Macy's Inc. Q4 2009 Earnings Call Transcript

| About: Macy's Inc. (M)

Macy's Inc. (NYSE:M)

Q4 2009 Earnings Call

February 23, 2010 11:00 AM ET

Executives:

Karen M. Hoguet - Executive Vice President & Chief Financial Officer

Terry J. Lundgren - Chairman, President and Chief Executive Officer

Analysts:

Deborah Weinswig – Citigroup

Adrianne Shapira - Goldman Sachs

Michelle Clark - Morgan Stanley

Charles Grom - J.P. Morgan

Bernard Sosnick - Gilford Securities

Robert Drbul - Barclays Capital

Wayne Hood – BMO Capital

Mike Schrekis – Wallmaker

Lorraine Hutchinson - Bank of America Merrill Lynch

Lance Vitanza – Knighthead Capital

Dana Telsey - Telsey Advisory Group

David Glick - Buckingham Research Group

Meredith Contente – Broadpoint Capital

Michael Eckstein – Credit Suisse

Kenneth Stumphauzer – Sterne, Agee & Leach

Jeff Kobylarz - Stone Harbor Investments

Presentation:

Operator

Good morning and welcome to Macy’s Incorporated Fourth Quarter Earnings Release Conference Call. Today’s call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead.

Karen Hoguet

Good morning and welcome to the Macy’s Inc. call scheduled to discuss our fourth quarter performance and our outlook for 2010. I am Karen Hoguet, CFO of the company.

Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately two hours after the call concludes.

Please refer to the investor relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning.

Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company’s actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company’s most recently filed Form 10-K and Form 10-Q.

Given the major transformation that we executed in 2009, Terry Lundgren, our CEO has joined me on today’s call. He will start our remarks by providing an overview of all that we have accomplished in 2009 and what our key priorities are for 2010.

I will then discuss our financial results and our outlook for 2010, and then Terry and I will respond to our questions. Terry?

Terry Lundgren

Good morning everybody. Thanks for joining us on the call. I hope you share our enthusiasm for all that was accomplished in 2009 and the financial results that we were able to produce during, what was certainly a challenging economic environment.

I think we reacted appropriately to the downturn with expense reductions that we had planned and inventory management and lowering our capital expenditures. We were able to completely transform Macy’s by eliminating our historic division structure, some of which was our own and some which we inherited through acquisition.

By putting in place a very innovative My Macy’s structure that we’re quite excited about. As important as the change in the structure itself is the change in culture. It’s been critical and critically important to see the transformation of the way we’re just thinking about localizing our storefront operation and becoming much more of a customer centric company.

You will recall my saying in February of last year, that we would use 2009 to implement all the organization changes and put in the talent in all the key positions from around the various divisions that we had and to make any other changes, structural or otherwise that we thought would be the right thing and that we had contemplated in the past.

We wanted to do all of that, as much as possible in 2009 so that we would be in a great position to take advantage of a leaner, meaner organization going into the 2010 period. And not everybody thought that that was a good idea. In fact some predicted a major disruption for 2009 and poor results to follow, and I’m just glad to report that that just did not happen.

Our sales performance was strong relative to most of our competitors and we improved or EBIT rate by 60 basis points. We grew EPS by 12% and we increased our return on invested capital by 30 basis points and we generated approximately $1.4 billion in cash before financing and I’m just incredibly proud of our organization, my senior management team that led us through all of this change while staying focused on executing the business.

We’re just beginning to see the potential of our new unified organization with the My Macy’s steel structure, the new team is working more closely with our vendor partners than ever before, most of whom are here in New York City, so we are just a down the street from us, it makes it very easy for us to meet with our vendors on a very frequent basis.

We are making decision faster as a result of that and marketing our ideas more effectively and My Macy’s structure especially in our original pilot districts enabled us to eliminate the regional divisions without loosing sales in those markets and that, we’d never been able to do that before, whenever we were consolidating in the past we were always worried about losing sales and this time we held on to the sales in a very effective way.

So we know it works, we know the My Macy’s structure was the reason for that to happen. In fact this structure with 69 districts in eight regions now that’s fully operational and across the country has actually brought us much closer to the customer than we were with our former division structure.

I’m also encouraged by what I had seen in the stores that I visited over the past six months with have been many, I just made it a high-priority for myself to be in stores every single weeks and that’s been without fail.

The My Macy structure and changes in culture is just very powerful. I’m even more excited now than I was last year when we are putting this together because I’ve seen that work.

There is three key benefits of how we’re operating our My Macy’s structure. First it’s just greater attention to detail, there’s just more experienced eyes and ears and hands that are on the floor.

Remember the people living in these 69 districts, many of them are former buyers and former planners from the central organizations that we relocated to these cities. They have got this different set of eyes and ears, when they are walking through the floor and just in terms of their experience and what they bring to these roles.

And this allows us to do a much better job, meeting the local needs of our assortments and because they have a sense about what’s available and they are zeroing in on size and color and fabric weight differences and we are now able to do a much better job of making our floors look more exciting again with this experience that they are bringing to the stores organization.

Secondly we are maximizing the opportunities of providing localized assortments, including those supporting local events and holidays. First birthday’s was something was brought to our attention in Hawaii that we’re responding to them on a local basis.

We are getting good at taking care of this big events and this year there was no exception. We build a ton of merchandise in New Orleans around the Super Bowl, we were ready for it. We were ready for either team to win. But when New Orleans won we were fast into action and sold a ton of inventory before the game and after. And then Kentucky Derby, now we are responding locally to the local opportunities of dresses and hats and the like in that particular market.

So there is lots, there’s lots and lots of these opportunities of maximizing local activities. We can utilize local vendors like Patricia Locke Jewelry, which is based in Chicago for our Chicago stores or Betsy Ann Chocolates in Pittsburgh, brings that localization and uniqueness to another level when we do that.

Third is we are executing the central ideas better and faster as a result of our new structure. We saw an opportunity in the fourth quarter, as an example, with fashion watches, particularly in the sport digital looks and in the color category and we were able to expand case line presentations, negotiate for exclusive styles and position these goods in higher traffic locations.

And we are able to react quicker, respond quicker, work with our vendors with one order and one buyer making these decisions. And as a result of all of that we were able to execute this across the country in a much more consistent fashion. And as a result that business category, these fashion watches was up 10% for the fourth quarter and that's clearly a result of taking action as we did.

