Please standby. Good morning. And welcome to the Macy’s Incorporated Third Quarter 2018 Earnings Call. Today’s hour-long conference will end promptly at 10.30 Eastern Time and is being recorded. In the interest of time, we ask that you please limit yourself to one question. I would now like to turn the call over to Monica Koehler, Vice President, Investor Relations and Finance. Please go ahead.

Great. Thank you. Good morning. And welcome to the Macy’s, Inc. conference call scheduled to discuss our third quarter earnings and outlook for the remainder of the year. Joining us on the call today are Jeff Gennette, Chairman and Chief Executive Officer; and Paula Price, Chief Financial Officer. 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, macysinc.com, beginning approximately two hours after the call concludes. Keep in mind that all forward-looking statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions mentioned today. A detailed discussion of these factors and uncertainties is contained in the company’s filings with the Securities and Exchange Commission. In discussing the results of our operation, we will be providing adjusted earnings before interest, taxes, depreciation and amortization, net income and diluted earnings per share amounts that exclude the impact of restructuring and other costs and settlement charges associated with our defined benefit plans. You can find additional important information regarding these non-GAAP financial measures, as well as others used in our earnings release and during this call on the Investors section of our website. We look forward to taking your questions after our prepared remarks. With that, I’ll turn the call over to Jeff.

So, thank you, Monica. So, good morning, everybody and thanks for joining the call. As you saw in our press release this morning, Macy’s delivered a strong third quarter with comparable sales up 3.3% on an owned plus licensed basis and earnings of $0.27 per share. We saw strong results across the Macy’s Inc. business with Macy’s, Bloomingdale’s and Bluemercury, all performing well in the quarter which contributed to our solid topline growth. Based on the third quarter results, we are raising the annual earnings guidance by $0.15 and adjusting the range of sales guidance. Paula will give you more details on the quarter and our remarks -- and our outlook in her remarks. So Macy’s recipe for success is e-commerce, healthy stores and a great mobile experience that ties it all together. It is our competitive moat. Our e-commerce business just completed another consecutive quarter of double-digit growth, driven by continued improvement to our online offering and experience. We invested early in mobile and our mobile app just keeps getting better. We view the Macy’s app as our customer’s indispensable shopping companion and increasingly it’s becoming a channel for transactions as well. This year we will hit $1 billion in mobile sales. The growth of our digital business goes hand-in-hand with the growth of our brick-and-mortar business. We have seen the trend improvement in our stores beginning a year ago and we have seen steady quarter-to-quarter progress throughout the year. This is important, because healthy brick-and-mortar -- healthy brick-and-mortar business is part of our strategy to build lifetime value with our existing customers and to bring new customers into the brand. I am going to give you a brief update on our strategic initiatives and then Paula will take you through the details of the quarter and then we…

Thank you, Jeff, and good morning, everyone. In the third quarter we delivered $5.4 billion of sales, an increase of 3.3% on an owned plus licensed comparable basis. Overall, we were pleased with our operational and financial performance as sales, earnings and cash flow all exceeded our internal expectations. Through continued strong execution, the traction and scaling of our key strategic initiatives, and the healthy consumer environment, we extended the positive momentum from of the first half of the year into the third quarter. We delivered solid performance across all our channels, brands and geographies. Our digital business maintained its steady double-digit growth as we continued to significantly expand our assortment and enhance our personalization capabilities, and as Jeff mentioned, our brick-and-mortar business again demonstrated improved and very encouraging sales trends. Our channels also benefited from the successful rollout of the BOSS and BOPS fulfillment options. Macy’s, Bloomingdales and Bluemercury all positively contributed to our performance in the quarter and each exceeded our internal expectations, and while we saw solid performance around the country, we delivered our strongest regional performance in the Northeast and North Central, which is primarily in the Midwest. Turning to families of business, we delivered another strong quarter in men’s and kids, fine jewelry, women’s shoes, fragrances, coats and activewear, offsetting some underperformance in fashion watches and women’s sportswear. We benefited late in the quarter from cold weather. Total transactions were up 3.8% in the quarter, reflecting strong customer demand, both online and in stores. Average units per transaction were down 3.1% and average unit retail was up 2.6%, driven by more regular priced selling versus a year ago. We generated net credit card revenues in the quarter of $185 million, up 28% from last year. On the strength of our new loyalty program, the corresponding…

