Karen M. Hoguet - Macy's, Inc. Jeffrey Gennette - Macy's, Inc.

Matthew Robert Boss - JPMorgan Securities LLC Paul Lejuez - Citi Charles Grom - Gordon Haskett Research Advisors Paul Trussell - Deutsche Bank Securities, Inc. Randal J. Konik - Jefferies LLC Brian Jay Tunick - RBC Capital Markets LLC Omar Saad - Evercore ISI Michael Binetti - UBS Securities LLC Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Robert Drbul - Guggenheim Securities LLC Lindsay Drucker Mann - Goldman Sachs & Co. LLC Brian Callen - Bank of America Merrill Lynch Brett Levy - Loop Capital Markets LLC Kara Szafraniec - Northcoast Research Partners LLC Dana Lauren Telsey - Telsey Advisory Group LLC Lorraine Hutchinson - Bank of America Merrill Lynch

Good day and welcome to the Macy's, Inc. Second Quarter 2017 Earnings Conference Call. Today's conference 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 - Macy's, Inc.: Great, thank you. Good morning and welcome to the Macy's conference call, scheduled to discuss our second quarter earnings. As she said, I'm Karen Hoguet, CFO of the company. Joining me on the call today is Jeff Gennette, our CEO. 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 a 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 recent Form 10-K and other SEC filings. On this morning's call, I will take you through our results for the second quarter and our outlook for the back half of the year. Jeff will provide some perspective. And then, we will both take your questions. So let's get started. Our second quarter performance demonstrates that we are on track to produce sales and earnings consistent with our annual guidance that we provided at the beginning of the year and affirmed at our June Investor Meeting. As the quarter progressed, we saw sequential improvements and continued to gain confidence in our strategies. We believe we are on the right track to achieve our objectives. Sales in the second quarter were $5.552 billion, down 5.4% from last year. Comparable sales on an owned plus licensed basis were down 2.5% versus last year. This is much improved relative to the first quarter and is also somewhat better than we expected when we started the quarter. As I will discuss in a minute, both the base trend as well as the initiatives that we outlined at the Investor Meeting helped to improve our sales trend. This is in spite of weaker international tourist sales, which we did not anticipate. In the second quarter, international tourist sales were down approximately 9%, which was much worse than in the first quarter and negatively impacted our comp owned plus licensed sales in the second quarter by approximately 40 basis points. At our Investor Meeting in June, you will recall that we estimated that our base trend for our comp owned plus licensed sales on an annual basis was in the minus 3% to minus 4% range. And to that trend, we expected that our strategic initiatives to contribute $200 million to $260 million of additional sales in the last nine months of the year. The second quarter results would indicate that our base trend is towards the better end of that range. And we estimate that the strategies discussed at the meeting contributed approximately $60 million to our sales in the quarter, consistent with the expectation for the nine months. These strategies that we highlighted included retention from closed stores, Backstage in store and our key merchandising initiatives. Let's talk for a minute about each. First, retained sales; we are capturing sales from closed stores consistent with our expectations and better than what we produced in prior years. Retained sales from the closed stores in total represented about 12% of the closed store sales. And, as we discussed in June, the retained sales in multi-store markets was much higher than that. Backstage, our off-price offering, is adding approximately 6% in incremental sales to the 38 stores in which we now operate Backstage stores within our Macy's stores. We believe that this strategy, which offers simplified pricing, a treasure hunt environment and lower price points, is resonating with many of our customers and adding to the Macy's experience. We continue to test different approaches and monitor the results and expect to decide by year-end how best to expand this concept within our stores. And the third, the key merchandising initiatives which we've highlight in June, shoes, fine jewelry and furniture, mattresses, are the third part of that initiative. The shoe pilot rollout is now complete. All locations now have a more edited assortment, with more depth in the styles that we carry. And all locations also received added staffing and varying degrees of technology, but there are variations in the strategy beyond this across our stores depending on the location. For example, approximately 170 locations now carry elevated product, more in line with what our customer wants in those locations. And in 68 other locations, we converted them to an open-sell format. Both of these variations are proving to be very successful where they have been executed, but neither would work well in all locations. Our shoe business overall was up mid-single digits in the quarter. And remember, the rollout wasn't even complete until the end of July. We are also working to improve our digital experience for shoes, which will also help accelerate our sales trend. In fine jewelry, we completed the rollout to the final locations, having started this rollout close to two years ago. Sales in fine jewelry were up double digits in the quarter, which is terrific news particularly where the strategy has been in place for more than a year. And furniture and mattresses, another focus business, also had strong sales in the quarter. We are adding or expanding 58 furniture and mattress departments in our Macy's stores across the country this year, about two-thirds of which have already been completed. So, in total, these initiatives are all on track and helping to change our sales trend. And remember, these estimates don't include the benefit from the new marketing strategy starting in September and the enhanced loyalty program, which is being rolled out in time for the fourth quarter. In addition to the strength of shoes, fine jewelry and furniture and mattresses, we also performed well in the quarter in fragrances, active apparel and men's tailored clothing. The weaker categories in the quarter included cosmetics and housewares. Our digital sales continued strong in the quarter with double-digit growth. This is the 32nd consecutive quarter when that has been the case. We are generating outsized sales growth in particular on our mobile devices. And they are also being used increasingly to enhance our in-store experiences. For example, a customer can scan an item on our mobile app while in store to see pricing, availability and any product reviews. They could also then buy the item straight from the app and have it shipped. Also, customers can access a myriad of features specific to an individual store on our mobile app, including a directory, special events, et cetera. Geographically, regional trends were consistent across the country. Bloomingdale's also had a stronger performance in the second quarter relative to the first, in stores, digital, as well as in our outlets. During the second quarter, the number of transactions was down 5.5%, much improved from the 7.5% decline in the first quarter. Average unit retail was up 1.2%, with units per transaction up 1.8% in the second quarter. The gross margin rate in the quarter was 40.3%, down 60 basis points versus last year, better than anticipated, largely because of the stronger sales. At the end of the second quarter, our inventory was down 3% on a comp basis. This positions us well for the back half of the year. SG&A in the quarter was $1.934 billion, down $92 million or 4.5% lower than last year. The SG&A includes $43 million of real estate asset sale gains this year versus $21 million last year. Excluding these asset sale gains, the reduction of SG&A in the quarter was $70 million, or 3.4%. This reduction is due to closed stores and the restructuring completed at the start of the year, partially offset from some timing shifts from the first quarter and our investments in digital growth. Income from credit in the quarter was $183 million, which is $2 million higher than last year. Remember, this relates to income from Citi, our partner in the business and doesn't include all the expenses associated with the credit operation, such as charges associated with fraudulent purchases and the cost of new account origination. For the first half of the year, SG&A excluding real estate asset sale gains was $170 million below last year, which is consistent with the net $300 million annual reduction commitment we made earlier this year. As a reminder, it was a $550 million SG&A reduction which we expected to offset with $250 million of reinvestment into the business. As you know, we recognize the need to continuously find ways to conduct our business more cost-effectively and smarter. We will continue to make changes that free-up resources to invest in making our company more successful. These investments in digital and in our stores are necessary if we are to compete more effectively. Operating income in the quarter was $305 million, excluding $51 million of non-cash retirement plan