Karen M. Hoguet - Chief Financial Officer Terry J. Lundgren - Chairman, President & Chief Executive Officer

Matthew Robert Boss - JPMorgan Securities LLC Jeff S. Stein - Northcoast Research Partners LLC Joan Payson - Barclays Capital, Inc. Oliver Chen - Cowen and Company, LLC Paul E. Trussell - Deutsche Bank Securities, Inc. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Paul L. Lejuez - Citi Michael Binetti - UBS Securities LLC Todd Duvick - Wells Fargo Securities LLC Priya Joy Ohri-Gupta - Barclays Capital, Inc. Lorraine Maikis Hutchinson - Bank of America Stephen White Grambling - Goldman Sachs & Co. Laurent Vasilescu - Macquarie Capital (USA), Inc. David J. Glick - The Buckingham Research Group, Inc. Omar Saad - Evercore ISI Michael Block Exstein - Credit Suisse Securities (USA) LLC (Broker) Stacie Rabinowitz - Consumer Edge Research LLC Bob S. Drbul - Nomura Securities International, Inc. Lawrence J. Haverty - GAMCO Investors, Inc Charles P. Grom - Sterne Agee CRT Dana L. Telsey - Telsey Advisory Group LLC

Please, stand by, we're about to begin. Good morning, and welcome to the Macy's, Inc. Third Quarter Earnings Release Conference Call. This conference is being recorded. I would now like to turn the conference over to your host, Karen Hoguet. Please, go ahead.

Great, thank you. Good morning, and welcome to the Macy's conference call. I'm Karen Hoguet, CFO of the company. I'm joined this morning by Terry Lundgren, Macy's Chairman and CEO. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes. Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in our most recently filed Form 10-K and other SEC filings. Terry Lundgren will start us off this morning to discuss the company's results and strategic imperatives. I will then discuss three subjects in more detail; the third quarter earnings, our work on real estate and the outlook for the fourth quarter. And then we'll open the call up for your questions. So let's get started. It's a lot to cover. Terry? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Good morning. I wanted to join the call today to help give my perspective to you directly on the third quarter earnings, to talk about the outlook and to discuss our analysis on real estate and other strategic decisions that we've made. These decisions are all being made to enhance shareholder value by strengthening our core business and accelerating changes in this new retailing climate. As you see from our press release, we had a very tough quarter, and we are clearly disappointed with the…

Thanks, Terry. As Terry said, the third quarter was disappointing. The sales trend unexpectedly weakened versus that experienced during the first half of the year. Comp sales on an owned plus licensed basis were down 3.6%, and on total sales of $5.9 billion were down 5.2% below last year. As discussed last quarter, the total sales declined more than comp due primarily to the reduction in sales of our private brand merchandise to a third-party. Traffic was clearly a problem for us in the quarter, as I'll discuss in a minute, and I have to say, we're anxious to see how other retailers fared in the quarter. But in the absence of that perspective, I'll describe the factors that we believe led to the weakness. First, sales performance in our tourist doors weakened versus the second quarter, with a significant decline in international tourist sales. Using international credit card sales as the proxy, we estimate the impact of the lower international tourist sales to be approximately 1.5 points in the third quarter, which compares to the one point that we talked about for the first quarter and the second quarter. As you might imagine, these are also our most profitable doors. And remember that we are significantly more weighted to tourist markets than our major competitors. Second, the weather has not helped with the warm temperatures experienced across the country. Our sales of cold weather merchandise, such as coats, sweaters, boots, et cetera were significantly below last year in the quarter. Third, the Center Core businesses are still growing, but experiencing slower growth than in recent years. This is in part related to the slowdown in tourist sales. And fourth, some of our major brands experienced weakness during the quarter, as you've heard mentioned on the various calls recently. In…

Thank you. We'll go first to Matthew Boss with JPMorgan.

Hey. Thanks, guys. So, Terry, you spoke to restoring same-store sales back to positive 2% to 3% over time. Underlying all the noise this year, what base do you think we're at today, and is it fair to think about next year as sort of the stepping stone as you roll out some of these initiatives across the base? Any help on a potential bridge back to the 2% to 3% would be really helpful. Terry J. Lundgren - Chairman, President & Chief Executive Officer: Well, we'll come out with our forecast for 2016, as you know, as we typically do, at the beginning of the fiscal year coming, but it is what you've described, Matt, and that is, we don't expect to go from our current trend and forecast for the fourth quarter into the plus 2% to 3% immediately. All of these steps that we've described are aimed toward restoring that growth that we've seen in the past, but they're going to take time. All of these subjects are going to take some time. So this is going to be an adjustment period. We're going to be aggressively moving forward with the ideas that we think are working, investing in our top locations; that work has already begun, beginning to roll out the Backstage initiative, beginning to roll out the Bluemercury initiative, all these things that we've talked about. Many are underway, either planned, in the planning stages or even begun to execute in some cases. But they are going to take time to get traction. So I think you've described it well in your question.

