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

Matthew Robert Boss - JPMorgan Brian Jay Tunick - RBC Capital Markets LLC Chuck Grom - Gordon Haskett Research Advisors Paul Lejuez - Citigroup Global Markets, Inc. Heather Balsky - Bank of America Merrill Lynch Paul Trussell - Deutsche Bank Securities, Inc. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Robert Drbul - Guggenheim Securities LLC Lindsay Drucker Mann - Goldman Sachs & Co. LLC Todd Duvick - Wells Fargo Securities LLC Omar Saad - Evercore ISI Oliver Chen - Cowen & Co. LLC Bernard Sosnick - Madison Global Partners, LLC Brian Callen - Bank of America Merrill Lynch Dana Lauren Telsey - Telsey Advisory Group LLC

Good morning, and welcome to the Macy's, Inc. Third 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. Karen M. Hoguet - Macy's, Inc.: Good morning. This is Karen Hoguet, CFO of Macy's. I'm joined today by Jeff Gennette, our CEO. We both want to welcome you onto the call and thank you for your interest in our 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 recent Form 10-K and other SEC filings. I'm going to turn the call over to Jeff now. Jeffrey Gennette - Macy's, Inc.: So, thanks, Karen, and good morning, everybody. So, let me dive right in. So, we are on track to hit our full year sales and earnings guidance. Overall, we're pleased with our third quarter results. Karen is going to take you to the details later, but I wanted to give you a few headlines. So, in the third quarter: owned plus leased comp sales were down 3.6%; gross margin was up 10 basis points over last year; comp inventory was down 4.2%; SG&A was down 5.5%; and earnings were up compared to a year ago. So, overall, a good quarter, but know that we are intensely focused on improving our comp sales trend. So, while we have work to do, I want to step back and look at the bigger picture. I'm confident that we're taking the right steps to get that trend moving in the right direction. This includes: our approach to marketing and customer engagement; to our edited and elevated product assortment that shows our fashion authority; to the continued integration of technology, particularly mobile, across the full customer experience. We're focused on executing strongly against our plans in each of these areas in the crucial fourth quarter ahead. Progress here will provide the momentum we need to return to comp sales growth in the future. So, let me take a moment to detail two areas that performed well in the third quarter that will be very important drivers of sales in the fourth quarter. So, the first one is digital sales. We had another very solid sales performance in the third quarter, with double-digit growth. And we anticipate that digital will contribute strongly in the fourth quarter, as we know our customers are increasingly transacting both online and in our stores. We anticipate a sales lift in the fourth quarter in digital of approximately 100 to 150 basis points from the increase in penetration of digital sales, and our guidance reflects that. In addition, to fuel this growth, we've significantly improved our search engine optimization. We've shifted more of our media spend to digital. We've enhanced our delivery options, whether it's expanded same day delivery services or buy online, pickup in store. We will continue to improve both functionality and user experience of the Macy's app because we expect mobile shopping on Macy's to be very big this holiday season. The second area that will give us lift in the fourth quarter is the new loyalty program which we launched on October 2. As we shared with you in June at our Investor Meeting, a robust loyalty program is a key element of the North Star Strategy and getting it to our customers in time for the fourth quarter was a big step forward for us. And just to remind everybody, our overall goals for the loyalty program: number one, we wanted to strengthen our relationships with our best customers, and that's about 10% of our customer base that currently account for about half of our sales. Second, within our existing customer base, we wanted to migrate customers up to higher spending levels. And third, we wanted to use the loyalty program to attract new customers to Macy's and encourage those infrequent Macy's shoppers to come to us more often. So the October 2 launch was focused on our proprietary cardholders and it supported those first two goals, strengthening relationships and the upward migration of spend. So, early results are promising. We're getting some very positive feedback from our customers, particularly around free shipping. But in 2018, we're going to roll out further enhancements to Star Rewards as well as expand the program beyond our existing proprietary card base. So, now looking ahead to the fourth quarter, we're excited about our plans for the holiday season. And this is really a time where Macy's truly shines. We're bringing our fashion authority to bear on holiday trends across all categories. We have an updated marketing approach, including creative that will tap into the heart of the Macy's brand. We're ensuring our customers get the convenience she needs to shop the way she lives; in our stores, through our app and on Macys.com. And we're committed to giving her the great holiday experience that she expects from Macy's: from the holiday traditions at the Thanksgiving Day Parade; to the tree lightings across the country; to the Believe campaign, where millions of children send their letters to Santa. So we look forward to getting this holiday season underway. And in the fourth quarter and beyond, while driving sales is a big priority, at the same time, we're managing our resources smartly, to fund efficiency and fund growth. Much of this effort is around cost management, and we're doing a good job here. We're also making continued progress on the organizational side, getting more streamlined and efficient and moving more quickly. To that point, we're seeing benefits from the merchandising restructure that we announced in late August. And, just as a reminder, we massively simplified Macy's approach to merchandising by collapsing three organizations into one and building a more direct connection between merchandising and our improved data analytics capabilities. So we're working faster and smarter. We're responding more quickly to our customer, and we're engaging more effectively with our brand partners. And also since our earnings last call, we also welcomed Hal Lawton, Macy's President, to the company. He joined in mid-September and he has hit the ground running. We're excited about the expertise that he brings to the table, and this experience is squarely at the intersection of technology and retail. Hal will have a real impact with the Macy's brand. So to sum it up, we're focused on delivering a strong fourth quarter and heading into 2018 with momentum. And with that, I'm going to turn it back over to Karen to walk you through the third quarter results in more detail. Karen M. Hoguet - Macy's, Inc.: Thanks, Jeff. In the third quarter, sales were $5.281 billion, down 6.1% versus last year and down 3.6% on a comp owned plus licensed basis. This is slightly worse than we expected, attributable primarily to the hurricanes and the warm fall weather. We estimate that the hurricane impact hurt our sales in the quarter by approximately $20 million, or 30 basis points. And sales of cold-weather merchandise were approximately $50 million lower than expected, due to the unseasonably-warm weather. International tourist sales dropped 11.7% in the third quarter, hurting our comp by 50 basis points. Part of this, though, is double-counted with the hurricane impact. Our digital business, as Jeff said, had another strong quarter, now making it 33 quarters in a row with double-digit growth. And we are pleased with the performance of our Backstage stores within our Macy's stores and are excited by the potential of this concept. It is the only mall-based, off-price concept which we now are realizing gives us a competitive advantage. Details are still being developed, but we plan to expand it aggressively next year. Our strongest families of business during the quarter were: fragrances; fine jewelry; dresses; men's tailored clothing; active; and shoes, excluding boots. We were also encouraged by the improved trend in handbags as well as cosmetics. The weakest categories in the quarter were all the cold-weather businesses, including coats, boots and winter accessories, as I had mentioned. In addition, sales were softer in the home-related businesses at Macy's during the quarter, although