settlement charges. Interest expense in the quarter was $79 million excluding the net premiums and expenses associated with the early retirement of debt. We have reduced our debt by approximately $550 million in the first half of this year, including the repayment of a $300 million maturity in July and the repurchase of approximately $247 million in the open market. Tax expense was $64 million in the second quarter, with an effective tax rate of 36.2%. Net income was $116 million after adjusting for the net loss attributable to the non-controlling interest in our China joint venture. Excluding the retirement plan settlement charges and the net benefit associated with the early retirement of debt, net income was $146 million in the quarter. Diluted share count in the quarter was 306.5 million shares, with earnings per share on a diluted basis being $0.38 in the quarter as compared to $0.03 last year. Remember, that last year in the quarter, we booked $249 million in impairments and other costs, primarily related to our decision to close approximately 100 doors, of which 70 have already closed or are announced to be closed. As we said last year, our intent was to look out a few years in deciding how many to close. And we are still planning to close the remaining approximately 30 locations. We also booked $6 million of settlement charges last year in the second quarter. So excluding the quarterly settlement charges in both years, the net premiums and expense associated with the debt repurchases in the quarter this year and the impairment and other charges last year, earnings per share on a diluted basis were $0.48 this year, as compared to $0.54 last year. Cash flow from operations net of investing activities was $323 million this year, as compared to $222 million last year, an increase of approximately $101 million. The major variances related to the decrease in inventory, lower CapEx and higher asset sales this year as compared to last year. So the key message is that the second quarter was as expected and keeps us on track to achieve our annual guidance of comp sales of minus 2% to minus 3% on an owned plus licensed basis and diluted earnings per share of $3.37 to $3.62, excluding the impact of non-cash retirement plan settlement charges and any net premiums and expenses associated with debt repurchases. Further excluding the gain on the Union Square Men's store, which is expected to be booked in the fourth quarter, diluted earnings per share is still expected to be $2.90 to $3.15. Let me provide some color on what this means for our assumptions for our performance over the next six months. One, comp sales on an owned plus licensed basis in the fall season are assumed to be down 0.8% to down 0.6%, which would result in the annual guidance range of the minus 2% to minus 3% on that basis. We are assuming that comp owned plus licensed sales in the third quarter would decline by approximately 2.5%, or slightly worse. Remember, that 2017 is a 53-week year, meaning fiscal January has a fifth week. Our total sales include the sales for this extra week, whereas our comp sales do not. For the year, this adds approximately 100 to 120 basis points to our total sales growth rate. The annual gross margin rate is now expected to be between down 50 to down 70 basis points relative to last year, with the fall expected to be down 20 to down 50 basis points relative to last year. This is 10 basis points on the annual guidance better than what we had guided in June, because the second quarter beat our expectations. We are expecting SG&A, excluding asset sale gains, to be down in dollars approximately 3% to 4%, versus last year in the fall season. Achieving a 3% reduction, combined with the results from the first half of the year, would be consistent with the $300 million annual commitment made at the start of the year. We provided guidance in February for the book asset sale gains expected to be booked this year. You'll recall that the guidance at that time included the following: approximately $235 million associated with the sale of our Union Square Men's store that was sold last year. And the guidance included approximately $180 million to $200 million of additional gains, split between Brooklyn at approximately $100 million and $80 million to $100 million associated with the sale of other property. Our assumption for the Union Square gain remains unchanged. However, as we said in June, we expect now that the other asset sale gains will be higher. The asset sale gains, excluding the Union Square Men's gain, are now estimated to be approximately $275 million to $300 million instead of the $180 million to $200 million of gains that we had estimated in February. Annual interest expense is expected to be approximately $350 million, excluding the net impact of any premiums or expenses associated with debt repurchases. This is lower than our original guidance, due to the earlier-than-assumed repurchase of debt. We are still assuming an annual effective tax rate of approximately 37%. And we are still expecting our capital expenditures to be approximately $900 million for the full year. So those are some of our key assumptions supporting our earnings guidance. Let me now give you an update on real estate. While we continue to work very hard on maximizing the opportunities, there is not a lot new since our Investor Meeting in June. We are executing as fast as is reasonable our multi-pronged approach, as we have discussed previously. As you heard, with our higher guidance for asset sales gains this year, we are making significant progress in monetizing assets. As for the flagships, the marketing process is well underway for the upper floors of State Street in Chicago, and we hope to have an update by when we next report earnings. And the work on Herald Square continues. As you know, this is a very complicated and strategically-important asset. It will, therefore, take time to develop the best plan for this location. As you might imagine, we are being very thoughtful in our approach to this location. And the work with Brookfield is also ongoing. They have performed a great deal of predevelopment analysis this year. Remember, our strategic alliance includes approximately 50 properties, which are intended to be representative of our total portfolio. They are studying each of these to see if the initial redevelopment opportunities merit proceeding. Remember, most of these assets are related to strategic locations where we plan to continue to operate as Macy's. The intent is to create value and to improve the retail location. The preliminary work would indicate that it is likely that Brookfield will recommend proceeding on roughly two-thirds of these. This development process takes a lot of time, but rest assured that we, and the dedicated Macy's team at Brookfield, are putting a high priority on bringing these projects to fruition and are making progress against our original goal for the strategic alliance of creating value from our real estate with little disruption to our retail operations. With that, let me turn it over to Jeff for brief remarks, and then we'll open the line for your question. Jeffrey Gennette - Macy's, Inc.: Thank you, Karen, and good morning, everybody. So, as Karen noted, the second quarter came in as we expected, and we are on track for delivering the full year guidance. Since we provided a fair amount of detail on our strategy at the Investor Meeting on June 6, my remarks today are going be brief, but I do want to add some perspective. So while we have a lot of work ahead of us, I'm encouraged by what we're starting to see. We're starting to get traction on some of our early initiatives. In particular, I'm very proud of the work that the women's shoe and fine jewelry teams did as they completed the new model rollouts across all of our stores and they did this at an accelerated pace. As you heard from Karen, this is having a positive effect on our results. And it's a great example of the benefits that Macy's gets when we test, when we iterate, and then when we scale nationally, each step along the way driven by data and the consumer analytics. Now Backstage in store also continues to perform well, giving the full store a decent lift. The Backstage team is in the iterate phase right now, and we expect to have a model ready for rollout by the end of this year. And consistent with our vision of letting customers shop the way she lives, we remain focused on our goal of stabilizing the brick-and-mortar stores, while investing for accelerated growth in digital and mobile. We're also excited about the launch of our new marketing strategy in September and our new loyalty program in October. Both of these are on track and we expect will help our sales trend as we move through the back half of the year. So I'm encouraged by the second quarter and we're on track for the year. But I also know that we operate in an environment of intense and disruptive competition, and that our customer has more shopping options than ever, and we need to provide her with a compelling and a unique proposition. So winning in this environment requires us to act with a great sense of urgency to make changes in how we operate and to move faster. And as we do this, I am confident that Macy's will win again. So with that, we're going to open up the line and Karen and I will take your questions.