Those are just three ways of how it's working but let me give you a few examples of some of the My Macy’s successes of this recent period and it's just taken from one single category, just women's footwear, there is a little bit of men’s footwear in here too, but primarily women's. But I want to give you a little bit of sense of the potential, because again, this is just a little minor piece of all the activities that's beginning to happen.

First, at our Stage 3 Chicago location, our selling associates called out to our district team that there was high demand for basic wear-to-work pumps. And our stage 3 customer is heavily skewed to business professionals.

And as the district's merchants and planners walked to the selling floor, we were in great shape with fashion shoes and a great boot selection but we didn't really have this comfortable basic pump that this woman was looking for. And the selling associates called that out to us.

And so our customers told us exactly what they wanted. So we partnered with our central merchants and central planners in New York and they went to the market, they specifically asked the vendors to provide them with what they were looking for in the store and we’d emailed digital photos to the State Street Store and they had the selling associates along with the district planners work together with customers and show an assortment off digitally and say if we had these, would these be the kind of shoes that you’d be looking for?

Long short story short, we put this inventory that was directed by the store and the selling associates and basically the customers into the State Street Store, and we got an instant response from this product and there’s longer lead-time on this but still the majority inventory is still coming in. But we’re not waiting, we’re taking advantage of downtown Washington D.C and other cities where we know we have this career customer that’s walking in the market and taking advantage of these things that we’re learning.

So that’s just one example of that but next is – by the way the business in that category is up 20% in Chicago, so again in a environment we’ve just come off to note that we are able to drive the business so successfully it’s really because we’re listening and responding to the customer and we’re in a position to be able to do that.

Second is in fall of 2008, the new women’s shoe district planner in the upper Midwest noted that functional cold weather boots were always depleted right around the holiday season, I mean we bought it but they just sold it so consistently in that particular part of the country and we were never able to maximize, stay up with demand, and particularly after the holidays.

So the stores continually talked to about this to our district planners, and so we put into place an action to do this in advance, to buy it in advance, so that for fall 2009, and this was one of the pilot districts to expand our offerings, setup a cold weather book visually, shop shift deliveries and an key inventory moving longer after the holiday period and here again you picked up 27% over the prior year just by focusing on the specific request of the store and once again we asked the store to describe for us, well just what do you mean exactly when it comes to this functional footwear and they told us so, we let them help chose the product.

Another example is completely different category is the sandal category and we identified an opportunity to distort sandals in Florida and even though its cold in Florida we sold a ton of sandals there but it gave us a great test, sort of test and react.

So we brought in October and November, and December and got to read from that and as a result of what we learned in Florida we picked up, we tested these embellished with sequined and mosaic topped flat sandals and bought 2000 for Florida and in one particular pair ordered a 120,000 for the rest of the country for April, May deliveries and the same thing for a second EDV program that we have, we bought 2000 for Florida and we are rolling out 220,000 for the country.

So we got this test and react early lead that we believe will give us some fashion trends but will be able to now respond in a much quicker basis and do so, on a national basis.

Before Florida was its own division and while we’d report and mention it, the stores hadn’t with the buyer in Atlanta or the buyer in San Francisco, it wasn’t her buy or it wasn’t his buy, it wasn’t their experience.

So they weren’t actually sure whether that would sell there, would translate. Now it’s a same buyer making these decisions and they can tweak and adjust for certain markets but they know flat embellished sandals are going to sell in many parts of the country and so we’re can jump on those trends and move more quickly.

Those are just three examples from one category just to kind of give a flavor of some of the activity that’s going on. Our top priority in 2010 is to continue to refine and fine tune all that we are doing here, keep learning, keep understanding how we can do it better, what examples should be shared and just focus on executing and maximizing the potential of My Macy's.

We’ll also continue to focus on our four priorities of course that support My Macy's and our customer centric culture. And the four priorities you might remember, differentiating our service is very important, having obviously value throughout our store, upgrading our shopping experience and then making sure that our marketing is unique and that we focus on both brand marketing as well as demand marketing and that we do that differently than our competitors.

Looking at big picture, of course I do worry about some of the macroeconomic issues and I know that some people are saying that those are behind us, look business deals better, there’s no question about it but we still have high unemployment and I still see tightening credit on consumers and issues of that nature.

So I’m not going to just bury those ideas and play austere, those are real and a company of our size must recognize that macroeconomics do matter. But we’re planning to grow the business at both Macy's and Bloomingdale's and we’ll continue to fuel our online business and we’re beginning an outlet strategy at Bloomingdale's as I think you know.

And we feel really good and that we’re poised to aggressively go after any sales opportunities as we see them unfold and do so in a profitable way. So we feel real comfortable where we're at. Our inventory position is in good shape, it's fresh, it's current and we're ready to strike as we see the opportunities in individual markets, in individual stores open up for us.

So let me turn it back over to Karen and at the end of her comments we'll both be glad to take your questions.

Karen Hoguet

Thanks Terry. I'll just hit the highlights of our fourth quarter performance and then onto 2010. Sales in the quarter were $7.8 billion and on a comp store basis sales were down 0.8%, which is better than the minus 1% to minus 2% we had anticipated.

This is a big improvement over the third quarters minus 3.6%. And on a two-year basis, the fourth quarter improved to minus 3.9% from minus 4.8% in the third quarter. This acceleration and trend is encouraging.

The key points to make about the strengths and weaknesses by family of business in geography are as follows. First, the My Macy’s pilots continue to outperform the other Macy’s stores sales growth, although the gap did narrow in the fourth quarter now that we're seeing the benefit in all the doors.

For 2009, all 10 of our districts with the best sales performance versus last year, we're in fact pilot My Macy’s districts. I should add that this will be the last call when we talked about pilots, because My Macy’s is functional across the whole company.

Geographically we had good business across the country in the fourth quarter with some of our strongest performing markets being Chicago, Oregon and Salt Lake City, all of which from My Macy’s pilot districts.

Bloomingdale’s had a terrific fourth quarter with a significant improvement in sales versus earlier in the year. We are seeing more balance in the business with customers willing to buy brands that are better as long as the price relationship is fair. This bodes well for 2010 business.

By business, the major areas of strength in the quarter were shoes, mens and women's moderate apparel, Missy updated collections, mens collections and home, most notably mattresses, luggage, house wares and textiles.

The common denominators of success included cold weather, private and exclusive brands like Martha Stewart or Tommy Hilfiger and affordable trend right newness. The weaker businesses in the quarter were dresses, traditional better women sportswear, Christmas trim, men's suites, fragrances and handbags.