Great. And then just a follow-up; Terry, I'm curious your thoughts on the upcoming holiday. Could you help break down the negative 2% to negative 3% comp forecast as we think about tourism, AUR, as you're reducing some of the inventory, and just how you're thinking about traffic and spending behavior from the consumer this holiday? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Well, first of all, Matt, as difficult as the 2% to 3% is, it's a slight improvement versus how we have been in the third quarter. And frankly I think part of that is the fact that we will anniversary the weakness of the international tourist business which we felt in the middle of December last year and throughout January. But we're not expecting any major trends and change, as you can tell, other than that. So I wish I could say it's going to get ice cold across the country, I wish I could say that tourists are going to begin to show up and start spending, but you can see in our forecast for fourth quarter, we're not expecting that. And therefore, of course all retailers who are in the fashion business like us, we're not selling lumber, so I can't carry the lumber over to 2016 and sell it at the same price next year. We're selling fashion apparel and so we're going to mark that inventory down. That will be good for consumers, but it will obviously put pressure on our own margins in the fourth quarter. But our goal is to be clear about making sure that we're prepared with fresh inventory receipts coming into spring 2016, and the only way to do that is to address the markdown needs of the short – to the sales plan that we're experiencing in third quarter and will in the fourth quarter as we've forecasted. So that's why the numbers look the way that they do in our fourth quarter forecast.

Great. Thanks. Best of luck and thanks for all the color. Terry J. Lundgren - Chairman, President & Chief Executive Officer: Thank you.

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

(38:06) guys have done a great job of keeping your inventories in line and I'm a little bit surprised that your comp inventories ended on such a high note. Maybe you can just talk a little bit about why you decided – it sounds like you kind of held the line on your pricing. Wondering why perhaps you didn't accelerate markdowns and then enter the fourth quarter a little bit cleaner? And then I have a follow-up question. Terry J. Lundgren - Chairman, President & Chief Executive Officer: Well, I'll just start with saying that you have to shoot when the ducks are flying, and they're flying in November and December. That's when the traffic is there. And so – clearly, we talked about with the warmer weather, we have build-up in inventory in all of those cold weather categories of outerwear and in boots and even the down comforter throughout the home. But throughout the entire company, we've got that issue. You want to believe that it eventually is going to get cold, and so when it does, that consumers will – and traditionally, they have reacted to that. So you don't necessarily need to mark all of that inventory down. At some point, we will; but you'd like to be able to get some of that business in the higher margin and at the higher average retail early when the weather does break before you have to mark down. You'll have to mark it down eventually because there's just too much of the inventory we predict, because of what hasn't been sold in October and what we expect going forward, so that's basically why you would wait on – you wouldn't take unnecessary markdowns. On the fashion stuff, you definitely would take the markdowns, and we think we've done that, but our lumps are clearly in the cold weather category, and we'll have to address that.

Understand. Okay. And with regard to Backstage, I'm wondering if you could talk about the learnings that you've had so far, and how the initial locations are performing? It seems like taking kind of a leap forward and planning to open 50 over the next two years would suggest that you're pretty pleased with what you've seen so far. And then with regard to the hybrid model, how much selling space would you anticipate carving out from your existing mall-based store to accommodate the off-price portion of that model? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Sure. First of all, I will tell you, it's still early days in the evaluation process for Backstage, but our belief is that the model has certainly been proven by others. And I think in the last – particularly the last two years to three years, there has been a consumer migration to these lower price point options, and so that's where we know that there's a consumer interest there. So our belief is that there's a consumer interest there; we just need to get our share of that. We're also seeing the younger consumer migrating to that space, and with our intense focus on the Millennial consumer, which we're getting inside of our Macy's stores, we think this is another way to attract that younger consumer. So it's more of a bet on the fact that the category has been proven mostly by others. It's early days for us in our testing, but we like the model. We like what we offer. We think we offer something different than a lot of the other guys in the off-price space have done. And as far as the hybrid idea, we haven't done it yet. We're just getting ready to do so.…

Thank you.

We'll go next to Joan Payson with Barclays.

Hi. Good morning. Thank you. You mentioned some of the real estate optionality around the flagships. I was just wondering if you could talk about how much value those could ultimately unlock and how we should think about the real estate gains per year going forward.

Yes, honestly, I don't know the answer to that question. We do think it's going to be a significant value creation, but it is hard to predict. So, I'm sorry, I can't be really helpful with that.

Okay. And then just in terms of the environment and some of the partnerships that you've been launching over time, have the views or priorities around M&A changed at all?

I don't think so. I mean... Terry J. Lundgren - Chairman, President & Chief Executive Officer: Yes, no, I don't think so either. We've said this in the past. We look at everything that we think is reasonable in terms of its potential to add value to our overall portfolio. But, we've not made any investments in the period of 2005, when we bought The May Company, which was a massive investment which we all feel very good about, until we just bought Bluemercury, which is a relatively small investment. So we look at all of these ideas and our belief is that there still are other ideas out there but we're going to continue to be very, very selective about M&A opportunities.