Thanks, Paula. So I wanted to give everybody some color about our store segmentation strategy and it’s really based on the customer insights that we have and a deep understanding of how the customer, what their shopping journey looks like across online and our stores platforms. And we certainly know that our best customers, they shop with us cross channel, cross category and cross stores. So within the market, strong brick-and-mortar I think everybody knows really amplifies our online sales and conversely when we close stores, our online sales in that market decrease. So increasingly our stores serve as fulfillment centers for shopping that is done online and we see that in the popularity of our pickup options, which I mentioned is part of my BOPS and BOSS update. So for some context, today over one half of our platinum and gold customers, which are our best customers regularly shop online in at least two or more Macy’s specific stores. So knowing this is very important for us to better understand their behavior when and why did she choose one Macy’s store over the other, what are her expectations and different types of Macy’s stores, and within the specific malls, and this exploration led us to our segmentation strategy. So we have bucketed our stores into three segments. We call them our flagships, magnet stores and neighborhood stores, and you are going to hear more in more granular detail our segmentation strategy when we lay out our 2019 plans in the New Year. But I did want to take a moment to give you a sense of how we are looking at these three buckets. So let’s start with flagship stores, and this includes Herald Square, as well as 10 regional flagships and these are some of the best retail…

Thank you. [Operator Instructions] And we will take our first question from Matthew Boss with JPMorgan.

Thanks and congrats on your fourth positive comp.

Thanks, Matt.

Jeff, so, I guess, along those lines to map out sustainable positive comps from here. I guess, can you help us rank the initiatives that you have in place to improve store traffic? And then on the e-commerce front can you help break down Vendor Direct and just the magnitude of this opportunity?

Okay. So, Matt, the -- I think when we look at the fourth quarter, we are obviously looking at a very strong environment that we are playing on along with our competitors. So that the consumer confidence is very strong, the spending is strong, I think, the predictions when you look at -- of where consumer spending is going to be during the holiday season it’s a very good backdrop for us. So if I was ranking to your question, I think, our dotcom business, we expect that to continue to be very strong. Certainly double-digit growth and it’s a much higher penetration during the fourth quarter which really helps our comps in that particular quarter, and I think, one of the headlines on our dotcom business is that we have made significant improvements to the site navigation and content in 2018 and we are ready for the holiday season. I’d say the second piece of it is that our stores, all stores are improving in their trend from where they have been and it’s sequential improvement quarter-to-quarter and now that all the investments has really touched all stores be it At Your Service or Mobile Checkout and certainly what you have done with the Growth 50 initiatives, we are ready for all the gift traffic that we are going to get in the fourth quarter. So we are bringing a store fleet that has momentum into it with us. When you look at our strategic initiatives, what I would say is Backstage is a meaningful part of our comp and now that we have got as many stores as we are got, and we have got in as many parts of the country. So the opportunity to now market that in the fourth quarter is going to help comps there. Vendor Direct having double the amount of SKUs online, broaden menus, new categories for our customers online is certainly going to be a piece of our comp. And then the radiated sales that come from both BOPS and BOSS is you are in the 20% to 25% range is an average on every one of those footsteps. We have a lot more activity going through the stores with the fulfillment options that converts digital demand to store traffic and radiated sales. That’s kind of how I would rank all of the options that we have going in the fourth quarter. So, I think, that the last thing I’d say it’s just the momentum that the team has and that when you think about everybody aligned against comp store growth, everybody knows that we are now going up against the fourth quarter that we had comp store growth last year, highly motivated to meet the customer, where I think that Macy’s shines best which is the fourth quarter and we are very motivated to put another positive comp on the Board in the fourth quarter this year.

That’s great. I am a big fan of the BOSS initiative.

And next we will go to Paul Lejuez with Citigroup.

Hey. Thanks, guys. Just one housekeeping thing and then a follow-up, if you don’t line up the comps, what was the impact you can share with us from the calendar shift in 3Q and then for 4Q, which weeks will your comp be based on and what weeks will you line those up against versus last year? And then, I just want to ask a little bit more about the magnet stores and the incremental 100, how should we be thinking about CapEx, the impact of the investment in these new stores into 2019 versus 2018 in terms of overall CapEx levels? Thanks.