The average unit retail was flat versus last year for Macy's in the quarter. We believe we have done a very good job balancing moderate intensification where appropriate, by location, while continuing to drive fashion and newness. At Bloomingdale's in the quarter the average unit retail was above a year ago.

Our Internet businesses continue to produce terrific results with a 27% increase in the fourth quarter. We believe the ability to better integrate the Internet with our stores provides continued great growth potential for the company as we go forward.

Gross margin in the quarter was 41.7%, up 240 basis points over last year's 39.3%. This performance was terrific. It is even 10 basis points higher than in 2007. We ended the year with inventory approximately 3% below last year and on a comp store basis it was lower than that.

We were very comfortable with both the level and the content of our inventory as we started 2010. The fourth quarter margin was better than expected, benefiting from the stronger sales as well terrific inventory management.

SG&A in the fourth quarter was $2.2 billion or 28.2% of sales, this is $44 million or 2% below a year ago and 20 basis points lower as a percent of sales. SG&A was lower than expected do in part to better credit performance, the Visa settlement and lower stock based compensation expense from than lower than expected stock price.

Operating income or EBIT before consolidation cost and the asset goodwill impairment charges as a $1.6 billion up 22% over last year and well ahead of our expectation.

In the fourth quarter we booked $71 million in consolidation and store closing related charges, this is the end of the consolidation related charges and for the year as a whole we booked $276 million which when combined with $30 million booked in the fourth quarter of last year totals $306 million which is well below the $400 million we had anticipated.

We also booked a $115 million in assets impairment charges in the fourth quarter this year related to approximately 20 of our property. In these locations the projected cash flow did not justify their book values.

EPS on a diluted basis excluding the unusual items was a $1.40 including the $0.05 tax settlement in the fourth quarter. This represents a 32% increase over the $1.06 we reported last year on the same basis.

And for the full year EPS on a diluted basis excluding the unusual items was a $1.41, up 12% over last year’s $1.26. We are very proud of that performance given the challenging conditions under which we operated combined with the company transformation that we executed through the year.


Cash flow this past year also was very strong. Net cash provided by operating activities was only a $116 million below a year ago on $1.4 billion lower sales. And we’ve more than offset that with reduced capital spending and higher asset sale.

Net cash before financing activities was a $1.37 billion versus a $1.07 last year. Even after repaying over $950 million in debt, we increased cash by $300 million this year and ended 2009 with a $1.07 billion of cash on the balance sheet.

Return on invested capital for the full year was 14.9% versus 14.6% last year. Details of the calculation can be found on our website. Given the comp-store sales decline, we’re very pleased with this performance.

So let’s move on to 2010. As Terry mentioned, we’re not at all as uncertain as last year, there is still some concern about the economic conditions we’ll face in 2010. We are however feeling cautiously optimistic especially about what we can’t control.

We're assuming annual comp store sales growth in 2010 of plus 1% to plus 2% and for the full year, we're expecting EPS on a diluted basis of $1.55 to $1.60. We are expecting EBIT rate improvement in 2010, which should result from a combination of a higher gross margin rate and a lower SG&A rate.

While the SG&A rate is expected to improve, we are assuming SG&A dollars above last year. We are saving at least the annual $400 million to which we committed last year, but there are unfortunately other increases that offset some of those savings. For example, pension expense is planned up approximately $30 million in 2010.

Depreciation and amortization is estimated at $1.18 billion for the year with approximately $575 million to $580 million expected in the first half of the year. We are expecting SG&A dollars to be up over last year in the first half of the year and flattish in dollars relative to last year in the back half of the year.

Our expense savings exceeded our expectation in the first half of 2009. In part because people left earlier than we had assumed enhanced by the way the lower severance and the one time costs and also because people stop spending money last spring on what I would characterize as non critical activities during the early days of the transition.

We didn't fully understand the magnitude of this until we started planning spring 2010. Also the final piece of the expected savings coming from this transformation is the application of best practices to our stores and that will take several months to be fully implemented.

The reverse is happening with gross margin rate in terms of the timing of expected improvement. We are assuming all of the improvements that we expect to happen in 2010 to occur in the spring season with a gross margin rate in the fall that is flattish to last year.

Interest expense for the year is assumed to be approximately $540 million, with approximately $275 million to $280 million in the first half of the year. And the tax rate should be assumed at 37% for the year as a whole, but as you know it can vary by quarter.

Our capital budget for 2010 is $550 million. We believe that by 2012 we will be spending at an annual level of approximately $800 million in capital. But, given the lack of new store opportunities currently we do not need to spend that amount yet.

Our current estimate for the 2010 pension contribution is $325 million. And in fact, given our excess cash position we made this contribution yesterday. We may or may not make an additional contribution later in the year.

So, that's a quick overview of the fourth quarter and our 2010 outlook. We are obviously very pleased with our performance and very excited about the potential for the transformed company. And now Terry and I will take any questions you have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Deborah Weinswig – Citigroup.

Deborah Weinswig – Citigroup

You had stated in the press release that you believe there is opportunity to gain market share by increasing same store sales.

Do you believe that’s from new or existing customers and do you think that that’s opportunities from inside the mall, executing better size optimization, where do you think the real opportunities lay?

Terry Lundgren

First of all I think its going to come from the local level. So based on what we experience from our pilot districts that has been up and running a year in advance of the rest of the county and how well they performed versus the rest of the country.

Its my belief that we’ll capture market share not so much on a national basis, I mean of course we are right after that but really on the local basis and I think that comes from both in the mall and out of the mall probably the early opportunities are inside the mall.

So, but we’re looking at all of those opportunities, I mean they are not even looking at it, there is a lot that are already underway and of course you keep in mind 49 out of our 69 district teams started their jobs on May 1st.

So they figured out what they were supposed to do for the next 60 or 90 days and then really began to have an impact closer to the fall season. So that product is now just being responded to in the receipts that are just in front of us.

So I think it’s going to come from multiple places but it’s not across the board it’s really on what their opportunity is in a specific store district.

Deborah Weinswig – Citigroup

Okay. And then Karen, when you had provided guidance for gross margins, I think you had said on the third quarter call that your expectation would be that it would be at least as great as the improvement in the third quarter, which was about 70 basis points and obviously the improvement today was significantly ahead of that. What would say were the main drivers there?

Karen Hoguet

I think it’s a combination of the good sales and the power of having the lower inventory level. We were down on average 8% all year-end comp store inventories and I think the benefit of that really paid off in the fourth quarter.

Terry Lundgren

Deborah one more thing I want to add is that, I’m thinking about earlier question, and that is that I think a lot of the home furnishings opportunity that we have. We’re very encouraged by our recent home furnishings trend improvement. And I think there is real potential there and so that to me is more likely to come from off the mall.