Great. Thank you.

We'll go next to Oliver Chen with Cowen and Company.

Hi. Thank you. Terry, regarding your comment on the cycle and thinking about the five years to seven years, how do we think about the evolution of how you may pursue promotional strategies in this new context? And also, as we look at retail and we kind of try to reconcile the low unemployment and certain gas benefits, what do you think is happening with the nature of the consumer? And, Karen, I just had a question on vendors, I was just curious on the vendor side, in terms of the near-term experience, what relationship you will have with the inventory positions in the gross margins? And on a longer-term basis with the vendors, I think your store experience is quite different and unique in your bargaining positions, so just curious about pure-play Internet and Macy's? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Okay, so, a series of questions. First of all, one of the things that you mentioned about the consumer is that the nature of the consumer is that they're – they have – at least in the first quarter they were spending in categories such as automobiles, in home improvement, certainly in technology and healthcare. You could find the specific categories where the consumer was spending and that did demonstrate that there is reason to believe in the GDP forecast. However, that dropped off, we all saw how that dropped off in the third quarter and yet some of those categories continued to perform. So, they have – and their savings accounts still indicate – well they're a little less than they were in second quarter, they still indicate that there is money to spend if the consumer chooses to do so in the fourth quarter. We're just waiting now to see if, in…

Thanks, Terry. And just a quick follow-up; so, from a bigger picture perspective, how do we think about promotions in a brand-appropriate way and kind of the next generation of how you think about promoting in the context of your store experience and what consumers are really looking for? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Well, we are a promotional department store and always have been at Macy's. So that will continue. But I do think that there's got to be new and different and creative ways to attract customers to our business in the forms of loyalty, in the forms of our Plenti program, which is an alliance among many retailers that we now have 9 million people signed up or participating that can buy their gasoline at Exxon and they can buy something at AT&T and they can use those accumulated points and purchase something at Macy's. It's more of a points program as opposed to an outright discount or coupon. I do think there will be different forms of creating the value for the consumers. But in the end, it has to fill the obvious. And so we're working through that. Interestingly, as we've done the Backstage work, there are no coupons with Backstage. There is the price you see is the price that you get. It's more of an obvious value approach. We've tried everyday low price inside the Macy's store in the past with minimum success, so it's not that you can just change over to an everyday low price at Macy's and assume that the customer will get that and understand that value. In fact I think other retailers have tried that and gone away from that, other department stores have tried that and gone away from that in the last few years. So it's not that simple, but I do think that there are opportunities for us to find new handles and new ways to create value for customers without the typical discount that you're used to seeing.

Thanks, Terry, for the vision, and thanks, Karen, for the real estate details. They're really helpful.

Great. Thanks, Oliver.

We'll go next to Paul Trussell with Deutsche Bank.

Hi. Good morning.

Good morning.

Just wanted to again touch on sales. The comments you've provided have been very helpful, Karen and Terry, but just wanted to dig into the weather perhaps a little bit more. You did speak to certain seasonal categories down significantly. Is there any color that you could help us with in terms of how coats and scarves were during the quarter; any cadence of the comp throughout the quarter, particularly perhaps in the warmer weeks of early October? And just any breakthroughs or silver linings perhaps as the weathers have gotten slightly cooler over these past few weeks?

Well, when the weather gets cooler we do see more traffic and we have seen more sales. So, yes, there's some reason to be optimistic, as Terry said. The weather will get cold. But those businesses have been tough and obviously often you go to the store to buy the coat when it gets cold so it's impacting other categories as well because it's less traffic. The 3.6% drop in transactions was pretty significant and was particularly tough in October. So I do think – and that's when the weather had gotten colder last year. So I hate complaining about the weather but in a quarter like this it's really hard not to talk about it.

Got it, got it. And from an expense standpoint, you mentioned that the fourth quarter, despite the sales drop, will have dollars going higher, ex the real estate asset sale. If you can just remind us of what some of those headwinds are that you're facing this year? Obviously, historically, you've been able to offset sales declines with benefits in SG&A, and to that point, you did mention in the release that you do target to reduce SG&A by another $500 million over the next few years. What are some of the areas that you think those opportunities lie in?

So, in terms of the fourth quarter, the headwinds would be the investment in the growth initiatives that we've talked about; digital, Bluemercury, Backstage, as well as China. So we are investing in growth and we are obviously looking for offsets to that. The other issue that will cause an increase in the fourth quarter is that we shifted marketing dollars from the third quarter into the fourth quarter. And lastly, we're anticipating lower asset sale gains outside of Brooklyn. So last year in the fourth quarter, we had $36.8 million of asset sale gains and this year we're expecting that to be less again excluding Brooklyn. So those would be the big factors in the fourth quarter and as you know we're constantly looking to do better and with the sales trend we're all focused on that and as we go to look for the $500 million, maybe we'll get some good news in the fourth quarter but it would be wrong for us to predict that at this point. And in terms of the $500 million, obviously it's a large number and as you know each and every year if you go back over our releases in the early part of the year, we have constantly been evolving the expense structure and announcing restructurings and different ways of doing the business that has saved money. This year it was $140 million that we decided to reinvest in growth, the year before it was $100 million. So we have stepped up the pace at which we're making changes, but it's not like we don't do this on a regular basis. When you get to a number that's as big as $500 million, obviously there will be no stone unturned and we are looking across the company for opportunities to use technology perhaps to be able to do some things more efficiently, that's a big area and we're looking everywhere. And obviously we'll update you as we go.