Okay, Paul, I’ll start. So it’s important to keep in mind that we not only had a shift in the calendar, but we also shift our promotional events in order to better serve the customers. And as we said earlier in the year, had we reported our comparable sales on the shifted like-for-like week basis, we would have experienced a slight detriment to the comp in the spring and a slight benefit to the comp in the fall. And then your second question we would use the same week that we used at the beginning of the year.

And then Paul to your second question about growth 100, so we finally have a real scalable model and the amount of capital that we are spending. So it depends on what the store is, but just the average is really $2.5 million to $3 million that we have been spending and that is giving us -- and depending on what the store is, that could be an investment and certainly all the customer amenities, but then also putting new businesses like Backstage or big ticket into those buildings. We have that formula now set. Some of the initiatives are giving us a nice return on investment and some are watching right now, but we know we have the right formula to make the adjustments going into 2019. So expect the 100 stores were spending and that 2.5 million to 3 million range per store in order to get those next 100 right.

Got you. And just to clarify, Paula, did you say the third quarter was helped or hurt by the calendar?

So what we said in the first time is that had we have shifted the comp, we would have had a slight detriment to the comp in the spring and a slight benefit to the comp in the fall. That had we have done the shifted like-for-like.

Okay. Thank you. Good luck.

And we didn’t comment by the way on the third quarter. This is all with respect to the first half and second half.

Thanks.

And next we will go to Chuck Grom with Gordon Haskett.

Hey. Thanks. Good morning. A nice uptick here in the number of transactions, I think, you said, Paula, 3.8%. So I was wondering if you could unpack that for us and if you think that is sustainable here to 4Q. And on the guide, I think, you originally said gross margins in the third quarter would be a little bit worse than the fourth quarter, just wondering if you are still holding that guide?

So on the AURs, was it the AURs that you were asking for or the transactions?

Transactions.

So transactions were up 3.8% in the quarter and that’s basically due to our initiatives and our increased engagement from our loyalty customers. We -- especially our platinum course customers she’s shopping more with us. And what was the second part of your question, Chuck?

Just on the gross margins, you originally expected the fourth quarter to be better than the third quarter. Third quarter came in better than you expected so just wondering if you feel that the fourth quarter should still be better.

Yeah. So we are pleased with the strength of our gross margin in the third quarter, as well as year-to-date and it gives us more confidence than we had at the start of the fall season in the annual guidance and for now we are sticking with our guidance annual gross margin up slightly. We are not guiding the quarters, but I think, you can back in.

Okay. Fair enough. And Jeff on store segmentation, it sounds a little bit similar to sort of what Kohl’s has done with their standard to small average. Just wondering if you could frame for us the opportunity over the next couple of years on inventory, labor, merchandise margins all three of which Kohl’s have seen a benefit from?

Yeah. What I’d say is that there’s -- we have a lot of economic models now at our disposal that really helped on the inventory and the gross margin conversation. So when you think about better direct very little risk as you know in inventory there. When you look at what we are doing with lease or what we are doing with retail as a service new economic models that really mitigate risk and just add a lot of experience and new content for the customer. What I’d say is there’s a big difference in our store portfolio versus some of our competitors. When you are looking at some of these flagships and the volume that they command and the bones of those particular stores, those are really unique experiences in retail today on both really the Bloomingdale’s as well as on the Macy’s side and so let’s take full advantage of those and we have a multiyear strategy to really increase the interest in those particular buildings. On these magnet stores, really a magnet is a draw. So you got these regional malls that draw lots of customers. At the same time that we are really changing the chemistry and the content and experiences in these buildings, so are all our mall developers in these malls. And so what you see them doing is they are really mixing their square footage. They are pulling out more apparel and accessories. They are adding more entertainment and food and beverage. They are making these more destinations. We are doing the same thing within our buildings. And what we are finding is that, when you get to the customer insights about whatever that particular major market is, how often they are going from a neighborhood store to a magnet store that really is informing what our long-range strategy is within them. So that’s how we are looking at it. We are looking at our neighborhood stores about how do we make them more efficient. What do we do with excess space. How we make that an additive experience for customer. That’s what we are focused on right now that we are on the testing phase with.

