Good morning and welcome to Macy’s Incorporated third quarter earnings release conference call. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead.

Thank you. Good morning and welcome to the Macy's Inc. conference call scheduled to discuss our third quarter earnings, which were released earlier this morning. I am Karen Hoguet, CFO of the company. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes. Please refer to the investor relations section of our website for a discussion and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company’s actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company’s most recently filed Form 10-K and Form 10-Q. Our third quarter performance exceeded our expectations, driven by our improved sales performance. Our comp store sales decline of 3.6% improved almost six full points from our Spring trend. On a two-year basis, the third quarter comp store sales were down 4.8%, which represents a 1 point improvement relative to the first six months of the year. That is very encouraging and as I will discuss in a few minutes, bodes well for the very important fourth quarter. We were also pleased that we were able to produce these sales at a higher-than-usual incremental profit rate. I will start today by highlighting some of the key components of our third quarter performance and then I will discuss our updated outlook for the fourth quarter. Sales in the quarter were $5.277 billion. We continue to see strong results in the My Macy’s pilot districts relative to those stores that were not converted until…

(Operator Instructions) Our first question comes from Michelle Clark of Morgan Stanley.

A question for you -- the percent of stores that is localized today versus what the goal is over the next 12 months? And then I have a follow-up question.

Well, there’s 69 districts in total. In May of ’08, we converted 20 of the 69 and in May of ’09, we converted the remaining 49. So at this point, the My Macy's structure is throughout the company but it will take a little bit of time before the localized assortments are fully in the stores. So we had said that we expected that to happen in spring of ’10 but like last year, we are hoping to get some early benefits in the fourth quarter.

Okay, so I know that you said the goal is to get 10% to 15% per store localized -- how can we think about that today? Is it 5% of the store that is localized?

I don’t really have a number to that. My suspicion is it’s smaller than that in total although in some categories where we could react quicker, it could be that or more.

Okay, and then the other question is on the SG&A line -- can you give us sense of how much of that $290 million has been realized? Is that bulk of that done for 2009?

Well, there’s two pieces to the savings -- in the consolidations of the spring of ’08, we had said $100 million of which $60 million was recognized last year, so there was an incremental 40 for the first half of 2009 and that has been realized and we year-rounded on that as we got to the third quarter. The second consolidation savings was from February of this year. That was an additional $400 million, of which we expected to realize 250. I think your 290 is that 250 plus the 40.

That’s correct, yes.

But the timing is a little bit different because the 40 was all in the spring and the 250 was later in the year. As we forecast the fourth quarter, we will have achieved more than 250 this year -- hard to pinpoint an exact number. And as we look to next year, the question is will the 400 be the number, is it bigger, and that’s a harder thing to tell you until we are done with our 2010 planning.

All right, great. Thanks, Karen.

Next is Steve Kernkraut of Berman Capital.

I have a couple of questions. One is with the sales -- you being much more optimistic in terms of your comp store sales being only down 1% or something like that, I’m not quite sure why you are not assuming a more robust gross margin assumption, where you have 70 basis points of improvement this quarter. I mean, what are you seeing in the fourth quarter that is different? And secondly, for 2010, should we be assuming anymore charges or one-time charges or are we finished with that now here in the fourth quarter?

Let me start with the easy part, which is one-time charges -- we will be done after the fourth quarter. At this point, we have transformed the company, we have converted the names to all Macy's, we consolidated all the divisions to one structure, so that is all behind us. The harder question is margins and it’s a very difficult thing to project. We are not expecting the fourth quarter to be more promotional than it was a year ago. If anything, it will be the same or maybe a little bit less. How that translates into gross margin rate, we’ll have to see. We obviously had never experienced a decline in margin like we did last year in the fourth quarter. With our inventories low this year, obviously we expect to recover a significant portion of that. Will it be all? You know, I guess if I put myself in the shoes of a merchant, it would be hard to commit to that kind of improvement but if I take myself into your shoes, my shoes, you know, you might ask well, why not? And we’ll just have to see how the quarter goes.

Okay. Thanks very much.

Next we have Liz Dunn of Thomas Weisel.

I guess just to -- not to beat a dead horse on this gross margin question but would it be appropriate to think about it as a similar rate of improvement to what you saw in the third quarter? It’s just that the guard rails here are so wide and we are just trying to get a sense of how much opportunity your guidance suggests.

