Karen M. Hoguet - Macy's, Inc..

Randal J. Konik - Jefferies LLC Paul Trussell - Deutsche Bank Securities, Inc. Lorraine Maikis Hutchinson - Bank of America Merrill Lynch Research Oliver Chen - Cowen & Co. LLC Kimberly Conroy Greenberger - Morgan Stanley & Co. LLC Lindsay Drucker Mann - Goldman Sachs & Co. Paul Lejuez - Citigroup Global Markets, Inc.

(Broker) Matthew Robert Boss - JPMorgan Securities LLC Brian Jay Tunick - RBC Capital Markets LLC Robert Drbul - Guggenheim Securities LLC Todd Duvick - Wells Fargo Securities LLC Michael Binetti - UBS Securities LLC Richard Jaffe - Stifel, Nicolaus & Co., Inc. David J. Glick - The Buckingham Research Group, Inc.

Lowell Wayne Hood - BMO Capital Markets (United States) Jeffrey Stein - Northcoast Research Partners LLC.

Good morning and welcome to the Macy's, Inc. Call. Today's conference is being recorded. I would now like to turn the call over to your host, Ms. Karen Hoguet. Please go ahead, ma'am..

great product; best-in-class omni-channel capability; and the store animation and holiday traditions that are so cherished by customers across the country.

And now, why don't I open the call for your questions?.

Thank you. We'll now take our first question from Randy Konik with Jefferies..

Oh, thanks a lot. Hi, Karen. Good morning..

Hi. Good morning..

A couple things; one, I think it's very encouraging you're seeing these AUR trends improve. So I just wanted to get a little bit more color on if you think – obviously, the inventory control is very positive as well.

Is this more of an inventory control factor? Are you seeing more firmer pricing acceptance by the consumer or is it mix related, just a little bit more elaboration there? And then, within the...go ahead, I'm sorry..

Oh, go ahead....

And then, lastly, just to elaborate on the trend in apparel, just so we can get some perspective on, it sounds like that category picked up. The weather wasn't as favorable. Now we're getting more favorable weather.

So just kind of curious on, holistically, the inventory control, those are more long term factors where the consumers act from a price acceptance perspective and then a little bit more near-term on just the trends in apparel, given the weather, et cetera. Thanks..

men's, kids' and women's, lots of good things in denim and dresses and active, as I mentioned, the major brands. So it really is across the board. And frankly, the weather hasn't been so favorable, so if the weather turns cold – and today is a little colder, at least in New York – hopefully, that helps as well. But it's very encouraging..

Great. Thank you..

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

Good morning, Karen. A lot of your department store CFO peers are retiring. Certainly hope that you are able to hang out with us a little bit longer..

Thank you..

Certainly wanted to ask about the SG&A. I know there's a few components and moving pieces here, but if you can just kind of maybe walk us through some of the changes. I believe that earlier in the year, you highlighted expectations for dollars to be down year-over-year.

If you can just speak to SG&A expectations now, both what happened in the third quarter and the outlook for the fourth quarter, with real estate and excluding it, what's changed?.

Yeah, we actually had said early in the year that we expected it to be flattish, not down. I think now the year will be slightly up. But, again, if you focus on the annual, the increase feels reasonable, and that's the way I would think about it, if I were you.

The credit performance has been worse than we had expected, so that's one piece of the reason for the increase; still a very strong profitability, but with credit sales declining, harder to keep the credit income dollars.

And, as we've said, we are investing in some of these growth initiatives, which are great from a bottom line perspective but do add to expense. So I would say focus on the annual as you're thinking about SG&A and not necessarily the fall season.

The other thing I would say to you is that we continue to want to keep investing in these growth initiatives, so we are looking really deep to find additional SG&A reductions that, as I said, either are low-hanging fruit, if there are such things at this point, but also trying to make the organization more cost-effective, more agile and things like that.

So it's sort of a combined message, but I don't think, on an annual basis, we're going to be that far different from what we had said at the start of the year..

Thank you. We'll now take our next question from Lorraine Hutchinson with Bank of America..

Thank you. Good morning, Karen..

Morning..

Why do you think the private label credit card penetration has gone down? And did you say credit income would be down $50 million to $60 million? I guess I just wanted to know if that's simply the sales or if you're expecting any deterioration in metrics there..

No. We had always expected the fourth quarter drop to be significant, having to do, frankly, just with quarters and the way it flowed last year. So the fact that it's down by more than it has been in other quarters is not new news. That's how we had expected it from the beginning of the year.

