Good morning, and welcome to Macy's Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to your host, Karen Hoguet. Please go ahead.

Great. Thank you. Good morning. I'm Karen Hoguet, CFO of Macy's, Inc. And on behalf of our company, I'd like to welcome you to our conference call scheduled to discuss our fourth quarter earnings. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately 2 hours after the call concludes. Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Form 10-K and Form 10-Q. 2011 was another record year for Macy's, Inc. We are very proud of our team and the momentum we have built up. Our sales grew approximately 5% in comp stores for the second year in a row while increasing the profitability of the company. This results from the combination of great strategies and terrific execution, which has helped us to gain market share. Our EBITDA rate as a percent of sales increased 80 basis points in 2011, on top of last year's 100-basis-point increase. And we have strategies to increase it further to the 14% to 15% targeted level while continuing to invest in driving top line sales. We also increased our return on invested capital by 230 basis points in 2011, almost reaching 20%. And our return to investment grade ratings in all agencies speaks to the strength of our balance sheet, our performance, and the sustainability of our strategy. It…

[Operator Instructions] And we'll go first to Deborah Weinswig with Citi.

In terms of store to door right now, how many stores are on that program? What's the pace at which they'll be ramping? And what's the opportunity available?

23 stores were available this fall for us to be able to ship from a different store to the customer directly. And in 2012, that number, by the fall season, should reach approximately 290. Obviously, big success this fall, and we think it's going to be a big opportunity for continued growth.

And then in-store, obviously, MAGIC Selling training has been a huge success. Can you talk about online customer service?

Yes. Actually, to the fourth quarter this year, that was a very big priority. But frankly, we have been disappointed with some of the service issues the year before. And we think we did a much better job, the customer service scores improved significantly. And so we'll continue to work both in making the site easier to navigate and also make sure that we have the customer service backed up when there are questions or issues that come up.

Okay. And then last question, it sounds like the holiday season overall exceeded your plan. What were the key drivers?

Well, it always starts with the sales line. And when you can achieve sales growth over 5%, that's always obviously a great thing. We invested in certain ways to achieve that sales growth in the selling floor and some of the support functions in our stores, in marketing and obviously, also, the investment in store fulfillment. And it clearly all paid off in terms of the sales that we got.

We'll go next to Liz Dunn with Macquarie Capital.

I guess in terms of getting to the 14% to 15% EBITDA margin, can you talk about -- I'm assuming most of that will come from leverage on continued strong sales. And then in terms of your 3.5% comp growth for 2012, can you talk about how price will play into that?

Yes. I mean, in terms of how we're going to get to the 14% to 15%, you're right, a lot of that will be leveraged from sales growth. We also are working to reduce expense where we can in areas that obviously won't impact the sales that we're generating. Also, we see opportunities for gross margin rate as we go forward, both from markdown optimization that we've been working on and also as we are able to improve the inventory turn through our omnichannel strategy, that should help gross margin rate over time as well. Not in 2012 necessarily, but as we go farther out. So we feel good about that.

Okay, great. And then looking at the direct-to-consumer business, I think you said about $2 billion is what you're looking for, for 2012 or is that just over $2 billion? Because it looks like, with the growth that you had for 2011, that would suggest a little bit of a slowdown in the growth rate. Can you help us think about how that...

Yes. No, we do expect it to be more than $2 billion. And hopefully, it will continue to grow at the pace that it is. Obviously, it's a pretty high rate to continue, but we do expect it to be more than the $2 billion.

And we'll go next to Steve Kernkraut with Berman Capital.

I guess I had just one question, just on the e-commerce business as well. The way -- what impact does the growth of e-commerce business have on the overall inventory, where the inventory is up 7.5%? You would think it would be able to grow less because so much of that online inventory is centralized in your distribution centers.

Yes. I mean, the inventory turns for the online business are significantly higher than the store. And one of the things that we're doing as we enable the 290 stores to ship to the customer directly will be the ability to supplement online sales using store inventory, which, based on our tests, we think will be a big contributor to sales in 2012 and beyond. So we...

Yes. I mean, I would think as time goes on, that your sales should be able to grow at a much faster rate than your inventory.

That's the expectation, Steve. It will be having -- utilizing our inventory better, whether it be in the warehouses or in stores.

And we'll go next to Dana Telsey with Telsey Advisory Group.

