Karen M. Hoguet - Macy's, Inc.

Randal J. Konik - Jefferies LLC Paul Trussell - Deutsche Bank Securities, Inc. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research Oliver Chen - Cowen & Co. LLC Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Lindsay Drucker Mann - Goldman Sachs & Co. Paul Lejuez - Citigroup Global Markets, Inc. (Broker) Matthew Robert Boss - JPMorgan Securities LLC Brian Jay Tunick - RBC Capital Markets LLC Robert Drbul - Guggenheim Securities LLC Todd Duvick - Wells Fargo Securities LLC Michael Binetti - UBS Securities LLC Richard Jaffe - Stifel, Nicolaus & Co., Inc. David J. Glick - The Buckingham Research Group, Inc. Lowell Wayne Hood - BMO Capital Markets (United States) Jeffrey Stein - Northcoast Research Partners LLC

Good morning and welcome to the Macy's, Inc. Call. Today's conference is being recorded. I would now like to turn the call over to your host, Ms. Karen Hoguet. Please go ahead, ma'am. Karen M. Hoguet - Macy's, Inc.: Great, thank you. Good morning and welcome to the Macy's, Inc. conference call scheduled to discuss our third quarter earnings. I am Karen Hoguet, CFO of the company. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.MacysInc.com, beginning approximately two hours after the call concludes. Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Form 10-K and other SEC filings. We are pleased with our third quarter performance, which was consistent with our expectations. As we have said all year, we are in the process of setting ourselves up for a comeback, and we remain on that path. We are on track to deliver our annual adjusted earnings per share guidance of $3.15 to $3.40. And we are increasing our sales guidance to an annual decline of 2.5% to 3% on an owned plus licensed basis versus our prior guidance of minus 3% to minus 4%. And in addition to feeling good about our operating performance, we're also pleased by the progress we've made on the real estate front. We'll talk more about this later. So let's start with some commentary on the third quarter. I'll then update you on our progress with our real estate strategy, talk about our outlook for the fourth quarter, and then end by taking your questions. Sales in the third quarter were $5.626 billion, down 4.2% from last year and down 2.7% on a comp owned plus licensed basis. Our growth strategies are beginning to gain traction in our top doors and in key areas such as fine jewelry, shoes and home. Plus, we are seeing a meaningful improvement in our apparel businesses; men's, women's and kids'. We were pleased that the performance improved for many of our major apparel brands during the quarter, including our exclusive brands such as INC and Tommy Hilfiger. We also saw strength in shoes, fragrances and soft home, which includes textiles, tabletop and housewares. These trends are offsetting some of the weakness in handbags, cosmetics and fashion watches. It's actually was encouraging that our fashion watch trend did improve, as our expanded tech watch assortment hit our stores and websites late in the quarter, including products from brands like Apple and Michael Kors. The category trends were generally similar at both Macy's and Bloomingdale's. Our digital business had another strong quarter, with double digit gains at both Macys.com and Bloomingdales.com. Geographically, our business was strongest throughout the West. International tourist sales stabilized during the quarter and were down in line with the rest of our sales. As a result, the international tourist business did not have a meaningful impact on our sales in total, although it still represented a headwind for our major international tourist stores for both Bloomingdale's and Macy's. Average unit retail increased 3.5% in the third quarter, which is great news. This compares to a 1.6% increase in the first half of the year. This helped offset the impact of 6% fewer transactions in the third quarter. This was the same reduction in transactions as we saw in the first half of the year. As we discussed after the second quarter, we continue to be optimistic about Bluemercury as well as our Backstage shops within our Macy's stores. In the fourth quarter, we are testing putting Backstage pop-up apparel shops in approximately 45 Macy's doors, with merchandise being procured by our Backstage team. This merchandise will be put adjacent to our Last Act clearance areas and, like Last Act, will be coupon free. In addition, in 13 of these stores, we're also adding some new categories of merchandise being procured by the Backstage team, including toys, home decor and queue products. Those are the items you often see as you're waiting to check out at various retailers. We've put this queue product adjacent to the highest-traffic POS locations in these 13 stores. We think these could end up being additive to many of our Macy's locations. We also remain encouraged by the learnings and progress being made in China. Not only are we developing a potentially large high-growth business, but, as importantly, we are learning about ways we could improve our digital business in the United States as well as how we could assort our stores and websites to better serve the Chinese consumer, whether living in the U.S. or traveling here. Gross margin rate in the third quarter was 39.8%, equal to a year ago. We are very pleased with this performance. It reflects the benefit of lower inventory levels and the impact of our Last Act clearance strategy. At the end of the quarter, comparable inventory was down approximately 3%. This gives us great liquidity, providing us the flexibility to react to trends during the fourth quarter. SG&A in the quarter was $2.071 billion, up 5.2% versus last year. Much of this increase is related to lower asset sale gains this year. We recognized $41 million of these gains in the third quarter this year, which compares to $78 million last year. As you know, asset sales will be lumpy by quarter and are hard to forecast. Most of the gains in the quarter this year relate to the transaction announced last week with General Growth Properties as well as the $9 million booked relating to the Brooklyn transaction in the quarter. If you exclude these gains in both years, SG&A dollars were up 3.2%. This is consistent with what we expected, but I suspect it may seem high to you, given our performance earlier in the year. We continue to benefit from both the restructuring that we completed at year-end 2015, and also the store closures, but these benefits are being more than offset by other increases including selling, where we are investing in our key locations as well as in the strategic families of business I mentioned earlier. This staffing is supporting our growth strategies and incorporates the omni-channel activities that we now ask our store associates to perform. This investment is resulting in improved customer service scores, and we expect higher sales, albeit on a lag basis. We're also continuing to invest in digital growth as well as in our Bluemercury, China and Backstage initiatives. And our earnings from credit were $165 million in the third quarter, which is $12 million lower than a year ago. Our overall sales reduction hurts our credit income and this was magnified by a reduction in the usage of our proprietary card. Proprietary card penetration was still very high in the third quarter, at 48.5%, but it was 80 basis points lower than a year ago. The lower credit sales, combined with slightly lower portfolio yields, continue to negatively impact the income produced relative to a year ago. Having said that, our credit portfolio continues to be very strong in terms of its return on assets. Operating income in the quarter, excluding settlement charge related to our retirement plans, was $169 million. The non-cash settlement charges in the quarter were $62 million on a pre-tax basis, or $0.12 per share after-tax. Interest expense was $81 million; tax expense, $11 million. So net income attributable to Macy's shareholders was $17 million. Excluding settlement charges and impairments from both years, net profit was $54 million this year, down from last year's $186 million. Average diluted share count in the quarter was 310.6 million shares. Earnings per share were $0.05 this quarter as compared to $0.36 last year. Excluding settlement and impairment charges, earnings were $0.17 per share in the quarter this year, down from $0.56 per share last year. And while well below a year ago, this performance is consistent with our expectations and the annual guidance which we had provided. For the nine months of this year, cash provided by operating activities was $308 million, which is $30 million higher than a year ago. This is primarily due to the reduction in inventory net of payables, which resulted from our store closings and our efforts to improve inventory turnover. And, as you heard earlier, this reduction in inventory is helping not only our cash, but also our gross margin rate and potentially our sales as well. Cash used by investing activities was $491 million this year, $370 million lower than last year. This is due to $159 million lower capital spending, higher proceeds from our asset sales and last year's acquisition of Bluemercury. Therefore, our cash flow before financing activities is $400 million above last year. We did resume our stock buyback in the quarter, buying back 3 million shares, utilizing $108 million of cash. And year-to-date, we have bought back 6 million shares for $238 million. At the end of the quarter, we had accessed the commercial paper market for $52 million, which was a lower amount than we had anticipated. And we expect to be out of the short-term debt market by early December, following a $577 million debt maturity payment on December 1. With the strong cash flow and the proceeds from asset sales expected in the coming months, many of you are asking about how we plan to utilize this cash. As you know, we always start with funding our business needs. We then look to utilize excess cash for returns to our shareholders through our dividend and through repurchasing stock. We may also repurchase debt at some point, to help make sure that our credit ratios get back to within our targeted range in a reasonable amount of time. We are currently above our targeted debt-to-EBITDA ratio of 2.5 to 2.8. This ratio was 3.3 at the end of the third quarter on a rolling four-quarter basis. Remember that that does include the weak fourth quarter last year. But we will look at the balance sheet and the ratios at year-end, in conjunction with our plan for the next few years, before we make any decisions on our future utilization of excess cash. In addition to our as-expected operating results in the quarter, we made a great deal of progress on real estate. Our real estate strategy can be divided into three parts. The first is our flagship assets which, as you know, we have defined as Herald Square in New York, Union Square in San Francisco, State Street in Chicago and our downtown Minneapolis store. We have signed a contract to sell our Union Square men's building. This separate building is approximately 250,000 square feet, and we are selling it for approximately $250 million. We expect this transaction to close in