It has been lower than we had expected, but we always expected that big drop in the fourth quarter. I think on penetration last year, it was up quite a bit in the third quarter, so it may just be on a two-year basis, it looks fine. But we are working hard to think about strategies for improving that metric in terms of the penetration.

And again, it's still at a very high level, but I think you'll see us focus on this as we go forward..

And I know that there's a lot of moving pieces around SG&A, but I think there's some debate out there as to when we think about next year's growth rate, would it be closer to your full-year flat or the exit rate, which will be up low single digits?.

I'd focus on the annual..

Okay, great..

As we go forward. And again, we'll give a lot more color to that as we proceed..

All right. Thanks, Karen..

Thank you. We'll now take our next question from Oliver Chen with Cowen & Company..

...so much, Karen. Macy's is uniquely positioned as doing a great job with merchants and vendor relationships.

So as you think about long-term investors and the long-run strategy, what are your thoughts about being un-Amazonable in terms of what you'll continue to do to innovate, just to make sure that your value proposition and convenience proposition is leading? And how should we think about the long-run in terms of traffic? Like, do you think the setup for next year is going to be a positive traffic year? I'd just love your thoughts on that long-term factor, as we want to see you gain share..

Yeah, I think the first question is a good one, one we think about, but I do think that our organization and, as you said, our merchants be able to curate the market, find the right product really is a competitive advantage relative to Amazon.

And when you combine that with the really terrific store organization that we have, I do believe for fashion, customers still love going into the stores, trying things on. Even if they end up buying online from our apps, they still experience the store.

And so I think both of those will allow us to always compete effectively against an Amazon; doesn't mean that an Amazon won't do a lot of business. I'm not saying that. But I think in the categories that we carry, most of them, I do think the omni-channel is a benefit and the quality of our merchant team, both in terms of our private brands.

Our MMG team is spectacular. And developing product that will only be available at Macy's will be a piece of that as well. And also given (37:49) the customers, frankly, that you can only get at Macy's. So it's a combination of those factors that I think will enable us to compete effectively against an Amazon.

In terms of the traffic and transactions, that's obviously a harder thing to predict. And that's partly why we're so happy to see the AUR doing well, with our inventory levels and clearance strategy working. So I think we'll do everything we can to grow the number of transactions, but it don't think we'll count on that as we go into next year..

Okay. And, Karen, can we get your take? Now that the election's over, is that a positive catalyst? It's very hard to answer this, I believe, but would love....

Therefore, I'm not going to answer it. I have no clue. I have no clue. We'll all watch together..

Okay. Well, it's great to hear the green shoots on apparel, so people are out there and interested..

I agree..

Thank you..

Thank you. We'll now take our next question from Kimberly Greenberger with Morgan Stanley..

Great. Thank you so much. Karen, I'm wondering if you could perhaps look out over the next one, two, three years and talk to us about how we should think about just SG&A growth from here.

What might be the puts and takes? Obviously, we would expect to see some savings from store operations, as an example, as you work through the next 100 closures, but I'm wondering if you can just sort of give us the pluses and minuses on the SG&A ledger as we go forward. Thanks..

That's a hard question, Kimberly, to answer sort of off-the-cuff, and we're in the process, obviously, of developing plans for next year. But I think you're going to see factors similar to what we've seen this year.

We do want to invest in growth; digital, you know, both software, but also, obviously, delivery costs and things like that that add to expense. Also, obviously, wage pressure, particularly in the field, is an issue. But we are working hard to find offsets to all of that.

And so I think when we give guidance next year, we can be more fulsome in terms of the puts and takes, at least as we go forward. But I think we're being realistic about projecting what we think we need, both to spend and also save, as we move forward..

Okay. Thank you, Karen. And just to follow-up on the real estate, if I could, obviously, you've got an ambitious plan of this next 100 store closures that you've already announced.

I'm wondering as you continue to evaluate the rest of the fleet beyond the 100 that you've targeted, do you have any thoughts on additional opportunities for real estate actions beyond that next 100? Thank you..

Do you mean that, Kimberly, in terms of closures?.

Potential closures....

Beyond the 100?.

Yeah, potential closures beyond the 100. Thank you..