I would say my expectation is it will be at least as great as the improvement in the third quarter.

Okay, and then just one question on your advertising -- I’ve seen some of the TV campaigns, the nostalgia sort of campaign and I think there was one with Martha and everyone else around a holiday table. Can you just talk through how much TV versus other promotional vehicles you will have for the fourth quarter? What is your approach there?

You know something, I don’t know the media mix for the fourth quarter. Obviously the television has become a more and more important part of our strategy, as we’ve become a national retailer. But I don’t know the specific percentage.

Okay, thanks. Good luck.

Next we have Deborah Weinswig of Citigroup.

A few questions here -- one, can you talk about the credit card performance in the quarter?

Yeah, you know, interestingly the usage on our card has continued to be quite good. In the third quarter, it was actually a little bit over 50% or 1 point above last year and year-to-date it’s about 48%, so more than a point above the prior year. So customers are continuing to use the card and use it more. In terms of the performance of the portfolio, I would say that the delinquencies have stabilized but -- and by the way, stabilized at a high level and write-offs where there is a little bit of a lag continue to increase, which is why there was some pressure on the profitability, but not seeing the deterioration we had seen a year ago and earlier in the year.

And then it really seems online, both our multi-channel both at Bloomingdales and Macy's have really hit an incredible run-rate or inflection point, however you want to look at it. Can you talk about obviously there had been some investments in that business -- can you talk about the traction you’ve built with consumers and how we should think about that going forward?

I think we have only begun to realize the potential of the multi-channel integration. I think both websites from a functionality perspective are performing better than ever, look great, all kinds of upgrades to improve how the sites work for the customer. The two new distribution centers are both operating very smoothly and so the logistics and delivery for it are performing better than ever. And I think the potential that still is yet to be completely tapped is again integrating it more with the stores. We have been testing in Florida a capability called search and send, where a sales associate can go very easily onto the POS device and access all of the inventory in the dot.com warehouses to help satisfy a customer, whether it be for a size or color that we are out of stock in or perhaps an item that is not carried in that store. And it’s working very well. We’re beginning to roll it out to some of the Midwestern stores as well as Harold Square now and we will continue to roll it out in 2010. Customers are increasingly using both vehicles to shop. Sometimes they are pre-shopping online, going to the store to try things on -- other times they walk through the store, they see something they want, don’t have time to stop, go home and order it online. So I think we are going to see this tremendous growth continue.

Okay, and then last question, can you discuss how everyday value is performing and just give us a sense in terms of what percentage of your business it is at this point in the game?

Everyday value is actually doing very well. It’s over 6.5% now, which again is relatively small but in some categories, is much more significant. And we believe it’s an important part of our pricing mix to the consumer.

Great. Thanks so much and best of luck.

Next we have Charles Grom of J.P. Morgan.

If I recall on the last call, you spoke to SG&A dollars being down in the second half of the year. Obviously the game has changed with your sales improving but if I assume a down -- let’s say down 1.5 comp and gross up maybe 40% to 41%, this would imply SG&A dollars up about 5% to 6% or about $135 million in the second half. I just wanted to see if that sort of triangulates with what you guys are modeling internally.

I’m not sure I really followed all of your logic.

Okay, just maybe a little bit of color exactly the magnitude of the SG&A dollar increase that you are expecting would be helpful, just to better model the fourth quarter.

Well, what we said is we expect it to increase and excluding the -- what I would call chunky items like the bonus accrual and stock-based compensation, we would expect it to be down slightly.

Okay, and then could you maybe just go back and -- we looked in your K. We couldn’t find how much the proceeds from Ike were last year. Could you just quantify that for us?

No, we’ve not disclosed it.

Okay. And then I guess my second question would be on the $400 million of integration charges, just surprised that there would be so much in the fourth quarter. I’m just wondering exactly what you are expecting, maybe a little bit of color by line item to be, and if there is any chance that that number could come in a little bit lighter.

We’ll do that at the end of the quarter after it’s happened.

Okay. And then last question would be after you guys make this next pension contribution, just wondering what you are thinking about cash priorities going forward.

Well, I mean the cash priorities have been obviously to spend the appropriate levels of CapEx, make pension contributions as necessary but the excess cash after that will be used to pay down debt.

Okay. Thanks very much.