the sales in these categories did improve significantly in October. Sales at Bloomingdale's were stronger than Macy's, particularly in the home categories. And Bluemercury had a good quarter as well. Geographically, our sales were relatively similar across the country, other than the hurricane-impacted areas. In the third quarter, transactions were down 7.3%, average units per transaction were up 1%, and the average unit retail was up 2.9%, in large part due to lower clearance activity. We continue to feel good about the strategies outlined at the June Investor Meeting: Backstage, the key merchandise initiatives and retain sales after our store closures. These initiatives produced approximately $50 million in incremental sales in the quarter. We remain on track to deliver the forecasted $200 million to $260 million for the second through fourth quarters this year from these initiatives. In addition, as Jeff said, we launched our new loyalty program in October and have received great customer feedback, as well as from our associates. Our gross margin rate in the quarter was 39.9%, up 10 basis points from last year. This is much improved from the first half of the year when we were down 80 basis points versus last year. Our merchandise margin was flattish in the quarter. Inventory at the end of the quarter was down 6.9%, or 4.2% on a comp basis. These lower inventory levels helped our gross margin rate in the third quarter, due to having less clearance merchandise we needed to liquidate. This inventory level also puts us in great shape for the fourth quarter, with lots of open-to-buy available for fresh merchandise to drive sales, and not too much carry-forward inventory that would need to be liquidated. SG&A dollars, excluding asset sale gains, were $1.995 billion, $117 million or 5.5% below last year. Year-to-date, we are now $286 million below last year on this basis as compared to our annual reduction target of $305 million. We did, however, benefit from some timing shifts from the third to the fourth quarter, particularly in marketing. But even with this shift, we are on track to exceed our annual target. Our SG&A is lower than last year, as you know, due to the restructuring that we completed at the end of fiscal 2016 as well as the impact of the closed stores. We are continuing to restructure areas on a continual basis, so that we can both reduce costs and become not only leaner, but also more nimble. These cost reductions were partially offset by our continuing investment in digital, our shoe and jewelry strategies, and the expansion of Backstage as well as Bluemercury. Income from credit in the third quarter was approximately $161 million, $4 million below last year. Penetration of our proprietary cards in the quarter was 47.4%, down 110 basis points from last year in the third quarter, although the trend improved to only 70 basis points below last year in October, after we began the launch of our new loyalty program. And remember that this credit income does not include some costs associated with our credit operation, including fraud and new account originations. Book gains associated with asset sales were $65 million in the quarter. This compares to $41 million last year. During the quarter, we completed the transaction to sell two floors of our Downtown Seattle store for approximately $50 million. We booked a gain associated with this sale of approximately $40 million. We are in the process of shrinking our store to four floors, and in so doing, making it a far better, more vibrant shopping destination. During the quarter, we also booked $22 million of gain associated with Downtown Brooklyn, and we closed a few other small asset sales for a total of $3 million of gain. In the third quarter, we booked $33 million of costs associated with our restructuring and cost-reduction efforts. This is higher than the $20 million to $25 million discussed in September, when we announced the restructuring of our merchandising organization. We have recently restructured our marketing function, as well as other areas which added to these restructuring-related costs, that also will enable us to save an additional $8 million on an annual basis and at the same time, improving the effectiveness of our organization. We booked $22 million of settlement charges in the quarter associated with the lump-sum payouts in our retirement plans. So excluding the restructuring and settlement charges, operating income was $176 million in the quarter, which is 4.1% above last year. Interest expense was $74 million in the quarter and tax expense, $13 million. Average share count on a diluted basis was 306.5 million shares. Earnings per share on a diluted basis, excluding the restructuring and settlement charges, was $0.23 in the quarter, up 35% over last year. Cash flow from operating activities was $389 million this year, $81 million above last year. This is due primarily to lower cash outflow for inventory, which offset a few other negative cash flow items. Cash flow from investing activities was an outflow of $346 million, $145 million lower than last year, due both to lower CapEx as well as higher asset sales. Therefore, cash flow before financing activities was an inflow of $43 million, $226 million higher than last year's $183 million use of cash. We did not repurchase any debt or any stock during the quarter, and we ended the quarter with $534 million of cash on the balance sheet, $77 million above last year. So as we look to the fourth quarter, we are expecting an improvement in our comp sales trend on an owned plus licensed basis relative to that produced in the third quarter. This expected improvement in trend is primarily due to five factors that Jeff mentioned earlier: the higher digital penetration in the quarter; the launch of our loyalty program; our new marketing strategy; additional post-hurricane recovery; and, hopefully, cold weather. And we expect our merchandise initiatives, the retain sales from closed stores, and Backstage will continue to contribute to our sales, as previously mentioned. So in order to achieve the annual owned plus licensed comp of minus 3%, our fourth quarter comp would need to be minus 1.9%. And on the other side of our guidance, to reach the upper end of our guidance, which is minus 2% for the year, we would need to grow 1.1% in the fourth quarter. We think it likely that we'll be at the lower end of our sales range for the year. We remain confident that our earnings will be within the previously-guided range for the year of $3.38 to $3.63, including the $234 million gain associated with last year's sale of our Union Square Men's store. Our guidance for the fourth quarter ties back to the guidance we gave back in August for the fall season. It remains essentially unchanged. We had guided then to a gross margin decline of 20 to 50 basis points for the last two quarters of the year, which would now imply, given the third quarter performance, that the fourth quarter would be down 30 to 80 basis points. The fourth quarter merchandise margin is expected to be flattish, like it was in the third quarter. But our gross margin is expected to be negatively impacted by the free ship offering for our best customers as part of the new loyalty program. For SG&A dollars, excluding asset sale gains, we had guided for minus 3% to minus 4% from last year for the back half of the year, which now implies down 0.7% to down 2.6% for the fourth quarter. We now expect to be at the better end of this range and, as I said earlier, exceed our targeted $305 million annual SG&A reduction. And there's also no change in our assumptions for credit income, asset sale gains, interest expense, depreciation and amortization, CapEx and the tax rate. So to sum things up before we open the line for questions, overall, our team is pleased with how the third quarter played out. And we are very excited about our plans for the holiday season. We are focused on executing a robust digital sales strategy and continuing to execute on the initiatives we outlined for you earlier in the year. Our inventory is in good shape, which is helping our gross margin. And we continue to deliver on our commitments to reduce SG&A. Our cash flow continues to be healthy, and we are generating cash above that needed to fund our CapEx and our dividend. While we did not repurchase debt in this quarter, we remain committed to using our excess cash to reduce debt to achieve our targeted leverage ratio. We continue to believe that maintaining our investment grade rating is important. And with that, Jeff and I will now take your question.