Thank you. Good luck.

We'll go next to Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you, Terry and Karen, for all of the great detail. I'm wondering if you can talk about traffic. It seems that, that was the piece that really did step down in the third quarter. Are there some strategies or initiatives that you can put in place near-term, for example, in the holiday season, to include that traffic trend? And secondarily, as you step back and look at the next one year, two years, three years, do you have any initial thoughts on a way to evolve or update your strategies that would help to fortify that traffic number and perhaps at least stabilize it and maybe potentially start driving a positive traffic trend in your stores? Thanks.

Well, as we saw with traffic soften earlier in the quarter, we did begin to focus on what could we do in the fourth quarter to help the traffic. Part of it, again, I hate to keep saying it, relates to the weather. But to the part we can control, we have been developing strategies both in terms of our marketing for the store business and also some online specific strategies to help drive traffic. So we are hoping to be able to impact it and also with weather, we hope it will do better and obviously we're on that issue, Kimberly, since we saw it developing early in the quarter. Longer-term, I think in addition to always starting with product and trying to have the best most-curated, most-wanted assortments, we're also working on categories that we think will be particularly relevant as we go forward. Areas like health and wellness for example. And other product categories that we already do today, how can we do those better; for example, the jewelry and watch test that Terry had alluded to earlier. The other thing I would say is there's a renewed focus on finding new customers and attracting new customers to our stores. We will continually try to get more trips and more business from our already loyal customers, but we do recognize the need to keep building a new customer base, and again, that relates to our Millennial customer. So I would say that would be a big part of our traffic driving going forward. Terry J. Lundgren - Chairman, President & Chief Executive Officer: I think that's well said. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you so much.

We'll go next to Paul Lejuez with Citigroup.

Hey. Thanks, guys. Two questions; one on the Backstage stores, just wondering if you saw any impact, negative impact, on the nearby Macy's stores? And then second, Terry, when you talk about a return to 2% to 3% comps looking out in a couple of years, where do you think that share comes from? And just to be clear, are you talking 2% to 3% in the core Macy's concept or do you anticipate Backstage becoming a driver to help get to that 2% to 3%? Thanks. Terry J. Lundgren - Chairman, President & Chief Executive Officer: I'll answer your second question first, and that is that we're looking at the 2% to 3% to be all in, on a comp store basis, to be all in, so that includes the new initiatives with Backstage and Bluemercury. So we're clearly seeing the shift there. I also will say that – and the other answer to your question is – to your first question is we haven't seen a deterioration in the nearby Macy's stores. As an example we have Macy's store in Queens and literally right next door, we have a Backstage store there as well, and we haven't seen a negative transfer of business from the main store to the Backstage store. So that gives us more encouragement about the possibility of putting the Backstage stores within Macy's stores when we do that test. And so I will also say on the 2% to 3%, there's going to be a growing percent of the business is going to be on our digital platform, certainly related to omnichannel. One of the complicated things about our business is that we're going to continue to aggressively support omnichannel shopping, but in many cases the customer is actually looking at her phone first,…

Great. Thanks and good luck.

We'll go next to Michael Binetti with UBS.

Hey, guys, good morning. Karen, I know you gave a little bit of detail on the SG&A plans, but since the $500 million is a pretty big number, it sounds like it's fairly early on. I'm just kind of curious if you could give us a little more help on how you guys thought about building up to that number since it is a pretty large number. Any areas – I think it's even larger than $500 million if we take your language that says it's net of growth initiatives, right?

Yes, the intent would be it would be larger than $500 million, so that it would be net of the investment in growth initiatives. Terry J. Lundgren - Chairman, President & Chief Executive Officer: Right.

Right.

And I will repeat what you said, which is it's really too early to talk about how we will get there. As you know, though, we've been pretty good at getting expense cuts once we commit to them.

Okay. Maybe you could talk – just ask a little bit more about Backstage in particular, the hybrid model. As we look across the sector and just think a little bit higher level here, we've seen lots of scenarios where retailers have gone maybe a bit too far in promotional intensity and had trouble backing up after training a consumer to expect that very heavy discount. And Terry said you guys have been a promotional retailer for a long time and policed this in your stores and with your business, but how do you think about potentially cannibalizing a full-price store – or full-price sale rather, from your stores with a Backstage inside that store and what are the guardrails you look at to keep that from being a drag on the AURs longer-term?

