LORRAINE HUTCHINSON, ANALYST, BANK OF AMERICA MERRILL LYNCH: Thank you, everybody, for coming this morning. We're really thrilled to kick off the conference today with Macy's management team. We have with us today Karen Hoguet, CFO, and Jeff Gennette, President.

Management's planning to kick off with a few opening remarks, and then we'll turn it over to the fireside chat format and then some time for your questions after. So turn it over --

JEFF GENNETTE, PRESIDENT, MACY'S, INC.: Okay. I'm going to start.

LORRAINE HUTCHINSON: -- first, to Jeff.

JEFF GENNETTE: So, good morning, everybody. Thank you for getting up so early. Let me keep my comments brief so there's plenty of opportunities for questions.

We have great pride in the accomplishments over the past five years at Macy's. So just two. We picked up almost $5 billion in sales. We've consistently shown double-digit improvement in earnings per share growth. We have hit our long-term goal of a 14% EBITDA as a percent of sales. And we have improved our ROIC in the same timeframe to about 22.4% in the 2014 annum.

We are, next stage, really focused on growth. And there's a number of announcements that we've made over the past couple of months that I will give you a little detail on. But know that any growth that we pursue is going to be done with the same financial discipline that we have demonstrated in our path over the last number of years. You can depend on us for that.

One of the things that we have created in our restructure is the opportunity to really focus on long-term growth by really making it a number of folks' day jobs. So we took Peter Sachse, who is one of our big talents, out of assignment where he was running stores, and now he's responsible for a whole portfolio of new growth initiatives, international pursuit, looking at that, exploring what we might do in off-price.

The real big subject is innovation and how we make that a part of everything that we do in the Company, but also looking at the horizon about opportunities that might be the best way to express the Macy's brand. So that is what Peter's role will be.

What I'm going to focus most of my comments on, though, is the base business. And we had a 1.4% increase when you look at owned plus license in 2014, and we have guided in 2015 that we're going to be around the 2% range, and wanted to give you some color on why we believe that is achievable, also for growth in future years, but is at that rate or higher.

The first one is just to give a little detail on the restructuring that we did that really we believe cracks open a next level of growth for us. And I really want to start with Omni Channel and our opportunity with what we're going to do to continue the accelerated path that we've had with digital growth.

What we did with this restructure was we really wanted to accomplish three things. The first one was that we really wanted to accelerate enterprise growth and making sure that the digital, which has been a huge engine for us, continues to accelerate.

We wanted to improve our efficiency. We wanted to improve speed and we wanted to improve, really, to reduce the complexity that our organization was working under.

And the third objective in what we did was really to develop our teams. A lot of the changes that we made that you read about was really done with internal talent. But we really wanted to pick up team members and give them different experiences to get them, indeed, more well-rounded, and really develop career paths that really bounced people between the digital side and the brick side of the business. And that's what we accomplished.

Really, we did four different things in the restructure. The first thing is, is what we did with the buying team. One of the things, if you were to poll the buyer, if a buyer had been up here a year ago, they would have told you they were wearing a lot of hats. And a lot of those hats were not value driven in terms of what you want to do with assortment, how you curate assortment, how you develop assortment.

So what we did in this restructure is we basically developed two teams that will support now the buying team. One was a financial planning side and one was a pricing side.

And when we did all of our analysis of how our teams, how our buying teams were spending their time, this is an opportunity for us to unload that work with experts, really improve efficiency with that, to really give the buyers more time to really develop great product. That was one big change.

The other change of the restructure was the planning organization. And this is what is unlocked. We've already seen early signs of growth here, and we expect this to continue, having one planning organization really dispensing receipts and placing inventory, depending on warehouses or in our bricks locations. We've had huge learnings from that already versus having two planning teams do that.

So to use our inventory more efficiently, to maximize our inventory, to identify through trade area demand, that's a new thing that we're spending a lot of time on. We're looking at where the business is coming in by ZIP Code, be that for what they're purchasing, if they're an online customer or what they're buying in bricks, rationalizing the SKUs that our being bought only online or not in store, starting to place those inventories in both locations to maximize business, really playing with replenishment styles and getting those inventories in our warehouses, spending a lot of time on combinability, making sure that we have congruency of our SKUs across bricks and clicks. This planning organization is helping us get at that in a much more efficient way.