January. We will utilize a part of the proceeds to consolidate our men's merchandise back into the main Union Square store and to make it an even more exciting shopping experience. We will be leasing the men's building back for two to three years as we complete this construction. We will receive the cash for this transaction in January when it closes, but under GAAP, we will be not be booking the approximately $235 million gain until January of 2018. We also are continuing to explore options for downtown Minneapolis, Chicago and Herald Square. Of the three, we expect Herald Square will take the longest to determine the best approach for potentially creating value, given its size and complexity. The second component of our real estate strategy relates to the approximately 100 stores we intend to close. As we discussed last quarter, most of these are under-performing stores and are less critical to our footprint, but a few represent opportunities where we believe the real estate value exceeds the value as a retail entity. We announced today that we have a signed contract to sell our downtown Portland store. This transaction is expected to close during the fourth quarter, with proceeds of approximately $54 million and a book gain of approximately $36 million. This store will be closed in early 2017. Additionally, as you saw last week, we sold five locations to GGP for a total of $48 million. One of these stores is already closed. Three will close in early 2017, and we will continue to lease back and operate Tyson's Galleria while GGP determines the best use for this property. There are also two other stores that we will be closing: Douglaston in New York; and Lancaster Mall in Salem, Oregon. These are being closed based on the timing of lease terminations and expirations. So, in total, as of today, we have closed or announced plans to close eight stores as part of the 100 stores discussed last quarter, with Tyson's Galleria being sold in leaseback. We are working on many other transactions like these for the locations that we believe we should close. While Eastdil Secured continues to advise us on the flagship properties and other significant assets, we have also now engaged CBRE to help facilitate the disposition of the majority of our closed or to-be-closed locations. That brings us to the third component of our real estate strategy, which is to create value from our remaining real estate portfolio. Macy's has real estate assets with significant value creation opportunities, but we recognize that realizing these opportunities will often require alternative uses for the property and some amount of related development. We sought out a world-class partner with both capital and strong platform capabilities to help us with this component of our strategy, and we found this in Brookfield Asset Management. Brookfield is one of the leading global investors in real estate, spanning all major sectors; office, multi-family, hospitality and retail, particularly regional malls. As you can imagine, there was tremendous interest among real estate investors to partner with Macy's. We are very excited about the potential of this alliance. We believe that the potential risk-adjusted value from pursuing this path on these assets could be significantly higher than the outright sales today. We have kept this alliance as simple as we could. In short, we are giving Brookfield an exclusive right for up to 24 months to create a pre-development plan on each of approximately 50 assets that are initially included in this agreement. We have the option to add additional assets to this alliance in the future. These to-be-redeveloped assets are a combination of: stores; portions of stores; and outparcels, both adjacent to our stores and, in some cases, in our parking fields. While we might close stores in some of these locations, it is more likely that we will create value with surplus land or through improvements alongside an existing store. The locations initially chosen are varied in their quality. These are just not all our A mall locations. This should give us insight into the potential of our total portfolio. And, in most cases, the assets that we initially have selected are not in malls with the major mall owners. Potential redevelopments in this strategic alliance can range to what we would call modest to more substantial opportunities, and will factor in feasibility as well as impact on store operations. On the modest side, Macy's has successfully done this ourselves, for example: adding restaurants within the Bloomingdale's in South Coast Plaza in Southern California; or putting in a Louis Vuitton shop outside our flagship store in Union Square in San Francisco. The great thing, though, about this alliance is it allows us to keep our focus as a top retailer while optimizing our real estate, doing it in scale and potentially thinking much bigger. And a hypothetical example of a more substantial redevelopment opportunity could be the following. Take an eight-acre standalone 100,000 square foot furniture store. One idea might be to move the furniture operations back into a nearby Macy's mall location, demolish the furniture store, and then densify the site with a newly-built, for example, 100,000 square foot of retail, a new parking garage and a mid-rise residential tower. Brookfield will clearly help us think big and then will help us execute redevelopment opportunities more quickly. So as a first step with this alliance, we, and a dedicated team at Brookfield, will work together to assess the feasibility of the development of assets. Once a plan for a particular asset is developed, Macy's will have the ability to proceed or not to redevelop this asset. If we choose to redevelop the asset, the property will then be contributed into redevelopment joint venture. Macy's can then, at that point, decide to take a cash settlement or contribute and participate in the redevelopment joint venture. And if we stay in as a partner in the joint venture, it is likely that upon stabilization, the redevelopment project would be sold and then profits distributed. We are very excited by this alliance, and look forward to starting the work. We believe that having this single significant partnership will align interests and improve both communication and execution as compared to working with separate developers for each opportunity. Terry, Jeff and I have confidence that Brookfield's senior management is committed to making this alliance successful, and they share our optimism about the potential. We will continue to update you as we move forward on all three of these components of our real estate strategy. Our real estate team, along with our advisors, are doing a terrific job maximizing opportunities in our portfolio in a thoughtful way, while balancing the desire to move quickly. Let's now move on to our outlook for the fourth quarter. The trend improvements relative to the spring season that we saw in the third quarter, combined with a more normal weather pattern, stabilization in international tourist sales and the mix benefit of the higher proportion of digital sales that happened in the holiday season, make us confident that we will be able to deliver an improved comp owned plus licensed sales trend in the fourth quarter. We are expecting comp sales on an owned plus licensed basis to be down approximately 0.5% to down 2% in the quarter, and we are expecting at least a 100 basis point improvement in the gross margin rate this year in the fourth quarter. Given our inventory position and our Last Act strategy, we believe this to be achievable. Remember, last year, our gross margin rate dropped 290 basis points versus 2014, so we do have a lot of room to improve. SG&A is expected to be up over last year in both dollars and rate in the fourth quarter. The investments in growth will continue, and we expect the income to be worse than last year by approximately $50 million to $60 million in the quarter. We recognize the expense investment needed to support our growth initiatives is not insignificant, and we are very focused on identifying opportunities for profit improvement in 2017, including decreasing our non-payroll spend, improving the efficiency of our store operations and making sure we are structured to be both agile and cost-effective. We don't have any specifics to report at this time, but know that this is an important part of our setup for our comeback. Also, we are experiencing an additional delay in the construction of Brooklyn, and, as a result, the timing for booking of the gain is getting delayed more into 2017 and 2018. We now expect to book only $27 million this year. This is $59 million, or $0.12 per share, lower than what we expected early in 2016 when we originally gave earnings guidance. While not insignificant, we remain comfortable that we can cover this shortfall and are sticking with our earnings guidance, but not changing guidance is actually a $0.12 per share increase in our expectations from operations. In the fourth quarter, we expect to book a $4 million gain associated with Brooklyn. We are also anticipating other non-flagship asset sales, including the Portland gain of approximately $100 million, which will take our annual number to approximately $150 million, which is consistent with the guidance at the start of the year. As you can tell, we are expecting quite a few transactions to close over the next few months. Depreciation and amortization for the year is now estimated at approximately $1.055 billion. We are still tracking to our guidance for capital expenditures of approximately $900 million this year. We expect interest expense of roughly $365 million and still the effective annual tax rate of approximately 37%. All of these assumptions support our guidance for our setup year. Our top management team here at Macy's is stronger than ever. The combination of some very experienced executives and recently-added talent is very powerful. The new senior executives bring important capabilities and experiences to the team, complementing those of us with deep history with the company. We are all energized by the new perspectives and know that this will have a positive impact on the business going forward. As we outlined today, our organization is focused on doing all that we can to execute our strategies and drive the strong performance that will lead to a successful fourth quarter and improved results in 2017 and beyond. We head into the holidays with some momentum of some positive trends and with optimism in our assortments and marketing strategies. We have a lot of distinctive product and newness in our stores for holiday. And we feel great that our customer proposition is compelling, including our new Brookstone shops, our investment in the tech watch business, including Apple and Michael Kors, and our new Holiday Arcade, full of wonderful gift ideas. We love this time of year. Macy's is the destination for great holiday gift-giving. And we are uniquely equipped to deliver the complete experience: great product; best-in-class omni-channel capability; and the store animation and holiday traditions that are so cherished by customers across the country. And now, why don't I open the call for your questions?

