fill us in a little bit about its evolution beyond store fulfillment and what you might be expecting later in the year to help move along omnichannel in relation to the store business and a peek into your plans for 2014? Karen M. Hoguet: That's a tough question to answer easily. There's a lot of things we're doing to keep growing the omnichannel business. If you think about the fulfillment side going to the 500 doors, will be huge for helping that business. We're also doing a long, long list of things to improve the site itself because having a robust and competitive website is critical to helping with the omnichannel effort. And then the third area, we are beginning to invest more in-store technology to bring some of the best of what we know online into the offline environment. So there's a lot going on and will continue to be as we go forward. Bernard Sosnick - Gilford Securities Inc., Research Division: And how are you blending the omnichannel strategy of merchandising with Facebook, your loyalty program, communicating in that way? Karen M. Hoguet: Well, I mean, obviously, the marketing team is operating from an omnichannel perspective. And our merchandising teams are collaborating more and more each day. So everything that marketing does is looking at digital marketing, as well as some of the more traditional forms of direct mail or ROP.

And we'll go to our next question from Liz Dunn with Macquarie. Lizabeth Dunn - Macquarie Research: I guess my first question is, are you seeing any pressure from added promotions at the higher end? It seems like Saks was maybe a little bit more promotional this quarter. Is that impacting your Bloomingdale's business at all? Karen M. Hoguet: I don't know. Without the reporting of monthly sales, we're not quite sure yet, and with us reporting first, we'll see more. It could be. I don't know for sure. Lizabeth Dunn - Macquarie Research: Okay. And then as a follow-up to Bernie's question, in terms of your sort of social media and the ways that you're reaching out to customers digitally, where are you in terms of specializing that content? And I ask this, I just -- I get a lot of e-mails about things that -- from Bloomingdale's, in particular, but also from Macy's, that I don't feel are particularly targeted to me. Where do you find yourself in that evolution? Karen M. Hoguet: Well, we have made enormous progress. However, we're still right in the beginning phases and getting better and better at doing that, both at Macy's and at Bloomingdale's, clearly a high priority for both sides. Lizabeth Dunn - Macquarie Research: Okay. And then just one final one. Any update on how you're thinking about concession shops? I know there are a couple at Herald Square that have been rolled out. How does that impact, or does it have any impact on the rest of the chain? Are you thinking about concession shops for the rest of Macy's or Bloomingdale's? Karen M. Hoguet: Well, I think you heard me say sort of from an administrative accounting perspective, as we convert, it does hurt the comp sales, so we talked about the fact that comps would have been 60 basis points higher had we kept everything as own business. But more importantly, what we think is that these leased businesses or licensed businesses are enabling to offer our customers better assortments, and that's really the key. As you've heard me say repeatedly, it all starts with product. And any way we could give the customer a better offering, we will do it.

And we will go to our next question from Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank AG, Research Division: So a question on the full year guidance. You mentioned that the credit benefit was better than expected and you expect that to continue in 2Q. I mean, from my just quick calculation, that was probably a benefit of about $0.06 to earnings, kind of relative to the initial view that you provided. Is there anything we need to be thinking about or aware of, that is kind of offsetting that flowing through? Karen M. Hoguet: I can't comment on that specific calculation, but it's the first quarter. There's just no reason to be changing estimates at this time. Paul Trussell - Deutsche Bank AG, Research Division: Okay. Understood. And then could you provide just an update on the Bloomingdale outlets and what you're seeing there? Is the expectation still just for, I think you said 4 new stores this year? Karen M. Hoguet: Well, no, it's not 4. It's just Rosemont and Chicago. And I would say, the results are doing better. As you know, we're trying to refine the formula, get it right before we roll it out more aggressively, and we're still in the progress of doing that.

And our next question comes from Michael Binetti with UBS. Michael Binetti - UBS Investment Bank, Research Division: Can you talk a little bit -- I think in February you gave us some good metrics on your RFID efforts, but as you think about that longer-term, can you talk a little bit about how that will impact some of the inventory metrics we see outside of the company? Karen M. Hoguet: Well, I mean, if you think about RFID, there is a couple of places that it can be particularly helpful. One is going to be in terms of item accuracy for replenishment, and that's, obviously, a big deal because we'll be able to take inventory on a realtime basis and constantly replenish where we don't have the inventory. So that should be a big deal and again, we'll have the capability in all stores this summer, late in the summer. And as the vendors begin to tag the goods, we'll be able to roll that out more and more. The second place is in terms of where we can find goods on the floor, which will help in terms of the store fulfillment that we're doing. It will make that a lot easier to do than today. And as you know, we're also using that technology to help us, what we call, display audit on our shoe floors. So that at the end of the day -- how a woman or actually a man shops for shoes, picks up the sample shoes, wanders with it and puts it down some place. And so, getting the shoe floor back with all of the right shoes in the right places is very cumbersome without RFID. And with the RFID, we've greatly simplified that process and sped it up, so it's really helping our business. And now, we're planning to roll it out not only to men's shoes, but also to luggage. So we're pretty excited about that. So it really helps in 2 ways: on the replenishment side, it should help us grow sales more aggressively; and on the identification, it should help us with some of our store operations. Michael Binetti - UBS Investment Bank, Research Division: Interesting. And then can you -- if I could ask you about AUR for a minute. Obviously, we see pretty tough comparisons from last year and that extends into the second quarter. I don't know -- I mean, if the 2.5 you said in the first quarter was where you thought it would be, or does that maybe dovetail to the comments about the low-income consumer being a little weak and maybe you had to get a little more promotional? Or I guess, maybe just where is AUR versus where you thought and is that something that you expect about 2.5 again next quarter? Karen M. Hoguet: Well, it's a little bit lower than we had expected, but the answer is really in mix as opposed to the implication that we had to get more promotional. We didn't, or our margin wouldn't be where it is. So I think it's more just a question of the mix of the business.