As we think about omnichannel and CapEx, what CapEx initiative is involved in omnichannel? And what do you see that achieving the operating margin or EBIT margin goals going forward? Does it happen faster, in 2 years, what's your sense?

Well, I think we will be investing in technology and omnichannel for a long time to come. There's different pieces to it. There's a small piece that relates to the store fulfillment. There's a bigger piece that relates to building incremental warehousing space. As you know, we're opening our next big mega center in West Virginia this year. So that's a big chunk. And there's a lot being spent in terms of software development to improve the site itself. But we will be continuing to invest in that, plus store technology as we go forward.

And we'll take our next question from Paul Lejuez with Nomura.

Karen, can you maybe share with us what your specific assumptions are for how e-com factors into that 3.5% comp guidance? And then just wondering if you can maybe talk about whether you have any new specific initiatives on the e-com side of the business that will act as a tailwind this year.

We don't break out that as part of our planning to disclose -- sorry, I can't give you that number. And in terms of improvement in e-commerce, a lot of it will have to do with the merchandising on the site and getting greater alignment with the stores. So I think that will be a big chunk of it. And obviously, continuing to try to make the site easier to navigate.

Will you be increasing the merchandise available online, stuff that you wouldn't necessarily have in your stores?

We do some of that. But more of what we're trying to do is actually increase the alignment with the stores.

And we'll go next to Charles Grom with Deutsche Bank.

Just on -- go back to Steve's question earlier on site to store to door and the comp. Do you expect that 3.5% comp to be consistent throughout the year? Or do you expect it to be back-end weighted? Because I'd imagine, if Nordstrom's any bit of a playbook for us, you would expect a pretty big comp lift as you get to 290 stores towards the end of the year.

At this point, I would say it's relatively even through the year by quarter in terms of the expectation. But there's always hope that as we get to 290 stores, it does what we think it could do. And obviously, that would help comps as we go through the year.

Okay. Fair enough. And then you've always talked about this 14% to 15% EBITDA target for longer-term goals. But it appeared to me that there's a lot of opportunity, and you kind of alluded to it on the gross profit margin line with inventory productivity, as well as sales efficiency as you get more of your business online to maybe exceed that. I mean, have you guys thought about that as your -- as part of your long-term planning?

Yes, I thought about it, Steve. I don't see that we'll exceed it. I mean, there's always that possibility. But remember, we're also trying to invest for growth, so you've got to balance it all. So I think, getting to 14%, I can see pretty easily. Getting to 15%, frankly, will be more challenging. And if I were you, I would not count on getting above the 15%. Again, not that it won't happen, but it'll be a ways out is my guess.

Okay. And then just one quick question here. The past couple of quarters, you've bought back I think 16 million shares, and I know that there's some level of buybacks in your guidance. Just wondering if you could give us a little bit of sense for what you guys are thinking as part of the $3.25 to $3.30 EPS for you.

We're not making out exactly what we've assumed in terms of the buyback. But you should get a sense of what we've been doing. And the idea, it's just part of the story. We're going to take our excess cash and buy back stock.

We'll take our next question from Michelle Clark with Morgan Stanley.

Karen, you mentioned the 53rd week impact. Can you just detail for us what you're expecting in terms of the EPS lift in the fourth quarter?

No. Actually, Michelle, we really aren't breaking it out. It's sort of a complicated calculation. Obviously, adds a lot to sales, and it's a very profitable week as you might imagine. But we are not giving specific guidance as to the EPS impact.

Okay, great. And then your comp outlook for 2012 of 3.5%, I'm guessing that, that assumes no pick up from any disruption related to J. C. Penney?

Well, we'll have to see how that plays out. Our best assumption right now is the 3.5%, and we'll see.

Okay. And then lastly, Karen, I was wondering or hoping that you could update us on price optimization, when we should expect to see that impact your gross margin and top line results.

Yes. My guess is we'll continue to experiment this year. It's proven to be a little more complicated than we originally thought. But initial tests are looking good. So my guess is we're probably talking about back half of '13.

We'll go next to Adrianne Shapira with Goldman Sachs.

Karen, just specifically on some of the merchandise weakness. Obviously very strong performance on many categories, but we can understand the cold weather items. Just maybe if you could share some specific initiatives to kind of help turn junior's and that traditional casual women's business around.