And while housing prices are, I presume will remain depressed for some time, they are beginning to turn over and as people buy new homes, there’s a natural follow up to that is to upgrade and update their home furnishings.

And so we’re seeing some of that activity, and just communicating with our district team that’s the feedback we’re getting from customers, I’ve just bought a new home, I took advantage of those lower priced opportunity and now I’m going to upgrade my bedroom with textiles or I’m going to buy some new furniture, mattress and the like. So that piece of the business will come from outside the mall.

Deborah Weinswig - Citigroup

Okay, and then last question. It seems that you have two interesting growth vehicles one that was newly announced, which was the Bloomingdale’s outlet, can you discuss your site location strategy and what you need to see in the performance in 2010 in order to get more aggressive or excited in 2011 and beyond?

And then also with online, you're one of the retailers who is fairly early in terms of making investments online. Maybe if you can walk us through your goal there and how you're driving that business?

Terry Lundgren

Okay. Outlet, I think we're frankly we're late on this subject and it just because we've had so many other initiatives over the last five years from acquiring competitors to changing the names and obviously the My Macy's. We've had enough on our plate that we just haven't addressed this one.

So, I think we're little late on the outlet strategy. But I don't regret that because I still think there is plenty of opportunity for us to participate there. And so, to me this is really not a strategy that I have to wonder about will it work or not because it's been proven by successful competitors.

I think particularly Nordstrom Rack and of Fifth Saks, that they've done a good job there and there's a market for it. We worked very closely with our vendors who run outlet businesses and talked to them about it. They believe strongly that there's an opportunity here.

So, we feel very, very confident that this is going to be a good strategy. So what we just need -- the first four locations, we went out and negotiated with a couple of the key real estate developers, and Simon of course being a big one here. And so that's how – it was not any more complicated than that.

We worked with them on what would be the right locations to get started but we clearly have a goal of expanding this concept as soon as we get it right. But we're new at the business, we've got new people running the business for us and we want to make sure we just get it right, the size right, the content right, at what percent goes to this category, what percent goes to that category.

So those learning's, that's all we need just to fine tune the learning's for some period of time. I don't know how it would be, six months, 12 months or something of that nature. I don’t think much longer than that before we understand how to get the most productivity out of the box. And then we'll expand from the there. There’s a very – there are big wide open arms out there in the developer community for us to participate.

As far as the online is concerned, I think we were early in setting up state of the art fulfillment centers. We have been continuing to upgrade our website and our talent pool here. We feel very good about the growth prospects in front of us.

I do think Macy's is further along than Bloomingdale's. So, we have got much more opportunity to help Bloomingdale's with some of both the infrastructure and web navigation opportunities there. But having said that, Bloomingdale's is very well developed as a percent of their store line business.

So I just think that we've got just tons more of opportunity here and a big, big push for us in 2010 will be to go after the multichannel consumer. So the consumer who is online, shopping with us driving her to the stores, I always tell my stores when you get a return from an online customer give her a big hug, because this is a chance for you to take this customer and turn her into a store customer and almost always, when she returns a $100, she buys a $130 in the store.

So, I really want to encourage this multi-channel opportunity in 2010, and the same is true for the stores, is using our systems in-store to be able to sell customers products online as well.

Operator

Your next question comes from Adrianne Shapira - Goldman Sachs.

Adrianne Shapira - Goldman Sachs

Maybe just following up on the share comments, it seems that many more a tearing a page out of your booking going after share and I’m just wondering give us some of your initial thoughts in terms of what you are seeing out there, how much more aggressive is the environment as many more are looking to rejuvenate share gains?

Terry Lundgren

Well, I don’t really think people are being super aggressive out here because of the – macro economic headwinds that I described, they are still out there still but at least in our case I feel really good Adrianne about our – we’re sitting here in position with ability to launch inventory, to go after categories with communication coming from our field and we just feel like it’s a competitive advantage that cannot and will not be duplicated.

People are not going to start and put in another 1600 people out there to manage a field of district structure that we have, so we feel so strongly that it’s a great advantage for us. So my belief is that we accomplished that in the initial rollout of the pilot districts and as time goes on we are starting to see the others 49 districts catching up with those opportunities.

I think market share comes from an individual store that started to stay earlier. I think rather than calling a market share a national strategy, I think market share comes from individual consumers, wallet share, and individual stores, individual markets and districts and that’s where we are going to make progress as when we are more relevant to the consumer than our competitors are.

So I still believe there is a lot more of that opportunity that’s out there as opposed to just the general economics improving where all boats rise, I think that some boats will rise and I’m counting on Macy's and Bloomingdale’s to be among them.

Adrianne Shapira - Goldman Sachs

And then just following up on that, the place of value, you talked about it being the second in your four priorities, Karen mentioned price value equations still very important. Obviously you made terrific strides this past year striking that right balance.

Give us a sense of where the emphasis going forward how much more are we – have we struck the right balance and perhaps should not expect year over year -- should we expect comparable level of I guess promotions year over year and no more aggressive? Or as you point out the macro-environment is still choppy and therefore we still should expect continued value methods to intensify?

Terry Lundgren

In our case, I don’t believe we have to be more aggressive. In fact we were less aggressive in 2009 than we were in 2008, and that was appropriate because we like others were just trying to get rid of excess inventory in the fourth quarter of 2008, so and a little bit of early 2009 but we were pretty aggressive in the fourth quarter of 2008.

So I don’t see a need before that. I think that – and the difference is Adrianne, these promotions are planned promotions, 2009 they were planned promotions, in 2010 will be planned promotions. So I don’t think it’s going to be a significantly different promotional calendar this year than last – particularly the second half of last year, which we can fine tune of course but I don’t believe it will be that much different and it’s all got to become more obvious to the consumer.

And I use that word a lot internally that I shouldn't have to explain to you what the value is to the customers. The customer should find it obvious. And I think we can do a much better job on that subject than we have and I think we're not alone. I think other retailers can do a better job too. But I know we can. And so, to me that's the kind of message I want to give. I don't believe that we'd be more promotional than last year.

Adrianne Shapira - Goldman Sachs

Karen, on the expense side, if you could just clarify, you talked about at least the $400 million. It seems the last year we saw more than the $250 million from some perhaps one-off items, and give us a sense, should therefore, the $150 million in 2010 be less than that, perhaps sort that out for us?