Well, I think the key thing, Michael, is that's why we're testing. In our model that led us to feel really good about the opportunity here, we did assume some cannibalization, A) because we're taking square feet away; and, B) because we do think there will be some categories where customers may choose Backstage over the main Macy's. But we think in the longer-term, it may enable us to do more things in the Macy's store so there would be less overlap. So we actually think this could be a really cool combination of concepts over time. But in the math, we have assumed cannibalization. And we don't know. We, by the way, had also assumed that the Backstage free-standing would hurt the main store, and in the end, that hasn't happened. So it again is why we keep testing things, because you can't – with all the analytics in the world, it's very hard to predict what the customer is going to do when she's given real choices. And so we're anxious to get these first, no more than 10 stores open next year, these hybrid stores, and really see what happens.

Okay. And if I could just ask one final question, I apologize; I know in the past, we've talked about keeping the optionality open on the off-price strategy. Should we take the announcement today that go-it-alone is the plan for the foreseeable future, and that you've looked across the landscape and don't see anything that you'd rather just acquire at this time?

I think we're still evolving with our strategy. At this point, we think we're going to be opening up the 50 new stores over the next couple of years.

Okay. Thanks a lot.

We'll go next to Todd Duvick with Wells Fargo Securities.

Good morning. Thanks for the question. Karen, I had a question for you with respect to your comments about keeping an investment grade rating, and I understand that and appreciate it. In the past, you have had a 2.4 times to 2.7 times target leverage range, and I think that also contemplated the IG rating. So my question is, at this point, do you have any more details that you can give us in terms of either a target leverage range, a credit rating range, or if not, if we can anticipate maybe a finer point on some of your comments with respect to the investment grade rating in the future?

Well, I think, Todd, what I would say is we have made what I'd call a slight change in the calculation methodology rather than a change in our leverage target. We did update our adjusted leverage calculation to reflect the change in Moody's treatment of operating leases. So if we calculated on the new basis, our leverage target becomes 2.5 times to 2.8 times. But again, I'd characterize that as a change in calculation methodology, not a change in leverage.

Okay.

And having said that, for the right strategic opportunity, as has always been the case, we would consider moving outside of the stated range assuming we were confident we would get back within the range before too long.

Okay. That's helpful. And I guess just one follow-up question to that. Commercial paper I think in the past has been a factor that you like to have, but it may not be a requirement. Can you just talk about that with respect to, is that something that you continue to value?

Well, I think as you said, you said it correctly, we like to have it. Obviously, we're in the commercial paper market quite significantly right now, and we think it's the right way to finance a seasonal business like our own. Having said that, if we didn't have it, we do have the bank line. So I can't tell you we need it, but it certainly is an efficient way for us to finance the business, given the seasonality.

Okay. That's helpful. Thank you very much.

We'll go next to Priya Ohri-Gupta with Barclays.

Hi. Good morning. Thank you for taking the question. Can you speak to how you're thinking about the investment grade rating in the context of some of the real estate alternatives being explored? Should we see any proceeds directed to that paydown? Or is there room to flex the current rating to accommodate share buybacks?

I think that's a version of the question that Todd just asked. So I think the best way of saying it is that our target leverage is the 2.5 times to 2.8 times that I just talked about. And could that vary a little? Sure. But we do believe that Macy's needs the financial flexibility that comes with an investment grade rating.

I see. Okay, great. Thank you.

We'll go next to Lorraine Hutchinson with Bank of America.

Thank you. Good morning.

Good morning.

Karen, you executed a pretty significant balance of the share repurchase in the first three quarters of the year. Should we expect you to back away from that a little bit until the sales variability stabilizes? Or would you think about continuing at the same pace?

We believe that we have adequate liquidity to continue to buy back the stock. Having said that, I'm not predicting at what pace we'll be buying it.

Okay.

But we do have the liquidity to be able to do so.

Right. And then given the variability that some of these large real estate transactions could cause over the coming years, how do you think about the payout ratio for your dividend?

Yes, it's one of those subjects that the board addresses every year. And they will continue to do so. For this year's decision, we all felt that having a competitive dividend in the range that we've been at, made sense. And again, the board will continue to revise the analysis behind that.

Thank you.

We'll go next to Stephen Grambling with Goldman Sachs. Stephen White Grambling - Goldman Sachs & Co.: Good morning. Thanks for all the color and going over for questions. Given the tougher traffic trend, but solid growth online, as you look at specific delivery areas, are the strongest online markets the weakest in-store markets, and as a corollary, can you talk about how you're evaluating the right number of stores longer-term in this environment?

Yes, I haven't looked at that specifically, Stephen, but we tend to find that we do best in lines where our stores are strongest. So, I actually think they work together as we said, as opposed to one cannibalizing the other. And our store analysis will always be, we look at the cash flow from operating a store given what we think the trend in sales will be over time and compare that to the opportunity of selling the store, getting out of a lease, doing whatever. Stephen White Grambling - Goldman Sachs & Co.: Understood. That's helpful.