Thank you. We'll now take our first question from Randy Konik with Jefferies. Randal J. Konik - Jefferies LLC: Oh, thanks a lot. Hi, Karen. Good morning. Karen M. Hoguet - Macy's, Inc.: Hi. Good morning. Randal J. Konik - Jefferies LLC: A couple things; one, I think it's very encouraging you're seeing these AUR trends improve. So I just wanted to get a little bit more color on if you think – obviously, the inventory control is very positive as well. Is this more of an inventory control factor? Are you seeing more firmer pricing acceptance by the consumer or is it mix related, just a little bit more elaboration there? And then, within the...go ahead, I'm sorry. Karen M. Hoguet - Macy's, Inc.: Oh, go ahead... Randal J. Konik - Jefferies LLC: And then, lastly, just to elaborate on the trend in apparel, just so we can get some perspective on, it sounds like that category picked up. The weather wasn't as favorable. Now we're getting more favorable weather. So just kind of curious on, holistically, the inventory control, those are more long term factors where the consumers act from a price acceptance perspective and then a little bit more near-term on just the trends in apparel, given the weather, et cetera. Thanks. Karen M. Hoguet - Macy's, Inc.: Yeah, I think the AUR increase is a combination of inventory control and having the right inventory and mix. And in terms of the apparel trends, we have seen really good business, and, again, across the board: men's, kids' and women's, lots of good things in denim and dresses and active, as I mentioned, the major brands. So it really is across the board. And frankly, the weather hasn't been so favorable, so if the weather turns cold – and today is a little colder, at least in New York – hopefully, that helps as well. But it's very encouraging. Randal J. Konik - Jefferies LLC: Great. Thank you.