Third thing is marketing. So we had marketing in three different pyramids. It's now in one. And the opportunity with our gigantic marketing budget of how we're deploying the spend across affiliate and search and social and mobile, and then the traditional marketing venues that we have used.

And last is technology. So we had technology reporting into two different pyramids, it's now into one. And so we have a major team that is in San Francisco, which has generated a lot of our ideas, a lot of new technology. Obviously been the instrument of a lot of our digital growth. But then we also have a very large team that really works through our systems in our Atlanta offices, having that under the same team basically to maximize spend, really to help with innovation and really to help with the speed of innovation.

You've heard us talk about ideal labs and lien labs. How do you get that across the entire Company and how do you really focus on technology first?

So that is one of the major objectives of the restructure. We hope to crack open a lot of growth, profitable growth by that endeavor.

The next thing I want to talk about in terms of the base business is our continued pursuit of really deepening in our relationship with customers with exclusive product. And we focused a lot on our private brands, but then we've also focused a lot on basically exclusive product with nonexclusive brands.

So you've heard us talk about power brands, and we have a series of our top-10 vendors that do a big chunk of our business and it's a lot of our growth. We continue to really pursue those vendors about what we can do that's unique only to the Macy's brand.

And then in private brand, we just launched our most successful private brand, really in the history of our Company, which was the Tallia brand. We launched it three weeks ago. It's been an out-of-the-box success for us, far exceeding our plans. It was a brand that was under development for a couple of years. The sweet spot was really the Hispanic female.

And we did our research on this. We built this thing right. It's the first brand that we opened in multiple categories at the same time, and we did it in every district of the country. We have it in 300 doors, and we're already sizing how much bigger this thing could be.

So this was getting ourselves around a talent who's legitimate, who was in the social space, who obviously has a thriving career, but also, most importantly, spoke to a customer that we were under serving.

So you'll see us continue to make those bets on brands like Tallia.

We have a new brand by Martha Stewart called Whim that is opening, and, really, it's hitting stores right now, but it's been online for about a month. And that has been very successful for us for a younger customer that was looking at a particular value, that was looking for new fashion. And so you'll see us do that under the Whim label.

Those our examples of what we're doing.

You'll see us continue to make big bets in businesses that have been very strong for us. The entire millennial active category, be it owned or licensed, has been a big pursuit of us. We've been very successful with it, and we still have major share ahead of us to garner.

When you look at -- and [when] I throw in that window would be all of your active apparel. It would be all of your ath-leisure. So what they're wearing, they look like they're active-inspired, but they're wearing them to the grocery store.

And then you've got, really, the footwear. So you've got footwear. You've got -- and licensed apparel. So the Finish Line venture for us has been wildly successful. The Lids affiliation has been very successful. It's in its infancy right now, but the initial reads on it is that we're going to make this much bigger. And then, obviously, what we do in owned apparel.

The Millennial worlds, we just finished our best year in Millennial in the last six. So one of our strongest businesses was the juniors business. And what we did, what we call style up. We have developed a number of brands. We really ripped that business apart. We pulled it back together. We're working with our own brands, but also classification vendors that are based out of LA that our very close to the customer, and we found, finally, the right recipe for success in that business. So you'll continue to see us push on that.

Center Core and beauty continue to be big pursuits for us. So Center Core, we've been very public about that's been a big engine for our Company. We see that continuing.

We just made the announcement about the acquisition of Bluemercury. That has not closed yet, but we are confident that it will. And Bluemercury gives us access to brands and customers that were not currently on our beauty floors. So the opportunity to roll that business in many parts of the country as a freestanding, as well as the opportunity to bring that into our stores, similar to what we're doing right now with Impulse Beauty.

Impulse Beauty is now a -- I'm not going to tell you the number, but it's a big chunk of our business. And it is now -- we continue to roll that out into a number of doors. It's a flexible strategy by which we can bring in mostly color lines, mostly color lines. If you think of Urban Decay and you think about Smashbox, brands like that into our doors, it gives us great flexibility. It's assisted sell.