And then obviously, we do take into consideration the math around online; for example, we know that online returns will happen someplace else if you close a store. We also know when we close a store, macys.com does less well, or bloomingdales.com in their context, but that methodology won't change. Stephen White Grambling - Goldman Sachs & Co.: Okay. That's helpful. And then one other quick follow-up on – I think it was Backstage, can you just talk to any difference in the packing and distribution that you've found and whether there may be any required step-up in the supply chain or investment at some point?

It is a very different business, particularly on the subjects you're talking about. So should we continue to expand at this rate, at some point there will need to be capital invested to help on the back of the house operation. Stephen White Grambling - Goldman Sachs & Co.: But at this point you can support this with your existing distribution.

At this point, yes. Stephen White Grambling - Goldman Sachs & Co.: Okay, all very helpful. Thanks so much. Good luck this holiday.

Thank you very much.

We'll go next to Laurent Vasilescu with Macquarie Capital. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Good morning. In terms of tourism factor, it was called out that the one-year midpoint is December. Should we expect a 100-basis point drag to the fourth quarter comp? And do you have any sense if Chinese tourists are still traveling to the U.S. after the stock market turmoil they experienced in the summer?

I can't predict how much it's going to impact us. Our hope and expectation is that it will be better than the 1.5 points that we experienced in the third quarter. In some countries, the trend actually got worse in the third quarter, so I think it's a complicated subject, but our expectation is the impact will be less than the 1.5 points that we talked about. And to your second question, Chinese customers are still coming to the United States, not to the degree that they had been buying last year. I don't know specifically in terms of how many people are coming, but from the sales perspective it's not as great as it had been, but not one of the countries where we're seeing the biggest decline. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay, great. And then lastly, handbags was called out as one of the best performers last quarter; I don't think we've heard anything this quarter, can you provide some color around that category?

Yes, it was still fine, as we said the growth has slowed from what it had been historically. But Center Core in total and handbags was still a good category, it's just not as good as it had been. Laurent Vasilescu - Macquarie Capital (USA), Inc.: Okay. Thank you. Best of luck.

Thank you.

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

Thank you. Good morning. Just a follow-up question on real estate and understanding your decision to go down the joint venture route versus the REIT; could you conclude that the joint venture path would create more value than a REIT, or was it that was the next best alternative, given your objective of maintaining an investment grade rating and the REIT potentially wouldn't create enough value to allow you to do that?

Well, we're excited by the value we think can be created with these joint ventures or the partnerships, David, is I think the way I'd answer your question.

And then how would that value be delivered to shareholders? Should we assume buybacks or special dividends? I mean how do you see that playing out?

Can't tell you that.

Okay. Thank you very much.

We'll go next to Omar Saad with Evercore ISI.

Good morning. Thanks for taking my question. Wanted to follow up on a lot of the conversation around gross margin; you guys are thinking differently about a lot of aspects in your business. There's obviously a lot of change with the consumer, the new technologies, digital, a lot of shifts going on in your business (74:39). How do you think about the gross margin model that you work with your vendors? Have you thought differently about that? Is it potentially something you would put on the table as you kind of think about the new paradigm of the consumer and in discussions with vendors is it something you'd put on the table in terms of potentially rethinking how to do it and...

I'm not sure that that is needed. Working with our vendors to help improve the sales and profitability of the business is one of the things our merchants focus on all day long. So, yes, we're always looking to work with them to improve our mutual business both in terms of sales and profitability.

Understood. And then help us understand the dynamic around that same conversation 3Q to 4Q, into the next year? Where's the tipping point? Is it really just the comp level and inventory level, where there becomes a little bit of a tipping point in terms of how that burden is shared?

I'm not sure I understand the question.

Well, it sounds like there's a little bit more gross margin pressure expected?

Oh, oh, oh. Well, if you think about the third quarter, we had very weak sales. As I said we're coming into the fourth quarter with excess inventory, most of which or a lot of which relates to the cold weather businesses and we did not want to take the markdowns and start clearing those goods in October because it will get cold. So it felt like we'd be taking price cuts too early and we would rather liquidate that merchandise when the customer's going to come in and want it. So that's why the margin shift is happening between quarter three and quarter four.

Okay. I understand. But the conversation with vendors doesn't necessarily change around the promotionality and the markdown support?

No. No.

Got it. Thank you.

We'll go next to Michael Exstein with Credit Suisse. Michael Block Exstein - Credit Suisse Securities (USA) LLC (Broker): Thank you so much for taking my question and the detail that you've given us. A couple of quick questions for Karen and Terry; number one, of the $500 million that you're targeting for further reductions, how much is that going to come from store closings, just the natural SG&A that you save there? Number two, what are your expectations for credit income going forward? And number three, a sort of strategic question. Over the last 18 months, the reach and breadth of Macy's as an organization has dramatically expanded; Middle East, China, off-price, licenses in the stores. Is it possible the organization is sort of losing focus at this stage of the game and not spending enough time on its core business?