And we'll take our first question from Matthew Boss with JPMorgan. Matthew Robert Boss - JPMorgan: Thanks. So, Jeff, on the promising results to the Star Rewards loyalty that you've seen so far, I guess what has you the most optimistic about the launch? And can you just talk about also about the lift that you're seeing today at Backstage and how that compares to your 10% target over time that you'd like to see there? Jeffrey Gennette - Macy's, Inc.: Okay. Thanks, Matt. So, the first thing on loyalty, is it's too early for us to measure the results of it. We launched it in the beginning of October, and cards are coming into customers all the way through the month. What's been great about it is getting the initial reads from the customers about it. They find it easy to understand. They're very clear on what the rewards are. You're already hearing customers talk about them. We're getting this all from our associate population about if they're a Gold customer what it would take to be a Platinum customer. They're very clear on what the step up rewards. We're already seeing the Rewards Certificates being used. We did a nice job launching this, so I think our associates are fully on board. They appreciate how simple it is. Our customers are appreciating it. As mentioned, they're excited about the free ship and the 5% back in rewards with no exclusions is popular, so, so far so good. And we hope to tell you statistical results in the future. And then, with respect to your question about Backstage, we're on track. We now are getting a cumulative – about a 7 point lift in the 45 stores that have Backstage within them, the full line stores that have Backstage within them. And that is 7 points towards our ultimate goal of getting it to 10. So we're on track. As Karen mentioned, we're going through all of the planning now to have a more aggressive rollout in 2018 and beyond. Matthew Robert Boss - JPMorgan: That's great. And then, Karen, so on track to exceed $300 million of SG&A savings this year. What's the best way to think about efficiencies from here as we look forward? And larger picture, just how do you think about growing EBIT dollars versus expanding EBIT margin at Macy's over time? Karen M. Hoguet - Macy's, Inc.: Yeah, I would say we're continuing to look for opportunities to, frankly, make the organization work more effectively. The good news with that is it also comes with cost reduction, but it's really being driven by how can we make decisions faster and better as we go forward. And I would say our focus is really on growing comp sales again. And so, we're focused as much on EBITDA dollars, but doing things intelligently and in a balanced way, as we always have. But I would say we are focused on getting back to comp sales as a big objective of ours going forward. Matthew Robert Boss - JPMorgan: Great. Best of luck. Karen M. Hoguet - Macy's, Inc.: Thanks.