Thank you. And we'll take our first question from Matthew Boss from JPMorgan. Matthew Robert Boss - JPMorgan Securities LLC: Thanks. So as we think about your back half same-store sales guidance, I guess how would you rank the drivers of improvement as we think about the overall back half, but more so, the fourth quarter versus the third quarter? And with that, what's the expectation for traffic versus what you saw in the second quarter down mid-singles? Jeffrey Gennette - Macy's, Inc.: Yeah, Matt. I think it's going to be the traffic is going be pretty consistent with what we experienced in the second quarter. I think the initiatives and kind of ranking them, certainly, fine jewelry and what we're experiencing in women's shoes, big ticket, fragrance, some of the plays that we have in apparel in the classifications business like dresses, we expect to be a significant piece of the trend's improvement as we get into the back half of the year. I think we expect that the new marketing strategy, we haven't really accorded additional sales to that, but we think we're going to pique a lot of interest from our core customer. And we're also anticipating, although we don't know what it is yet, about how the new marketing or the loyalty program will affect our business. So I think within the initiatives that you've seen from us, expect those to become more important in the back half of the year. We're also going learn a great deal in Backstage in store, more for us to learn on what we will scale into 2018 and beyond. But we expect to get more clarity on that as we get into the fourth quarter. Matthew Robert Boss - JPMorgan Securities LLC: Great. And then just a follow up, with inventory now reset exiting the second quarter, I guess how best to think about merchandise margins in the back half of the year and is the primary drag on overall gross margins, is it just the continued mix shift towards e-commerce, just any ways to offset this over time? Karen M. Hoguet - Macy's, Inc.: Well, let me start and then Jeff can add to that. I think there are certain businesses that are under pressure in terms of the gross margin. We talked about beauty in the past and that continues to be the case. And so, again, over time, we hope that we can offset that. But at this point for this fall, we don't think that that's likely and so, hence, our guidance being below last year. Jeffrey Gennette - Macy's, Inc.: I think the other thing, Matt, is that we're in a good position right now with our overall inventory level. We're set up well for the sales that are ahead of us. Our liquidity is in good shape. But what Karen said about beauty, there's also just some mix changes, as we talked about in the Investor Meeting, with tech watches at a lower margin rate than the balance of watches. And then really, the housewares category is under pressure with all the price transparency. So I think we're in good shape in inventory, but we do still have those businesses that are weighing down our margins from where they were last year. Matthew Robert Boss - JPMorgan Securities LLC: Great. Best of luck, guys. Karen M. Hoguet - Macy's, Inc.: Thanks.

And we will take our next question from Paul Lejuez from Citibank. Paul Lejuez - Citi: Hey, thanks, guys. Can you talk about the outlook for the credit card, the profit that you'll see there in the second half of 2017, just any changes that you might be seeing in the portfolio? Karen M. Hoguet - Macy's, Inc.: No. In February, we had talked about credit income for the year of $740 million to $760 million, which was up a little bit from last year and that would continue to be our guidance. Paul Lejuez - Citi: Got you. And then, you made a comment about Brookfield, I think, wanting to move forward or you were expecting them to want to move forward on two-thirds of the 50 properties. What happens to the other third? Karen M. Hoguet - Macy's, Inc.: The truth is I haven't looked at the specifics, but, in most cases, sort of no harm, no foul. These were just sort of excess real estate that we had that we were trying to prioritize where we could create value from them and so if something doesn't have a lot of value, we'll just leave it alone for now, maybe explore it down the road. But we're trying to prioritize the opportunities where we can create the most value. Paul Lejuez - Citi: Got you. And then, just finally, any color you can add on performance in California, Texas, Florida specifically? Thanks, Karen. Karen M. Hoguet - Macy's, Inc.: Yeah. No, our sales performance, as I said, was fairly consistent geographically. So I would say fine across the country, including those regions. Paul Lejuez - Citi: Good. Thanks, guys. Good luck.