Great.

And as a reminder, we -- as a reminder, we would like to remind everyone to please limit themselves to one question to allow everyone an opportunity to ask a question. Next we will go to Paul Trussell with Deutsche Bank.

Good morning. On the topline, I think, you mentioned that weather was a benefit toward quarter end. Could you just speak to the cadence of comps, should we assume that they improved as the quarter progressed and has that cold weather benefit continued quarter to-date or any other color you can provide on early November trends? And then just on the credit card revenue, again, a meaningful increase year-over-year. You have raised the outlook. I know loyalty is playing a factor. But just help us understand the magnitude of the gains and is there anything else that we should keep in mind playing a role there?

So, Paul, I am going to take the weather question and then going to let Paula take the loyalty question. But as it relates to kind of the traffic in the quarter, all three months were positive. October was the best of the three months and a lot of that was related to the cold weather snap that we had and that really is across all cold weather categories. So what Paula had said earlier about the Northeast and particularly the Midwest area, all benefited from certainly cold weather on that. You know I can’t comment about November and how that’s starting. But what I would say, just in general, with remarkable consistency, when you look at the cold-weather calendar and the business in the fall season, how you trend in the third quarter is a remarkably similar percentage of the overall fall business in cold weather. So we know that our cold weather business in the fourth quarter is not affected by earlier demand, if you will, that’s pulled from the fourth quarter. We feel very comfortable in our cold weather business. We did have good increases of that in the third quarter. We expect to have the same increases in the fourth quarter.

So I would say that our credit program is integral and fully intertwined with our overall retail strategy. It is the primary vehicle for delivering our enhanced loyalty program and nearly half of our sales occur on our proprietary credit card. Our loyalty program has been very effective, as you heard earlier, in improving engagement and spending with our best customer, especially at the Platinum tier and that also benefits the credit program. And our partnership with Citi has worked well and it’s helped us to generate a revenue stream that continues to grow, driven by higher credit sales and proprietary card balances. We are seeing slower payments on those card balances, but the quality of the credit balances continues to be good. And in terms of what you can expect to see, we have guided $740 million to $755 million in the year. That reflects the improvement that we are seeing, and so, we expect that to occur over the fourth quarter and that’s been reflected there.

All right.

And next we will go to Omar Saad with Evercore ISI.

Thanks. Good morning. Thanks for all the information. Jeff, I wanted to follow-up on the BOPS and BOSS discussions you are having. Maybe help us with some examples or anecdotes how different customers are using those options, especially when we think about the underlying traffic strength in your business and merch margin strength in your business some of that got depleted away for shipping and return. How do you think about the BOPS and BOSS dynamic maybe alleviating shipping and returns cost over time as you get customers in the stores? And are you incentivizing the customers to come in the guests to come into the stores, given the attachment rates when they come to pick up these purchases, have you toyed around with that given the attachment rates and the savings again on shipping and returns? Thanks.

Yeah. Good questions Omar. So the -- what I’ll tell you is your last question, we have not. We have debated it, do we need to do that, do we need to give them an incentive and I would tell you that of the quarter of all the initiatives that we have BOSS has been a surprise about how quickly this has taken on and how big this business has become for us. The customers love the option. And I think a lot of it comes down to the store segmentation strategy. What you are seeing with BOSS and BOPS is those neighborhood stores, those smaller neighborhood stores they have a much higher penetration of their overall traffic being generated by fulfillment options, which I guess makes some sense, because when you look at what we curate in individual stores assortment you don’t have the same breadth of assortment in a smaller door as you do in a magnet or a flagship. So as a result of that now you have got customers who are not either comfortable in shipping something directly to their home, because they are not there they are working or they want to feel they want to touch it by coming into a building. They are taking full advantage of BOSS. So what we are seeing is that the radiated sales that come from a BOPS purchase and the BOSS purchase is pretty similar. So check that box that part is good for us. We know what those footsteps do. When you look at the average unit retail or the transaction that is coming with the BOSS order versus a BOPS order it is lower. So that would basically say the customers that are not part of a gold or platinum level where they get free shipping they are forgoing the need to pay for shipping by taking advantage of BOSS. But as people are getting more used to this I think we are going to see where it goes. We are in the beginning stages of this. We really turn BOSS in -- full across the horn in the third quarter and we are still measuring all the results of it, but so far very good, the dynamics of this are really strong. It’s really helping us in our neighborhood store traffic and it’s just -- it’s been very positive thus far.