And we'll move to our next question from Brian Tunick with Royal Bank of Canada. Brian Jay Tunick - RBC Capital Markets LLC: Thanks and good morning. I guess the question on the transactions, Karen, down, I think you said, 7.3%. Can you maybe give us some perspective there? Is that the hurricane or warm weather impact and sort of what you're planning from a transaction perspective as you enter the fourth quarter? And then, you mentioned about the capital allocation, but obviously there's been a lot of focus on the dividend and on the dividend yield. Can you maybe give some perspective of how you sort of think about allocating the capital? And what would cause you to consider cutting the dividend from a cash flow perspective? Thank you very much. Karen M. Hoguet - Macy's, Inc.: Sure. In terms of the transactions, I do think it's an impact of the warm weather and the hurricane. So, I really am not making too much of that as we go forward. In terms of the dividend, I think as you all know, it's an important part of how we plan to use our excess cash. And as we've said, our cash flow generated is very strong. So when you think about paying out the dividend, we're very comfortable with that piece of it. Obviously, the yield is higher than we had expected it to be, but that's a function of the stock price. Jeffrey Gennette - Macy's, Inc.: I would just add to what Karen said about transactions is we are focused on getting AUR improvement, where it's warranted. And we've made a play in our merchandise assortments to elevating and editing them and then elevating the trim, the make, the fabrics. And where we've done that and when we do that well, our customers' paying higher retails for the units that we're selling. So that's encouraging, so expect us to continue to stand by edited and elevated assortments. Brian Jay Tunick - RBC Capital Markets LLC: And then, Karen, just on the cash flow uses, how should we be thinking about CapEx? Is there any early thoughts about next year? Karen M. Hoguet - Macy's, Inc.: You know, I think that over the last couple of years, our capital has been between sort of $900 million and $1 billion, so I would think about it in that range. Remember that some of the real estate transactions that we're doing are requiring us to spend capital. So as we're evaluating asset sales, for example, Union Square, as we go to integrate the closure of the Men's building, that requires capital. So that may lead us to spend a little bit more than what we're spending this year, but not over historic level. Brian Jay Tunick - RBC Capital Markets LLC: All right. Super. Thanks. Good luck for the holiday. Karen M. Hoguet - Macy's, Inc.: Thank you.

And we'll move to our next question from Chuck Grom with Gordon Haskett. Chuck Grom - Gordon Haskett Research Advisors: Hi. Thanks. Good morning. Not sure if you're willing to share, Jeff, but curious what Hal Lawton has been focused on since joining Macy's? His reputation at eBay and HD [Home Depot] and throughout the industry is very strong, and, obviously, he's a great add to the team. Jeffrey Gennette - Macy's, Inc.: So, Chuck, he's diving headfirst in, and he's taken a real hands-on approach to learning the business. Two big things; he's got the teams focused on delivering fourth quarter, and he's working on a strategy that, as Karen mentioned, is going to help return us to comp sales growth. So we're very excited about having Hal, and we expect a significant impact with his leadership. And I think it's going to really be at the crossroads of retail and technology. That's the big plus that Hal will bring. And not only does he have that, but he also knows how to operate at scale. And so he's been here eight weeks, and it's all good. Chuck Grom - Gordon Haskett Research Advisors: Okay, great. And then, Karen, back in June, you talked about the $200 million to $260 million of estimated incremental sales from the three efforts. I think you benefited $60 million in 2Q, $50 million in the third quarter. Would you still expect to generate that $200 million to $260 million for the full year now? Or do you think there's some upside to it? Karen M. Hoguet - Macy's, Inc.: No. The $200 million to $260 million was for the three quarters, and yes, I do expect to achieve that. Chuck Grom - Gordon Haskett Research Advisors: Okay, great. And then my last question, Kohl's just spoke to a big recovery in their seasonal business during the second half of October and into early November. Given that the weather's become more favorable, curious if you guys have seen a similar trend so far. Jeffrey Gennette - Macy's, Inc.: We have. Chuck Grom - Gordon Haskett Research Advisors: Okay, great. Thanks a lot.

And we'll take our next question from Paul Lejuez with Citi. Paul Lejuez - Citigroup Global Markets, Inc.: Hey thanks, guys. Karen, any update you can share on sales transfer rates and maybe what sort of lift you're getting to the comp from the sales transfer after stores have been closed? And then second, just on credit, how do you think about what to expect on credit as you close stores? Just, is there a lag between when the stores close, when you might lose that credit customer? Just want to think a little bit about planning the credit contribution looking out to next year. Thanks. Karen M. Hoguet - Macy's, Inc.: So, the first question's easy, which is the retention from the closed stores stayed about the same in the third quarter at about 12%. So, I think that we're hovering in at that level, which is very good. And as I've said, that ranges. There's a big range store-by-store, but in total, it was about 12%. In terms of credit, I'm not sure I understand your question vis-à-vis lag. We try really hard, obviously, not to lose any credit customers. And either if we're closing a store in a market, we're trying hard to retain their sales in other stores. And in markets that are freestanding, using dot-com to try to retain their business. Paul Lejuez - Citigroup Global Markets, Inc.: Right. So then, Karen, on the 12% retention, is that largely a credit customer that you're retaining? Is that how to think about it? I'm just trying to think of should we expect your credit income, your share in that income, to go down over time as you close stores and you lose some customers, you don't retain them all? Just trying to wrap my head around that. Karen M. Hoguet - Macy's, Inc.: Well, Paul, well this year though as you know, we've guided for credit income to go up, even with those closed stores. So I don't think that would make a big difference in the answer. Paul Lejuez - Citigroup Global Markets, Inc.: Why's that? Karen M. Hoguet - Macy's, Inc.: Because obviously, the stores have closed this year. I don't think there's a lag effect to it. Paul Lejuez - Citigroup Global Markets, Inc.: What's driving credit income to go up, Karen? Karen M. Hoguet - Macy's, Inc.: Well it's a combination of usage of the card as well as the credit profitability. Paul Lejuez - Citigroup Global Markets, Inc.: Okay. Thank you very much. Karen M. Hoguet - Macy's, Inc.: And by the way, we didn't say it was going to go up significantly, so. Paul Lejuez - Citigroup Global Markets, Inc.: Yes. Yes. Got it. Thanks, Karen. Karen M. Hoguet - Macy's, Inc.: Yes.