And our next question comes from Charles Grom from Gordon Haskett. Charles Grom - Gordon Haskett Research Advisors: Thanks. Just on the down 2.8% comp, Karen, can you shed any perspective on how that trended during the quarter and any early read on back-to-school and particularly in some of your southern markets? Karen M. Hoguet - Macy's, Inc.: Yeah, as I said, it sequentially improved as we went through the quarter in terms of comp. I'll let Jeff comment on back-to-school. Jeffrey Gennette - Macy's, Inc.: On back-to-school, good signs so far. There's a lot of good trends that are going on in the business. Charles, to your comment or question about we're not seeing any differences really between how the southern stores are, outside of the fact that many of them have gone back to school. And so you're seeing some lifts there that are encouraging for where stores go later around the east coast or in the northern states, but we expect they will all even out when the calendar is evened out. Charles Grom - Gordon Haskett Research Advisors: Okay, that's helpful. And then, on the store closure front, are you able to quantify what the benefit was in the second quarter? And then, when we look at the fourth quarter, it's a pretty big uptick to get to that down 60 to 80 basis points in the fall season against the tougher compares. Is it the expectation that the benefit from the store closing will increase in the fourth quarter? Karen M. Hoguet - Macy's, Inc.: I'm confused. So the store closing benefit on sales, I had said was about 12%. And at the Analyst Meeting, as we talked in June and we talked about the benefit from the stores being closed, we are on track for that number, which was $75 million to $100 million. So we got the second quarter portion of that, and we expect to be in that range as we get through the remainder of the year. Charles Grom - Gordon Haskett Research Advisors: Okay. Karen M. Hoguet - Macy's, Inc.: I think your second question related to gross margin rate, Chuck, but I'm not sure I understand it. Charles Grom - Gordon Haskett Research Advisors: No, just on the fourth quarter, just to get to the fall season comp guidance, it's a pretty big uptick against a tougher comparison. So I'm just trying to understand what the specific drivers are to get there. Karen M. Hoguet - Macy's, Inc.: Well, let me start for a second. As we gave guidance, we gave guidance for the fall, which is in the range of down 0.8% to down 2.6%. We said that the third quarter would be around the 2.5% from the second quarter, maybe a little bit worse. So, again, depending on what you think about the fall in total, you'd get to a fourth quarter that most likely would be improved. You know, again, depending on what you think or how you model it; if you're more conservative about the fourth quarter, you'd be presumably at the lower end of what we're guiding. Charles Grom - Gordon Haskett Research Advisors: Okay. I got you. And then, just on a more favorable note, just on the Backstage lift of 6%. That's pretty impressive. How quickly do you think you could roll that out across the chain? And what's the target number of potential stores you could roll that out to? Jeffrey Gennette - Macy's, Inc.: What we're testing right now, Charles, is we're looking at Backstage products in virtually all of our doors. So we've got 37 doors right now that have got the Backstage within a Macy's store. But we're also look at Backstage product in those doors that would never get a Backstage-dedicated location. So we're testing different formats. The intent would be that we would have a scalable model that would work in all those doors that have available square feet where the dollars per square feet are such that you could open up a cavity of 20,000 to 25,000 square feet, but then we're also testing doors that are very productive for us that benefit from having really tasty designer values with Backstage pricing that we would be able to have that a model by which we put them into our strategic doors. So we're also working on the capital costs. We're getting the capital cost down in those stores that would have a dedicated Backstage within a Macy's building and looking at the ROIs on those. So we've got four models out there testing. We hope to have two of those four ready to go in 2018 and beyond. Number of doors, we're still in the early innings of this. Let us get through the next six months, and then we'll have more clarity for you in a future call. Charles Grom - Gordon Haskett Research Advisors: Okay, great. And thanks for all the modeling color, Karen.

And our next question comes from Paul Trussell from Deutsche Bank. Paul Trussell - Deutsche Bank Securities, Inc.: Good morning. Just a few quick ones, and I apologize if I've missed this in your earlier remarks, just wanted to get some clarity on how Bloomingdale's performed in the quarter. Also, if you could just speak to owned brands and their performance and also, Jeff, if you can maybe just touch quickly also on Bluemercury and the rollout there, and just what you're learning from that acquisition, and how that might play a role in future strategy? Jeffrey Gennette - Macy's, Inc.: Well, let me take each of your questions. Bloomingdale's, number one; they experienced a similar improvement in second quarter from first quarter, as the Macy's brand did. And many of their initiatives, they're getting great traction on. Amongst them really brings up your second question, which is what they're doing with their exclusive product or their private brands. Their 100% Bloomingdale's initiative is really popular with the consumer. And the more they're putting into that bucket, they've got very strong merchants that are working with their brand partners and the customers are really liking those choices. The private brands on the Macy's side, we're in good shape there. As we talked about in the Investor Meeting, we've spent a lot of time on supply chain working a reduced number of suppliers, reducing number of weeks of production and really focusing on regular price and first markdown sell-through, making bigger brands bigger, working on more fashion that we get into most doors. And of our portfolio of 20-some private brands, we've got action strategies for each of those, and we're on track there. And your last question about Bluemercury, we're very happy right now with the way the Bluemercury business is going. And we're looking, obviously, at their comps and what they do in their free-standing comps, and they're doing quite well there; so doors that have been open, obviously, more than a year, very strong comps. Their new stores are performing particularly well. We're making good real estate decisions. We're going into markets. One of the things that we've learned in Bluemercury is the more locations you put into a DMA, the more it feeds on the success of that DMA. And so you're seeing that in the Island of Manhattan about how many Bluemercury's we can put into that, and it's doing great. You see where we really started that strategy was really in the Washington, D.C. metro area. So Bluemercury, there's lots of opportunities for free-standing stores, and there's also then Bluemercury within Macy's stores. So one of the reasons we were very interested in the acquisition was what it could do as a beauty spa model in Macy's stores, and we're working through all of that. We're iterating on all of our early learnings on that, and the hope is, is that we're going to have an actionable model to scale into a lot more Macy's stores in the future. Paul Trussell - Deutsche Bank Securities, Inc.: That's very helpful color. Thank you. And then, just another quick clarification, just, Karen, could you just circle back on the real estate gains expected for this year, and just how the thought process has changed at all, just given where you all are year-to-date? Karen M. Hoguet - Macy's, Inc.: The thought process has not changed at all. We've just been able to make more progress relating to the monetization of some of the assets than we had expected to be able to complete this year. So the guidance had been $180 million to $200 million between Brooklyn and the other asset sales, and now we're taking it up to $275 million to $300 million. Paul Trussell - Deutsche Bank Securities, Inc.: Understood. Okay. Thank you very much. Good luck. Karen M. Hoguet - Macy's, Inc.: Thank you.

