Good morning, and welcome to the Macy’s, Inc. Third Quarter Earnings Release Conference Call. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Ms. Karen Hoguet. Please go ahead.

Good morning, and welcome. I'm 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 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. Before beginning my commentary, I want to take just a moment to express our sympathy, empathy and gratitude to so many people whose lives were impacted by Hurricane Sandy. Our sincere sympathy goes to the families of the 100-plus people who died as a result of the storm and the countless others who were injured. Our hearts also go out to the millions of people who suffered significant property damage, including those who lost homes, cars and many of their possessions, not to mention electricity, telephone and cell service as well as access to transportation. I know that a number of people on this call were among them. And lastly, thanks to the Macy's and Bloomingdale's teams in the Northeast and Mid-Atlantic regions who have shown such incredible resiliency in preparing our facilities for the storm, helping to get them up and running so quickly after the storm and for taking good care of our customers in the process, all while dealing with the disruptions in their own personal lives. Our associates did a phenomenal job getting our…

[Operator Instructions] And we'll now take our first question from Charles Grom with Deutsche Bank.

Just on Sandy, when you look back at some of these prior mega-storms that have hit different parts of the country, did they tend to postpone sales altogether? Or does the consumer curtail purchases altogether, and kind of what your expectation for the next couple of months here?

It's a complicated question. We think some of it is lost, most is postponed and in some cases, unfortunately, it creates new demand for goods, given destruction. It's a question of the timing. One thing different about this hurricane than Andrew or Katrina, it's frankly more like Wilma, which was a lesser impact but closer to the holidays. So we're trying to look at that and how the business rebounded. But frankly, this is hitting a far more dense -- densely populated area. So we're just sort of looking day by day and seeing what happens.

Okay. That makes sense. I'm living through it myself. So just separately on the Internet strength relative to your comp guidance in the fourth quarter, it looks like it continues to grow. Are you assuming that, that trend will continue and that your fourth quarter comp guidance assumes about half of that is going to come from online?

We don't split the guidance that way. But our dot-com business is doing very well and getting incremental growth, now that it's able to pool inventory to satisfy demand from these 292 stores.

Okay, fair enough. And then...

That's the strategy for the Internet.

Right. And then can you just remind us that the basket size delta between brick and mortar and online, and also how the merchandise margins look between both?

You know what, it's -- in terms of the average order or the average transaction, it is higher online, but I don't have the specific numbers in front of me. And in terms of margin, it is higher online as it has been. So that's obviously good for the business as well.

And we'll now go to Paul Swinand with Morningstar.

First question, just talking about the online business. Are you noticing any acceleration of buying where customers are closer to stores? Or is more of the growth coming from people that are outside of store areas, maybe discovering or rediscovering the brand?

In the case of Bloomingdale's, where we have fewer stores, our best online customers do live near the stores. So there has been some growth in other markets, but it's really more coming from the markets where we currently have stores. In the case of Macy's, because we have so many stores, it's much harder to tell.

Okay. Any regional comments...

As online customers are going to be the ones that are also nearby a store.

Okay. Any regional comments on driving the online? Is it more city-based or urban-based where people have better Internet connections or...

I have not looked at that, so I don't know.

All right. And then I wanted to ask about one of your prepared remarks. You said that you're going to be flowing more inventory in the fourth quarter. And I was wondering, why -- it seems like I've been hearing retailers say that for years and years. Is there a reason that you flowed less last year, and now you're lapping a different flow strategy than last year?

Well, we've consciously try to bring more goods into the stores to help us transition to the spring and have more newness as Christmas approaches and for our post-Christmas strategy. So it is a conscious change from what we've done in the past.

Is there anything structural or anything technology or anything in the way you -- in your strategy that has enabled you to do this better this year? Or is it just a switch in what you want to do?

Frankly, it's a decision that if we were taking input from sort of our My Macy's team, a lot of it came back that we didn't have enough newness as we went through the quarter, particularly in December and for the fifth week of December, which as everyone knows, has become very important.