Thank you. We'll now take our next question from Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank Securities, Inc.: Good morning, Karen. A lot of your department store CFO peers are retiring. Certainly hope that you are able to hang out with us a little bit longer. Karen M. Hoguet - Macy's, Inc.: Thank you. Paul Trussell - Deutsche Bank Securities, Inc.: Certainly wanted to ask about the SG&A. I know there's a few components and moving pieces here, but if you can just kind of maybe walk us through some of the changes. I believe that earlier in the year, you highlighted expectations for dollars to be down year-over-year. If you can just speak to SG&A expectations now, both what happened in the third quarter and the outlook for the fourth quarter, with real estate and excluding it, what's changed? Karen M. Hoguet - Macy's, Inc.: Yeah, we actually had said early in the year that we expected it to be flattish, not down. I think now the year will be slightly up. But, again, if you focus on the annual, the increase feels reasonable, and that's the way I would think about it, if I were you. The credit performance has been worse than we had expected, so that's one piece of the reason for the increase; still a very strong profitability, but with credit sales declining, harder to keep the credit income dollars. And, as we've said, we are investing in some of these growth initiatives, which are great from a bottom line perspective but do add to expense. So I would say focus on the annual as you're thinking about SG&A and not necessarily the fall season. The other thing I would say to you is that we continue to want to keep investing in these growth initiatives, so we are looking really deep to find additional SG&A reductions that, as I said, either are low-hanging fruit, if there are such things at this point, but also trying to make the organization more cost-effective, more agile and things like that. So it's sort of a combined message, but I don't think, on an annual basis, we're going to be that far different from what we had said at the start of the year.

Thank you. We'll now take our next question from Lorraine Hutchinson with Bank of America. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research: Thank you. Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Morning. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research: Why do you think the private label credit card penetration has gone down? And did you say credit income would be down $50 million to $60 million? I guess I just wanted to know if that's simply the sales or if you're expecting any deterioration in metrics there. Karen M. Hoguet - Macy's, Inc.: No. We had always expected the fourth quarter drop to be significant, having to do, frankly, just with quarters and the way it flowed last year. So the fact that it's down by more than it has been in other quarters is not new news. That's how we had expected it from the beginning of the year. It has been lower than we had expected, but we always expected that big drop in the fourth quarter. I think on penetration last year, it was up quite a bit in the third quarter, so it may just be on a two-year basis, it looks fine. But we are working hard to think about strategies for improving that metric in terms of the penetration. And again, it's still at a very high level, but I think you'll see us focus on this as we go forward. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research: And I know that there's a lot of moving pieces around SG&A, but I think there's some debate out there as to when we think about next year's growth rate, would it be closer to your full-year flat or the exit rate, which will be up low single digits? Karen M. Hoguet - Macy's, Inc.: I'd focus on the annual. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research: Okay, great. Karen M. Hoguet - Macy's, Inc.: As we go forward. And again, we'll give a lot more color to that as we proceed. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research: All right. Thanks, Karen.

Thank you. We'll now take our next question from Oliver Chen with Cowen & Company. Oliver Chen - Cowen & Co. LLC: ...so much, Karen. Macy's is uniquely positioned as doing a great job with merchants and vendor relationships. So as you think about long-term investors and the long-run strategy, what are your thoughts about being un-Amazonable in terms of what you'll continue to do to innovate, just to make sure that your value proposition and convenience proposition is leading? And how should we think about the long-run in terms of traffic? Like, do you think the setup for next year is going to be a positive traffic year? I'd just love your thoughts on that long-term factor, as we want to see you gain share. Karen M. Hoguet - Macy's, Inc.: Yeah, I think the first question is a good one, one we think about, but I do think that our organization and, as you said, our merchants be able to curate the market, find the right product really is a competitive advantage relative to Amazon. And when you combine that with the really terrific store organization that we have, I do believe for fashion, customers still love going into the stores, trying things on. Even if they end up buying online from our apps, they still experience the store. And so I think both of those will allow us to always compete effectively against an Amazon; doesn't mean that an Amazon won't do a lot of business. I'm not saying that. But I think in the categories that we carry, most of them, I do think the omni-channel is a benefit and the quality of our merchant team, both in terms of our private brands. Our MMG team is spectacular. And developing product that will only be available at Macy's will be a piece of that as well. And also given (37:49) the customers, frankly, that you can only get at Macy's. So it's a combination of those factors that I think will enable us to compete effectively against an Amazon. In terms of the traffic and transactions, that's obviously a harder thing to predict. And that's partly why we're so happy to see the AUR doing well, with our inventory levels and clearance strategy working. So I think we'll do everything we can to grow the number of transactions, but it don't think we'll count on that as we go into next year. Oliver Chen - Cowen & Co. LLC: Okay. And, Karen, can we get your take? Now that the election's over, is that a positive catalyst? It's very hard to answer this, I believe, but would love... Karen M. Hoguet - Macy's, Inc.: Therefore, I'm not going to answer it. I have no clue. I have no clue. We'll all watch together. Oliver Chen - Cowen & Co. LLC: Okay. Well, it's great to hear the green shoots on apparel, so people are out there and interested. Karen M. Hoguet - Macy's, Inc.: I agree. Oliver Chen - Cowen & Co. LLC: Thank you.