Next we have Jeff Stein of Soleil Securities.

Given the fact that your sales are going to be let’s say two to three points or you are planning now for sales to be two to three points better in the back-half of the year than you were previously, are you at risk of having any significant out-of-stock positions in key items for the season?

Well, I think in every Christmas season we end up out of stock in the most wanted items. That’s just normal. But I don’t see any risk of any -- I think you used the word significant stock-outs as we go into the fourth quarter. What’s been interesting is because we started the quarter with inventories down 7%, it’s allowed us to bring in significantly more fresh goods than we would have normally been able to do in the fourth quarter, so actually I think we’ll be in better shape for the gifting items because the receipts will be fresh and current for that, as opposed to leftover goods from earlier in the year.

Okay, and can you talk a little bit about the payroll? Again, given the fact that you have kind of replanned the back half of the year, have you had enough time to reset your store payroll? Will you have enough employees on the selling floor to service a higher level of planned business?

Just like we do on the merchandising side, on the expense side we are reacting to the business every single day, so we have adjusted the selling expense expectations and payroll relative to what we are expecting on the sales line.

Got it. Okay, thank you very much.

Next we have Bernard Sosnick of Gilford Securities.

With regard to the unified buying structure, you had said that you expect some significant benefits in the spring season and today you mentioned terms such as edit assortment, clarity, collaboration with vendors -- could you give us some color on how the unified structure is developing and whether or not you are expecting more benefits than you might have three to six months ago?

I think the benefits you are talking about are on the sales and margin line, as opposed to the expense reduction and I would say it’s hard to tell but we are very encouraged by the benefits in addition to the localization, which is what we had tested before. So we think having one merchandising organization and planning organization for the company has allowed us to better edit assortments, have a greater vision across the country, which I think -- and the collaboration with the vendors, which I think is going to be tremendous. And you’d layer that on top of the My Macy's field structure, where we are getting the localized input on assortments, I think the potential is huge.

Well, I hope you realize it. Let me ask about expenses. I know you haven’t planned out for next year but significant expense reduction will be occurring next year. You will also probably be accruing for bonuses and stock compensation -- off the top of your head, does it seem as though there could be a decrease in expenses during the first half of next year?

I don’t think that’s the kind of answer I want to give off the top of my head.

Okay. Thank you.

Next we have Lance Vitanza of Knighthead Capital. Lance Vitanza – Knighthead Capital: The $32 million in restructuring charges, was that all in the SG&A line or was some of that in cost of goods?

No, that’s all broken out separately on the P&L. Lance Vitanza – Knighthead Capital: Okay, I apologize. And then I know you talked about this earlier but I missed it -- could you go back over how much cash pension expense you paid in Q3 and how much you expect to pay in Q4?

That’s not cash pension expense -- that was the contribution -- Lance Vitanza – Knighthead Capital: I’m sorry, the contribution.

-- and that was $60 million in the third quarter, which brings the year-to-date to 146. Earlier in the year, we had talked about a total for the year of being 295 to 370, so the delta we would expect to make in December. Lance Vitanza – Knighthead Capital: Okay, and then could you do the same for cash restructuring charges?

Well, we’ve said that the year-to-date was $205 million, I believe, and for the year as a whole we were expecting $370 million, which is the $400 million from the restructuring less the 30 that had been booked in 2008 at year-end. Lance Vitanza – Knighthead Capital: Okay, terrific. Thank you.

Next we have Lorraine Hutchinson of Banc of America.

You commented on you being ready to take market share in a difficult environment and I was just hoping that you could walk us through some of your strategies for that and perhaps what it means for either SG&A reinvestment in a recovery or an elevated level of CapEx.

Well, I think the strategies primarily relate to improved assortments, better edited assortments, more with our private brands and exclusive brands, which are doing well, as well as simplified pricing and obvious value. I think those would be the key parts. Obviously the My Macy's strategy with the localization should help us improve assortments tremendously as we go forward. So those are the real key things we are focused on. It’s not driven by a lot of incremental expense or incremental CapEx.

Thanks, and then can you just give us an update on some of your private brands and exclusives, how those have been performing versus expectations and what we can expect down the road from those?

Yeah, I mean, the private brands and exclusives are all doing very well throughout -- Ink, Hotel, Alphani, you know, on the men’s side also, great brands. And then the exclusives with Martha, Tommy, Rachel Roy all are also performing very well.