And we'll move to our next question from Lorraine Hutchinson with Bank of America. Heather Balsky - Bank of America Merrill Lynch: Hi. This is Heather Balsky on for Lorraine. First, just as you think about your margins in the near term and the shift to e-commerce, for next year, especially given higher shipping costs, what could the impact be if online is higher than plan in 4Q? And how do you think about it next year? Karen M. Hoguet - Macy's, Inc.: Yeah, I don't think it's so much an issue of online. I think we understand that pretty well. I think to some degree, we've got to see the loyalty program and what impact that has. So I think, Heather, we'll wait until we get through the fourth quarter before we comment on that. Heather Balsky - Bank of America Merrill Lynch: Okay. And then, you also spoke about improvement in handbag and cosmetics. Could you just address both categories, what you think is driving the improvement and how's the promotional cadence in both? Jeffrey Gennette - Macy's, Inc.: So I'll take that, Heather. So the first thing is on beauty is, the beauty business is where we had strength in fragrances all through the first half of the year. It got stronger in the third quarter. And that is we had a lot of new launches that the customer is responding to very favorably. And Macy's being the number one destination for premier fragrances, we get a lot of those new customers and new sales when the launches are good. When you look at the balance of the beauty business and look at color and treatment, skincare is improving and our business and in our big brands is improving. So we had better performance in the third quarter than we did in the first half in those other parts of the business. And we're laser-focused on continuing momentum that we're starting to see in the beauty area. We've got new leadership in this category. We're trying new tests. We've got a bunch of new tests that are being, testing all the way through the fourth quarter that we're going to learn from and looking at rollouts into 2018. With respect to handbags, handbags is exceeding our expectations. We are lapping a very promotional year last year with some of the big brands. Supply and demand is much more in check, not only at Macy's but across all retail channels in the handbag category. And there is more of a concentration from the great brands out there on newness and on really serving products and categories and values that are very customer-focused. So we're taking advantage of that, along with all of our competitors, so the handbag business is definitely better than it was. And we expect that to stabilize in comps in the future. Heather Balsky - Bank of America Merrill Lynch: Great. Thank you.

And we'll take our next question from Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank Securities, Inc.: Good morning. Karen M. Hoguet - Macy's, Inc.: Morning. Paul Trussell - Deutsche Bank Securities, Inc.: Merchandise margins were nicely flat in 3Q and I believe you expect it to be very similar in the fourth quarter, despite much tougher compares. You had a lot of success on that front a year ago. Can you just elaborate on what drives your confidence there? Any puts and takes around the inventory position and mix would be helpful. And then just on the real estate side, if you can just give an update on the Brookfield partnership, any broader thoughts around the state of your store fleet. And then lastly, I just wanted to confirm, Karen, that you reiterated the original guidance for the year in terms of real estate gains, the $235 million for Union Square and then I think another $275 million to $300 million in asset gains outside of Union Square? Jeffrey Gennette - Macy's, Inc.: Paul, I'll start. I'll take the first part of your question, which is on merchandise margins and then Karen will take your real estate questions. So I think the biggest reason for the improvement in margins has been where our inventory position is. And if you look at the first half of 2017, we had carryover from a very tough fourth quarter in sales last year. And we were out of parity. We had too much inventory for the demand generated online and in our stores. So there was a lot of liquidation that was going on. We really entered the third quarter in a good inventory position, as we reported last earnings call, and we're in a very good position right now. So, we are not anticipating having to liquidate a lot of unplanned inventory walking into the fourth quarter. And when you look at what Karen mentioned, we have built in freshness, so the opportunity to react in-season and with our streamlined merchandising organization that is armed with an empty – well, not an empty, but with an available checkbook, we're able to react to those things that are tested, that are known, that are giving us higher margin because the sell-throughs are better when it comes in. So it's a good formula to have our inventories in the position that they're in for the sales that are in the quarter ahead and we expect that to continue into the fourth quarter. Karen M. Hoguet - Macy's, Inc.: And on real estate, we continue to execute the strategies that we've talked to you all about. Let me start with the question around gains. Yes, we are confirming the guidance that we had given in August of $275 million to $300 million of gains from Brooklyn and the other assets other than Union Square Men's, so that stays the same. And we continue to work with Brookfield. We talked last quarter about that of the 50-ish properties that Brookfield is looking at, we expect that roughly two-thirds of those will go into a development phase. And that work continues. And, obviously, as soon as we've got updates, we will update you all. We continue to also work on the flagships; don't have anything to announce yet on Chicago. And, as you know, the strategy there has been to sell off some of the upper floors, not the whole store, obviously. But that's still underway. And we continue to work on various opportunities and possibilities for Herald Square. And in terms of the other monetization of assets that we have, the team continues to work on lots of those. And, again, we expect to deliver the guidance for this year. Paul Trussell - Deutsche Bank Securities, Inc.: Thanks for the color. Good luck. Karen M. Hoguet - Macy's, Inc.: Thank you.

