Please, stand by, we're about to begin. Good morning, and welcome to the Macy's, Inc. First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the call over to your host, Karen Hoguet. Please go ahead.

Good morning, and welcome to the Macy's, Inc. conference call. 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 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 the company's most recent Form 10-K and other SEC filings. Sales in the first quarter were $5.771 billion or 7.4% below last year due both to the stores that we've closed in 2015 and the decline in comp sales. While we had planned comp sales to be below last year in the first quarter, our 5.6% decline on an owned plus licensed basis was worse than expected. On a two-year basis, the comp sales were down 2.9% per year. While the quarter started stronger, the business weakened considerably versus our expectations beginning in mid-March, and that trend continued through April. As Terry said in our press release, we are seeing weakness in consumer spending levels in apparel and related categories. The number of transactions declined 7% in the quarter, which is far worse than what was experienced last year. This is the proxy, as you know, for traffic. AUR, average unit retail, was up slightly and units per transaction was up approximately 1%. Additionally, we continued to be negatively impacted by reduced spending by international tourists. Sales on international…

Thank you. And we will take our first question from Lorraine Hutchinson with Bank of America.

Thank you. Good morning, Karen.

Good morning, Lorraine.

How quickly can you adjust your inventory commitments to reflect your new sales plan? And specifically how do you plan for a winter after such a warm one last year?

Those are two good questions. First, remember, a good chunk of our inventory is on replenishment, and so that gets adjusted based on sales, so we really don't have to do anything to change that piece of it. And the replenishment is not just what we would call basics. There is some fashion on replenishment as well, so that adjusts with sales trends automatically. But that's in part why we re-looked at the fall plan when we did. We're hopeful that what we've seen in the last – in the end of the quarter is unusual and the trends will improve, but we thought we should not take the risk of waiting, so that we could make a meaningful adjustment to our inventory and receipt plans as well as expense for the back half of the year. Your second question on how do you plan after a winter like last year? That's one of the interesting questions we've all been debating. We are actually planning it to be – I'm sorry, cold weather merchandise to be relatively flat with last year, but if there is what we would call a normal winter, that would give us upside opportunity. Now, 2014 was an unusually cold winter, so we're sort of looking at half of the difference between 2014 as being what we think is reasonable and that's over $100 million in additional cold weather merchandise sales, so that would be helpful to the top line.

Great. And then your newly lowered EBITDA forecast obviously impacts your credit ratios. Is there any change in how you're thinking about share buyback versus debt repayments?

Well, I think you saw in the first quarter, we did buy back less than a year ago relating to the cash flow forecast for the year. We remain committed to getting to a leverage ratio that we've targeted, the 2.5 times to 2.8 times. Obviously, we're a little above that today. Our hope is to be able to get there through EBITDA as opposed to reducing the debt. But we will have to see how things progress from here.

Thank you.

We'll take our next question from Matthew Boss with JPMorgan.

Hey, Karen

Hi, Matt.

So, if we exclude the 100 basis points tourism headwinds, I mean, clearly, the underlying trend has deteriorated. I don't think you're alone on this, either. But any signs of stabilization you've seen at all with traffic? And then larger picture, any anecdotes you're seeing from the consumer or even by category which reminds you at all of 2008?

That's a good question. I haven't looked at it in that context. Look, I'm not going to comment on early May sales. We've done that before and usually the first couple of weeks of a quarter don't necessarily predict it. Had I done that in February, the first quarter would've been very different. So, for now, we're assuming that what we saw in the first quarter could continue on a two-year basis. Again, we hope we're wrong and we hope there's improvement and there was something fluky in the last six weeks of the quarter. But I don't know enough to say that, and I don't know about going back to 2008. I'll do that and look more into it. I'm not sure. When you look at the economic trends, you would say that's not the case, but I'm not sure.

Okay. And then just a follow-up, can you talk about the competitive landscape you're seeing out there? Any plans? Or do you see the need to increase promotional intensity, and just how you feel about inventory in the channel?