And any plans to roll out Rachel Roy to a broader base of stores?

Yes, we are working on the plans for next spring and do plan to roll it out.

Great. Thank you.

Next we have Adrianne Shapira of Goldman Sachs.

One of the callouts that seemed a meaningful change from the first half was a transaction, I guess a proxy for traffic. It seems as if, if we do the math right, you would have been trending down mid-singles in the first half and it sounds as if it was closer to flat this past quarter. Is that the right way to think about it? And help us think about where do you think you are seeing that pick-up in traffic? You had called out the Midwest -- is it a geographic shift, is it perhaps share from others in the mall? Where do you think you are seeing that pick-up in traffic?

It’s hard to tell. I mean, we are seeing it across the country so it’s not necessarily a specific geography base. But if it’s coming from people shopping more or not shopping in other stores, harder for me to judge.

Okay, so no sense in whether it’s a specialty, department store, off-mall, back to the mall?

I can't say that. I mean, obviously we are watching competitor sales pretty closely right now.

Right, and what is your sense there on the competitive landscape? How aggressive is everyone out there heading into the holiday season?

I think everybody is equally aggressive. I don’t see any standouts that are doing anything more aggressive than others.

Okay and then just on the inventory, obviously lean heading into the fourth quarter, down 7.5 and you are looking for the comps to be down 1% to 2% -- help us think about is this spread reasonable and should we start to as we assume as we head into the first half and perhaps a continuation of better trends, when you will start thinking about what’s the right inventory plan, when should we start to see some perhaps inventory build or commitment there versus this down 7.5?

Well, a couple of things -- one is you’ve got to think about what was happening last year with the inventory levels and as we year-round on the bigger reductions in inventory as we go through the year and start 2010, that reduction will be a lot less than 7%. We expect to end the year still with inventories well below a year ago but not 7% below a year ago. So one suggestion is think about it on a two-year basis. Secondly, we do believe that editing our assortments and giving clarity on the selling floor is very important and so how that balance between sales and stock decreases and increases will go, I can't tell you for sure.

Right, I guess my question is just the lessons learned here in terms of being able to operate on leaner levels going forward, clearly there’s some learnings here that we should expect.

That’s a very important learning that we are all focused on -- sales have been good, lower inventory helps the gross margin rate, helps in-store execution. You know, the key always though, as you know, Adrianne, is receipt flow. So what you want is not to have this huge base of stock and you want to just keep flowing in fresh goods to give the customer newness that he or she wants.

Right, okay. Great, thank you. Best of luck.

Thanks.

Next we have Maggie Gilliam of Gilliam & Company. Maggie Gilliam - Gilliam & Company: Could you discuss a little bit the implications of the successful integration of the Internet? It seems to me that you are going to need less retail space. I mean, this is also related to the lower inventories, and you’ve still got a lot of stores that are close together as a result of all the acquisitions. And I’m wondering, are we going to be seeing a new round of store closures at some point in the future?

You know, at this point, I don’t anticipate it. We have a limited number of stores that we close every year. I would expect that to continue and our hope is that the Internet actually enables us to be more productive with our space and require less in stock rooms, which may also help us give more offering to the customer. So we are not anticipating any major amount of store closings. Maggie Gilliam - Gilliam & Company: Thank you.

Next we have Dana Telsey of Telsey Advisory Group.

Could you talk a little bit about how you are thinking about inventory at year-end, how you are planning? And speaking about planning, any updates on the planning and allocation systems that you are implementing and how that process is going? Thank you.

I think the planning and allocation systems are working well. I think the users are learning to use them better and better and better, making tweaks as we go. So I think that is all progressing nicely. As we’ve moved away from having all of the orders in the system from the old division to one order has helped that process enormously, so I think all is moving along on that front thanks to a lot of hard work on a lot of people’s parts throughout the organization. In terms of inventory at year-end, as I had said to Adrianne, we do expect to end the year with less inventory than a year ago but not the 7% reduction that we have got as of the end of the third quarter.

Thank you.

Next we have Mike [Schrekis] of [Wallmaker].

I was just wondering if you could talk a little bit about goods coming out of China were indicated by some other competitors down sort of 5% to 7% -- just wondering, are you realizing that so far or is that something that is going to come through in 2010?