Bluemercury could behave much the same way with different brands, but primarily focused on treatment. And that would be in our doors that you would see us look to roll that out. So we will be very focused on the beauty business.

Now, we also announced in the restructure what we were going to do with the My Macy's organization and getting more expertise on sizing, bigger opportunities, and blowing them out faster. That was a big objective of ours, and we are already seeing early signs of that.

We tested this in the Home Store. We did that over the past year, and we have already seen the benefits of that in certain businesses in Home Store.

We just finished one of our best businesses right now is the fragrance business. There is a new line that just came out called Versace Eros. In the past, you would have had individual stores that would have said, I need more of this. That would have been what My Macy's would have done.

Now you've got these field aggregators that basically can see that it's doing really well in this store. How many doors would behave like this? And how do we size that and get support for that much more quickly?

So we came out of Valentine's Day, we saw the bite of one brand and what that could mean. It was in like five stores. It's now, next week, rolling out to 100 doors based on how well it did.

So the other thing we did with My Macy's is we added a color team. And we had a lot of success that we've talked about with our warm weather team they came through My Macy's. Based on our opportunities in the northern states, we have now added a cold weather team, that is going to be similar with a merchant and a planning response through My Macy's in the northern parts of the country.

And lastly, I would say that we're focused on loyalty and the opportunity to broaden our reach and to deepen our engagement with our core customers.

So that's our objectives with the new restructure and some of the ideas and growth initiatives that we're excited about that we believe will take us to approximately 2% for 2015, and higher in future years.

LORRAINE HUTCHINSON: Great. Thank you. And just stepping back, when we think about the consumer, there are a lot of tailwinds there, their wages are growing, oil prices are down. What have you been seeing from your consumer? Are you seeing their behavior change over the past few months, given some of these opportunities?

JEFF GENNETTE: Want to start?

KAREN HOGUET, CFO, MACY'S, INC.: Yes. It's a hard question to answer, because it's hard to see. We have not seen any global changes or enormous changes in how the consumer's behaving.

Clearly, those factors are helping. But I can't tell you that we're seeing anything dramatically different in terms of categories or price points or anything. But obviously, we do think that that's helping.

JEFF GENNETTE: One of the things that we're looking at is, is how much our customers are willing to pay for brands that are in our sector and how much value that we have in just the brand portfolio that we enjoy.

And one of the things that we've seen, it's really in the athletic footwear area. So Finish Line's given us a lot of confidence about -- and Sunglass Hut. Sunglass Hut has been a -- when you think about when we -- it was a big decision for us to turn that business over to a licensed player. And it was the highest ROIC FOB in the entire store when we made that decision.

And it was one of those things that was all or nothing. We had to make a decision we were going to go with this partner. And we also had to make a decision that sunglasses had never been an established business at the old [optiv] of Macy's, [Inc.,] because they had other Center Core categories that took precedent. So how do you -- they did not make the investment in the sunglass business in the heart of a winter season where they had lots of cold weather categories.

We had to make a decision when we went into that, that we were going to carve out this space, we were going to go for it. So that journey has led us to, it's a very interesting model for us. They basically staff it. They manage it. We trade inventories between their mall shops and our stores. And they were able to give us access to brands that we couldn't get for ourselves.

So when you look at Channels of the world and you look at the price point that we were able to get, we continue to drive huge comps in Sunglass Hut, less from units, but more from AUR, and the opportunity to really continue to look at all categories and say, in our top doors, our opportunity to raise AUR with the right chemistry of brands and the right service model behind it, we're really looking at how that license model has helped us and how do we do it with our own model? How do we learn from that to really drive categories of interest to our customers, with great brands, with the right service model, to get more AUR and build for, what you're talking about, Lorraine, with opportunities for customers to have more disposable income?

LORRAINE HUTCHINSON: Are there specific categories where you could see licensing out another department or is this primarily focused on your own [good] product?

JEFF GENNETTE: We have a laundry list of categories that we believe the Macy's brand is broad enough to bring into our stores with great credibility. And we're looking at always to be able to get at that. It could be a hybrid model, a lease model, an own model. We're exploring all of that.