Yes, I think the competitive environment has become a lot more promotional. I think part of this is a result of the Internet where every promotion happens across the country immediately. And also there's a lot of price matching going out with some of the (23:59) with some of the competitors and there's some irrational behavior that I think is giving us some challenges, and that's in part why we lowered the expectation around gross margin a bit from what we had said earlier in the year.

Okay, best of luck.

Thank you.

We'll take our next question from Jeff Stein with Northcoast Research.

Morning, Karen.

Hi, Jeff.

Question on gross margin. A little bit surprised that given the environment and all that you were up 10 basis points in the first quarter. So looking back on it, could you or should you have been more promotional? And can you give us some guidance in terms of what the implications might be for second quarter gross margins? And then a follow-up question would be, can you comment on delinquency trends, which was a point you raised in the fourth quarter earnings call? Thank you.

Yes. As I've said, we do expect the second quarter gross margin to be under pressure because of the slow selling in warm weather goods, so I do think there will be – we'll have a less good second quarter gross margin performance than in the first quarter. I don't think, had we promoted more, the first quarter would've been a lot different, but that's the question we're certainly asking ourselves as we move forward. But I would not expect that performance in the second quarter to continue. And again, you heard the guidance for the year as being flattish.

And – yes.

Delinquency levels remain somewhat elevated post our credit conversion, but the level is still within what I would call our normal range and certainly within the range of our other issuers. Also the level continues to come down, so I do not think it's concerning at this point.

Got it. Thank you.

We'll take our next question from Brian Tunick with Royal Bank of Canada.

Thanks. Good morning. Thanks for taking my questions.

Good morning.

Good morning. Question on the center core slowdown. Was curious outside of the tourist impact, did you see the domestic business slow as well in the handbags, watches and footwear? And then the other question is on SG&A, are you giving us any kind of number on top of the $400 million with the savings you're looking for this year?

On the domestic part of the center core, it declined as well, but the international piece of it made it worse than it otherwise would've been. So, we saw the declines in the domestic business also. And in terms of SG&A, I don't have an additional target at this time. We're obviously working on what that could be.

Terrific. Thanks very much.

We'll take our next question from Stephen Grambling with Goldman Sachs. Stephen Grambling - Goldman Sachs & Co.: Hey. Good morning, Karen.

Good morning, Steve. Stephen Grambling - Goldman Sachs & Co.: You mentioned online was a bit weaker than expected, but still growing double digits. Can you just talk about how the regional trends compare to what was in-store and maybe even provide any other color you can on key online metrics such as conversion, traffic, et cetera?

I think what we find that the online business, where it's strong, tends to be similar to the store business. So I don't see there's a big regional difference in terms of the online business. Stephen Grambling - Goldman Sachs & Co.: What about as it relates to the key metrics? And I guess as a follow-up, you'd mentioned price transparency is increasing online. How does that impact your view of consolidated gross margin longer-term?

Well, I think the transparency is in part why we lowered the guidance for margin. When we released the fourth quarter, we'd talked about the gross margin being up this year and we no longer think that will be the case. So I think that's where that came into play. Stephen Grambling - Goldman Sachs & Co.: All right. Thanks so much. I'll jump back in the queue.

We'll take our next question from Paul Trussell with Deutsche Bank.

Good morning, Karen.

Hi, Paul.

A few just related questions around real estate, I just wanted to reconfirm for the year that the plan remains for gains in the amount of around $235 million, which includes $86 million from Brooklyn. I also just wanted to enquire, on store count, obviously you closed a number of doors at the very beginning of the year. Is there a likelihood of any further adjustments prior to year end? And then lastly on the real estate side, you mentioned the success of Backstage, those first few doors. Can you give us a little bit more color on the difference in productivity or traffic that you're seeing within that part of the store versus the balance?