Thank you. We'll now take our next question from Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you so much. Karen, I'm wondering if you could perhaps look out over the next one, two, three years and talk to us about how we should think about just SG&A growth from here. What might be the puts and takes? Obviously, we would expect to see some savings from store operations, as an example, as you work through the next 100 closures, but I'm wondering if you can just sort of give us the pluses and minuses on the SG&A ledger as we go forward. Thanks. Karen M. Hoguet - Macy's, Inc.: That's a hard question, Kimberly, to answer sort of off-the-cuff, and we're in the process, obviously, of developing plans for next year. But I think you're going to see factors similar to what we've seen this year. We do want to invest in growth; digital, you know, both software, but also, obviously, delivery costs and things like that that add to expense. Also, obviously, wage pressure, particularly in the field, is an issue. But we are working hard to find offsets to all of that. And so I think when we give guidance next year, we can be more fulsome in terms of the puts and takes, at least as we go forward. But I think we're being realistic about projecting what we think we need, both to spend and also save, as we move forward. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Okay. Thank you, Karen. And just to follow-up on the real estate, if I could, obviously, you've got an ambitious plan of this next 100 store closures that you've already announced. I'm wondering as you continue to evaluate the rest of the fleet beyond the 100 that you've targeted, do you have any thoughts on additional opportunities for real estate actions beyond that next 100? Thank you. Karen M. Hoguet - Macy's, Inc.: Do you mean that, Kimberly, in terms of closures? Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Potential closures... Karen M. Hoguet - Macy's, Inc.: Beyond the 100? Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Yeah, potential closures beyond the 100. Thank you. Karen M. Hoguet - Macy's, Inc.: Well, when we announced the 100 a couple of months ago, we had looked out a couple of years, and so at this point, I do believe that's roughly the number of closures we expect. Having said that, as I talked about with the Brookfield alliance, we are looking to potentially redevelop area around stores, parts of stores beyond that. But in terms of closures, at this point, the 100 is what we anticipate, roughly. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Thanks so much, Karen.

Thank you. We'll now take our next question from Lindsay Drucker Mann with Goldman Sachs. Lindsay Drucker Mann - Goldman Sachs & Co.: Thanks. Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Good morning. Lindsay Drucker Mann - Goldman Sachs & Co.: I wanted to ask a little bit on inventory. It's been an important topic for apparel retailers and vendors across the last couple quarters, and whether, as you think about over the next couple quarters or longer-term, what the opportunities are to get more efficient, maybe how you're working with some of your – either in your private label or with some of your most important partners to do that. Karen M. Hoguet - Macy's, Inc.: Well, we're always trying to make decisions as close as we can to when the merchandise is going to arrive in store, so we're doing that both with private brand and also working with the vendors. And, in part, that's why we like the flexibility that the lower inventory is giving us. But we're constantly looking for ways of making the whole supply chain more efficient, whether it be private brand or with our major partners. It's one of the benefits of the great partnerships we have, as Oliver mentioned a few minutes ago. Lindsay Drucker Mann - Goldman Sachs & Co.: Great. And just a follow-up on your loyalty programs or your credit card, whether there's any special initiatives we should be looking forward to in the next couple quarters? Karen M. Hoguet - Macy's, Inc.: At this point, no, but something we are working on. Lindsay Drucker Mann - Goldman Sachs & Co.: Okay. Thank you.

And we'll now take our next question from Paul Lejuez with Citi. Paul Lejuez - Citigroup Global Markets, Inc. (Broker): Hey. Thanks. Karen M. Hoguet - Macy's, Inc.: Hi, Paul. Paul Lejuez - Citigroup Global Markets, Inc. (Broker): Hey, there. Karen, you'd mentioned, I think, positive trends heading into holiday; I think what you said. So can you maybe talk about the sales trajectory over the quarter? Sorry if I missed that. And then separately, can you quantify the gross margin benefit from Last Act? And maybe as you think about fourth quarter specifically, how much of the improvement that you expect is from the Last Act strategy versus just being in a much better position from an inventory perspective? Thanks. Karen M. Hoguet - Macy's, Inc.: I'm not sure I could answer that question in terms of what's Last Act and what's being in a better – it all works together. So, sorry, I'm not going to be able to help with that one. Paul Lejuez - Citigroup Global Markets, Inc. (Broker): Got it. And on the sales trajectory over the quarter? Karen M. Hoguet - Macy's, Inc.: I think I would look at the quarter in total. Promotional events move around, so it's really hard to give an answer that would be helpful, but we were pleased that the third quarter was better than what we had experienced in the first half of the year as we head into the fourth quarter. Paul Lejuez - Citigroup Global Markets, Inc. (Broker): Okay. And then, just one follow-up; you closed 40 stores last year. Can you talk about what you've seen on the sales recapture? Whether or not you're getting the levels that you were hoping for? Where's it coming, either at another store or online? And how does that make you think about the 100 to come this year? Karen M. Hoguet - Macy's, Inc.: Well, I would say we're doing a little bit better than what we had anticipated with those stores. One of the good things that has happened is in a multi-store market, when we close a store, we are no longer losing business online, which was something we had experienced a couple of years ago. So we've been able to improve on that. In a single store market, we'd still lose .com business when we close a store, but at least in a multi-store market, that isn't happening. So that's really good news. We're also finding that we're able to retain more of the sales; in part, because we're making these decisions and thinking about our assortment earlier, which is helpful. So I think we feel better about our abilities to do that, and we keep refining our assortment strategies and our marketing strategies so that we can even retain more of the sales as we go to close, obviously, a much bigger number. Paul Lejuez - Citigroup Global Markets, Inc. (Broker): Great. Thanks, Karen. Good luck. Karen M. Hoguet - Macy's, Inc.: Thanks.