And we'll take our next question from Randy Konik from Jefferies. Randal J. Konik - Jefferies LLC: Yeah, great. Thanks a lot. Just a couple of quick ones, just on thinking about the Analyst Day, you gave us some metrics about the sales lift from Backstage? I believe it was up 6.4% in 2017 versus 4.6% in 2016. Could we get some kind of color on do you think that continues to further accelerate in terms of lift in the back part of the year? That's number one. I guess, second, when you think about giving us, again, back to the Analyst Day, the customer segmentation of about, let's say, 10% of the customers, those best customers, account for 50% of the revenues, thereabouts. And then, you have the balance of the customers accounting for a half, or something like that, effect. How do you think about the marketing strategy in the back half in terms of going after the best customers to retain them and have them shop more and higher average dollar sale versus activate some of the less good customers to drive incremental traffic in the back half of the year? Thanks. Karen M. Hoguet - Macy's, Inc.: Let me start on the Backstage and then I'll let Jeff respond in terms of the customer and the marketing strategy. At the Investor Day, we had talked about expecting a lift from Backstage in store of 4.5 points to 7 points, so the 6 points that we talked about for the second quarter is towards the upper end. And our hope is that as we go through the year that will build. And, as Jeff said at the meeting, while I was assuming 4.5 points to 7 points, he's pushing for 10 points, but, at this point, I think the 4.5 points to 7 points and, again, the higher end of that is what happened in the second quarter, would be what I would assume. Jeffrey Gennette - Macy's, Inc.: And the only thing I'd add on that before I talk about customer is much of the work as we're doing on the Backstage portion of the store, when we add that experience into a building, we're spending as much time on what we're doing on the full-price side. And the opportunity to lift the assortments there and really put more fashion in there, be more edited, more curated, and that combination is what we believe can lift the results beyond the 6% to 7% that we're getting today. Karen M. Hoguet - Macy's, Inc.: Yeah, remember, that 6% is the incremental including, so the Backstage less the impact to the main box. So, as Jeff said, as we're working on both pieces, the incremental could go even higher. Jeffrey Gennette - Macy's, Inc.: And then to your question about customer. So what we talked about in the Investor Meeting was exactly what you just quoted was that 10% of our customer base that's about half of our sales. And that really is what we have designed into for this loyalty program that we're going to be launching in the first week of October. So stay tuned on that. We're not ready to talk about the actual components of it, but it's launching. And it's tested very well with our best customers. We think all the things that she expects of Macy's and that she asked of Macy's or were places where she wanted in a loyalty program that she didn't get in our previous one, we have now solved to. And then, to your other question about the balance of the customers, we're addressing that in different ways. We're looking at what our promotional strategy is going to be, simplifying our promotions, making sure we've got the right values in the very important fourth quarter. And making sure that that customer who comes to Macy's, either online or in our stores during the fourth quarter, that we are very compelling and we've got the right values and the right content. So we're very focused on that as well. But stay tuned on the loyalty program. That takes care of this top 10% and we're very hopeful that she votes as strongly as the focus groups did. Randal J. Konik - Jefferies LLC: So may I ask a follow-up? Jeffrey Gennette - Macy's, Inc.: Yes. Randal J. Konik - Jefferies LLC: So just on the allocation of marketing dollars, are you saying that the marketing for the top 10% customer will really be about highlighting the loyalty program? And then the balance of the customer base would be more about traditional kind of advertising techniques, while simplifying the promotional strategies, et cetera? I'm just curious. I'm really trying to get a sense of how you're thinking about back half allocation of marketing dollars between the two customer segments. Jeffrey Gennette - Macy's, Inc.: Let me just back up a bit and just say that when you look at the marketing strategy, we really wanted to reengineer the entire marketing machine at Macy's and it has a lot of moving parts as we look at the fall season. Number one, we're going to remain very promotional. And what we've spent a lot of time on is reducing the overlap of promotions, reducing the amount of overlap of discounts on top of each other. But we're doing that all the way through the back half and that really is a big focus of ours. The other thing that we set out to do both for our core customer as well as our occasional customer is rebuilding our credibility as a fashion destination. So what you'll start to see with the new marketing strategy that launches in September, started with the back-to-school spots. It starts if you go onto Macys.com right now and you look at THE EDIT that really is a one-stop shop for all the hot trends, exclusives, newness. We also have our new fashion campaign that launches in the end of September that we're excited about. So all of that is in this marketing machine. We've spent a lot of time with media weight (44:20) of really making sure that we're maximizing each of our both print and digital, all of our touchpoints. We talked about in the Investor Meeting what we were doing with television and how we're getting more production and weight out of fewer – as many spots, but spending less dollars to do that in order to fund these other opportunities. So I think the new marketing strategy that is coming up, the new loyalty program, that the core customer will be handled as well as the occasional customer. Randal J. Konik - Jefferies LLC: Helpful. Thank you.

And we will take our next question from Brian Tunick from RBC. Brian Jay Tunick - RBC Capital Markets LLC: Thanks very much, and good morning. Two questions; I guess, one, just a little more color on the beauty side, I guess you're calling it out as a weak category, yet there's been a lot of notice on the promotional changes you're making in that category. So just wondering, as you try balance protecting your market share, how you're thinking about ongoing promotions if it continues to be weak? And the second question is on the tourist impact. We were just curious what kind of impact you're planning in the second half comp guidance? Thanks very much. Jeffrey Gennette - Macy's, Inc.: I'll take beauty, and then Karen will take on tourism. I think when you just look at the beauty strategy overall – let's go through the components. Fragrance was very good, positive comps. We expect that to continue. That's a big piece of our overall beauty business. What we're doing in Impulse are really in the color and treatment area, where you have the flexible format. We're getting that into a lot more doors. It's brand-agnostic. It's very flexible. You've got guides that are cross-trained across all of the brands. We're getting good traction with that. You're going to see that in a lot more doors. Obviously, we just talked about Bluemercury and our success there and what we're looking to learn from with Bluemercury in store. And the idea about getting services into the Bluemercury format that is really, our customers are very wanted for experience in our main Macy's boxes. So the balance of the color and treatment business is really what we have yet to solve. We've got lots of tests in play. We've got new formats that are launching now that have been in place. We're working very closely with our beauty partners, and we hope that through the balance of the third and fourth quarters, that we're going to have a model that we're going to want to roll out into more stores in 2018 and beyond. Do you want to take...? Karen M. Hoguet - Macy's, Inc.: Oh, I'm sorry. On the tourist impact, that's, in part, why you see a wide range in terms of the guidance for the fall. We were surprised by the second quarter and we're still analyzing whether we think that will continue. My guess is it very well could, based on what we know. But, again, that's part of the reason for the wide guidance range for the fall season.