And we'll now go to Jeff Stein with Northcoast Research.

Karen, curious, what percent of your online sales are now being generated from mobile devices? And has that changed appreciably as we've kind of moved through the year?

Well, I don't know the specific percentage, but yes, it's growing significantly. And also, we're actually looking at mobile devices split between tablets and smartphones. So we're seeing a lot of growth in the tablets more so than smartphones, but we're seeing lots of shopping on smartphones. So we actually are divide -- as we think about channels, it's more than just 2. You've got to really think about the offering on the smartphone, the tablet, as well as the desktop or laptop device.

Right. And Karen, can you talk a little bit about the SG&A in the fourth quarter? I'm kind of curious, you gave us a little bit of guidance on the top line. I'm wondering what kind of SG&A dollar growth should we expect given the extra week?

We're really not giving specific guidelines for that, but we do expect there to be leverage in the SG&A as a percent of sales.

And we'll now go to Deborah Weinswig with Citi.

And in addition to brand launches, any changes to the store experience or marketing as part of the Millennial strategy?

I think the big focus right now has been product. And as I've said, so many of those new brands won't be launched until spring. So you really will not see the dramatic change there until next Christmas. We're also testing quite a bit of new technology in about 23 stores, not specifically for Christmas, but just in general, to see what works best in the Millennial shopping environment.

Okay. And then how has the store labor model changed in the 292 stores that are being used for online fulfillment?

Well, we're obviously adding hours so that we have people doing the fulfillment business. But I'm not sure what you mean beyond that.

Just in terms of is there -- are there more people on the floor? Do -- the customers that are there feel like they're getting a better kind of customer service experience? I'm just wondering if there are kind of other additional benefits as well.

No, actually, we're using non-selling people to do the fulfillment, so that they're more specialized and can get out and pick the goods.

Okay, great. And then last question, in terms of -- I know you recently announced the launch of the Finish Line shops. How should we think about this in the broader context of merchandising?

Well, I think the key thing is Finish Line is a strategy similar to what we did with Sunglass Hut, which has been an enormous success. Sometimes, there are categories of goods where we perhaps can't get the most wanted vendors or product from those vendors. And also there's a specialized selling model that works well with these lease departments. So where we see white space and see a category where we don't think we can get the best assortments, we think it's a great model. And again, we've been really successful on the Sunglass type front.

And we'll now take our next question from Lorraine Hutchinson with Bank of America Merrill Lynch.

Karen, just wanted to ask about the gross margin longer term. There's a lot of puts and takes going on right now with free shipping, but should be some longer-term benefits of in-store fulfillment and you've seen some higher merchandise margins. So just how should we think about that in 2013 and beyond? Do you see more opportunity for gross margin expansion?

Well, I think 2013 will be early to see what I'm about to explain. But my hope is that in 2014 and beyond, we will have figured out how to optimize the inventory across our channels and be far more productive and improve turnover. And as you know, improved inventory turnover leads to higher gross margins. So that would be my hope. And again, then, we would be able to offset what I think will be continually higher free shipping costs. But those strategies to optimize the inventory will probably take until '14 to get underway.

And we'll now go to Bernard Sosnick with Gilford Securities.

Karen, you said there were 23 test stores with regard to the Millennial. Could you describe a little bit what your objectives are there?

Well, we're trying to see if there's ways of using technology, whether it be through mobile devices or visual mannequins, digital mannequins and things like that, that can help us better service that customer.

Okay. And one other thing with the omnichannel strategy, how are you dovetailing that with your learnings from dunnhumby?

Well, it's all the same customer data, so it all goes into the -- we're looking at a Macy's customer across channels.

And we'll now go to Matt Boss with JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Karen, with omnichannel going live this quarter, can you -- I mean clearly, it sounds like a pretty positive response thus far. How should we think about holiday opportunity from an assortment perspective? I know you're testing some new items online. And then in 2013, anything new from the initiative that we should think about?