And we'll move to our next question from Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you. Good morning. Jeff, you've got a number of strategies in place to drive traffic to stores. Obviously, the new loyalty program is part of that and, I think, Backstage you would include in that, as well. Can you just touch on any other strategies? And on the Backstage in particular, I think you mentioned you planned to expand aggressively in 2018. Is there any other color you can share on your plans and how you're thinking about that? And lastly, I just want to make sure I understand what your commentary was on handbags and cosmetics. It sounded to me like they're still negative, less so, though, here in the third quarter than they were in the first half of the year, so on a better trend. And with regard to handbags, you would expect it to get back to flat comp at some point in the future. I just want to make sure I heard you correctly. Thanks Jeffrey Gennette - Macy's, Inc.: Yeah, let me talk with other initiatives. So one initiative that we have is really what we're doing in technology to fuel all of our initiatives online, so ongoing site monetization, what we're doing with our mobile and kind of the tablet app, Kimberly, its responsiveness, to improve conversion. Expect that to be a part of what is fueling our confidence about digital and the double-digit growth that we expect to go into the fourth quarter. The other piece of that is the fulfillment options. So we expect buy online, pick up in store to be a more potent piece of our business in the fourth quarter. And when customers are coming in, you're obviously getting a bunch of those customers that are buying other things. That radiates sales. That's captured in our guidance. Then there's the merchandise initiatives that I didn't speak to overtly, but: the fine jewelry; the women's shoes; what we're doing in some of the apparel areas that we've been talking about, like active and dresses; big ticket. All of those, we're anticipating will continue to give us growth into the fourth quarter. So those are all the headlines on the initiatives. With respect to Backstage, what I'd tell you is that it continues to grow as we get smarter about it. And what we're finding is that we're looking at all of the areas where we're having success and building on those. And areas where we're not happy with our lift, we're making changes, and we're seeing nice positive results from that. So, we're looking at each of those. And what you'll see from us is that we're going to start to experiment in larger doors in the future. And we're looking at different parts of the store that you would put it into and what the results are. We're looking at capital on that and efficient ways of spending it. We're looking at what marketing might look like in the future. We're looking at what we're learning from Bloomingdale's and Outlet, because there's some really good learnings there that are being imported into Backstage. We're getting smarter about logistics and our technology needs. So we're – been good students on this. We're obviously testing. We're iterating. We're scaling this. So expect more from us on Backstage. It's been a good initiative for us. And then with respect to your last question on cosmetics and on handbags, handbags is still negative. And that is, this time last year, we were up against heavy discounting and planned discounting. And in the beginning of 2017, we went away from that. And what we're finding is that they're still negative comps, but we're exceeding our plans there. And so when we fully lap that at the end of 2017, goes to my comment where we do see a path to get back to positive comps there. And beauty is significantly better than it was in the first half. I didn't quote it, but we were about 2.5 points better in the third quarter than we were in the first half of the year. And we've been running positive comps in fragrance. That continues to get stronger. And in the beauty categories, I see definitely green shoots that give us confidence for the future. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you for all the detail.

And we'll take our next question from Bob Drbul with Guggenheim. Robert Drbul - Guggenheim Securities LLC: Hi. Good morning. Karen M. Hoguet - Macy's, Inc.: Morning. Robert Drbul - Guggenheim Securities LLC: I just have two questions. I was wondering if you could talk a little bit about the performance of your private brand portfolio versus the national brands, especially in the apparel side. And the second question, Karen, that I have is when you look at the inventories, I think you said comp inventory's down 4.2% and you have lots of open-to-buy, it all happens in a hurry over the next 60 days. So when you think about trying to improve the sales, the opportunity with the open-to-buy, just how aggressive would you expect to be? And are you seeing lots of opportunity around the open-to-buy because inventory levels seem pretty lean throughout the channel. Jeffrey Gennette - Macy's, Inc.: Bob, let me take your questions. So private brand versus market brands, it really is a study by whatever FOB you're looking at. So we're competitive. In some cases, we're above; in some cases, we're with and in all of those categories, the performance of our private brands in each of the areas where we have it versus our market brands. So we put a big premium on our private brand organization over the past couple of years. We really winnowed down our private brand fleet to get to those brands that really capture the DNA of very specific customers through all of our customer analysis. And we're working on the supply chain of each of those. Some we've got them where we want, and some we've got aspirations to get much faster. So, so far, so good. So, I'm pleased with our private brand performance, as well as how that stacks up versus market brand performance. With respect to open-to-buy, there's lots of available inventory in the ecosystem. And so when we see something that's really working, we can generally find the same or a comparable product that we can react to. So having liquidity in your open-to-buy and buyers being very aggressive with the new streamlined organization, I'm fine being that it's available, and we can get it. Robert Drbul - Guggenheim Securities LLC: Got it. And just one more question, on the online business, I guess the buy online, pick up in store, you guys had previously talked about I think it was 25% radiated sales. Is that still a good number? Are you seeing any sort of changes around when you get the people in the store in terms of how that purchase takes place generally? Jeffrey Gennette - Macy's, Inc.: That's still a good number. What you find is that not every customer converts on the radiated sales. And the customers that do, have a bigger up-spend. But the average is for all buy online, pick up in store sales, we get a 25% lift in overall sales. Robert Drbul - Guggenheim Securities LLC: Thank you very much.