Well, when we announced the 100 a couple of months ago, we had looked out a couple of years, and so at this point, I do believe that's roughly the number of closures we expect. Having said that, as I talked about with the Brookfield alliance, we are looking to potentially redevelop area around stores, parts of stores beyond that.

But in terms of closures, at this point, the 100 is what we anticipate, roughly..

Thanks so much, Karen..

Thank you. We'll now take our next question from Lindsay Drucker Mann with Goldman Sachs..

Thanks. Good morning, Karen..

Good morning..

I wanted to ask a little bit on inventory.

It's been an important topic for apparel retailers and vendors across the last couple quarters, and whether, as you think about over the next couple quarters or longer-term, what the opportunities are to get more efficient, maybe how you're working with some of your – either in your private label or with some of your most important partners to do that..

Well, we're always trying to make decisions as close as we can to when the merchandise is going to arrive in store, so we're doing that both with private brand and also working with the vendors. And, in part, that's why we like the flexibility that the lower inventory is giving us.

But we're constantly looking for ways of making the whole supply chain more efficient, whether it be private brand or with our major partners. It's one of the benefits of the great partnerships we have, as Oliver mentioned a few minutes ago..

Great.

And just a follow-up on your loyalty programs or your credit card, whether there's any special initiatives we should be looking forward to in the next couple quarters?.

At this point, no, but something we are working on..

Okay. Thank you..

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

Hey. Thanks..

Hi, Paul..

Hey, there. Karen, you'd mentioned, I think, positive trends heading into holiday; I think what you said. So can you maybe talk about the sales trajectory over the quarter? Sorry if I missed that.

And then separately, can you quantify the gross margin benefit from Last Act? And maybe as you think about fourth quarter specifically, how much of the improvement that you expect is from the Last Act strategy versus just being in a much better position from an inventory perspective? Thanks..

I'm not sure I could answer that question in terms of what's Last Act and what's being in a better – it all works together. So, sorry, I'm not going to be able to help with that one..

Got it.

And on the sales trajectory over the quarter?.

I think I would look at the quarter in total. Promotional events move around, so it's really hard to give an answer that would be helpful, but we were pleased that the third quarter was better than what we had experienced in the first half of the year as we head into the fourth quarter..

Okay. And then, just one follow-up; you closed 40 stores last year.

Can you talk about what you've seen on the sales recapture? Whether or not you're getting the levels that you were hoping for? Where's it coming, either at another store or online? And how does that make you think about the 100 to come this year?.

Well, I would say we're doing a little bit better than what we had anticipated with those stores. One of the good things that has happened is in a multi-store market, when we close a store, we are no longer losing business online, which was something we had experienced a couple of years ago. So we've been able to improve on that.

In a single store market, we'd still lose .com business when we close a store, but at least in a multi-store market, that isn't happening. So that's really good news. We're also finding that we're able to retain more of the sales; in part, because we're making these decisions and thinking about our assortment earlier, which is helpful.

So I think we feel better about our abilities to do that, and we keep refining our assortment strategies and our marketing strategies so that we can even retain more of the sales as we go to close, obviously, a much bigger number..

Great. Thanks, Karen. Good luck..

Thanks..

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

Hey, Karen..

Hey, Matt..

So on capital allocation, you resumed some share repurchase this quarter.

Can you just talk about the criteria that you considered and then, just how to think about debt paydown versus buyback versus dividend as we think going forward?.

Sure. Yeah, I think you all will remember that the first quarter was a worse quarter than we had anticipated, and that was the time at which we lowered our sales and earnings guidance for the year. And we, frankly, just said, you know what? We don't know what's going to happen.

Let's wait and see if the second quarter improves, just to be sure, before we head into the fall. The second quarter, obviously, improved quite a bit and gave us the stability and confidence to resume the buyback. So that's really the thinking there.

In terms of allocation going forward, as I said, use for the business always comes first, but, again, we don't see a dramatic increase in spending needed to do that.

And so there will be lots of cash available, both for the dividend, buyback, and also we may do some debt repurchases depending on how we end the year, because we've always said having a healthy balance sheet is really important to the company. And we just may decide to do that.

But, again, we're not making those decisions until we get through the end of the year..

Got it. And then, just a follow-up; if we think about this quarter, so if we think about sales, gross margin and SG&A, what was actually above or below your plan in the third quarter? I know there were some moving pieces on the street..

Honestly, it was all just about as we anticipated. Sales were as we anticipated. Margin was, as was SG&A. Asset sale gains moved around a little bit, but that's the only thing. And that's always going to happen..