We'll now take our next question from Matthew Boss with JPMorgan. Matthew Robert Boss - JPMorgan Securities LLC: Hey, Karen. Karen M. Hoguet - Macy's, Inc.: Hey, Matt. Matthew Robert Boss - JPMorgan Securities LLC: So on capital allocation, you resumed some share repurchase this quarter. Can you just talk about the criteria that you considered and then, just how to think about debt paydown versus buyback versus dividend as we think going forward? Karen M. Hoguet - Macy's, Inc.: Sure. Yeah, I think you all will remember that the first quarter was a worse quarter than we had anticipated, and that was the time at which we lowered our sales and earnings guidance for the year. And we, frankly, just said, you know what? We don't know what's going to happen. Let's wait and see if the second quarter improves, just to be sure, before we head into the fall. The second quarter, obviously, improved quite a bit and gave us the stability and confidence to resume the buyback. So that's really the thinking there. In terms of allocation going forward, as I said, use for the business always comes first, but, again, we don't see a dramatic increase in spending needed to do that. And so there will be lots of cash available, both for the dividend, buyback, and also we may do some debt repurchases depending on how we end the year, because we've always said having a healthy balance sheet is really important to the company. And we just may decide to do that. But, again, we're not making those decisions until we get through the end of the year. Matthew Robert Boss - JPMorgan Securities LLC: Got it. And then, just a follow-up; if we think about this quarter, so if we think about sales, gross margin and SG&A, what was actually above or below your plan in the third quarter? I know there were some moving pieces on the street. Karen M. Hoguet - Macy's, Inc.: Honestly, it was all just about as we anticipated. Sales were as we anticipated. Margin was, as was SG&A. Asset sale gains moved around a little bit, but that's the only thing. And that's always going to happen. Matthew Robert Boss - JPMorgan Securities LLC: Great. Thanks.

Thank you. We'll now take our next question from Brian Tunick with Royal Bank of Canada. Brian Jay Tunick - RBC Capital Markets LLC: Thanks. Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Good morning. Brian Jay Tunick - RBC Capital Markets LLC: Two questions; I guess one is on your Q4 comp guidance. I guess listening to some of your vendors talking about quality of sales initiatives, pulling back on friends and family, just curious; have you already contemplated some of those vendors not participating as much in the Q4 events around holiday? And then the second question, we had a chance to go visit the Easton store prototype, and we were wondering what could be the pacing of some of those initiatives that we saw in that store rolling out to the majority of the fleet next year, if you could just maybe highlight some of the key takeaways. Karen M. Hoguet - Macy's, Inc.: Yeah, in terms of the sales guidance, the answer is yes. If you think about our guidance of minus 0.5% to minus 2%, on a two-year basis, the minus 0.5% is, frankly, comparable with year-to-date. And the minus 2% on a two-year basis is consistent with the third quarter. So I think it's all very reasonable as you're looking forward. And, yes, we have contemplated the changes that you're referring to. In terms of Easton, we're obviously still monitoring the results. One of the things we've seen a lot of success with was the tech watch installation and that has already been rolled out as we head into the holidays, as we got very quick feedback. Also, some of the fine jewelry initiatives that, as you know, we had piloted in California but did some new things in Easton that we're also rolling out, so, yes, we are beginning to take those learnings and move forward. Brian Jay Tunick - RBC Capital Markets LLC: Thanks very much, and good luck for holiday. Karen M. Hoguet - Macy's, Inc.: Thank you, appreciate it.

Thank you. We'll move on to our next question from Bob Drbul with Guggenheim Securities. Robert Drbul - Guggenheim Securities LLC: Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Hey, Bob. Robert Drbul - Guggenheim Securities LLC: Just got a couple of questions; when you think about the fourth quarter competitive environment and your gross margin comparison versus last year, I think you said up at least 100 basis points. What are the biggest opportunities to recapture versus that almost 300...? Karen M. Hoguet - Macy's, Inc.: All of it relates to the inventory position. Robert Drbul - Guggenheim Securities LLC: Okay. And in terms of like cold weather inventories, can you just talk about your positioning there going into the next six months? (49:50) Karen M. Hoguet - Macy's, Inc.: Yeah, so we had a few very cold winters than we had last year with the 70 degree weather in most of the country in December. And so this year, we tried to sort of take an average of the two and think about it that way. But if it ends up being a lot colder, there's no question we'll get more inventory if we need it. And if it ends up being as warm as last year, we'll probably have some excess inventory, but, hopefully, we'll work our way through that. Robert Drbul - Guggenheim Securities LLC: Got it. And then, on the Backstage piece of the business, can you just talk about how you're buying inventory there, sort of the collaborative efforts throughout the organization...? Karen M. Hoguet - Macy's, Inc.: Yeah, we've got a whole separate organization, very small, by the way, but quite busy doing our Backstage buying. And in most cases or in a lot of cases, going to completely different vendors and, in some case, merchandise that we don't even carry in the store. So, in part, the test that we're doing this fall with those 45 stores in putting men's and women's apparel purchased by our Backstage buyers the way that they do, and putting that merchandise next to Last Act and, like Last Act being coupon ineligible, we think is going to be an interesting test to see about bringing new product in. In the 13 stores, we're actually putting categories in that we don't carry in the store. So, for example, in toys, we'll have high-end scooters or Big Wheels. In home decor, things like decorative figurines, pet accessories, the kinds of things that we don't sell in a typical Macy's that we think the Backstage buyers are better equipped to buy, and we'll see how it sells in the stores. So we're actually excited about these tests, and we'll see. Robert Drbul - Guggenheim Securities LLC: Got it. And then, just one last question is on the shipping expense, as you think about the holiday season this year, can you just talk about how you're approaching minimums in terms of shipping or free shipping or how we should think about that piece of the business in gross margin? Karen M. Hoguet - Macy's, Inc.: Well, there is going to be a lot of, as you might imagine, reduced shipping thresholds offered throughout the holiday season, but relatively comparable to a year ago. So I don't see any major change, unless the business grows a lot more than we're anticipating, which we hope happens. Robert Drbul - Guggenheim Securities LLC: Okay. Thank you very much, Karen. Good luck. Karen M. Hoguet - Macy's, Inc.: Thanks, Bob.

Thank you. We'll now move on to our next question from Todd Duvick with Wells Fargo. Todd Duvick - Wells Fargo Securities LLC: Yes. Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Good morning. Todd Duvick - Wells Fargo Securities LLC: I have a question for you with respect to your comment in your prepared remarks about getting your leverage back to the leverage target range within a reasonable time. Can you tell me, is that reasonable time something that is determined internally or in concert with the rating agencies? How are you thinking about that? Karen M. Hoguet - Macy's, Inc.: Well, obviously, we always would take rating agency views into consideration, but it is something that we'll talk about internally. Our desire to have a healthy balance sheet is internally-driven. And so, we will take feedback, but we will make the decision ourselves. Todd Duvick - Wells Fargo Securities LLC: Okay. And I think I heard you also say in your prepared remarks that you're planning to pay off the maturity that is coming due December 1, as opposed to refinancing that. Is that correct? Karen M. Hoguet - Macy's, Inc.: That's correct. Todd Duvick - Wells Fargo Securities LLC: Excellent. Thank you, Karen.