So, the asset sale gains, that's the easy one. There's no change in our guidance for the asset sale gains between Brooklyn and the other stores. So, the $235 million would be the best guidance I could give you today on that. In terms of the store count, as you know, we're always evaluating stores in terms of should there be any closures as we go forward, and at this point, I've nothing to report in terms of what we might do this year, but we're constantly looking at that store fleet as you've seen every year that I can remember. And in terms of Backstage in-store, it's too early to be talking about those kinds of statistics. Obviously, we are pleased with what's happening, but with a couple of weeks of history, I'm not going to give statistics yet.

And then just to follow up on the stores, you've often talked about the Top 150 doors. Is there a meaningful spread between the performance of those doors versus the balance of the fleet?

Well, the problem is many of the Top 150 doors are also our top tourist doors. So, in a normal year, we would see the Top 150 doing a lot better. That's not the case now because of the slow tourist business, but we are pleased with the results that we're getting, separate from what's happening on the international tourist side.

Thank you. Good luck.

We'll take our next question from Michael Binetti with UBS.

Hey, Karen, good morning. Thanks for taking the question here.

Good morning, Michael.

Just to get a cadence for our model, I think you said that second quarter gross margin on a year-over-year basis would be a little worse than first quarter. I think originally for the year you said third quarter would be a decline in gross margin. Is that still the right thinking in terms of cadence?

I'm not sure. We're still planning the fall season, so I still think the pressures in the third quarter will be there, given last year relative to the fourth quarter, so I think what I said originally would make sense.

Okay.

But we'll see as we plan the fall and we'll talk about that in August.

Okay. Thank you. And then as we listen to some of the other conference calls across the space lately from some of the bigger brands that are public companies, there seems to be more comments bubbling up about concerns in the department store channel that seem like they've taken more of a focus to the long-term. How have the conversations with your bigger brands changed? Are you seeing more brands asking questions about some of your lower-tiered door counts? Are you see more brands pushing back on being included as some of the sales that you guys like to run to drive traffic? And if so, how does it impact your merchandising strategy?

Yes, I mean, I think there are lots of conversations going on with our big brands, as you would expect. I'm not sure there's a chicken and egg in here, too. But we're both working hard to figure out what's the right path forward, so that we both can grow profitably. And those conversations are going on, as you might expect, a little bit more deeply today just given the weaker businesses.

Okay. Fair enough. Thank you very much.

We'll take our next question from Kimberly Greenberger with Morgan Stanley. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thank you. Good morning, Karen.

Morning, Kimberly. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: I'm wondering about your commentary on the price transparency that's created by digital commerce and that does appear to be playing a role in merchandise margin erosion. It strikes me that perhaps this issue could be a bit more structural rather than transitory, and I'm wondering if you agree with that. If yes, are there other levers that you can pull in order to help get the business back to that 14% EBITDA target other than merchandise margin?

Yes, I don't think it's transitory, so I agree with that statement. But we were not counting on gross margin to be hugely helpful in getting us to the 14%. So I'm not sure there's really a change in our thinking there. We had expected sales productivity and expense to really help us get back to the 14%. So, a little bit of margin just getting back to a normal level after last year, but I don't disagree with your first statement. One of the things we're all focusing on is having more exclusive merchandise that you could only get at Macy's and you can't price compare it as easily, but also giving the customer just a better experience so that she's more likely to come in and buy from us at regular price. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: All that makes a lot of sense. My last question -- you commented on the fourth quarter earnings call about a slight increase in credit delinquencies that may have been temporary related to the holiday or perhaps loosening of some credit terms. I'm wondering if you can take a look at how that portfolio's performing and give us any insight or new learnings.

Yes, I think I just commented on that. The delinquency levels still remain a little elevated, but we think it's more a function of the system conversion that we did last fall as opposed to the customer being weaker. And we expect that level to come down as we go through the year, and the level today is still within the range of most issuers. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: So, any change or...

So, not a concern. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Okay. Not a concern. And any change or update to your forecast for credit income this year?

No. We still expect it to be down versus last year on an annual basis. There will be some odd trends by quarter, just given last year and this year's numbers and how they match up. But overall, we expect it to be down versus last year. Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC: Great. Thanks so much, Karen.