And we will take our next question from Omar Saad from Evercore ISI. Omar Saad - Evercore ISI: Thank you for taking my question. I wanted to ask for, if you could provide a little bit more detail and color around the retained sales data point that you gave earlier. I assume you're getting a lot of that information from your loyalty and credit card data. Are you seeing any patterns in terms of which types of customers are staying with the Macy's brand as you close some of those stores or certain categories where you're seeing that sales retention? Any information there could be pretty insightful. Thanks. Karen M. Hoguet - Macy's, Inc.: Yeah, honestly, I don't know all of those details. I do know that, as we had discussed, when we close a Macy's store in a single-store market, it has continued to negatively impact Macys.com sales, although by less than what it did a few years ago. But that's still a negative. And in the multi-store markets, as I said in June, it ranges from 15% to 40% of the sales that we can retain. And each one is somewhat of a different story, depending on how far away the retained store is, the one that didn't close, and also how similar the demographic is. So it's hard to be precise there. But the good news is we are doing on the better end of what we had anticipated in those markets and better than what we did previously. My presumption is that it's the core customer that we're keeping as opposed to the occasional, but I am not versed in all of the details in terms of where we're retaining the sales by category. But the good news is we have been able to strategize looking at what people buy in the stores that we're closing and trying to make sure that we have that in nearby stores. Omar Saad - Evercore ISI: Got it. That's helpful. Thanks, Karen.

And we'll take our next question from Michael Binetti from UBS Investment Bank. Michael Binetti - UBS Securities LLC: Hey, guys. Good morning. Thanks for taking my question. Karen, just a quick modeling question, as I think about what you're trying to tell us for the second half of the year on same-store sales. I think you said that if you were on the optimistic end of the guidance, it would leave room for positive same-store sales in the fourth quarter. And I think you answered one of the questions about just assuming the traffic levels we've seen here sticking around in the mid-single-digit negative area. I'm trying to think about, just given the last few years, how strange the fourth quarter is as far as promotional levels across the industry. I'm trying to figure out what you're trying to communicate to us gets better in the fourth quarter, if traffic stays at these levels, to get to the high end of that range. I'm wondering if there's something perhaps that you know about how holiday worked in the stores that you guys have closed that will be a year-over-year mix benefit, or anything like that, that we might be missing. Karen M. Hoguet - Macy's, Inc.: Well, if I were modeling the fourth quarter, I don't think I would be modeling a positive comp. So you have to think of the balance of third and fourth quarter. If we do better in the third quarter, that would lead to the better end of comps. But we'd have to just start that in the third quarter. You'd have to beat what I'm saying in the third quarter to get to the better end of our guidance, is a different way of saying it. Now, it could happen in the fourth quarter, but I would not be modeling it that way, if I were you. Michael Binetti - UBS Securities LLC: Okay. Go ahead. Jeffrey Gennette - Macy's, Inc.: Michael, the other thing that I'd say is that we expect the fourth quarter to be very promotional and we're going to have all of our fire power ready to go for that. Michael Binetti - UBS Securities LLC: Okay. I guess some people have asked about the roll forward on gross margins, but if maybe I could just go back in time two months here and ask you, I think the second quarter gross margin was a lot more volatile than what you guys were thinking at the beginning of the year, and then even more volatile than you thought in June, when you told us it was going to be a lot lower when we met you in June, at down 100 [basis points]. It came in well above that. So clearly, it got better in June and July. Would you mind helping us think about what was so volatile intra-quarter that was a little harder for you to track perhaps? Karen M. Hoguet - Macy's, Inc.: Well, I think it's easier to forecast planned gross margin and the normal markdowns required in the business relative to our marketing strategy. When we're talking about clearing goods, remember, we had talked about the overage in inventory that we ended the year with, that we had hoped to get through the system in the first quarter and didn't. That's harder to predict how well that will sell and how fast you can, in essence, get it through the system. And I think that's the large part why you saw more volatility between June and the end of July. Michael Binetti - UBS Securities LLC: Okay. And if I could just end with one quick one on the jewelry strategy, obviously, you guys are very encouraged by what you're seeing there. As you roll that forward to the holiday with your numbers continuing to be up double digits in 2Q, how aggressive can you be with the jewelry strategy for the holiday, given the strength you've seen here? Is there anything we should keep an eye out for as we do our store checks through the second half of the year? Karen M. Hoguet - Macy's, Inc.: Hopefully, you're going to see it continue to do extremely well. And, obviously, it's one of our priority businesses, so we'll do all we can to strengthen it as we go through the holiday. Michael Binetti - UBS Securities LLC: Thanks a lot, guys.

And we'll take our next question from Kimberly Greenberger from Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Okay, great. Thank you. Good morning. Karen M. Hoguet - Macy's, Inc.: Good morning. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Karen, I wanted to ask about the credit income. I think you mentioned credit income grew $2 million year-over-year. You noted it does not include new account opening expense and I think one other item. Could you just repeat that? And then, give us a sort of fulsome picture, if you could, on credit income including those items? And then, Jeff, I just wanted to ask about the cosmetics business, if I could. I know you added a promotion or a couple of promotions, and are you finding that consumers are responding to that? And is it helping to improve market share or potentially stabilize that business? Thanks so much. Karen M. Hoguet - Macy's, Inc.: Yes. Starting on the credit side, the other item that I had mentioned was fraudulent transactions. And we don't quantify those amounts, but I just wanted to remind people that what we report relates to the Citibank income, as opposed to sort of the total profitability of credit. Credit penetration in the second quarter was approximately 46% or down 100 basis points. However, because people are paying slower, the balances were still quite high and enabled us to have the income that was $2 million above last year. So, obviously, as we go to roll out this loyalty program, we're hoping to have a big impact on what's happened in penetration during the spring season. Jeffrey Gennette - Macy's, Inc.: And, Kimberly, I think just bridging what Karen just said about the loyalty program, I think that's the right answer with respect to cosmetics. So one of the things that we're most interested in seeing is how with the new loyalty program launched in October, how that affects our beauty customer. Because I think when you look at our competition, I give them some high marks on the loyalty programs that they have and I would say that ours was lacking. And so one of the things that we wanted to make sure was that the loyalty program we're launching in October gave us the foundation by which we could speak to the beauty customer with more authority. So, yeah, certainly, the promotions that we have done to respond to competition in cosmetics has worked. But I would rather solve that by getting additional value through a loyalty program and we're going to start to see the seeds of that in October. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Okay. Thanks so much, Jeff.