LORRAINE HUTCHINSON: And, Jeff, you talked about investing pretty heavily in growth this year. How should we think about the timing of some of these? I mean, I know the reorg already happened. But then I think there were some other initiatives that are maybe a one or two year out.

So can you just pace out for us both the investment requirements and then also the potential top-line benefit, how we should think about timing that?

KAREN HOGUET: Well, I think if you think about it, we've been investing in the digital business for a long time, and that was embedded from a CapEx perspective in the billion one, and we've been funding it as part of our P&L and the expense commitments for the last couple of years.

That really isn't increasing, because we've been investing at a pretty hefty pace. We've offset it with other expense reductions, as you know, the last two years. $100 million last year, which we did take to the bottom line. This year, the $140 million reduction, we're reinvesting in technology and also some of the areas where we saw higher cost, so that, again, we would improve the bottom line.

So in terms of the base business investments, those are really continuing at the pace that we've been making them over the last couple of years. And, as Jeff said, we're expecting the comp, owned, plus licensed to be about 2% this year. But we hope that it'll go up higher than that over the next two to three years, because this is somewhat of a transition year, particularly as you think about the reorganization. It may take a year for the new merchant teams to get all of the growth opportunities.

Then you've got layered on top of that the newer ideas, the Bluemercury, the areas that Peter's working on. And as you saw, we added about $100 billion to the CapEx guidance to help fuel Bluemercury growth, to help with the off-price test, and other things that we might be doing.

But the billion one is where most of that investment has been made and won't increase. Bluemercury, as we've said, will not be accretive in 2015. It's a partial year. There's a lot of accounting mumbo-jumbo in the first year. But should start to be next year. And again, it's small. So I don't expect it to be significant until we start rolling it out into more of their doors and also into more of the Macy doors.

And a lot of the other concepts will take a couple of years. But, again, it's a relatively small investment compared to the base.

LORRAINE HUTCHINSON: Yes. And you mentioned off-price. Can you just talk a little bit about how you plan to differentiate the off-price business from your base business from the [Blooming's] outlet business? What will that look like?

JEFF GENNETTE: We're in the exploration phase of it right now. We really have nothing to announce about what -- but know that we're looking at it very carefully. It's a highly competitive field out there. We're looking very carefully about what Macy's could add to this.

We've definitely done enough research to understand that -- and we've changed who our competitors are. And so we're certainly looking at some of the more formidable off-price players taking some share. And what is that? What are the brands that we would go in with? What would the services be? How would we get at those inventories? How would we know that whatever we do we're going to test thoroughly before we make any decisions about a broader play in off-price than what might be rumored?

LORRAINE HUTCHINSON: And then, Jeff, can you just talk a little bit about how your role is changing? You've given up the day-to-day chief merchant structure --

JEFF GENNETTE: Yes.

LORRAINE HUTCHINSON: -- and have taken on a lot of these growth initiatives. So how are you spending most of your time?

JEFF GENNETTE: I'm trying to -- we have the advantage of having a lot of very strong talent behind us. So when you look at -- when Tim Adams went to international, we were able to -- Molly Langenstein, who had lots of experience now running Private Brand, she was running one of the divisions there. Tim Baxter replaces me as Chief Merchant reporting into me.

So there is -- the main thing I want to hope to do is give them enough rope to be able to do their jobs, because they are very capable of doing it. So then purposeful about what I'm going to focus on and what I'm not going to.

Couple things, the big growth initiatives, I'm going to stay vary connected to. Center Core, we have more jewelry opportunity ahead of us. What do we want to do with jewelry and watches? So I'm going to be very focused on that.

Keeping women's shoes healthy and how do we get women's shoes even healthier? What do we do with the beauty integration? Those are opportunities that you would see. There are select vendors that I will be very involved with.

There are -- BF Corporation is going to be speaking later. They're a very strong partner for us and opportunities that we have with brands coming to market with our customers in ways that we may not be doing today.