Great. Thanks..

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

Thanks. Good morning, Karen..

Good morning..

Two questions; I guess one is on your Q4 comp guidance.

I guess listening to some of your vendors talking about quality of sales initiatives, pulling back on friends and family, just curious; have you already contemplated some of those vendors not participating as much in the Q4 events around holiday? And then the second question, we had a chance to go visit the Easton store prototype, and we were wondering what could be the pacing of some of those initiatives that we saw in that store rolling out to the majority of the fleet next year, if you could just maybe highlight some of the key takeaways..

Yeah, in terms of the sales guidance, the answer is yes. If you think about our guidance of minus 0.5% to minus 2%, on a two-year basis, the minus 0.5% is, frankly, comparable with year-to-date. And the minus 2% on a two-year basis is consistent with the third quarter. So I think it's all very reasonable as you're looking forward.

And, yes, we have contemplated the changes that you're referring to. In terms of Easton, we're obviously still monitoring the results. One of the things we've seen a lot of success with was the tech watch installation and that has already been rolled out as we head into the holidays, as we got very quick feedback.

Also, some of the fine jewelry initiatives that, as you know, we had piloted in California but did some new things in Easton that we're also rolling out, so, yes, we are beginning to take those learnings and move forward..

Thanks very much, and good luck for holiday..

Thank you, appreciate it..

Thank you. We'll move on to our next question from Bob Drbul with Guggenheim Securities..

Good morning, Karen..

Hey, Bob..

Just got a couple of questions; when you think about the fourth quarter competitive environment and your gross margin comparison versus last year, I think you said up at least 100 basis points.

What are the biggest opportunities to recapture versus that almost 300...?.

All of it relates to the inventory position..

Okay. And in terms of like cold weather inventories, can you just talk about your positioning there going into the next six months? (49:50).

Yeah, so we had a few very cold winters than we had last year with the 70 degree weather in most of the country in December. And so this year, we tried to sort of take an average of the two and think about it that way. But if it ends up being a lot colder, there's no question we'll get more inventory if we need it.

And if it ends up being as warm as last year, we'll probably have some excess inventory, but, hopefully, we'll work our way through that..

Got it.

And then, on the Backstage piece of the business, can you just talk about how you're buying inventory there, sort of the collaborative efforts throughout the organization...?.

Yeah, we've got a whole separate organization, very small, by the way, but quite busy doing our Backstage buying. And in most cases or in a lot of cases, going to completely different vendors and, in some case, merchandise that we don't even carry in the store.

So, in part, the test that we're doing this fall with those 45 stores in putting men's and women's apparel purchased by our Backstage buyers the way that they do, and putting that merchandise next to Last Act and, like Last Act being coupon ineligible, we think is going to be an interesting test to see about bringing new product in.

In the 13 stores, we're actually putting categories in that we don't carry in the store. So, for example, in toys, we'll have high-end scooters or Big Wheels.

In home decor, things like decorative figurines, pet accessories, the kinds of things that we don't sell in a typical Macy's that we think the Backstage buyers are better equipped to buy, and we'll see how it sells in the stores. So we're actually excited about these tests, and we'll see..

Got it.

And then, just one last question is on the shipping expense, as you think about the holiday season this year, can you just talk about how you're approaching minimums in terms of shipping or free shipping or how we should think about that piece of the business in gross margin?.

Well, there is going to be a lot of, as you might imagine, reduced shipping thresholds offered throughout the holiday season, but relatively comparable to a year ago. So I don't see any major change, unless the business grows a lot more than we're anticipating, which we hope happens..

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

Thanks, Bob..

Thank you. We'll now move on to our next question from Todd Duvick with Wells Fargo..

Yes. Good morning, Karen..

Good morning..

I have a question for you with respect to your comment in your prepared remarks about getting your leverage back to the leverage target range within a reasonable time.

Can you tell me, is that reasonable time something that is determined internally or in concert with the rating agencies? How are you thinking about that?.

Well, obviously, we always would take rating agency views into consideration, but it is something that we'll talk about internally. Our desire to have a healthy balance sheet is internally-driven. And so, we will take feedback, but we will make the decision ourselves..

Okay. And I think I heard you also say in your prepared remarks that you're planning to pay off the maturity that is coming due December 1, as opposed to refinancing that.

Is that correct?.

That's correct..

Excellent. Thank you, Karen..