And then beyond that how should we think about what the sort of normal run-rate on expenses on a go-forward basis and where we should we expect you to see that spending pick up?

Karen Hoguet

I think the easier part of the question is the second part. And the run-rate should be there by fall of this year. That's when all of the changes will have been instituted in the stores. Maybe late second quarter but I would say third quarter and fourth quarter.

And in terms of reconciling to the $250 million or the $400 million, clearly this year we're saving at least the $400 million. In 2009, we did save more than $250 million, some of that would reduce the $150 million but not tremendously and some of that fell into that category of spending that people stopped doing earlier in the year, which really isn't a permanent savings.

So we did save more than $250 million. We will save at least the $400 million this year and the delta between the two years is probably less than a $150 million but not tremendously.

Adrianne Shapira - Goldman Sachs

And then just a last question as it relates to your mounting cash pile, just gives us your thoughts in terms of how you think about what the ideal capital structure is here?

Karen Hoguet

Well, and I think we've been clear that we are working to de-lever the balance sheet and to work towards being an investment grade company I guess. So once you get past the strategic uses for cash, and we believe our capital budget in 2010 is more than adequate. So once we get beyond strategic uses, we believe the best use of cash for now is reducing debt.

Operator

Your next question comes from Michelle Clark - Morgan Stanley.

Michelle Clark - Morgan Stanley

First question, your comp outlook for an increase of 1% or 2%, is that fair based on earlier comments that that's going to be driven primarily by traffic increases, but that's the expectation rather than any increase in AUR?

Karen Hoguet

I am hesitating before I answer Michelle because it really comes from a blend of increases and averaging of retail and traffic. And we’re seeing also the answer difference by family of business, so it's hard to generalize. But I do expect that we should get an increase in traffic in 2010.

Michelle Clark - Morgan Stanley

And then secondly, if you could comment on your credit card performance during the quarter and how that played out?

Karen Hoguet

I mean our credit card performance was a little better than we had expected. I would say that delinquency levels have stabilized although still above historic levels. Penetration for 2009 as a whole was 48%, up 80 basis points over last year. In the fourth quarter was a little bit below 2008, but still well above 2007.

So, I would say it continues to be very high, amongst the highest if not the highest in the industry and the profitability is stabilized and improving some what.

Michelle Clark - Morgan Stanley

Last question, your gross margin outlook for 2010 Karen, can you tell us what’s embedded within that in terms of your product cost outlook and how that breaks out for the first half of the year versus second half?

Karen Hoguet

I think the biggest benefit to happen with gross margin will be the lower inventory levels in the spring season. As we entered the first quarter last year, we still have some inventory that was higher than what we had hoped given how much the sales have fallen in the fourth quarter.

And also as we went into the second quarter as we were transitioning to the new structure, we think there is probably opportunity to manage the inventory better this year than we did last year.

In terms of the cost of goods, there has been a lot of conversation about the potential for higher cost as we move into the back half of the year.

We are working very hard to mange around that without and this relates to our private brand product obviously without impacting the quality of our goods but that will be more challenging in fall 10’ than it was in fall of 2009 and in part that’s why we are talking about flattish margins in 2010.

Michelle Clark - Morgan Stanley

That’s embedded in your outlook.

Karen Hoguet

It is.

Operator

Your next question comes from Charles Grom - J.P. Morgan.

Charles Grom - J.P. Morgan

Karen, on the interest expense assumption of $540 million, I’m assuming that’s just to retire the $226 million of debt that you have coming due this year, is that correct?

Karen Hoguet

That’s correct.

Charles Grom - J.P. Morgan

Okay, and then second question on cash, can you just remind us the funded status on your pension. I mean if you could maybe pro forma for the contribution that you made yesterday.

Karen Hoguet

Yes, I wish I could answer that, Hewitt is still working on the estimated liability as of year-end. So I know that it was higher than 80% based on the contributions we made in 2009 but I don’t know yet what it is. So as soon as we get that data probably by the end of first quarter Chuck we’ll be able to do talk about that.

Charles Grom - J.P. Morgan

Okay, that would be great. And then you gave a lot of front half, back half analysis for the guidance but you didn’t touch on comp. So just wondering if you could give us a little bit color on the 1% to 2% particularly looking at your stacks can be pretty dangerous right now. So I’m wondering if you could just sort of maybe hold our hand on what guys expect for the front half versus the second half?

Karen Hoguet

Yeah, I mean that’s a hard question to answer and somebody this morning was talking about how difficult the second half will be. The problem with that logic is you probably have to go back more than 2 year, so sitting here today we don’t expect huge deviation as we get through the year.

Terry Lundgren

Yeah, I would say that’s right because the first – the way we’re looking at it is, the first half we’re against weaker comps for at least on a one-year basis. In the second half we’re going to be more experienced and we’re going to be more – we’re going to have more the My Macy's ideas underway and developed and executing against them.

And so while we’re going against a more challenging fourth quarter, our view is we just need to keep on piling on the opportunities and the more time we have in advance, the better time line we’ll have to be able to see those specific opportunities. So that’s how we kind of came up with Karen’s response pretty similar first half, second half in that 1% to 2% comp range.

Charles Grom - J.P. Morgan

Okay, and then just one last one for you Terry. I believe most of us can somewhat conceptualize the sales angle from My Macy’s. It’s pretty intuitive and you guys were pretty good laying out the numbers. But I know there's a vendor side benefit from My Macy’s that's a little less transparent. And since you're on the call, I was wondering if you could you could walk us through what the benefits are on that front?

Terry Lundgren

Well, the benefits are more for the – they’re both central organizations for sure. We've had it going for the last year, the vendor collaboration meetings with our top – we had originally, our top 25 vendors based on pure size and then moved it to the top 50 vendors.

And we continue to expand it, where we have regular meetings with top management -- our top management, their top management and think through the opportunities that we see for each other with the new structure. And I think one of the most important things to our vendors is just that the decisiveness.

One of the things someone mentioned earlier is that the sizing opportunities, well what they have fed-back to us is that we've asked for size changes by market in the past but when we had Macy's East and Macy's West and Macy's Central and Macy's Florida I mean we just couldn’t agree.

And Macy's West was thinking about a size profile for San Francisco but they were also responsible for Las Vegas. And they were very, very different. And so they were trying to do their whole region and ask for size profile vendor shift packs. And that was so different in itself but it was different from Macy's East request.

So, now we're not looking at it anymore by parts of the country, we're looking at it by individual store. And so we can say, well look at that, all of these stores and there is a 120 of them that look like this and then there is a 104 that look like this and if you can produce size packs to respond to that group then it's going to be less mark downs for you and for us, because we are going to have it right at the end of the season, selling to the right sizes.