Michael, let me take the first couple of questions. At this point, we're really not ready to break out the $500 million or how it will happen, including the subject on credit. Obviously the credit profitability is a function of the sales that we're getting and therefore the credit sales and profitability. So I think we need to see the fourth quarter before I can comment on that specifically, and the $500 million we'll get back to. And remember, the savings is more than $500 million; the $500 million is the net number. Terry J. Lundgren - Chairman, President & Chief Executive Officer: And, Michael, on the focus on the core business, I can assure you that the organization is very, very focused on the core business. If the core business does not perform, then all these other initiatives cannot make up the difference. We have to perform in the core business. But I can assure you that there is a small group of people, under the leadership of Peter Sachse, that are totally dedicated to these other subjects and have nothing to do with the core business and vice versa. So we created a new organization under Peter Sachse of new business development, which supervises international; he now supervises Bluemercury, he supervises off-price. So his group is totally dedicated to those businesses and there's no overlap or mixing up from the leadership of the core business. Michael Block Exstein - Credit Suisse Securities (USA) LLC (Broker): Thank you so much for your comments.

We'll go next to Stacie Rabinowitz with Consumer Edge Research.

I had sort of a turnaround of the question you guys were talking about regarding vendors earlier. Because so many of your vendors have been reporting weaker results than in the past, are you seeing any – do you think it's an overall kind of industry at that level and for clothing issue or are you seeing some variability in performance from different brands you carry, your private brands, Macy's versus Bloomingdale's; anything out there?

Well, I think we talked about general weakness in the apparel categories. There are areas that are doing well, we talked about active, juniors, dresses, so it's not that there's uniform weakness in apparel, but there has been weakness. And we're constantly looking to help our big vendors get better and help find new vendors that have the most-wanted products, including by the way our own private brand. Terry J. Lundgren - Chairman, President & Chief Executive Officer: And I'd like to say that, you can just see it as clearly as we can just that some of these larger brands report their own results that either you believe or you don't believe that some of these big brands are going to get it right, they're going to make the necessary changes, they're going to get fashion components correct, they're going to get the basic inventory planned properly and that they're going to respond and they're going to improve their results. And so the business, as we've said, is cyclical, there's no question about it, but these guys that we're talking about, specifically the ones that have the largest relationships with us, they'll get it right, it's just a matter of whether it be the first quarter or the second quarter delivery or which one will it be. If you believe like I do, that we're going to work very closely together and identify trends, work with them on future deliveries, we're going to get these things right then you have some confidence that both the vendors and our company will benefit from that.

Are there any small vendors in the categories where you're seeing weakness that are doing well or newer trends that are kind of outperforming the category average? Terry J. Lundgren - Chairman, President & Chief Executive Officer: No, we can't talk, and that's why I'm trying to specifically stay away from names of vendors because I know that my comments, as we are so important to them, will influence their value of their company. So I can't specifically talk, but the answer is yes, but I can't specifically name them and tell you who they are.

No, that's all right. That's very helpful. Thank you.

We'll go next to Bob Drbul with Nomura.

Hi. Good morning. Just one quick question; on the inventory levels, can you just talk to any cancellations or adjustments you've made both for your branded merchandise or your private brands, just around the numbers that you're reporting today, like end of October numbers and just how aggressive you've been to try to get that to a better place in terms of inventory?

Well, I think the key thing, Bob, is we are always aggressive at addressing our forward-looking receipt plans and expectations, category by category, vendor by vendor, there's not really one overall answer, but whenever a business is trending better, we're chasing goods, and when a vendor is not doing well, we're trying to figure out ways of not having too many receipts coming in, so I would say this year is no different. It's just obviously a little more extreme.

And I think earlier I think Terry mentioned the consumer trading down from time to time, would you expect a bigger focus on some of your private brands as we look through the next several quarters?

Well, our private brands I wouldn't put in the category of trading down. If you think about INC it happens to be well priced, but the quality and the fashion sensibility of that product is spectacular. And I would not call that trading down at all. And fortunately, speaking of INC, it is doing quite well at this point, so we feel very good about brands like that going forward. So, don't always think private brand is being trading down. If you think about hotel in the home world, doing extremely well in textiles and again it's the most expensive textile product we have on the floor.

Okay. Thank you very much. Goodbye.

We'll go next to Larry Haverty with GAMCO.

Yes, hi, Karen and Terry. I'm just curious, you guys get the best financial advice in the world and I'm worried about whether your financial advisors are briefing you on the idea that this company could essentially be bought by its dividend. And I'll walk you through it. The dividend right now is 3.5%. If you gross it up for taxes, it's 5.2%. It's not too terribly difficult to do an LBO, I suspect, at 10% and half the financing costs would be the dividend. So the math is just incredibly persuasive, especially given the free cash flow that this company generates. I'm wondering if within the company that's been discussed? If not, why not, and how in fact do you cope with it? Because the other side of it is that the economics of share repurchase, as you know, have just gotten absolutely compelling, especially with the level of the dividend being what it is.