Thank you. We'll now move on to our next question from Michael Binetti with UBS..

Hey, Karen. Good morning..

Hi, Michael. Good morning..

Thanks for all the detail today, very helpful. If I just look at the average unit retail trend, I know it was asked a little bit, but if I look back over a couple of years and just try to think of multi-year average unit retails, so snapping back a bit. That's correlated with you guys getting lean and mean on the comp inventories.

But as we look ahead to next year, there's going to be some new inputs to that line, namely, you're shutting down stores that I'm guessing are in markets where you'd have a lower AUR.

Can you help us think about as we look out to next year, do you feel like as you go into the strategic initiatives that you have with the store closures and now that we've lapped the AUR reductions a year ago, do you think we're going to end up in a place where AUR is still contributing in a positive basis or even contributing substantially next year?.

We expect it to contribute positively as we go forward..

Okay. And that's because of the store closures or are lower AUR or not? I just want to be clear on that. (54:38).

It's everything. It's everything..

And then, let me ask you similarly on transactions; were you surprised to see the transactions not lift off a little bit in the third quarter as the compares got easier? And how are you thinking about that as you go into next year, again considering you have some smaller stores you'll be closing that I'm guessing have traffic issues?.

Yeah, and look, our hope is that a lot of these growth initiatives and the things that we're doing in terms of improving service in our stores, as well as improvements on our apps, will actually help improve upon that trend in terms of traffic. So we'll see as we go forward..

Okay. Thanks, Karen..

Thank you. We'll now move on our next question from Richard Jaffe with Stifel..

Thanks very much, guys. And, Karen, could you talk about the partners you have in stores, starting with Lids and just going through the list and how they're performing, how the partnerships are working out and opportunities you see in that way as a, I guess, a partner or a landlord with some these companies? Thanks..

Sure. Yeah, look, we have had great success both at Macy's and at Bloomingdale's with these licensed partners, whether it be Sunglass Hut, Finish Line or a lot of the vendors that are licensed at Bloomingdale's. And it's a great way of bringing product into the store where we can't have access or don't have access to it on our own.

And so, we continue to look for ways of bringing either new categories or new vendors or new products into our store in that way, if that makes the most sense. So I think it will be an important part of our strategy as we go forward..

Anything you can share with us for either holiday or for next year?.

Not at this point..

Okay. Thank you..

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

Thank you, Karen.

Couple questions; Backstage, is it fair to say that that strategy seems to be going forward less focused on standalone stores and more kind of utilizing your asset base on your existing stores?.

Yes..

Okay..

Yes, because, again, we can't do everything. And we're getting such success in store because not only is Backstage doing well, but it's improving the productivity of most of the base stores, which is a good thing. So that's where we've decided to put our focus, at least for now..

Okay. Thank you. Next question; it would seem that you're getting a better recapture rate in your closed doors this year, and it seems like that would be a tailwind for you guys next year with a greater number of store closings.

What kind of recapture rate, or range of recapture, are you seeing? And what would you expect so we can think about what kind of comp lift you may be able to get, all things being equal, for next year?.

It is not significant, even though it's 100 stores closing, in terms of the lift on total stores. It's a little bit, but not as much as you might think, in terms of the impact. So even with significant retention, it doesn't do that much for the comp growth..

So tens of basis points as opposed to anything like a hundred..

Yes. Exactly..

And then, a lot of investors are trying to get their arms around sort of the value creation potential from your real estate and, obviously, a significant step forward with Brookfield.

I mean, should we think about this in terms of hundreds of millions, more than $1 billion? Like what's kind of the range of potential value creation that you could get from this setup?.

I don't know the answer to that. We're obviously just starting to explore. We do think it's significant. And we do also hope that it helps the retail operation as we do this, so the value could come in a couple of buckets, but, at this point, it's just premature..

Okay. And then, last question, if I could sneak it in. The fashion watch business was a big driver for you, then a big headwind.

Do you see this business potentially comping positive again with some of the innovations you're seeing in tech watches? And is this something that could help lift your center core business?.

Well, it's a little early to be judging, but it feels good. Whether it gets to that point, David, it's just too early to tell, but it does feel good..

Okay, great. Thank you very much. Good luck in the fourth quarter..

Thank you, appreciate it..

Thank you. We'll now take our next question from Wayne Hood with BMO Capital..

Good morning, Karen..