So that decision making process and that overall holistic look at the nation with specific detail by store, as opposed to regions of the country under the former structure, is huge advantage for our vendors and the quickness of coming to conclusions is helping in that regard.

As you know, we have several exclusive big vendor relationships now and there are more of those brewing because they’re watching what's happened with us, with Tommy Hilfiger or Rachel Roy or these others.

And they are seeing the fact that we can grow these businesses into a meaningful sizable business, be all that they had hoped for in their previous distribution structure, but doing it with one customer and making decisions and responding quickly and really working side by side to affect the business and to affect change and to plan for the future. And so there is more and more of that happening on the vendor side.

And then finally back out to the stores, they have always had their vendor reps out in the stores, now they have somebody to talk to in the stores. They've got the district team to talk to. And when I go visit our stores and I always ask the cosmetics person as to who is the rep for Estée Lauder, and well she pulls up her cell phones and here is a number, do you want to talk to her.

I mean they are now linked in with a relationship with the vendor organization out in the field. And in many cases the vendors are duplicating our districts structures.

So they are turning to align themselves to have a point person for each of our 69 districts to help respond more quickly and more locally. So I think the vendors and we are working extremely well together.

Operator

Your next question comes from Bernard Sosnick - Gilford Securities.

Bernard Sosnick - Gilford Securities

With respect to your priorities, you spoke about having unique marketing approach and I’m wondering if you can give us a little bit of color on what you see as, with regard to uniqueness and what we might be expecting during the first half of this year.

Terry Lundgren

Well, I think our uniqueness has been largely in our brand advertising. So the Believe Campaign where we raised millions of dollars for the Make-A-Wish Foundation was very unique to us and I think it really tugged our strings as well, we’re helping these kids with cancer but at the same time we have Queen Latifah in the ad or Donald Trump in the ad, Jessica Simpson in the ad, that we’re really connecting the dots.

So all of these people, all of these celebrities they have products sold at Macy’s, so we connect the dots that way but I think tying them to our brand and then often to a charity cost in this case Make-A-Wish, has been very, very unique.

We did, I don’t how sure you knew this but -- Yes, Virginia, there is a Santa Claus, which was the basis of that original Believe Campaign. We had our own animated film this year and it ran on CBS and CBS ran a 30 minute TV show called Yes, Virginia, There is a Santa Claus and that was us. We and our marketing agency wrote that script and created it for television and I don’t know any other retailer who has ever done anything like that.

And obviously we’re doing it to reinforce the Macy's brand image when people watch it, and it’s already been picked up for next year because it was the number one rated TV show time slot this past holiday season.

So our hope is that we’ll have the Miracle on 34th Street, and then we’ll have this, constantly reminding you of America’s department store and that is Macy's. I think those are some of the unique things we’re doing marketing wise. And I think we have to get become more unique on the promotional side of the equation and that’s what we hope to grow and improve on in 2010 and beyond.

Bernard Sosnick - Gilford Securities

And where I am to differentiate yourself with respect to loyalty programs?

Terry Lundgren

Yeah, we’re working on some new twist to our loyalty program. Right now it’s a cash back program in the form of gifts certificates, the more you spend the more you get back for both Bloomingdale’s and for Macy's but we are working on a new program with Dunnhumby and that is their whole – I mean not their whole thing there’s -- a big part of what Dunnhumby does is it works on loyalty.

And so we’re going to be breaking in the territory here, and we’re not ready to reveal everything yet. But we’re breaking out of the department store loyalty programs and we’re going further and we’re looking at other industries and how they’ve used loyalty to help attract customers and we’re going to be experimenting with that in the first half of this year.

But as we get ready to do it, we want to talk to you guys about it, because we’re quite excited about some of the new work we're doing with Dunnhumby on loyalty.

Operator

Your next question comes from Robert Drbul - Barclays Capital.

Robert Drbul - Barclays Capital

Two questions I have, first, Terry on the test and react, have you had any issues in terms of inventory availability from some of the vendors as you go through this? And as you think about the plans for 2010, can you maybe comment a little bit around the plan to perhaps, build inventories to support the positive comps sustainably throughout the year?

Terry Lundgren

In terms of availability of test and react, yeah, we definitely have some of those where the vendors are just not able to get back into inventory positions certainly in 2009, because the vendors we're not taking any big risks either. They got hurt in 2008 so their inventory was lean in 2009. So there wasn't really a lot of ability to test and react in season.

So, we had to do some of this work in different ways. And the example I gave in Florida with sandals, was an easy way for us to do it because what we did as we went to our vendors, we went to our own private brands and we went to some of the market brands and we said let's put in some inventory that you were planning on, thinking about for spring season.

And let's just put in broader assortment in the early fall before the season into Florida and next year we'll put it into Hawaii and parts of the Arizona, Las Vegas, California, the warm weather climate and test and react. In that case it's really not a risk for them.

In fact it's a big positive help, and so we'll get several months of early selling because of just simply weather changes there and be able to respond to what we know we've got a good reaction from three or four months later on their normal delivery cycle time.

So I think those tests and reacts are a lot easier to do than would be the case for the in-store. However I do think that you are going to start to see individual of our vendors starting to take a little bit more risk on things and items and subjects that they believe in, that they'll want to make sure that they have inventory to support, much more so than 2009.

So, I do think there'll be more in-season availability of products than there was last year. And as far as building of inventory, I'm not ready to do that in the spring season. I just think that there is, I've got to wait and see how these macroeconomics play out.

While I might take some risk in women's shoes, if that's the hot trending business or in cosmetics categories where there is no or little or no markdown risk or places like that, we certainly can do it.

But as far as the apparel business is concerned, I still think we want to learn from what was successful in this past year of managing our inventory, trying to push for higher turnover, chase the business a little bit before we say let's load in the inventory and build the inventory.

Robert Drbul - Barclays Capital

Karen, can you maybe talk a little bit about California and Florida trends the last few months?

Karen Hoguet

I think Florida has improved, and I would say California has really stabilized

Operator

Your next question comes from Wayne Hood – BMO Capital.

Wayne Hood – BMO Capital

Subject to, just a second ago about inventory productivity and it looks like you did a little bit of improvement in 010’ based on your forecast but one wouldn’t describe that as robust given the local initiatives.

So I’m wondering to what extent do you think you can make improvement in that metric in 010’ and derive that higher to put you close to the top tier because you are still well below where you should be probably.