And we will move to our next question from Lindsay Drucker Mann with Goldman Sachs. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Thanks. Good morning, everyone. Jeff, I was hoping you could give a little bit more detail on what you saw in men's and women's apparel? Jeffrey Gennette - Macy's, Inc.: So, Lindsay, as Karen mentioned, the cold weather businesses were depressed in the third quarter. Outside of that, there was some good signs of life and, as Karen mentioned, the active across men's, women's, and kids', quite strong. We've been seeing double-digit increases there. That continued in the third quarter. The dress side of the business, dresses in women's as well as some of the structured pieces, like coats – not coats, but structured jackets, like the suit area, as well as the men's clothing area and the dress shirt area on the men's side, both very strong in the third quarter. So when you take out the cold weather businesses and the balance of sportswear, what we learned was things like our capsules that we do exclusively with some of our private brands and some of our market brands did quite well in the third quarter, so good signs of life in the apparel areas. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Any shift in terms of your third-party brands that you use and who's had momentum and any sort of shift in where the momentum is coming from or is it relatively consistent with what you saw in the second quarter? Jeffrey Gennette - Macy's, Inc.: Nothing I'm going to comment on specifically, Lindsay, about specific brands that are doing well or not, but we're obviously all over that. And wherever we see those shifts, we're reacting with the right open-to-buy dollars. We're deep in, in our relationships with all of our best brands. And we're talking daily about opportunities that we see for the Macy's customer. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Great. And then, just a couple modeling questions related to the new loyalty program. You called out that in the fourth quarter, the implied gross margin is down 40 to 80 basis points, due, at least in part, to the greater free shipping from the loyalty program. Is that the way we should think about the impact to gross margins for, I guess, Q1 through Q3 of next year, that there will be a drag from greater free shipping? And would it be an intensified drag as the program gets rolled out more? And then on the credit penetration, to the degree that you saw the decline in penetration improve to down 70 basis points in October versus 110 for the quarter, do you expect that rate of decline to improve as well as we get into 4Q and the loyalty program rollout intensifies? Karen M. Hoguet - Macy's, Inc.: So the expectation is the credit penetration trend should improve materially as we get into the fourth quarter. So that's going to be the first place that we see the benefit from the loyalty program. In terms of the impact on gross margin, the fourth quarter implied reduction is actually 30 to 80 basis points, but having said that, I don't know what to tell you yet for 2018. We really need to see how this plays out, so I think we should hold on that discussion until after we get through the fourth quarter. Lindsay Drucker Mann - Goldman Sachs & Co. LLC: Understood. Thanks very much, guys.

And we will take our next question from Todd Duvick with Wells Fargo. Todd Duvick - Wells Fargo Securities LLC: Yes. Good morning. Karen, I wanted to ask about cash flow for the fourth quarter, if there are any one-time items that we should be watching for, for this year. And directionally, can you provide us any guidance for cash flow from operations compared to a year ago? Karen M. Hoguet - Macy's, Inc.: I'm sitting here thinking. I can't think of any one-time item that we expect. And no, we don't provide guidance on cash flow. Sorry. Todd Duvick - Wells Fargo Securities LLC: Okay. No, that's fine. I understand. The other question is you've talked about reducing your leverage to your leverage target range and using your excess cash for debt reduction. Given fourth quarter is your big free cash flow quarter of the year, should we expect some type of a liability management exercise before you report earnings or can you give us any color there? Karen M. Hoguet - Macy's, Inc.: No, we can't comment on any anticipated capital structure move. Todd Duvick - Wells Fargo Securities LLC: Okay. Fair enough. Thank you.

And we will take our next question from Omar Saad with Evercore ISI. Omar Saad - Evercore ISI: Thanks for taking my question. Jeff, I know you talked about the streamlining of the merchandising organization and collapsing into one and looking to effectively use data and kind of engage with consumers. I'm wondering, with the rise of social media, online fashion bloggers with big followings, how do you get that organization to really reconnect with the consumers and reestablish their position as industry leaders when it comes to fashion and setting those trends? Do you put them online? Have you thought about using personalities? Help us think about how you reengage the core Macy's merchant with the end consumer? Jeffrey Gennette - Macy's, Inc.: Yeah, I think it's a good question, Omar. And I would tell you that we're really looking at what that on-boarding looks like with user-generated content being in the social space, so expect us to comment on that and what our strategy will be in the future. So it's on our radar screen. Omar Saad - Evercore ISI: Got it. Thanks.