Very helpful, Jeff. Thanks. Good luck.

Thank you.

Next we will go to Kimberly Greenberger with Morgan Stanley.

Okay. Wonderful. Thank you so much. Good morning. I had a quick question on following up Jeff on your comment about the sequential improvement in stores that you have seen here over the last four quarters. Are we back to positive traffic in stores, the transaction growth this quarter was very strong obviously I am just wondering if that’s being largely driven by digital or are you seeing positive transaction growth in stores? And then I just wanted to follow-up on Paul’s question about the fourth quarter comp calculation, I am understanding you will compare 13 weeks this year to 13 weeks last year in the fourth quarter. Does that comp calculation clock start on the first week of the quarter November 4th or do you exclude the first week of November from your comp calculation and start the clock with the week beginning November 11th?

So I am going to address the first one Kimberly, which is the sequential improvement in stores. So all the stores are performing better in this year versus last year and it’s gotten progressively better. When you look at some of the stores, they definitely are -- have positive comps and some of them are getting quite healthy. So let’s just talk about some of the individual parts, when you look at the Growth 50 stores, that’s a very positive comp story when you look at those and some of those stores were negative comps in previous quarters before we put in the investment. When you look at what Backstage is doing, so Backstage is a separate part. For those stores where Backstage has been open more than a year. The whole portfolio of those stores have high single-digit comps. So that’s good news, obviously, we have got certain businesses that are positive comps in stores. But the aggregate store be it with Backstage is a subset or the full store that doesn’t have Backstage, we have got a number of stores or stores in our portfolio now that were demonstrably better than they were in the beginning of the year they get better each quarter. We believe the trend is going to continue across all store types as we get into 2019. And when you look at the profitability of those stores with many of those have fixed expenses, the profitability picture improves for the overall company when the store’s comp gets better. So that’s very healthy for us. And then when you look at the economics of online and you look at a larger portion of the online demand being fulfilled through either BOPS or BOSS, and the radiated sales that come from that that also helps the profitability picture. But, again, when you look at both online or stores and look at it as kind of a separate thing, it gets really murky. We really look at the full customer journey because she shopping in all channels, in all categories and in many cases many stores, so we have got to look at how one particular experience will have an effect on another experience or another transaction. So we look at the full customer journey versus the individual pieces. But in aggregate stores are improving.

Kimberly, I would say that, in terms of how we look at the comp in the fourth quarter, it would be similar to how we have been looking at it in all the previous three quarters. We will exclude the same week from Q4 that we did last year.

Thank you.

Next we will go to Lorraine Hutchinson with Bank of America.

Thank you. Good morning. I just wanted to understand the dynamic behind the SG&A growth this quarter. The 3% dollar growth was the highest we have seen in some time. Is this the new run rate going forward or was there anything that was pulled into the third quarter that may not continue in 4Q and 2019?

Yeah. So, Lorraine, in the fourth quarter we had elevated SG&A and that’s due to the investments in our strategic initiatives, but particularly in Backstage, we rolled out 60 Backstage s in the fourth quarter…

Right.

…in the third quarter and so you are seeing the impact of that. In terms of what you can expect for the balance of the year, I would just look to the SG&A guide. We haven’t changed it. We are guiding that SG&A will be up slightly in dollars, but then our rate will be approximately the same.

I understand you don’t want to talk too much about next year. But I think it’s important given that you do plan to roll out an incremental 100 Growth 50s, if we could get some sense of where you are thinking about SG&A or if there are offsets that would be very helpful?

So, again, we will continue to invest in the strategic initiatives that we know are working from our test iterate and scale approach and we have a long track record of being very disciplined on expenses even while we are investing for growth, and so through the funding our future point on our North Star strategy we have a multi-year focus on managing expenses and that will help us to fund our strategic initiatives that are driving the improved sales growth that you are seeing. So we have already a number of cost savings and productivity initiatives that are beginning to be unleashed through our use of analytics and technology. So we will build on those as we develop our multiyear view in our program. So look to hear more about that later.