Terry Lundgren

You are exactly right, I totally agree with you, we can do a better job of inventory turns than we do and that’s one of the reason why -- I don’t want to build the inventory rather chase the inventory.

So to me, this is one of the good things that have come out of challenging year like 2009, you’ve learned to live with less of a lot of things and one of those things is inventory and so we just have to be more edited and we have to be more fine tuned.

The next challenge is and doing this in stages but right now My Macy’s is all about localization, the next stage will be tell me what you don’t need. Now it’s actually, you tell me what you need now I want you guys in the district to tell me what you don’t need.

I mean the buyer may want to buy it because of a relationship with the vendor but you need to tell me that you don’t need this particular brand because you’re really not getting to sell, or if you have more of this other brand you wouldn’t need that particular brand.

So the editing process to allow us to get more productivity out of our inventory is available to us and then after that I think its what, how would you market different in Pittsburg versus how would you market in Minneapolis.

So we’ll get more of that flavor of localization in marketing and special events and donation budgets all those kind of things coming of My Macy’s. So I see this thing evolving into just a great detailed relationship with our communities but you are exactly right about the inventory issue we need to figure out what we can live without and edit and maximize our sales productivity.

Wayne Hood – BMO Capital

Is there a goal Terry, as we think about it I mean you know how we like to hold people’s feet at the fire, but for 2010 and 2011, if we come back a year from now that you expect to be at with respect to turn? And I have one last question.

Terry Lundgren

Not that prepared to share with you because you will hold my feet at the fire but just know it’s on my agenda for us to make progress on.

Wayne Hood – BMO Capital

To what extent do you think there is an opportunity to make your pricy message and promotional messaging, less confusing to the customer and I think even to store associates to where you have less exclusion, so they fully understand kind of what it and just better clarity about the at-the-door price?

Terry Lundgren

Yes you probably know we’ve been testing some of these no exclusions or significantly fewer exclusion coupons and it’s a tough subject it’s complicated because we are not like Wal-Mart, we are not everything as every day low price.

We have brands like Ralph Lauren that have a window of time to sell at regular price and then it gets cleared at first markdown and then on second. So you are always going to have product in the assortment that’s going to have a regular to clear. And then we have the home store that’s got an iron on regular versus sale and we put them out at – that’s the everyday sale price sometimes it works but a lot of times the customer comes in and says I want to have a discount on top of that every day low price because I’m used to getting it not because it’s not a great value but because I’m used to getting it.

And so I wish there was an easy answer to your question. But, I tried eliminating the coupons dramatically after we bought the May Company and it turned out to be a mistake.

And I had to go back and put them back in because it really hurt our business particularly in the May Company doors because those customers had been trained to only buy on coupons. And so trying to extract what you've got in place and have had in place for many years is very difficult issue.

So I don't disagree that we want to improve the clarity of our value message, that’s why I call it obvious value internally as an objective for our own organization, but it is a challenge and I know that my group and we – I spent a tremendous amount of time on this very issue.

And in fact, a lot of the vendors did not like our simplified coupons. We took the exclusions off, because even though I tried to put it on just sale and clearance, so we weren't taking it half of regular price mechanize, the vendors had a very strong point of view that they'd like to be excluded here.

So, this is a work in progress. The vendors have been very supportive because we’ve worked together to do these tests and tests have been successful, the customers do like these low – few exclusion ideas better but we're not done. We’ve still got more work to do.

Operator

Your next question comes from Mike Schrekis – Wallmaker.

Mike Schrekis – Wallmaker

Can you guys just comment little bit on, I think you said you just made a $300 million payment on the pension plan, are the quarterly pension contributions going to still be in effect?

Karen Hoguet

2010, the $325 million covers the quarterly contributions as well.

Mike Schrekis – Wallmaker

So that's the all-in cost?

Karen Hoguet

Correct.

Mike Schrekis – Wallmaker

With regards to the guidance for the year, if you back into it sort of I mean EBITDA basis, we’re much closer to about $2.8 billion. Would you say that's about right?

Karen Hoguet

We have not given guidance. We've only given the earnings guidance in that range of $1.55 to $1.60.

Operator

Your next question comes from Lorraine Hutchinson - Bank of America Merrill Lynch.

Lorraine Hutchinson - Bank of America Merrill Lynch

I was just hoping to hear, maybe a little bit of a longer-term view on gross margin. I understand your guidance for this year, but as you think about the next few years, where are your opportunities to improve that metric and how long do you think it will take to execute that?

Karen Hoguet

It's a good question Lorraine and I don't know that we know the answer to that. We are still coming out of the debt from last year and how high the gross margin will go overtime, we are still trying to evaluate.

Operator

Your next question comes from Lance Vitanza – Knighthead Capital.

Lance Vitanza – Knighthead Capital

Two quick questions, the first on the CapEx guidance, does that include what you anticipate spending on capitalized software or would that be an addition to the $550 million?

Karen Hoguet

No, that's included in the $550 million.

Lance Vitanza – Knighthead Capital

The free cash flow in Q4 was a good bit better than I had expected, even taking your operating performance into account. Could you walk through the components of your cash flow in the quarter?

Karen Hoguet

I think you can see it right from the earnings release. I'm not quite sure what else you're looking for.

Lance Vitanza – Knighthead Capital

Well, I guess could you just talk a little bit about where you saw performance coming in a little bit better than you would have anticipated and if there were any timing impacts there or anything you think was pushed into Q1 or if it's really just out performance in Q4?

Karen Hoguet

No, it's out performance.

Operator

Your next question comes from Dana Telsey - Telsey Advisory Group.

Dana Telsey - Telsey Advisory Group

Can you talk a little bit about how do you see what this merger of GDP and Simon would mean either for you or for consolidation within the mall sector? How do you see dealing with the landlords? And just any breakdown of CapEx for '010 Karen and how you're seeing it?

Terry Lundgren

I'll just address the landlord question and then I'm going to have to run. If Karen needs me, I’ll be down the hall in another meeting. But, I've been asked that question Dana, and I'm not exactly sure yet.

We're already the largest tenant in the malls for Simon and for most of the major developers that we do business with. So I don't know if it's going to change much with us. I mean I still think that we need the mall and the mall needs us. If we decided to leave the mall, that’s bad for the mall and if the malls deteriorates that's bad for us.

So I don't know that in our case the relationship changes or the economics change. I don't think so. But of course we're all standing by and interested as this discussion goes on. I'll let Karen answer that.