We'll take our next question from Oliver Chen with Cowen and Company. Oliver Chen - Cowen & Co. LLC: Hi, Karen. Thanks a lot. We had a bigger picture question for the 10-year picture in department stores. What do you think about the food, exercise, healthcare and Generation Z, like what role do you want department stores to play as cultural institutions as you think about generating traffic for the long-term and making sure that you have a really exciting bricks and mortar experience that really captivates the younger customer which has a lot of attention issues in terms of things happening? And then also on the center core issue, are there any key aspects we can focus on for positive aspects to really reinvigorate the center core?

Let me start with we absolutely agree with you that we need to work hard to make the bricks and mortar experience a lot more exciting and we're working on that and trying to test some concepts, one of which actually is the whole health and wellness. So we agree with you that making our bricks and mortar experiences even better is a very high priority, and we're really focused on that. And to your point, some of the things that we're looking at are the health and wellness arena, so we'll see as we go, but, again, agree with the basic theory that you have there. In terms of center core, I would say a couple of things. One is the jewelry pilot rollout should be very helpful to that area and we think that will be good. I think also we're testing a shoe pilot similar to the jewelry – well, similar in terms of its focus on a specific category, different strategies, out in California this fall and we're hopeful that that will help the shoe business. We've got a lot up our sleeves in the beauty area, including the rollout of some more Bluemercury stores. So we do think it will get better. I don't know that it will return to the growth that we've had in recent years this fall, but we're hopeful. Oliver Chen - Cowen & Co. LLC: Okay, thank you. And it sounds like you've been really thoughtful and prudent about how to promote in the safest way possible. So, with the warm weather goods that are elevated here, what's the methodology for how you'll think about promoting those in terms of which way do you feel most comfortable to mitigate and soften the least impact possible?

Well, I think the answer is we have lots of tools for clearing merchandise and I think you've found over the years, our gross margin has held up pretty well. So we balance all the different ways of doing it and now we have Last Act, which is working so well. So, I feel comfortable that our merchant team will figure out a way of dealing with the warm weather goods in a way that isn't irresponsible. Oliver Chen - Cowen & Co. LLC: Okay. And just our last question, you were really helpful with your comments on what seemed like somewhat of an optimism on the way the customer and the economy is functioning. So how do you help us reconcile that versus what you're seeing and just how you're thinking about that bigger picture in terms of what seems like different trends fundamentally versus a certain health in the customer and the economy?

We're frankly scratching our heads. We see the same economic data you all see and it would point to a customer that would be spending more. I think that gets to what he and she are spending it on. Savings rates are high, which tells you that either they're purposefully saving more or that there's some of that savings that can be used for discretionary spending if they get motivated to do so. Some of it is spending in different categories; health, restaurants, travel. I'm not sure, but I would say that we too are somewhat puzzled by the data that we're seeing on the consumer and the traffic we're seeing in the stores and on the site. So, I think, we could – or watch. Thank you very much. Oliver Chen - Cowen & Co. LLC: Thank you and best regards.

We'll take our next question from Randy Konik with Jefferies & Company (sic) [Jefferies LLC] (40:11).

Thanks a lot. Good morning, Karen.

Good morning.

Quick question, given the differences you're seeing in categories from a sell-through perspective, do you think about changing the density of category commitments in any way in terms of dedicating more or less of a store towards handbags or less towards handbags, watches, et cetera, given the changes we're seeing in that category? How should we think about ongoing long-term density changes from a category perspective?

I would say if you think about the strength of the department store, we have the ability to flex resources based on what's selling. So we're constantly looking for opportunities to make our space, particularly first floors of our stores, which are the center core categories, more productive. You don't want to change space based on a short-term trend, so there is some balancing there, but we are working very hard to make that space as productive as we can and you may see other categories growing and shrinking based on the sales trends, but that is the strength of the department store, our ability to do that.

I guess a follow-up is, are there any categories that you're looking at where you're trying to change the density of commitment to that depth of category right now, given you said watches were weak, we see the wearables trend, et cetera, that's happening in the marketplace. How should we be thinking about specific categories?