Thank you. We'll now move on to our next question from Michael Binetti with UBS. Michael Binetti - UBS Securities LLC: Hey, Karen. Good morning. Karen M. Hoguet - Macy's, Inc.: Hi, Michael. Good morning. Michael Binetti - UBS Securities LLC: Thanks for all the detail today, very helpful. If I just look at the average unit retail trend, I know it was asked a little bit, but if I look back over a couple of years and just try to think of multi-year average unit retails, so snapping back a bit. That's correlated with you guys getting lean and mean on the comp inventories. But as we look ahead to next year, there's going to be some new inputs to that line, namely, you're shutting down stores that I'm guessing are in markets where you'd have a lower AUR. Can you help us think about as we look out to next year, do you feel like as you go into the strategic initiatives that you have with the store closures and now that we've lapped the AUR reductions a year ago, do you think we're going to end up in a place where AUR is still contributing in a positive basis or even contributing substantially next year? Karen M. Hoguet - Macy's, Inc.: We expect it to contribute positively as we go forward. Michael Binetti - UBS Securities LLC: Okay. And that's because of the store closures or are lower AUR or not? I just want to be clear on that. (54:38) Karen M. Hoguet - Macy's, Inc.: It's everything. It's everything. Michael Binetti - UBS Securities LLC: And then, let me ask you similarly on transactions; were you surprised to see the transactions not lift off a little bit in the third quarter as the compares got easier? And how are you thinking about that as you go into next year, again considering you have some smaller stores you'll be closing that I'm guessing have traffic issues? Karen M. Hoguet - Macy's, Inc.: Yeah, and look, our hope is that a lot of these growth initiatives and the things that we're doing in terms of improving service in our stores, as well as improvements on our apps, will actually help improve upon that trend in terms of traffic. So we'll see as we go forward. Michael Binetti - UBS Securities LLC: Okay. Thanks, Karen.

Thank you. We'll now move on our next question from Richard Jaffe with Stifel. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Thanks very much, guys. And, Karen, could you talk about the partners you have in stores, starting with Lids and just going through the list and how they're performing, how the partnerships are working out and opportunities you see in that way as a, I guess, a partner or a landlord with some these companies? Thanks. Karen M. Hoguet - Macy's, Inc.: Sure. Yeah, look, we have had great success both at Macy's and at Bloomingdale's with these licensed partners, whether it be Sunglass Hut, Finish Line or a lot of the vendors that are licensed at Bloomingdale's. And it's a great way of bringing product into the store where we can't have access or don't have access to it on our own. And so, we continue to look for ways of bringing either new categories or new vendors or new products into our store in that way, if that makes the most sense. So I think it will be an important part of our strategy as we go forward. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Anything you can share with us for either holiday or for next year? Karen M. Hoguet - Macy's, Inc.: Not at this point. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Okay. Thank you.

Thank you. We'll now take our next question from David Glick with Buckingham Research. David J. Glick - The Buckingham Research Group, Inc.: Thank you, Karen. Couple questions; Backstage, is it fair to say that that strategy seems to be going forward less focused on standalone stores and more kind of utilizing your asset base on your existing stores? Karen M. Hoguet - Macy's, Inc.: Yes. David J. Glick - The Buckingham Research Group, Inc.: Okay. Karen M. Hoguet - Macy's, Inc.: Yes, because, again, we can't do everything. And we're getting such success in store because not only is Backstage doing well, but it's improving the productivity of most of the base stores, which is a good thing. So that's where we've decided to put our focus, at least for now. David J. Glick - The Buckingham Research Group, Inc.: Okay. Thank you. Next question; it would seem that you're getting a better recapture rate in your closed doors this year, and it seems like that would be a tailwind for you guys next year with a greater number of store closings. What kind of recapture rate, or range of recapture, are you seeing? And what would you expect so we can think about what kind of comp lift you may be able to get, all things being equal, for next year? Karen M. Hoguet - Macy's, Inc.: It is not significant, even though it's 100 stores closing, in terms of the lift on total stores. It's a little bit, but not as much as you might think, in terms of the impact. So even with significant retention, it doesn't do that much for the comp growth. David J. Glick - The Buckingham Research Group, Inc.: So tens of basis points as opposed to anything like a hundred. Karen M. Hoguet - Macy's, Inc.: Yes. Exactly. David J. Glick - The Buckingham Research Group, Inc.: And then, a lot of investors are trying to get their arms around sort of the value creation potential from your real estate and, obviously, a significant step forward with Brookfield. I mean, should we think about this in terms of hundreds of millions, more than $1 billion? Like what's kind of the range of potential value creation that you could get from this setup? Karen M. Hoguet - Macy's, Inc.: I don't know the answer to that. We're obviously just starting to explore. We do think it's significant. And we do also hope that it helps the retail operation as we do this, so the value could come in a couple of buckets, but, at this point, it's just premature. David J. Glick - The Buckingham Research Group, Inc.: Okay. And then, last question, if I could sneak it in. The fashion watch business was a big driver for you, then a big headwind. Do you see this business potentially comping positive again with some of the innovations you're seeing in tech watches? And is this something that could help lift your center core business? Karen M. Hoguet - Macy's, Inc.: Well, it's a little early to be judging, but it feels good. Whether it gets to that point, David, it's just too early to tell, but it does feel good. David J. Glick - The Buckingham Research Group, Inc.: Okay, great. Thank you very much. Good luck in the fourth quarter. Karen M. Hoguet - Macy's, Inc.: Thank you, appreciate it.