So those are the things that I'm going to be really driving. The digital growth, will be maniacal about that with our teams, about how we keep that going. And then top-door strategy. So top-drawer strategy about what are the top doors that we want to change? We call it the five Ps. So presentation and the people that are involved with it, compensation, what we do with presentation and capital, and all goods and services in those buildings.

So those are things that I will drive with my direct reports and other members of the Executive Committee.

Things that I will oversee in terms of alignment and resource allocation will be topics like what are we doing with data science and business implementation? What are the next steps for us to deepen loyalty with our customer? What are we doing with talent? And looking at our top executives, really, how are we going to create the next generation of talent? What are the experiences that they have to have? Where do they come from? Are there external sources? How much of it is going to be internal? Those are the other subjects I'll be involved with.

LORRAINE HUTCHINSON: Great. And when we think about the acceleration and comp in your guidance from 1.4 to 2, are there specific categories that really need to participate that haven't, or is it just building on some of the success you've had over the past year?

JEFF GENNETTE: I think the previous speaker talked about women's ready-to-wear. And the opportunity for us to -- it would be great to have an amazing trend in women's ready-to-wear that we could all hook into.

We're focused, if you look at our fashion books right now and if you were to walk our stores, we're taking new bets on must-have items. So far, the early reads are it's getting some traction. So we're working hard on that with our private brands and with our manufacturing wholesale partners on how to get at that. Really staying close to the customer.

We've since surprised at how well Tallia is working. What's interesting about Tallia is that it really hooks into the dress trend that the country has gone through. So if you look at sportswear, sportswear's not been as strong. When you think of bottoms and tops, career wear, not been as strong. Dresses has been a great success.

And one of the reasons that we had a lot of confidence in this restructures was that we put dresses into a pilot last year. We called it the single view of inventory. And how do you drive all of the decisions in dresses by looking at where you price inventory, how you mark inventory, mark down inventory, how you market it.

And that team was able to drive double-digit increases, gave us a lot of confidence about how we could build back what we call single [deal] of inventory in other FOBs.

Tallia, based on how well dresses were doing, we made a big chunk of that business, dresses. It hasn't cannibalized anything else in the balance of dresses and it's just opened up new customers for us.

So dresses is one thing. I'd love to see that same thing happen in other sportswear categories in women's ready-to-wear.

The other thing that's on our mind about where we want to improve is in soft home. In our soft home business, we have a great textiles business. It's very robust. I think we're best-in-class in a lot of our brands. I'd like to be better in some of the tabletop worlds.

We're making a big initiative on wedding. Our view of the home business is our prerogative to own the bride and groom all the way through their experience, all the way through their life stages. They can't do that at a Home Goods. They can't do that at a Bed, Bath and Beyond. They could do it at Macy's. So does that start with the ring? Does that start with the apparel? The occasions of it? How do you -- first apartment, how do you -- all the wearing occasions and what they do with anything that's wedding related, we believe we can take a much -- we can have a much deeper footprint on that.

But it does, when you think about the wedding registry, it still does revolve around Home Store. So how do we improve our goods and services in the Home Store to be stickier with a customer? We have a very vital bridal registry, but so do some of our competitors. So we're focused on that.

LORRAINE HUTCHINSON: The Millennial strategy has been very successful over the past few years. What were the biggest surprises there? And are there learnings that you can take to maybe other age ranges within the business to try to drive that apparel comp?

JEFF GENNETTE: I would say that we, when we initially ripped up the Millennial strategy and we built all these brands, I would say we made some mistakes. And one of the mistakes that we made was how much of the missy customer, and we define missy as being the older customer, was in that area buying goods and services.

And so we've swung the pendulum too far. So the opportunity to get more balance in that by having really goods that basically would appeal to her.

In a lot of cases, the juniors business is basically budget fashion. And so the customer, depending on what part of the country they are, you can have all the trends that have to be expressed at those price points, and that attracts a customer that really is a great deal of business, at the same time, having goods and services that really apply to a true millennial in terms of agent and demographic.

So that's what we did. We basically, we found that certain brands did not resonate. We took a lifestyle approach to our brands that did work. But instead of having all of them be brands, some of them we focused on labels and classification that got us that customer in more fruitful ways.