Well, in that case, part of the answer will be becoming more aggressive in what customers want in the whole wearable tech side, so you will see a movement towards that. So again we are focused on making our space as productive as we can as well as our site.

Got it. And I guess one thing that didn't come up in the call was you spoke a bit about the trends around tourism markets. Is there any kind of variability in trend by geography where we may have seen more temperate climate versus more of the cold climate during the quarter? Just wanted to try to get some perspective there.

Yes, weather continued to be an issue in the quarter. So obviously where we've had colder weather in the last six weeks, eight weeks, until recently, clearly has hurt the warm weather and the warmer February hurt on the cold weather goods. But honestly, after last year, I just couldn't talk about weather again today. But it continues to be an issue and, yes, we did see some changes, but they weren't as dominant as the tourist issues that we talked about.

Perfect. All right. Thanks for the help.

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

Hey. Thanks. Hi, Karen.

Hi, Paul.

Hey, can you talk about the performance of private label versus third-party brands and just remind us of the private label penetration versus what that looks like compared to last year? And then also just curious if you have an idea of how you're planning fourth quarter inventory at this point?

On private brands, we made a lot of progress in the first quarter. One of the things our team there is doing is really paying attention to the Buy Now Wear Now mindset of the customers, which is getting to how we flow merchandise, which I think will be very important to the business and did help us in the first quarter. And also very much focused on editing some of our apparel brands had become somewhat duplicative and so we're really trying to edit and reduce overlap, which didn't necessarily help us in the first quarter, but will help us, as we believe, as we get to the fall season. Another thing that's happened is we have worked on our home area and trying to add some interest and color and print into some of the home product which we're also seeing beginning to do well. So I think we are making changes and the private brand business is doing relatively well. So we'll continue to work on that because, as I said earlier, our exclusive product is very important to us as we go forward.

And what percent of total sales are private brands?

I'm sorry. It's a little over 20%.

Got you. And did they outperform in this last quarter?

It varies by area, but overall did very well.

Got you. And just last one, can you just talk about Doug Sesler? What's he specifically been asked to do and how is he incentivized?

Well, he's been asked to manage our real estate function and to work on the work that had been started last year on the flagships and the mall properties to see if there might be a joint venture partnership structure that would add shareholder value that make sense. So he's very focused on that and at the same time, as I said earlier, trying to monetize unproductive real estate.

And incentivization for him?

I'm not going to comment on that.

Okay. Thanks, Karen. Good luck.

Thank you.

We'll take our next question from Todd Duvick with Wells Fargo.

Yes. Good morning. Thank you.

Morning, Todd.

Wanted to ask you about the real estate initiatives. It looks like the options you're considering generally involve moving from owned real estate to a lease structure. And given that lease expense factors into your target leverage range, can you tell me if you engage in a transaction that increases your lease expense, is it fair to assume that you would consider options to reduce funded debt to maintain leverage within your targeted range?

Yes, we'd have to. Again, we have said that any of these transactions would not jeopardize our investment-grade rating. So should we take on incremental rent expense that would change our leverage ratios, we would have to reduce the funded debt to make that happen.

Makes sense. And then related to that, with respect to your desire to maintain your investment-grade credit rating, can you say that that applies to all of your bonds as opposed to just your corporate credit rating?

I'm not sure I understand that question, but the key is that we do want to be an investment-grade company, so I think that's true overall.

Yes, and I guess where I was going was that any transaction you would consider, you would not look to subordinate some of the existing bonds.

I can't comment on structure, but the key is that we will be an investment-grade company.

Fair enough. Thank you, Karen.

We'll take our next question from Richard Jaffe with Stifel. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Thanks very much. Just a couple of follow-ons. Karen, could you break out the number of exclusives or percent of your business that is both private label and third-party exclusive and what...

I think the limited distribution product is north of 40%. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: And I assume you see that going higher in the next year?

Yes. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Could you give a sense of how high?