And next we will go to Bob Drbul with Guggenheim Securities.

Hi. Just a question around competition, I just wondered, if you could talk a little bit about what you are seeing from competition both online and the bricks-and-mortar, and if you are seeing any impact to your business from the Sears liquidation sales?

Well, obviously, Bob, we look at competition all the time both online and in our stores. And when you think about what we set out to do with the North Star strategy it is really what is Macy’s unique competitive advantage and how do we distort that in a more fulsome way. So we are really focused on when you think about the point of the starts about It Must Be Macy’s which is about what we are doing with really kind of localized, but really exclusive content. We spent a lot of time with our manufacturing partners that create specific content for us, as well as our own Private Brands and when you look at that in the context of having a really strong mobile business and a really strong digital business that is really where we know we can compete and compete well. We are really focused now on experience as it relates to table stakes experience about removing the friction from the customer journey, but then also what if we add that Macy’s can uniquely do, so that would be what we are doing with story, which we haven’t announced yet, but what will story be within Macy’s what we are doing with the market at Macy’s, all that we are doing in VR and AR those are all pieces that we are putting a lot of initiative against. But then what are we doing with our in-store colleagues in those businesses where that touch matters and what we are doing with special events and trade shows those are all things that increase the experience. When I look at to your question about Sears, we have been dealing with Sears for a number of years as their businesses decline or as they have dropped out of particular…

Great. Thank you very much.

Next we will go to Alexandra Walvis with Goldman Sachs.

Good morning, guys, and thanks for the question. We wanted to ask another one about the new store segmentation strategy. As you think longer term about that strategy what proportion of sales are you expecting to deliver through flagships magnet stores and neighborhood stores? And then one clarification question on the magnet stores specifically, you have mentioned that you are going from the 50 -- Growth 50 stores now and rolling out another 100 next year, will that be the total base of magnet stores? Or is there potential to make that a bigger group?

So, Alexandra, the first question, we are not going to break out what percent of our portfolio was in each of the three buckets but all three of them are sizable is what I’d say. And the second part of your question the next 100 magnet stores will not complete the list. There will be a slug of others that would go based on what we learned, what the return of investments of those are. So when he had the Growth 50 going to the next 100 there will be more that we would do in future years.

Next we will go to Dana Telsey with Telsey Advisory Group.

Hi. Good morning and nice to see the progress. As you think about the gross margin it was impressive on the merchandise margin offsetting the delivery expense. Are you achieving scale or economies of scale and delivery expense that’s allowing this to come through and how do you think of the buckets of opportunity for that merchandise margin or rent price as compared to delivery expense? Thank you.

So we have been expanding our gross margin -- merchandise margin all year and that’s been based on the discipline that we have with inventory management, as well as using the data analytics to inform our various inventory decisions and that’s been helping us to sell more full priced selling or more merchandise and so enterprise better. So we are looking at opportunities there, we will continue to impact our merchandise margins. On delivery expenses, we are also looking at those very closely as well, in terms of how we can be more efficient and we have a number of activities underway there such as BOPS and BOSS that are helping on our delivery expenses. So we are focused on both of those two components and we are seeing progress in both of those two components.

And then just on tourism, what did you see on tourism? How did it differ from the second quarter and how you are planning it? Thank you.

So, Dana, we saw you will recall in the first half of the year, 6% improvement in our international tourism business. In the third quarter our tourism business was down 4.2%, so year-to-date we are up 2.5%.

And next we will go to Priya Ohri-Gupta with Barclays.

Hey. Thank you so much for taking the call. Paula, I was just wondering if you could give us your thoughts on how we should think about where you plan to manage your leverage going forward, you are pretty comfortably within your range. Should we expect any further debt pay down over the remainder of the year, given your comments on deploying excess free cash flow towards debt pay down this year? Thanks.

Sure. We continue to target our leverage ratio of 2.5% to 2.8%, a healthy balance sheet is very important to us and as we have said we will use that excess cash to pay down further debt and to get closer to our target ratio.

Next we will go to Brian Tunick with Royal Bank of Canada.