I'm not sure what you mean by omnichannel going online this quarter. That is not new. It's just we're expanding the number of fulfillment stores. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Right, the 292 stores going live. And then I think you're testing some items online that were previously just in store for the holiday?

Correct. What we're trying to do is figure out what's the best way of offering merchandise to customers and satisfying demand. So I hope that we find that when we put store-only items onto the Internet, we're able to sell them, obviously, a lot more profitably than if we also carried that inventory in the stores. So we'll see. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Got it. And then on the women's front, you've seen a recent improvement in the category, noting classic and traditional particularly. What do you attribute some of this improvement to? And any initiatives you have in place that you're excited about for 4Q and next year?

Well, I think a lot of it has to do with product design, putting newness in. I think often, people think of traditional or classic as not being new. And I know as we looked at our own private brands starting with Charter Club, all of the feminine apparel, we really made an effort, as you know, to retool the lines and offer that classic traditional customer more newness, and it's really paying off; true for the market brands as well.

We'll now go to Michael Binetti with UBS.

So if I can just try to piece together a couple of comments you made on gross margins so I understand the guidance. Is there -- it sounds like there's an incremental headwind to think about in the fourth quarter from the e-commerce side, and that's maybe why we're thinking negative in the quarter. Is that maybe a change in the free shipping threshold or something to look ahead to?

No, there's no change.

Okay. And then as you -- you mentioned earlier just a quick comment about having some challenges with getting product to the stores after the -- and we've heard other places where there've been some problems in the supply chain of getting product to stores around the hurricane-affected areas. Can we assume that based on your confidence in November and in the fourth quarter that you're seeing that already start to improve over the last week as the storm starts to wane a little bit?

Absolutely. And I'm sure there will be some specific item or vendor where we're struggling to get the goods in and won't. But overall, we think we're in great shape after just 1 week of recovery.

Okay. And then finally, if I could just ask you about the Millennial strategy a little bit. You guys announced a strategy a few months ago. I think you had a couple of early successes in the monthly reporting that you were commenting on. And then October was a little bit more choppy and that perhaps could have been because of the weather. But maybe just an update on how you're feeling about the early phase of that strategy?

Well, let me be clear. The Millennial strategy we're working on, we never expected to get benefits until midyear next year. So we got better results in the junior category, in specifics, for a couple of months. But that really frankly wasn't due to the strategy. So the new strategy really will be more in place for next year.

Okay. And any early learnings you could tell us about?

I think the key thing is as we expected, product is key. And I think as we get the assortments right, we will see a great lift in that business.

And we'll now go to Liz Dunn with Macquarie Capital.

Just a few questions. First, in terms of Sandy, the disruption you mentioned in terms of getting product in, is that more -- is that just into the city of Manhattan? Or can you just provide some additional color on...

No. Well, our facilities have been open almost the whole time. But some of the vendors had difficulty with their facilities, getting the goods to us to get to our stores. So it's been frankly more an issue of making sure the vendor could ship it to us. We've done a really good job. Our logistics team's been phenomenal at working with our vendors to help whatever we can to get the goods to us and then to our stores.

Okay. In terms of the Millennial strategy, I'm sorry, I know we've all been asking about it. But as I'm looking at your holiday announcement, it seems as though you've got a lot of products that are maybe targeted towards that customer. Is that the right way to think of it? Like it's a longer-term initiative but you're cognizant of the fact that last year, you've got a Millennial customer in the store when you opened at midnight. And so you're offering them free headphones with a $75 purchase and that kind of tailoring your door busters, for lack of a better word, to that customer?

Yes, I would say tailoring more so.

More so than you had in the past. Okay. And then my final question, the changes to Herald Square so far look fantastic. Are there any things in what you've seen so far that could be potentially rolled out in obviously smaller scale to more stores? And is there more of a willingness from vendors to invest capital than maybe has been the case over the last couple of years for shopping [indiscernible]?

I think it's too early to really judge. A lot of the technology we're using on the shoe floor, we actually have already rolled out. So for that, that's the case. But I think we've got a lot more to learn, but we'll see. Currently, the early results are very encouraging.