And we will move to our next question from Oliver Chen with Cowen & Company. Oliver Chen - Cowen & Co. LLC: Hi. Thank you. Regarding digital and what we should look for going forward, what are your thoughts on how you're positioned on conversion versus traffic and what you want to do in consumer engagement? And how would you characterize your competitive advantages as a bricks-plus-clicks versus pure plays such as Amazon? Just as long-term investors would love to hear your near-term and long-term feedback. And our second question was just generally about speed and inventories. You made really good progress with slimmer inventories. What do you think is the future of inventory management in terms of things you're focused on to continue to drive both factors? Thank you. Jeffrey Gennette - Macy's, Inc.: Hi, Oliver. So I think when you look at technology, Macy's has got a very robust technology agenda. And that includes working with great partners that we have today and that we're open to new ones. So some of the things that we're focused on with respect to technology, is really making sure that our ongoing site optimization is just really strong, and we learn every day. We do a good job here, but we have lots of opportunities to improve on this. We're looking at mobile and tablet app responsiveness and making sure that we get the conversion rates there where we want them. We're looking at vendor direct and fulfillment opportunities that we see and the opportunity to do more with extended aisle and more direct ship from vendors. So we see a big opportunity there. Expect us to lead there. We see lots of opportunities with machine learning. And that could be regarding fit or attribution, image recognition, certainly where it all will lead in terms of personalization. And then lastly, to the previous question about on-boarding of new customers and the idea about the Gen Z customer and using user-generated content, being in the social space, using our teams in a more relevant way to market in a more authentic way is all part of what's on our kind of technology playbook. And this is where we think Hal is going to have a big impact. This is clearly in his wheelhouse. And in the first eight weeks, we're already thinking about exactly what that means in terms of what we layer in as foundational for where we've got progress already in place and what we layer on in 2018, so expect us to focus on all of that. With respect to your question on inventory and turnover and speed, continue to expect us to make improvements there. So we were not in a good inventory position in the first two quarters. We're in a better position now. But if we're going to move at the speed of our customer, that's going to involve having inventory turns that continue to speed up and buying closer in and using everything we understand from customers to inform decisions that we have for products that are available or products that we create. So expect us to get faster. Oliver Chen - Cowen & Co. LLC: Okay, thank you. Best regards.

We'll move next to our question from Bernard Sosnick with Madison Global Partners. Bernard Sosnick - Madison Global Partners, LLC: Good morning. With regard to real estate, thank you for the update, but I'm wondering if you could flesh out to some greater detail the progress on the development of properties by Brookdale (sic) [Brookfield], which you said earlier could be significant in several instances. Could you help out on that? Karen M. Hoguet - Macy's, Inc.: No. Unfortunately, Bernie, I really can't until there's something completed that we can talk about. Bernard Sosnick - Madison Global Partners, LLC: Okay. Thank you.

And we'll move to our next question from Brian Callen with Bank of America Merrill Lynch. Brian Callen - Bank of America Merrill Lynch: Karen, the 4Q still has a significant amount of asset sale gains to be realized to get to the all-in reaffirmed asset sales guidance you just mentioned. Can you help us translate what pieces or percentage results in actual cash received versus booked gains in sort of cash from ops or in the P&E dispositions? Karen M. Hoguet - Macy's, Inc.: Actually, I don't have that in front of me. But with the exception of Union Square, obviously, most of them will have more cash, obviously, than the book gain, putting Brooklyn aside. Brian Callen - Bank of America Merrill Lynch: Okay. Aside from Brooklyn. Okay. And then, I guess thinking long-term about the state of the balance sheet, can you make any comments about intentions in 2018 about continuing to focus on debt reduction and deleveraging; maybe even looking inside your – the high end of your 2.8 times leverage target, given the evolving retail environment? Karen M. Hoguet - Macy's, Inc.: Yeah, I mean all I can say is that we remain committed to getting back to our targeted level of the 2.5 [times] to the 2.8 and we'll continue to work towards that objective. Brian Callen - Bank of America Merrill Lynch: Perfect. Thank you.

And we'll move to our next question from Dana Telsey with Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: Good morning, everyone. Can you talk a little bit about any further color on Last Act and how you see what's been happening there, how it's impacting store sales and traffic, and also any update on tourism and what you saw different this quarter than last quarter? Thank you. Jeffrey Gennette - Macy's, Inc.: Dana, I'll take Last Act and Karen will take tourism. Last Act is running as it has for the past 18 months. It is a faster way for us to liquidate, more profitably, our clearance. And customers love the ease of it. They love that they get what the price is. The price on the ticket is what they pay. We have that rolled out to every single FOB in the company. And as we mentioned when we talked about our inventory position, when you look at our overall markdown units, we're moving through them as expected. We don't have the hangover that we had this time last year. And Last Act is working as expected, so all good there. Karen M. Hoguet - Macy's, Inc.: And on the international tourist business being down 11.7% as compared to 9% declines last quarter, I think most of that delta relates to the hurricanes and where those hit, given where tourists tend to go, obviously, particularly in Florida. And I suspect a piece of that is also double-counted in terms of warm weather. So I would say it continues to be a big drag, but I'm not sure that it really got worse in the third quarter, if we took out all those other factors. Dana Lauren Telsey - Telsey Advisory Group LLC: Got it. Thank you.

And this concludes today's question-and-answer session. At this time, I'd like to turn the conference back over to our presenters for any additional or closing remarks. Karen M. Hoguet - Macy's, Inc.: Well, thank you, everybody, and obviously if you have more questions, just let us know. Take care.

And this concludes today's conference. Thank you for your participation. You may now disconnect.