[Operator Instructions] And we will go next to David Glick with Buckingham. David J. Glick - The Buckingham Research Group Incorporated: So I had a question about the comp cadence for the year, the 4 5 4 calendar is making it hard to understand. Clearly, you've given us an updated sense of Q1 versus Q2. But in Q4, obviously, the 1 less week between Thanksgiving and Christmas has historically been a negative. In addition, the extra week last year was supposed to be a positive, which really didn't turn out to be. But how can -- how should we think about kind of Q3 versus Q4 from a higher level? Would you see Q3 above Q4? Or is maybe the opportunity in November from all the disruptions you had a year ago? Karen M. Hoguet: Wait. Are you talking about comp or... David J. Glick - The Buckingham Research Group Incorporated: Comp, yes. Karen M. Hoguet: We're not giving guidance by quarter for the fall. We have talked about the impact on total sales in the fourth quarter, but we're not giving a split now between the third and fourth quarter. David J. Glick - The Buckingham Research Group Incorporated: Do you have any general comments about kind of how the calendar sets up for Q4, whether you think it's a positive or a negative? Karen M. Hoguet: I don't have any comment.

And we'll go to our next question from Felipe Gusons [ph] with Mitsubishi Securities.

2 questions, if I may, this morning. The first one, can you refresh my mind again how much of an overlap you have with the typical Kohl's and JCPenney customer? And then I have a question on liability management. Karen M. Hoguet: It's a pretty wide question to be asking. I can't quantify the overlap. It's not that high. People tend to think we compete more directly with them than we do, and it varies greatly by family of business.

Okay. So it's fair to say that if JCPenney were to be able to stabilize the business and maybe even improve it at some point in time, that you would not see a meaningful impact on your performance, correct? Karen M. Hoguet: Well, there's 2 things that happens. One is the impact of the Penney sales, but also to the degree that they drive more traffic to the mall, that often can help us.

Okay. And then the liability management question, Karen. Last year, if I recall correctly, you did a tender for some of your higher coupon debt. Given your strong cash flow and the fact that you still have some of that higher coupon debt outstanding, what is your thinking for this year? Might you still launch another tender? And then kind of as a subsequent question, what is your average cost of debt right now? Karen M. Hoguet: I can't comment on that, on our plans. Sorry.

And our next question comes from Rob Wilson with Tiburon Research. Rob Wilson - Tiburon Research Group, Inc.: I guess last quarter, you talked about a 30 basis-point impact from the licensing of athletic shoes. And today, you've stretched that to 60 basis points. Can you let us know maybe what changed in the last 3 months? Karen M. Hoguet: Well, I think it's a different definition actually. The 30 basis points was, if we took athletic shoes out, and it was only athletic shoes, the 60 basis points includes all of the licensed businesses and also includes them in the calculation. So it's just a different calculation.

And our next question comes from Rick Snyder with Maxim Group. Rick L. Snyder - Maxim Group LLC, Research Division: The gross margin being flat, I thought was a pretty good performance because you moved the Friends and Family back, and your comments on shipping, I was expecting it slightly down. Was there something that gave gross margin in the quarter a boost to get it back to flat? And if so, is there an offset in a future quarter? Karen M. Hoguet: I hope not. I agree with you, it was a good performance. But I think it's -- we're expecting it. As we said for the year, flat to down slightly. So I don't mean to imply it will be flat each quarter. We hope so, but we'll see as we go. But I think it really was a terrific performance on the part of the company.

And we'll go to our next question from Dana Telsey with Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: As online continues to become so important, how is mobile integrating into online? What are you learning? And is it different from Bloomingdale's versus Macy's? And just lastly, how does the loyalty programs fitting in and what are you seeing there? Karen M. Hoguet: Yes. No, the mobile question is quite interesting because in the old days, you would think online and stores. Today, we've got tablets, we've got smartphones, there's sort of a continuum between a smartphone and a desktop we're thinking about. So how we build our sites and how we think about our marketing program, how we think about search technology, we now have to vary for the various different types of devices -- and clearly, becoming a very important part of our strategy on the mobile and particularly, the smartphones. Tablets are huge, but the smartphones are really what's different because that tends to be with the customer wherever they are, even more so than the tablets. So very exciting. And yes, a lot of what's happening will be different for Macy's or Bloomingdale's, but as you know we try to leverage as much as we can of the infrastructure so that we get the cost benefits across Macy's and Bloomingdale's. On the Loyallist program, I'm -- Dana, is your question the Loyallist program? Dana Lauren Telsey - Telsey Advisory Group LLC: That's exactly. Karen M. Hoguet: I think it continues to get better and better. I think the customer has responded very well to it at Bloomingdale's. But we continue to make modifications to make it simpler, easier to understand, easier to track. So it's work-in-process, but we feel very good about it thus far.

And it appears that there are no further questions at this time. Ms. Hoguet, I'd like to turn the conference back to you for any additional or closing remarks. Karen M. Hoguet: Thanks. No, I just want to thank you all for your interest, and if you have any follow-on questions, feel free to call me, call Matt, and we'll do what we can to provide the answers. Thanks.

And again, that does conclude the call. We'd like to thank everyone for their participation today.