And we'll take our next question from Bob Drbul from Guggenheim Securities. Robert Drbul - Guggenheim Securities LLC: Hi. Good morning. Just a couple questions, on the digital and the improvement in digital, can you talk about buy online, pick up in store penetration and ship from store, how that's trended within your digital business? And the second question I have is I think from the June meeting, there was some discussion around a move to get more exclusive merchandise. I was just wondering if there are any updates or anything you could talk to on successes that you've had in that initiative. Thank you. Jeffrey Gennette - Macy's, Inc.: Okay. Let me talk about BOPS, or buy online, pick up in store. So it really is three-pronged. The first one is making sure that you have a larger percent of your inventory in all of your doors that's congruent with demand that is online. And now, today, 25% of our entire digital demand could be satisfied in a door that is in the ZIP Code that is generating that online sale. And so that gives us huge fire power opportunity to convert that to a buy online pick up in store if that's what the customer would like to do. We love that because when they're in that store, they generally upsell about 25% of additional goods. The omnichannel customer is clearly a potent one when they buy in both channels, so all good things come from that. So the first thing was having the inventory availability to do that. The second piece of it was making sure then that you have a function on your mobile app or online that gives the opportunity for a customer to see all the inventory in an easy way in the store that is near them. And it's really called Shop Your Store. So that has been in beta mode for us. We're ready to launch that. And that will give the customer a really quick and easy way to be able to see what their local store has in their size and their color. And then, the third thing that we've worked on that will drive this penetration up through the back half of the year is changing the physical environment of the BOPS locations in our stores. And going from a tertiary location to a main number one entrance really put some assets against it, make sure that it is ready to go, that it's got staffing. And so all those three things give us confidence that our BOPS penetration will grow through the fall season and that it will be very customer wanted. Ship from store, we're always looking at that last mile and the opportunity to have same-day delivery in more and more metro markets if a customer chooses to do that. Once again, the same thing that I talked about with the first prong about BOPS about having available inventory, the way that a customer is going to put together their order is the first step and we've done that well. And obviously, increasing functionality and making sure that we have the logistics infrastructure in more markets, we're checking all those boxes, so that gives us the option to be able to do that for the customer in the back half as well. And then, I guess your question was about exclusives. They're working well. I think that Avec Les Filles by Joyce Azria was one that we launched about three months ago. And that is doing very well. We had the Anna Sui collection that is coming up for INC that launches in the fourth quarter that we have high hopes for. We have many others that are all part of the private brand arsenal. So what we told you in the Investor Meeting in June that we wanted to take the exclusivity quotient from 29% to 40% over time, we're on track with all of our work there with our private brands and our market partners. Robert Drbul - Guggenheim Securities LLC: Great. Thank you very much. Good luck. Jeffrey Gennette - Macy's, Inc.: Thank you, Bob. Karen M. Hoguet - Macy's, Inc.: Thanks.

And we'll take our next question from Lindsay Drucker Mann from Goldman Sachs. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Thanks. Good morning, everyone. Thanks for taking my question. I had two. First of all, handbags were not called out as an under-performing category this quarter. I was just hoping for an update on what you're seeing there. And then second, on the asset sale contribution to guidance, I just wanted to clarify. So you think that contribution from asset sale gains will be up. Are you expecting some offsetting factor somewhere else in the P&L, which is why you're not raising overall guidance? Or just help me understand the moving parts there. Thanks very much. Karen M. Hoguet - Macy's, Inc.: Well, no. If you think about it, when we talked in June, we had talked about the gross margin risk, which we quantified in that we had planned to offset that between SG&A and the asset sale gains. So all we're doing now is providing some color around that. And obviously, there's a lot of the year yet to come, but there's no other change. On handbags, Jeff may want to comment, but relative to last year, that business has still been tough, but it has stabilized and it's pretty much as we had expected. So that's why I wouldn't call it weak. When a business performs as we expected and it's stabilizing, that puts it into a different category. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Yeah, Jeff, any color that you have on what you're seeing in handbags? Jeffrey Gennette - Macy's, Inc.: Lindsay, it's as expected. So we're actually getting some green shoots in some of the regular price products and in some of the new brands that we're bringing in, but it's as expected. So it's not a strength, but I see good signs of life in that category. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Great. Thank you.

And we'll take our next question from Brian Callen from Bank of America Merrill Lynch. Brian Callen - Bank of America Merrill Lynch: Hi. Karen, nice progress on the debt reduction year-to-date. The premium on the debt repurchase was pretty modest again. Did you repurchase additional 2037s (61:19) or was it other notes? Karen M. Hoguet - Macy's, Inc.: You know what? I don't have that in front of me. We'll call you back and give you that detail. Brian Callen - Bank of America Merrill Lynch: Okay. And then in the outlook comments, you mentioned the debt repurchase occurred earlier than assumed for interest expense. I guess what drove this timing? And then... Karen M. Hoguet - Macy's, Inc.: Just opportunities in the open market. Brian Callen - Bank of America Merrill Lynch: Okay. And then, do you maintain this sort of $100 million to $150 million pace in 3Q or should we assume that, I guess, the cash seasonality would affect what we see in the back half? Karen M. Hoguet - Macy's, Inc.: I can't give you any forecasts on what the timing might be. It all depends on opportunity. Brian Callen - Bank of America Merrill Lynch: Okay. Thank you.