No. And again, it's a hard number to move in a major way, so, again, I can't be specific, but that would be our intent. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: And could you just talk about the in-store Backstage sourcing, how much of that is coming from actually in-store and how much from other sources?

Oh, none is coming from in-store. So it is being merchandised by a separate off-price organization and they are buying 100% of the goods not from sort of the other side of the store. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Right.

And they're trying to buy categories of merchandise that complement within the main store, so things like toys and games, some electronic kind of products, gourmet food, if you can believe that, home décor, which has been a huge success for us, and some knock-down furniture pieces. So again trying not to compete with what's in the remainder of the store. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: And just last question on marketing and the opportunity to shift some of your initiatives given the success on digital and social media in the fourth quarter to try and grab some more traffic.

Yes, we have been shifting that and we plan to continue to do so, so I think that's all part of the plan as we look to accelerate the sales performance of the company. Richard Jaffe - Stifel, Nicolaus & Co., Inc.: Okay. Thanks very much.

We'll take our next question from Omar Saad with Evercore ISI.

Hi. Thanks. Good morning, Karen.

Good morning.

I know you just said a few minutes ago you didn't really want to spend too much time on weather. I wanted to ask one follow-up. It did seem like it was a bit warm early spring, a nice start to the spring and it's been colder and wet, at least in the Northeast. I'm trying to understand, I get the idea and maybe you've thought about this, that in a digital world, weather can have a bigger impact than it used to when everyone's got a store kind of in their pocket, or a pocket full of department stores in their phone and their computers. But, I'm trying to understand, why do you think that's not being made up with e-commerce and why that's not compensating for the loss of traffic?

I'm not sure I understand why you think digital would make it up, and I agree with your statement. We did have warmer weather than usual in February and March, which hurt our cold weather sales, and when we got to April and the weather was cooler, it impacted the warm weather sales, but I'm not sure why digital would change that.

No, well, everyone's got in their pocket a Internet full of department stores. Maybe there's less impetus to go out shopping if it's rainy and wet or the change in weather is not spurring...

I don't think it's such a traffic issue, but it's – in February and it's warm, you're not going to buy the cold weather goods that we have in our stores or online. You're just going to not need it.

Got it.

We do find, for example, when there used to be major snowstorms, the Internet business does go up. But this is not so much about store traffic as it is what people are buying, and when the weather is unseasonal, they're buying less seasonal merchandise.

Sure, the catalyst to buy.

So, it's a different point, correct.

Okay. And then a quick question on real estate. In the past, you'd expressed some caution around the idea of burdening the core operating business with any sort of significant rent expense or burden there. I'm assuming the company's and management views haven't changed on that aspect.

That's correct. That was the whole conversation I just had with Todd.

Okay.

But that is correct.

Thank you.

We'll take our next question from Bob Drbul with Nomura Securities.

Hi, Karen.

Hi, Bob.

Just a couple of quick questions. Good morning. The first one is on the focus on more exclusive brands, can you just talk about your expectations around like net profitability with margin support and margin guarantees from the branded vendors, what your expectation is on the inventories and sort of net sell-throughs on some of the private, exclusive brands that you guys focus on? Is there more risk in that strategy, especially around weather and seasonal merchandise?

I would say that there's more risk, but there's also more reward, so I think it's both sides of it. And I think the key thing is from a customer perspective, what I think will help to drive traffic to Macy's, whether it be online or in-store, is having that unique special product that's at really good values. And I think these exclusive products, whether it be from a major brand or our own private brand, will be helpful to making that happen.

Great. And as you look to the rest of the year, you talk about greater newness and more exclusive. Are there any of the new collaborations or brands that you would call out that you're most excited about as we think for the remainder of 2016?

Well, I think you saw a lot of it in the press release, so obviously we put the ones we're most excited about in the press release, so I would just look there.

Okay. And then just the last question that I have is when you think about coming out of sort of the fourth quarter comp inventories, how much have you worked through on some of the excess merchandise? Is there like an excess from the fourth quarter versus your spring overage on inventories at this point that you could talk to, like separate the two as buckets?