And we'll now go to Kimberly Greenberger with Morgan Stanley.

I'm wondering if you can just talk about SG&A for a second. Was there any sort of shift in expenditures between 3Q and 4Q? I'm just trying to look at the differential and the growth rate between the 2 and understand why there's -- without the -- without -- excluding the impact of the extra week why there's such a bigger -- a big differential in the growth rate between those 2 quarters.

There was a little bit of timing shift, particularly in the marketing area, but not enormous.

Is there anything else, Karen, that would be bigger in 4Q than 3Q that maybe I'm not considering?

Not that I've thought of, but I'll go back and look and see if I can be helpful.

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

Karen, can you talk a little bit about the remodeled 34th Street. The shoe area looks terrific. The new in-store boutiques look great. What are you learning from it? And how do you think about the rest of the chain CapEx? Any implications of what any shops could look like in other stores, any enhancements?

Well I guess I think it's too early to conclude anything about other stores. Obviously, we're thrilled with the early results of what we've got here. And as the Luxe shops start opening between now and Christmas, we'll have a better handle on that. But we are very optimistic that not only will the store do great things and help the whole image of Macy's, that we will in fact learn things that we can apply to our other certainly flagship stores across the country.

And with credit income going up a little bit, are you seeing new customers? Are you seeing Big Ticket items on the crediting penetration moving higher?

Well, it's a couple of things. One is our Big Ticket business is doing very well, as I've been saying all along. So that helps to some degree. But we're also been able to open new accounts in the third quarter above last year, which is the first time all year. So I think it's greater usage from our customers, it's more new accounts, as well as the furniture business and mattresses being strong.

[Operator Instructions] And we'll now go to Joan Payson with Barclays.

You mentioned earlier that the Bloomingdale's outlets have been outperforming recently. And was just wondering what you attribute that to, and if there's any sort of change in your plans or acceleration of building those out at this point?

No, I think we've been working hard to try to get that formula right, and the third quarter worked well. So hopefully, we're just getting better at running that business.

Okay. And then in terms of tourist traffic, which you spoke about a bit last quarter, how has that been trending this quarter? And are there any segments of the tourist customer base which are stronger? Or how does it vary between Bloomingdale's and Macy's at this time?

No, the tourist business is still positively contributing to our comps, but a lot less so than it was earlier in the year.

And we'll now go to David Glick with Buckingham Research Group.

A clarification and a question in the guidance for Q4, you said that November to expect a lower sales increase relative to the Q4 trend. That implies that you think you can bounce back and put up at least a slightly positive comp. And then secondly, the Center Core businesses were very strong in Q3. And just wondering what you're seeing in the confidence level that you think that momentum, which has been obviously going on for a few years, whether that can continue through Q4 and into next year, in areas like shoes, handbags, jewelry, cosmetics?

Certainly expect it to. I mean the business has been very great for a long time, but showing no evidence of slowing up. And I'm not sure I understand your November question. What I said was that November sales would be the way we planned it, even before the hurricane, was that the November sales growth would be less than that in December and January.

Okay. The operative word being growth in November.

Yes.

And we'll now go to Paul Lejuez with Nomura.

Paul Lejuez. Karen, just wondering if the Sandy impact that you've seen is really restricted to the Northeast and the affected states? Or if you've seen maybe some C&N [ph] effect throughout the country?

Well, you had 2 things going on. You had the C&N [ph] effect with the storm but you also had the election. So you know what, I don't know is the real answer.

Okay. And then just thinking next year just from a marketing perspective, do you have anything planned as you think about JCPenney starting to get a little bit deeper into the home category come first quarter, second quarter? Is there anything that you guys are preparing for just -- from a competitive dynamic?

No, honestly, we've stuck to our strategies because they're working. So I don't see any reason to change that at this point. It's working well for now.

Ms. Hoguet, it appears there are no further questions in our queue. I'll be glad to turn the call back to you.

Okay. Well, thank you all for your interest. And if you have further questions, feel free to call us. Take care.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.