And we'll take our next question from Brett Levy from Loop Capital. Brett Levy - Loop Capital Markets LLC: Hey, guys. You said 10% of your customers account for 50% of your sales. On the off chance that maybe 5% of your customers account for 30% of your sales or 1% of your customers account for 20% of your sales, is it the possibility to make kind of Macy's like a full experience? Like you can get your glasses there, get your appliances there, there's a bar and a restaurant. You can get your pharmaceuticals there. And you know where I'm going just conceptually, is there any way of taking that 10% that accounts for 50% and even further focusing it and being kind of the one-stop shop? Jeffrey Gennette - Macy's, Inc.: I'll broaden your point that Macy's is a very flexible brand and when you think about the owned businesses that we have with the lease model that we have and the hybrid models that we have, we could be in more categories. We have high interest in taking care of the needs of our best customer. Be that 10%, 5% or 1% and the new loyalty program is really to address her. The store experience and the stores owning those relationships with those individual customers, you can touch those customers that are so potent for our overall brand in ways through technology and customization, what we can do with our digital assets, in ways that we couldn't in the past. We're not ready to comment if that means the categories that you're talking about. But everything is on our radar screen. We're open to all opportunities. And the spirit of your question about our best customers, we want to be her one-stop shop. And we believe we can do better with her over time. Brett Levy - Loop Capital Markets LLC: And the follow-up is a simple one. Since maybe there's an extra floor, maybe you could sell her a condo there? I mean this is more of a Brookfield-related question maybe, but is there any priority being given to the top ten customers in terms of what you do with the extra real estate you'll potentially have as an asset? Jeffrey Gennette - Macy's, Inc.: I broaden your point that the idea about us in looking at each of our assets because they're all unique, we have an opportunity to make sure that we're monetizing every one of these unique properties to make sure that we're maximizing shareholder value. So we're going to take great care in doing that. Brett Levy - Loop Capital Markets LLC: Thanks very much, guys.

And we'll take our next question from Kara Szafraniec from Northcoast Research. Kara Szafraniec - Northcoast Research Partners LLC: Good morning, guys. Quick question on the fine jewelry initiative, hoping maybe you can give us color on which categories of fine jewelry are performing best, maybe some average dollar value transaction color, and finally, how is the fine jewelry initiative impacting total jewelry margins? Jeffrey Gennette - Macy's, Inc.: What I'd say is that each of the categories with them, when you're talking a double-digit increase, everything is playing across the whole fine jewelry categories. But one particular note is really what's going on right now in diamonds. And a lot of that is because the strategy isn't just about product. It was also about environment. It was about salesmanship. It was about management. It was about training. It was about marketing. So when you look at that, our opportunity to sell better quality diamonds for someone who's starting their engagement journey with us, that was one of the places that we really wanted to make sure we were relevant. So we put focus on that. We really built a lot around that and the rest is doing well for us. So what I'd say to you is that our efforts are really focused on the full jewelry customer, so it's not just in fine jewelry. It's also in bridge jewelry. It's also in fashion jewelry. It's in watches. It's in fine watches. So if you can establish a beachhead with a particular category that customers really want, and then once they're in, they'll buy other categories. That's how we're looking at it. We do that through our own brands. We do that through our market brands. Kara Szafraniec - Northcoast Research Partners LLC: Okay, great. Thanks so much.

And we'll take our next question from Dana Telsey from Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: Good morning, everyone. As you think about the second half of the year and holiday plans, whether it's hiring and the changes you're doing in marketing, how is that investment, hiring, marketing different this year than last year? And then with the vendors and slower product, more buy now, wear now? What are you seeing in arrival of the goods, timing, that's different than it had been in the past? Thank you. Jeffrey Gennette - Macy's, Inc.: Hi, Dana. So what I'd say is that we're more efficient in our marketing spend than ever because of what we're doing with weights and buys and Rich Lennox, who you had an opportunity to meet at the Investor Meeting, and the leadership that he's bringing to this subject. So expect us to be very promotional, but we have available dollars now because we're more efficient in our promotional marketing to be able to focus on those things that make Macy's stand out as a gift and fashion destination. So expect those parts to be in more balance during the fourth quarter. So and then to your question about inventory, we definitely are buying closer in. So the opportunity to flow closer in is a priority of ours, so to make sure that we have the right goods in time for holiday, but not too far in advance, and to make sure that our December receipts are really focused on the transitional opportunity for Christmas vacation into the New Year. So we're really focused on freshness and making sure that our inventories are bought closer into customer demand, and expect us to get better at that and you'll see a marked difference this holiday versus last. Dana Lauren Telsey - Telsey Advisory Group LLC: Thank you.

And we'll take our last question from Lorraine Hutchinson from Bank of America. Lorraine Hutchinson - Bank of America Merrill Lynch: Thank you. Good morning. Karen, can you just reiterate your back half comp guidance? I think there was a little bit confusion about that. Karen M. Hoguet - Macy's, Inc.: Sorry. Yeah, the guidance had been, in order to get to minus 2% to minus 3%, mathematically for the fall, that would be minus 0.8% to minus 2.6%. So I think that's the back half guidance. We were trying to give some color around expectations for the third quarter. And you'll recall in June, we had said we expected Q2 to be better than Q1, Q3 better than Q2, Q4 better than Q3. With Q2 being better than what we had expected, I was just cautioning that Q3 may be close to Q2, or slightly worse. And then you have to decide your outlook for the fall as to what that could mean for the fourth quarter. Does that help or am I still confusing you? Lorraine Hutchinson - Bank of America Merrill Lynch: No. That helps. Thank you. And I just wanted to follow-up on the loyalty program. I know you're not giving a lot of details yet, but are you confident that launching it in October will give the customer enough time to learn what it means and be able to really use it for the important holiday selling season? Karen M. Hoguet - Macy's, Inc.: We believe that it's a good time to be launching it, but we also know that it takes a long time, roughly 18 months, for a loyalty program to really reach its stride. So we do not expect to get the full benefit of the loyalty program in the fourth quarter. But we hope that we will begin to see that happen. Lorraine Hutchinson - Bank of America Merrill Lynch: Thank you.

And that concludes today's question-and-answer session. Karen M. Hoguet - Macy's, Inc.: Wonderful. Thanks, everybody, for your interest and support. Take care. Jeffrey Gennette - Macy's, Inc.: Bye, everybody.

This concludes today's call. Thank you for your participation. You may now disconnect.