Thank you. We'll now take our next question from Wayne Hood with BMO Capital. Lowell Wayne Hood - BMO Capital Markets (United States): Good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Morning. Lowell Wayne Hood - BMO Capital Markets (United States): I was just wondering, as you think about Macy's contribution to redevelopment capital into a potential JV with Brookfield, are those: one, would you be willing to put up a significant amount of capital; or are some of those assets that would be put into that JV, are they leverageable so you really wouldn't necessarily have a big high capital redevelopment cost? Karen M. Hoguet - Macy's, Inc.: Way early too early to make those decisions. We have to see what the plans look like and what value creation opportunities we think it provides for us. Lowell Wayne Hood - BMO Capital Markets (United States): Okay. And would you anticipate retaining control of any JV structure that you put together with them? Karen M. Hoguet - Macy's, Inc.: It's just too early, Wayne. Lowell Wayne Hood - BMO Capital Markets (United States): Okay. Another question, unrelated to Brookfield, was just on Michigan Avenue; when you look at what your competitors have done there and you look at your location, it looks like it – obviously, you've talked about it in the past. Maybe remodel capital may be needed. What's your current thinking about the remodel capital for that store? Can you also enter into a JV where you have a partner that comes in and contributes capital and the timing of anything that might need to take place there? Karen M. Hoguet - Macy's, Inc.: Are you talking about Water Tower or the Bloomingdale's? Lowell Wayne Hood - BMO Capital Markets (United States): No. Water Tower. Karen M. Hoguet - Macy's, Inc.: We have remodeled the store. I can't imagine us bringing in a partner to remodel a store. Lowell Wayne Hood - BMO Capital Markets (United States): No, I know you did. Karen M. Hoguet - Macy's, Inc.: We have sufficient cash. Lowell Wayne Hood - BMO Capital Markets (United States): Yeah, I know you did, but I guess my point is you still feel like it's competitive in that marketplace, even with that remodel? Karen M. Hoguet - Macy's, Inc.: The store is doing well. Lowell Wayne Hood - BMO Capital Markets (United States): Okay. Final question; the $900 million in capital spending that you expect this year, should we be thinking about that as a trough number or given things like redevelopment capital, that that number probably goes to $1.2 billion, $1.3 billion? How should we be thinking about that number? Karen M. Hoguet - Macy's, Inc.: I'm not sure what you mean by trough, but, as I said, part of the proceeds, for example, at Union Square men's, are going to go to putting men's back into the main Union Square store. So that spending would be incremental to the capital budget, but, at this point, I don't anticipate it going up as high as what you're talking about. Lowell Wayne Hood - BMO Capital Markets (United States): Okay. So relatively stable. Okay. Karen M. Hoguet - Macy's, Inc.: Yes. Lowell Wayne Hood - BMO Capital Markets (United States): All right. Thanks, Karen.

Thank you. We'll now take our final question from Jeff Stein with Northcoast Research. Jeffrey Stein - Northcoast Research Partners LLC: Okay, good morning, Karen. Karen M. Hoguet - Macy's, Inc.: Hi, Jeff. Jeffrey Stein - Northcoast Research Partners LLC: A couple of real quick questions; first of all, good to see that the tourist markets are stabilizing, but if my math is correct, if you adjust out the impact from the tourist drag in Q2, your comps in Q2 were down 1.4%. And let's say it was relatively neutral in Q3. That would make minus 2.7%. So it looks like sequentially, you've actually seen a weakening in comps, and I'm wondering, am I looking at that correctly? Karen M. Hoguet - Macy's, Inc.: No. What you have to do, Jeff, and I said this after the second quarter, is really looking at the spring season rather than just the second quarter, just because of some shifts. The first quarter was worse than it should been. The second quarter was better. So I would look at the spring season and how that flows into the third quarter. Jeffrey Stein - Northcoast Research Partners LLC: Got it. And wondering if you could just comment on two businesses; one, cosmetics, and the other, footwear; I think earlier in the year, you indicated that you're doing some tests similar to what you did in jewelry on the West Coast in footwear, and wondering how that's working. And exactly, what are you doing differently in footwear? And secondly, what your thinking is with respect to the weaker performance in cosmetics relative to some of the performance we've seen from other specialty retailers, like Sephora and ULTA, which seem to be taking some share, and what you might be doing to mitigate that? Karen M. Hoguet - Macy's, Inc.: Yeah, on the shoe business, you're correct. We did start a pilot earlier in the year that is doing extremely well. And our shoe business was actually one of the callouts in total for strength in the third quarter. So we feel very good about what we have done there. And as a result of the strength in fine jewelry and in shoes based on our changes in the business trends with our strategies, we've now moved on to cosmetics. And so cosmetics was one of the weaker businesses in the third quarter. And we're now focused on improving that, like we've done with jewelry and like we've done with shoes. Oftentimes, you guys think of cosmetics as both sort of color, skincare and fragrances; should point out that the fragrance business has been very strong of those sort of three components of what you tend to think of as cosmetics, which, by the way, is great as we head into the fourth quarter, which is a heavy penetration of fragrance. But cosmetics, Jeff, is next on our list of attacking to figure out a strategy for making it stronger. Jeffrey Stein - Northcoast Research Partners LLC: Perfect. And what exactly have you been doing differently in shoes on the West Coast? Karen M. Hoguet - Macy's, Inc.: It's been a combination of: editing the assortment; in some cases, displaying the product more by category than vendor; and also, frankly, utilizing technology as well as some more staffing behind-the-scenes, meaning in the stock rooms, to make the shopping experience more friction-free for the customer. So it's sort of the combination of improved assortment, greater editing of the assortment, better service, but it's working extraordinarily well. Jeffrey Stein - Northcoast Research Partners LLC: Great. Karen M. Hoguet - Macy's, Inc.: We're also testing, in some stores, open sell, which, for a smaller store, appears to be a very good answer for us. So lots more to come on that, but we feel really good about the business. Jeffrey Stein - Northcoast Research Partners LLC: Great. Thank you very much.

Thank you. That does conclude our question-and-answer session for today. Karen M. Hoguet - Macy's, Inc.: Great. Thank you, and, everybody, have a good day. Take care.

And that does conclude today's conference. Thank you all for your participation.