Thanks. Good morning. I was curious on your views about CapEx needs going forward. I guess, talking and hearing from Jeff on these different initiatives for next year accelerating, just curious how we should view CapEx maybe next year or the next couple of years. Have you guys figured out either a lower CapEx spend per store as you have done the Backstage or Growth 50 initiatives just generally how should you be thinking about that? And then maybe Jeff on the Vendor Direct and the mobile numbers you cited have you changed your view of maybe how high e-com can mix at the company over the next few years and are there any new distribution centers or other CapEx needs in order to maintain that growth? Thank you very much.

Look for us to continue to invest in our strategic initiatives next year and to have around a similar investment next year in terms of CapEx, and as a percent of sales, we are still well within line, and so around the same amount or a little bit more next year.

And what I’d say Brian on the, just to add to what Paula just said about, I think, when you can depend on from us is really a balanced investment strategy against maintaining where we are going with really robust digital growth, but also getting our brick-and-mortar fleet healthier. And we know we can’t do one without the other. So investing in digital and mobile is very important, but equally investing in stores. So as Paula said the capital outlay for 2019 expect to see the same as what we were in 2018 give or take. And then to your second question about where fulfillment or where the overall digital demand is going to go, we do see that continuing to build as a percentage. But what I’d say is that there’s so many more fulfillment opportunities for us outside of building mega centers. And so, again, when you start to look at some of this excess space that we have in these neighborhood stores that are in every one of our major markets, there’s opportunities to redeploy that square footage. So the opportunity basically with more economic models with hold and flow opportunities. We are going to be looking at lots of opportunities for us to take fuller advantage of data analytics and getting the most out of the inventory that we flow closer and need to where customers are and when they want to purchase something. So we will be giving you more detail on that as we outline all of our 2019 plans, but it’s very much on our mind.

Okay.

And next we will go to Michael Binetti with Credit Suisse.

Hey, guys. Good morning. Thanks for taking our questions here. Just want to ask you first on the credit line. I was just trying to back out some math in the fourth quarter. It looks like it’s implied to be slightly negative in the fourth quarter, obviously, the most recent trends have been better than that. But, obviously, you are lapping loyalty, but I am not sure how much of that is a one-time step up in the third quarter and what that means for the next 12 months?

So in terms of our credit, we are guided at $740 million to $755 million. So that would imply a range for just doing the math versus where we were in Q3 of $207 million to $227 million. And in terms of -- tell me the second question?

Well, I am just curious since you guided to slightly lower in the fourth quarter year-over-year, but you have been seeing such big games lately and I know you are lapping loyalty. But I am just trying to think of how much, what -- so should we assume that third quarter growth we saw in credit was really one-time or what we can extrapolate going forward multi-quarter into next year on credit?

Have you contemplated a 53rd week?

Okay. So if we look at that maybe you can just unpack what drove so much growth in the third quarter for us between the drivers of like interchange fees, higher balances, credit score changes, I know you said you have a few comments earlier. But just -- if you could help us think about that, because you also mentioned that the quality of credit was quite high, but that the balances, it sounded like we are going higher as well, I didn’t know how to reconcile those two comments?

Yeah. The credit sales are higher, again, driven by our loyalty program. The balances also are higher and that’s driven by the sales, but also we are seeing slower payments and that is just because our customers deciding to pay slower. The quality of the accounts receivable continues to be high. The other thing is we are seeing a slightly lower fraud charges. So there are a lot of positives in there, but the biggest thing is credit sales in the higher corresponding balances.

Okay. That’s helpful. And maybe if I could go back to Lorraine’s question just ask a different way. I think given some of the commentary you have given on the store plan for next year and the CapEx related to The Wall Street Journal story. I guess, how should we think about how that influences the P&L in the SG&A line next year. You mentioned you have some cost-containment plans you have already told us about. I am just wondering of that lets you -- puts you in a position to lever SG&A as we look at multi-quarter into next year given the growth plans that you mentioned?

So we are developing our plans for 2019 and we will talk about those more on subsequent calls. But, again, we will be investing next year and we will also be mitigating our investments as best we can through cost savings. The other thing I should say is that to the extent that we have been investing we are already seeing returns on those investments, so all of that will be helpful as well.

And that does conclude today’s question-and-answer session. I’ll now turn the call back over to Jeff Gennette for any additional comments or closing remarks.

Thanks everybody.

Thank you.

Appreciated all your questions.