Karen Hoguet

The CapEx is very little being spent on new stores and so it's really being spread between technology, which includes the direct to customer investment, maintenance of the stores and remodels, mostly what I would categorize as smaller remodels.

Operator

Your next question comes from David Glick - Buckingham Research Group.

David Glick - Buckingham Research Group

Karen, from a balance sheet perspective, is there any opportunity for early retirement of your 2011, 2012 debt maturities. Obviously you have the big one in 2012 and I just wanted to get a sense for your thought process on how you look at retirement versus refinancing, particularly on the bigger slug in 2012?

Karen Hoguet

Well I think what we have said is that we plan to pay down the debt in '11 and '12 as they come due. Possibly there is opportunity to do it sooner, but we are not looking to refinance.

David Glick - Buckingham Research Group

In terms of My Macy's structure, I'm just curious what the learning's where this year that you are applying to the process going forward on the merchandising and the planning side? You are probably starting your second planning cycle now for all 69 districts for fall 2010. I'm just wondering if – any thoughts you can share on some of the learning's that you are applying.

Karen Hoguet

I think the first time out was obviously complicated and getting the right blend between the buy-store plans and buy family business plans was challenging. And I think we did it much better in the spring and we are now starting fall planning, I think it will be better still.

But we are trying to get all of good input from the field into these plans, which is obviously something that we had not tried to do in the past.

David Glick - Buckingham Research Group

Have the February snowstorms had a meaningful impact on your trend this month or has it not had a big impact?

Karen Hoguet

Obviously we would have done better had we not had the snow. But, we’re still doing well in February.

Operator

Your next question comes from Meredith Contente – Broadpoint Capital.

Meredith Contente – Broadpoint Capital

I was wondering if there was any potential to tender for the 2010 debt earlier like you did last year or if you just plan to pay it down as it comes due.

Karen Hoguet

At this point we’re planning to pay it down as it matures later in the year. I guess, there’s always the potential.

Operator

Your next question comes from Michael Eckstein – Credit Suisse.

Michael Eckstein – Credit Suisse

A couple of quick housekeeping questions. Can you talk about whether you think there are any additional charges related to My Macy’s that will need to be taken in ’10 and also impairment charges that you think --?

Karen Hoguet

No, there will be no more charges taken relating to My Macy’s. Now some of the cash will come out in 2010 as we always anticipated. But from an earnings perspective, there will be none. And obviously we don’t anticipate any impairment charges or we would have taken them.

Michael Eckstein – Credit Suisse

So, we’re basically done at this stage of the game?

Karen Hoguet

Well, we’re done with the consolidation changes. Impairment charges are harder to predict but we don’t anticipate any.

Michael Eckstein – Credit Suisse

So the reported earnings will be much easier for those of us on the outside to understand going forward?

Karen Hoguet

Well, let’s just say there will no longer be the consolidation expense line.

Michael Eckstein – Credit Suisse

And then, are there any other looming tax items that can skew things one way or the other?

Karen Hoguet

Well, there’s always tax settlements that happen during a year and we plan those to happen in order to get the rate to the 37%. But they tend to be choppy. So that’s why it’s hard to predict the rate by quarter.

Michael Eckstein – Credit Suisse

And finally, when we think about depreciation and amortization going forward, with CapEx down so dramatically, what do you think the run-rate will be over the next two or three years?

Karen Hoguet

Well, I don’t know if there is such a thing as a run-rate with depreciation. It will continue to come down given the significantly reduced capital.

Michael Eckstein – Credit Suisse

And, is there a point at which you think it will start rising again, capital spending?

Karen Hoguet

Well, as we start spending up to the $800 million obviously that will change that balance.

Operator

(Operator Instructions). Your next question comes from Kenneth Stumphauzer – Sterne, Agee & Leach.

Kenneth Stumphauzer – Sterne, Agee & Leach

I was just wondering if you could discuss some of the store level best practices that you had intimated that you were going to implement in 2010, and further maybe you could comment if that was related to the store level layoffs that was reported in the news recently.

Karen Hoguet

We had always anticipated executing best practices across the stores, whether it is relating to staffing or how we handle cash, how we do some of the support functions. Each division operated their stores differently. And so, we studied the best practices during the second and third quarter, and obviously you would never execute changes as you head into the fourth quarter.

So that’s what we’re executing now and that’s the lion’s share of the incremental savings from the 250 to the 400 that we had always anticipated.

Kenneth Stumphauzer – Sterne, Agee & Leach

And then, just one other thing, if you could help us understand the incremental pension costs of $30 million that we’re going to be seeing in 2010. I was a little surprised, given the magnitude of the loss that was unrecognized from 2008 that wasn’t up more significantly so.

If you could just comment on what was potentially offsetting that, if it was discount rate, if it was contributions from last year?

Karen Hoguet

Well, I don’t have all of the detail in front of me. Part of it would be contributions, part of it would be the change in the workforce as a result of all of the consolidations and part of it is, we’re beginning to amortize the bad results of 2008.

Operator

Your next question comes from Jeff Kobylarz - Stone Harbor Investments.

Jeff Kobylarz - Stone Harbor Investments

I’m curious about the cash contributions for the pension plan in this past fiscal year, how much were those?

Karen Hoguet

I don’t have the actual number in front of me, but it was exactly what we had disclosed in the high end in the 10-K last year.

Jeff Kobylarz - Stone Harbor Investments

So, the $325 million that was just made this month that is – that’s not catch up for what was done in this past fiscal year then?

Karen Hoguet

We contributed more than we needed to contribute in 2009 to get us to the 80% goal we had set for ourselves. But, we are continuing to try to get it obviously, up to 100% funding. And so, as we looked at the requirement for 2010, based on very early estimates, it looked like $325 million and so we’ve made that contribution already.

Jeff Kobylarz - Stone Harbor Investments

And then a macro question, do you have any general thoughts about consumer spending? To get to your comps, what are your thoughts about the consumer spending trends for this year? Is the second half going to be any better on a macro basis than the first half?

Karen Hoguet

As you might imagine, we have multiple scenarios that have customer spending at all different levels and the impact of My Macy’s also at different levels. So if the economy does a lot better and My Macy’s hits on all cylinders we should do better than the numbers we’ve talked about for sales.

Conversely you can play with the variable. But, we obviously don’t have a crystal ball there.

Operator

That concludes today’s question and answer session. At this time I’d like to turn the call back over to Karen Hoguet for any additional or closing remarks.

Karen Hoguet

I just would like to thank you all for your interest and obviously call Susan or call me this afternoon if you have further questions and thank you.

Operator

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

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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