Yes. I mean, I think on the casual women's traditional business, I think that's been a business that's been weak throughout the industry. It's not just a Macy's issue. And we have retooled some of the private brands that are in that area. And interestingly, initial selling on that is looking very strong. So we have some hope that in 2012, that business will continue. In the case of junior's, it's a very competitive marketplace. As I alluded a few minutes ago, we've spent a lot of time this year evaluating our strategies for the millennial customer, which include sort of 2 categories: the younger millennial, which is the junior customer; and also the older millennial, where today, frankly, we see a lot of white space and opportunity for us. And I think as we move on, we'll see improvement in that business as well.

Okay, great. And then just a question on the fourth quarter margins. I mean, obviously, impressive flat margin -- merchandise margins given the holiday season, but if you connect the fact that inventory, a little bit heavier at quarter end, and your comment that maybe not every quarter we should see flat margins, could we see some pressure in the first quarter based on some overhang coming out of the fourth?

There's really no overhang coming out of the fourth. As you might imagine, we take the markdowns when they're needed. That doesn't mean there won't be pressure in the first quarter by the way, but it's for different reasons.

And the different reasons?

Well, no, I mean, it just has to do with the promotional nature of the first quarter. But again, we've talked about flattish margins, but we did not come out of the quarter with significant overhang.

We'll go next to Matthew Boss, JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Karen, can you elaborate on My Macy's? And looking forward, additional layers of opportunity here, I think you've talked to the My Macy's initiative now in the fourth or fifth inning. So just looking for any color on the second half game plan here.

Yes. I mean, the key thing as you think about My Macy's, 3 things are happening. One is the people in jobs have been there longer, and so they're getting better and better at not only understanding the opportunities in their markets, but also communicating with the central merchants to make them happen. So I think the more time in job the district people have had, the better the 2-way communication is happening. The second thing is that we continue to find new opportunities as we study markets in a more refined way, whether it be differences in the tourist customer in different markets, whether it be new strategies. For example, the need for cold summer assortments in places like the Pacific Northwest or Southern living strategies sort of across Atlanta and the Southeast. So the second point is that we're continuing to find new opportunities strategically as we look at market-by-market. And then the third point I would make is that we took a lot of time this summer and went back and surveyed all the store managers like we had done back in '06, which was the beginning of My Macy's, to try to understand how we could improve it further. And we have -- I think it's roughly 13 initiatives that our teams are busily working on to even make it work better. So a combination of those 3 factors, Matt, makes me feel really good that there's still a lot more to come from My Macy's. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Wow, that's great. And then on the product side, you mentioned a little bit around private label. But can you speak to current and some upcoming initiatives which in the stores that we should keep our eyes on? I guess, particularly the Charter Club relaunch and any other category-specific noteworthy changes to just keep our eyes open for.

Yes. No, I think there's a lot that's gone on in the women's apparel area, the Charter Club redo, or refresh is probably a better word. The Bar III launch has been terrific in the impulse arena. And we've recently launched a new active line, Ideology, which just looks spectacular, and we think will be an important part not only in the millennial strategy but also for older women as well.

And we'll take our next question from Paul Swinand with Morningstar.

On the SG&A and the credit portfolio tailwind, I think you gave some numbers in the prepared remarks. Looking at 2012, is there assumption that it will sort of flattish? Or do you think that, that portfolio can keep getting better, even below pre-recession levels?

Is your question, credit?

Yes.

I'm sorry. Yes, we had said that we expect there to be continued improvement in the credit profitability for us of $15 million to $20 million for the year.

I'm sorry. Okay. And then on the inventory store to door, I know you said that, that should improve turns because it's a centralized inventory. But if the sale that you're missing that's in the store and not in the centralized inventory, is that just a size? Or is that something that you didn't have in the centralized inventory? Because you did say you were going to make the inventory more like each other.

Well, I think the key thing is as you think about shipping merchandise from stores, the logic that will be built into the system as of this summer, which is consistent with the rollouts of the 290 stores, is that there will be a logic build-in that will pull the inventory from the store least likely to sell the goods. So it's frankly a markdown that would have happened had we not sold it as opposed to a lost sale. It's really quite cool if it works properly. And there'll also be a faster build-in for distance to customer. But the compelling part of the logic, the key driving factor, will be where the goods are selling through the slowest to pull it from those stores.

Got it. Okay, understood. And then sorry to beat this horse a little more, but on the credit side, realizing you gave the number, the $20 million, but are you assuming that you go to better charge-offs and delinquency ratios than you had? And is that something that can keep going?

Well, the price portfolio continues to improve, but the major adjustments that happened in 2011 is done. But we don't expect it to deteriorate from where we are.