Morning..

one, would you be willing to put up a significant amount of capital; or are some of those assets that would be put into that JV, are they leverageable so you really wouldn't necessarily have a big high capital redevelopment cost?.

Way early too early to make those decisions. We have to see what the plans look like and what value creation opportunities we think it provides for us..

Okay.

And would you anticipate retaining control of any JV structure that you put together with them?.

It's just too early, Wayne..

Okay. Another question, unrelated to Brookfield, was just on Michigan Avenue; when you look at what your competitors have done there and you look at your location, it looks like it – obviously, you've talked about it in the past. Maybe remodel capital may be needed.

What's your current thinking about the remodel capital for that store? Can you also enter into a JV where you have a partner that comes in and contributes capital and the timing of anything that might need to take place there?.

Are you talking about Water Tower or the Bloomingdale's?.

No. Water Tower..

We have remodeled the store. I can't imagine us bringing in a partner to remodel a store..

No, I know you did..

We have sufficient cash..

Yeah, I know you did, but I guess my point is you still feel like it's competitive in that marketplace, even with that remodel?.

The store is doing well..

Okay.

Final question; the $900 million in capital spending that you expect this year, should we be thinking about that as a trough number or given things like redevelopment capital, that that number probably goes to $1.2 billion, $1.3 billion? How should we be thinking about that number?.

I'm not sure what you mean by trough, but, as I said, part of the proceeds, for example, at Union Square men's, are going to go to putting men's back into the main Union Square store. So that spending would be incremental to the capital budget, but, at this point, I don't anticipate it going up as high as what you're talking about..

Okay. So relatively stable. Okay..

Yes..

All right. Thanks, Karen..

Thank you. We'll now take our final question from Jeff Stein with Northcoast Research..

Okay, good morning, Karen..

Hi, Jeff..

A couple of real quick questions; first of all, good to see that the tourist markets are stabilizing, but if my math is correct, if you adjust out the impact from the tourist drag in Q2, your comps in Q2 were down 1.4%. And let's say it was relatively neutral in Q3. That would make minus 2.7%.

So it looks like sequentially, you've actually seen a weakening in comps, and I'm wondering, am I looking at that correctly?.

No. What you have to do, Jeff, and I said this after the second quarter, is really looking at the spring season rather than just the second quarter, just because of some shifts. The first quarter was worse than it should been. The second quarter was better. So I would look at the spring season and how that flows into the third quarter..

Got it. And wondering if you could just comment on two businesses; one, cosmetics, and the other, footwear; I think earlier in the year, you indicated that you're doing some tests similar to what you did in jewelry on the West Coast in footwear, and wondering how that's working.

And exactly, what are you doing differently in footwear? And secondly, what your thinking is with respect to the weaker performance in cosmetics relative to some of the performance we've seen from other specialty retailers, like Sephora and ULTA, which seem to be taking some share, and what you might be doing to mitigate that?.

Yeah, on the shoe business, you're correct. We did start a pilot earlier in the year that is doing extremely well. And our shoe business was actually one of the callouts in total for strength in the third quarter. So we feel very good about what we have done there.

And as a result of the strength in fine jewelry and in shoes based on our changes in the business trends with our strategies, we've now moved on to cosmetics. And so cosmetics was one of the weaker businesses in the third quarter. And we're now focused on improving that, like we've done with jewelry and like we've done with shoes.

Oftentimes, you guys think of cosmetics as both sort of color, skincare and fragrances; should point out that the fragrance business has been very strong of those sort of three components of what you tend to think of as cosmetics, which, by the way, is great as we head into the fourth quarter, which is a heavy penetration of fragrance.

But cosmetics, Jeff, is next on our list of attacking to figure out a strategy for making it stronger..

Perfect.

And what exactly have you been doing differently in shoes on the West Coast?.

editing the assortment; in some cases, displaying the product more by category than vendor; and also, frankly, utilizing technology as well as some more staffing behind-the-scenes, meaning in the stock rooms, to make the shopping experience more friction-free for the customer.

So it's sort of the combination of improved assortment, greater editing of the assortment, better service, but it's working extraordinarily well..

Great..

We're also testing, in some stores, open sell, which, for a smaller store, appears to be a very good answer for us. So lots more to come on that, but we feel really good about the business..

Great. Thank you very much..

Thank you. That does conclude our question-and-answer session for today..

Great. Thank you, and, everybody, have a good day. Take care..

And that does conclude today's conference. Thank you all for your participation..