Yes, no, we're through the fourth quarter so-called overage, some of which we had purposefully kept over, thinking February would be colder, but we are through that overage, if you want to call it that, and by the way that's where Last Act was very helpful.

Okay. Okay, thanks for much, Karen.;

You bet.

We'll take our next question from Javier Escalante with Consumer Edge Research.

Hi. Good morning, everyone. My question has to do with more details about one of the leading categories, beauty, if you can clarify whether the Bluemercury expansion is within Macy's traditional stores or this is just an acceleration of the freestanding store concept? And secondly, if you feel that you need to increase the number of beauty brands to compete with the specialty stores, and if so, how do you think that is going to impact the layout vis-à-vis your other plans that you've made with glasses and stuff like that that you've mentioned in the past? Thank you.

Yes, we're rolling out Bluemercury both freestanding and in-store, so I would say both there. We're planning to open 24 freestanding stores this year and 18 shop-in-shops for Bluemercury. And we're very excited about how they're performing and what they're going to be able to add to the Macy's location. So, that we feel good about. And we're also rolling out beyond these stores the proprietary brand from Bluemercury, M-61, which was just recently launched on macys.com. So that's also adding to our beauty arsenal. And in terms of more brands, we're doing that in a couple of ways. One is we have our Impulse Beauty installations in so many of our stores, which are combination of smaller brands and we continue to bring new brands in and add to that footprint as we go forward. And on the upper end, you've got Bluemercury that also has a lot of these smaller brands. So, yes, we'll continue to do so and at the same time fully support the big cosmetics brands that are the bread and butter of our beauty department.

Thank you.

We'll take our next question from David Glick with Buckingham Research.

Yes, thank you. Just a quick follow-up, Karen. Just trying to understand the change in trend from 4Q to 1Q, obviously tourism and weather, you referred to seasonal categories been difficult in both quarters. That seems to be a common thread. Was the biggest change really a deceleration in the center core? And in addition, you guys focus on some top brands. Are you seeing a deceleration in the performance of some of your key organizing brands? Is that another, with obviously without naming them, but is that part of the challenge? Thanks.

Yes, I would say if you look at the number of transactions in the fourth quarter, it was down 4%, and in the first quarter, it was down 7%. So something really changed on that dynamic which negatively impacted the business. Yes, center core did get weaker, but I think that – the sort of key categories and center core, but I think a lot of that relates to the international tourist business, so I think that's more of a factor there.

Okay. And then one quick follow-up, if I could, on tourism, I mean, a lot of companies have been talking about fourth quarter was going to be the end of the headwind, then first quarter, then summer. You're basically saying it's going to continue based on the first quarter performance. Do you look at certain metrics to try to predict that, whether it's hotel bookings or flight bookings coming from Europe? Or are you just saying, look, this is how it is; we're not going to assume in our guidance it's getting any better?

I think I would say we're just assuming that as we're giving guidance and more importantly planning internally, so we don't think it's going to get better this year.

Okay, great. Thank you very much. Good luck.

We'll take our next question from Michael Exstein with Credit Suisse. And, Michael Exstein, please check your mute function. We're unable to hear you. You're line is open. Anjani Vedula - Credit Suisse Securities (USA) LLC (Broker): Hi, sorry about that. This is Anjani on for Michael. I apologize if this question has been answered before, but for gross margins, they did improve 10 basis points. Were there any one-time positive items flowing into gross margins this quarter?

No. Anjani Vedula - Credit Suisse Securities (USA) LLC (Broker): No? Okay. That was the only question. Thank you very much.

And we have no further questions in queue. I would now like to turn the conference back over to our moderator for any additional or closing remarks.

No. Great. Thank you all for your interest and your support. And as always, if you have further questions, reach out to Matt, reach out to me, and we'll try to get them answered as quickly as we can. And thank you.

This does conclude today's conference call. Thank you all for your participation. You may now disconnect.