We'll go next to David Glick with Buckingham Research Group.

A couple questions. I was wondering if you could give us an update on the renovation plans for Herald Square and the time frame that, that will occur, and whether any disruption in sales are expected this year. And then secondly, we talked about some of the challenging areas from a merchandising front. But clearly, the drivers have been in the accessories, men's and part of the home area. Are you counting on those areas to outperform once again in 2012?

Yes. I mean, let me answer the second question first and I'll go back to Herald Square. Obviously, we're expecting the businesses that have been doing well to continue to do well. And our hope is that we could also layer in a stronger of the casual traditional women's apparel as well. So in part, we think the momentum will continue to build as a result. In terms of Herald Square, there's really nothing more to report. We continue to expect to spend about $400 million over the next 4 years. And yes, we're factoring in some disruptions, although we frankly don't think it's going to be tremendous. But we continue to be extraordinarily excited about what we're going to be able to create here.

Are you seeing any changes in tourist traffic in the last 2 or 3 months?

I don't believe so, David.

We'll go next to Jeff Stein with Northcoast Research.

Why don't you -- if you could tell us what the private label and branded exclusive penetration was for the latest fiscal year?

Yes. I don't have it in front of me, Jeff, but I think it's still around the 20% for the private label and north of 40% for the limited distribution.

Okay. And how about -- back to your capital spending budget for a moment. What percent of your budget will be IT-related this year compared to prior year?

I don't know that offhand, but my suspicion is it's fairly similar to prior years. We've been investing for a long time in omnichannel, as well as improving our core systems.

Got it. And I know, in each of the last 2 years, and this relates to SG&A, you've invested in the MAGIC Selling. Is it going to be similar in terms of the dollars you're going to spend to that effort in 2012? And then maybe you could address the issue of marketing spend year-on-year.

Yes. I believe that we will continue to invest in the MAGIC Selling at a comparable ratio -- amount that we've spent in recent years. And in terms of marketing, we're planning a flattish rate. So dollars will go up, rate will not.

And we'll go next to Bob Drbul of Barclays Capital.

It's Joan Payson standing in for Bob today. And just 2 questions, in terms of next year on that 3.5% comp. If possible, could you provide some sort of additional color on the AUR assumptions there?

Yes. I mean, we expect the AUR to continue to increase, particularly in the first half of the year. A specific amount, I can't really tell. It's hard to forecast.

Okay. And then in terms of the Bloomingdale's outlets, just looking at how those have been performing and sort of what you're targeting for store number penetration in the long term.

Yes, we're still developing how many we can add, so it's hard to answer. At the end of this year, we expect to have 12, and it will grow from there. How many we ultimately have, I just don't know at this point.

[Operator Instructions] We'll go next to Lorraine Hutchinson with Bank of America.

As you begin to plan your inventory for the back half, just knowing that you're coming up against a 7% increase in AUR, how are you thinking about unit velocity and growth versus pricing as you come up against that very difficult comparison?

Yes. I mean, obviously, we're spending a lot of time -- last year, we spent a lot of time thinking about the unit plans, given the price increases that we experienced for the first time in recent history. Now we're spending as much time thinking about what do you do the second year. So it's being thought through category-by-category, much like we did last year. And hopefully, our planning will pay off as well this coming fall as it did this year.

And then as far as your credit penetration, does the guidance that you gave for credit income assume an increase in that? And what are your strategies around growing that this year?

It actually doesn't. It actually assumes a slight decline, which is what we've been experiencing. In 2012, our penetration of credit was roughly 47.3%, down about 50 basis points from the year before. Part of that, we think, relates to the challenges with the new account approval that relates to a lot of the regulations coming out of Washington. I think also, as our market share is growing, we've got a lot more customers in our store who don't yet have a Macy's card. We hope to change that. But to some degree, it also relates to the new account approval process. It also appears as if some of our customers are deleveraging and using debit cards more than their Macy's credit card. And then obviously, the strength in the tourist business that we've been seeing, where customers tend not -- especially the international tourists -- tend not to have our credit cards, impacts us in some of the big tourist locations like Herald Square, Union Square, Florida, et cetera. But we -- so we are assuming it to be down slightly next year.

And it appears we have no further questions in the queue at this time.

Great. Well, thank you all very much. And if you have other questions as the day goes on, just let us know.

Again, that does conclude today's presentation. We thank you for your participation.