I don’t know the specific number for us but whenever we can get savings like that in this environment, we are trying hard to pass it on to the consumer.

And just a follow-up question on the pension contribution, any sense yet whether you will need to make one in 2010 given where the markets have gone sort of in the last six months.

Obviously we are still working on those kinds of calculations and it gets complicated for us because of all of the people reductions that we’ve put in place this year, so I don’t know the answer to that yet.

Okay, and then any sense, or could you guide a little bit on fourth quarter and the amount of free cash you are expecting to end with, or amount of cash on the balance sheet you hope to end with?

I’m sorry, I can't.

Okay, great. Thank you.

Next we have Robert Drbul with Barclays Capital.

Just a quick question -- just on the sales trends, when you look at the way the year progressed overall, you said Midwest is good, improvement in all regions, can you talk a little bit about California versus Florida and where the biggest deltas in your sales trends have been from Q1 to where you ended Q3?

I had looked at it spring to Q3 and California has improved, as has Florida -- California more so. But as I said, we’ve improved everywhere.

And then in Q3, I’m not sure if you gave this or want to give this but back on the marketing spend, can you give us the change in marketing spend Q3 this year versus last year?

I can -- it’s obviously down but that’s largely because of the consolidation as opposed to impressions to the consumer.

And just one last question is can you talk a little bit about the couponing in the stores and the trends that you are seeing around consumers responding to the coupons?

Consumers always respond well to coupons. They in my opinion complicate the shopping experience but customers love them.

Thank you very much.

Next we have David Glick of Buckingham Research Group.

Just two quick questions -- what is the tax rate you are assuming in your guidance for the fourth quarter? And secondly, you’ve covered a lot of the regional issues but I was just curious -- have you reached a tipping point in your key flagship Manhattan locations and are you starting to see comp store increases in those key locations?

I can't comment on the specific numbers but we are seeing improvement at 59th Street, Harold Square, as well as Soho.

And as far as the tax rate for Q4?

I don’t have one for Q4 but for the year, as we’ve said for the earnings excluding the restructuring costs, we are expecting it to be around 35.5% for the year, so you could back into that.

Okay. Thank you very much.

(Operator Instructions) Your next question comes from Mark Kaufman of Rafferty Capital Markets.

I just had a question about markdowns going into the fourth quarter this year vis-à-vis markdowns on the inventory going in last year’s fourth quarter. I think I’m hearing obviously that merchandise is far more fresher this year in that regard.

Well, it’s fresher and there’s less of it so the markdowns should be a lot less than a year ago.

So that said, could I infer that the inventory as far as units go are even lower than a decline in 7.4% from a year-ago level?

No, not necessarily -- you can infer that. I don’t have the number in front of me. You know, it would depend on what the average cost of those goods are.

Okay, no, fair enough as far as where the new goods came in. I appreciate it.

Next we have Bernard Sosnick of Gilford Securities.

Karen, with cash flow strong and not needing to use your lines for seasonal borrowing, could you give us some guidance with respect to interest expenses for the fourth quarter and what your thoughts might be looking out into next year?

Interest expense will be maybe just slightly below last year and we are not talking about 2010 yet until we get a good handle on sales and the whole P&L.

Just slightly below -- you’ve paid down debt, you have extra cash, and you are not using the short-term borrowing. I know that you are going to be contributing to the pension fund in December but shouldn’t there be a greater decrease in interest expense?

We didn’t use much of the facility last year, Bernie.

Okay. All right, thank you.

Next is Ryan [Rantoria] of Carrs Capital.

Of the $400 million in savings, you expected 250 this year and you are ahead of that -- can you give us a sense either where you are now or based on your guidance where you expect to be for this full year on those savings?

I think we will have exceeded the $250 million largely due to performance in the first half of the year, particularly the second quarter, rather than adding to the run-rate for the back half of the year. And so as I said earlier, the question we are wrestling with is as we look at 2010, how will the expenses look relative to what we had thought earlier this year.

So I assume you don’t expect to achieve all 400 this year and there will be some left over for next year?

Correct.

Okay, thank you.

And this concludes today’s question-and-answer session. At this time, I would like to turn the conference back over to Karen Hoguet for closing remarks.

Thank you all very much and if you have subsequent questions, feel free to call Susan or call me. Thanks and have a good day.

That concludes today’s conference. Thank you for your participation.