I think, Larry, all I can tell you is as you've said, we have the best advisors in the world and we're looking at absolutely everything.

Okay. So this is not something that hasn't been considered.

Sorry, was that a question?

Yes, I mean that you think... Terry J. Lundgren - Chairman, President & Chief Executive Officer: Larry...

Larry, all I can tell you is we're looking at every possible opportunity, and you know that.

Thanks a lot, Karen.

We'll go next to Charles Grom with Sterne Agee CRT.

Thanks a lot. Most of my questions have been asked, but just, Karen and Terry, bigger picture here; your comps are down a lot, transactions are down a lot, but you've got some company out there. I mean Whole Foods is comping negative; there's a lot of retailers that are seeing a big deceleration in trends. But given your breadth, the type of product you sell, are you seeing anything out there that tells you that we're really kind of on the impetus (85:46) of a real pullback in consumer spending, something of the like that we saw back in 2008 and 2009? And the weather, which obviously is an issue, tourism is an issue, but there's just a bigger picture problem out there? Terry J. Lundgren - Chairman, President & Chief Executive Officer: Well, look, it's a fair question. Someone asked me just earlier this morning, is this similar to 2008 and 2009, and my answer is absolutely no. It's not similar because then it was a crystal-clear massive pullback by consumers and we literally saw them stop shopping the day of the Lehman Brothers collapse. The next day business dropped dramatically, we just saw consumers stop spending for a strong period of time. So this is different. This is what we've seen, a slowdown, as you said, in transactions particularly in this last quarter. We also here can see that the fundamentals of the economy are in much better shape than they were in 2008 and 2009. We can point to the tourism purchasing issue. At some point, I can't tell you if the dollar's going to change in terms of its strength in the near-term; and in fact, I don't expect it will. But over time it will adjust and that subject will improve in terms of our ability to sell more products to tourists. At some point in time the weather will normalize. And so when I put all of that into the way that we look at the total business potential, I think you have to say we got to get through the fourth quarter, it's so important, it's such a big part of the overall business and when those subjects start to – the tourist subject begins to anniversary itself and the weather pattern begins to normalize and then you look at it and say there's really no improvement, then I think your point could be valid, but I'm not expecting that to be the case. I am expecting there'll some improvement when those two subjects year round and normalize.

Okay. Great. And then just, Karen, just on the asset sales, the $4.20 to $4.30, can you just sort of break down what you perceive to be as one-time versus recurring, just so we can think about 2016 from a modeling perspective?

Yes, I think in terms of – I don't know that I'd call it one-time, but the one thing that, as you've heard me break out, has been Brooklyn. And the gain, the $250 million gain. But things like Seattle, we hope to be able to replicate. Maybe not with one transaction but as we're modeling 2016 and thinking about SG&A, the only transaction that we're viewing differently would be Brooklyn.

Okay. Great. Hang in there. Good luck.

Thank you.

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

Good morning, everyone.

Good morning.

Can you talk a little bit about Bloomingdale's and how Bloomingdale's did relative to Macy's? And lastly, the credit card penetration was up I think to 49.3%, up 60 basis points. So, it's obviously showing a difference in locals versus tourists, anywhere where you saw difference in locals' performance and how you think about that? Thank you.

On the credit subject, Dana, we are obviously very pleased with that result and I do think as you said, it's a function of having less international tourists and it tends in these kinds of periods, our loyal customers tend to come out more when business is weaker, so I think that's also part of the proprietary credit good news. In terms of Bloomingdale's, I would say the trends are actually – have the same issues that Macy's does, in fact in the international tourist business, that's an even bigger impact on Bloomingdale's given where their locations are. Terry J. Lundgren - Chairman, President & Chief Executive Officer: Yes, I would say, Dana, they're similar trends, but to Karen's point, Bloomingdale's is even more highly penetrated in the Northeast, weather issues and more highly penetrated international, New York, particularly as a percent of their 37 stores as opposed to Harold Square being a percent to our 750-plus Macy's stores. But I think overall when you look at it, I would say, it's quite similar, so there was no major difference in the more upscale consumer of Bloomingdale's than there is for the more mid-household income consumer of Macy's. It was really the swing was more along the lines that I've just described with that international tourism and the concentration of our business in the Northeast.

Thank you.

And with no further questions in the queue, I'd like to turn the call back to Karen Hoguet for any additional or closing remarks.

Great. Well, thank you, and thank you for your patience today, it was a longer than usual call. I know there's a lot of material in the release and obviously call me, call Matt, Sarah, Ryan (90:56), et cetera, we'll try to get back to you as quickly as we can and help you with any of the details that you need help with. Terry J. Lundgren - Chairman, President & Chief Executive Officer: And just to know that I think we've said it loud and clear, but we are going to be so, and continue to be so aggressive in terms of our work to right this shift, to get our business on track. We've got a strong, strong talented team here with a proven track record of success and bet on our company for the long-term and you'll be glad you did. Thank you.

Thank you.

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