So it took us some big mistakes and going back at it, refortifying brands. One of the things that we found out with Material Girl, which is our house brand, we had a third party that were producing that. And we had Madonna and Lourdes there with us, and they were great style icons, particularly Lourdes.

But at the end of the day, it came down to product. And we have inconsistent success with that. So what we did is we decided to take that in house. And that's been in house now, meaning our own private brands sourcing it, designing it, merchandising it, that's been in the last couple of years, and it has now been a much healthier piece of our overall portfolio.

So it's staying on the research, learning from the customers, retrenching, making tweaks. We're not done. We've got a lot of areas in the Millennial businesses, and we're not happy with our performance and we're committed to fixing them.

LORRAINE HUTCHINSON: And with Tallia off to such a great start, are there other brands that we should be watching for this year?

JEFF GENNETTE: What we want to do is we want to maximize the one that we have right now with Tallia. So don't expect another brand launch in women's apparel. We have a lot of road ahead of us to maximize Tallia. As I mentioned, the home brand with Whim.

There's a couple of other brands that we're not ready to talk about that are in the hopper.

LORRAINE HUTCHINSON: Great. Karen, you're planning to save $140 million on the reorganization and reinvest a lot of that. Are there other areas within the SG&A line or the organizational structure that you could look to for cost savings going forward?

KAREN HOGUET: I think the answer is no, that I can sit here and tell you today. But I think you have found us to be responsive. If we see a headwind coming, we find a way of adjusting so that we can continue to be as profitable as we've been.

So I don't sit here today and say, I have my eye on this part of the Company we could save money. There are some places with opportunity. But again, it's so that we are able to fund the growth and deal with the headwind.

So we're always trying to look out. We do three-year planning on the whole business perspective, but also on the expense side. So when we see something coming, we react now. So again, I don't know what it might be, but we're always looking for those ideas.

LORRAINE HUTCHINSON: And we've heard a lot in the news about wage increases for [those paid] minimum wage, bringing wages up. How are you thinking about associate compensation and maybe some of the pressure on the low end would do?

KAREN HOGUET: It's a subject we've looked at forever, because you, obviously, want to have the best talent we can have given the cost structure, we want to retain people, keep turnover to a minimum, all of that.

And with all the announcements recently, we're obviously looking at it as well. And again, that's one of the subjects, though, that we'll look to offset it, should we decide to respond in some way.

Questions and Answers

LORRAINE HUTCHINSON: I wanted to open up to the room now, see if there are any questions. Just please wait for a microphone if you have one.

ROBBIE OWENSBY: Thanks. [Robbie Owensby] (inaudible). Just to follow up, earlier you were talking about the success in athletic footwear. Could you -- I walk your store somewhat often, and I've seen, I feel like I've seen a lot more apparel from Nike and Under Armour. Could you just sort of talk about how that's doing and how you see that evolving in 2015?

JEFF GENNETTE: When you look at basically the overall share in men's apparel and women's apparel, we still retain a lower share in athletic apparel. So that's why you see us going after it very aggressively, and we've been very successful with that. So you're going to continue to see us make outsized investments in that.

There is a -- what you find is that, let's start in the women's area in active apparel. We've started a new journey with adding experiences into our floors. So we've done something called Nike Training Club, which started out in 5, stores and it's now going to be rolling to, I believe it's a total of 60 that we're going to have by the end of this year. Where you basically have trainers that come into our building that work with customers. We basically will clear the floor. There's workouts that are going on. There's special product that is being, if Nike were their official co-sponsor of this, what we offer Nike is access to a female consumer that was not necessarily going to the big-box athletic apparel stores.

And so we're highly attractive with our vendor partners to coming up with experiences that attract this customer in a more [wholesome] way. So we've been very successful with that.

So that's an opportunity for us to drive experiences in the bricks. There's lots of opportunities for customers to stay online and never go into a store again. How do we enrich our experiences in our stores that's scalable that gives customers the reason to come and not just to feel the goods, but also to interact with other customers and to experts, tie in Macy's as an opportunity to educate and entertain?

So active apparel is a perfect opportunity for us to do that. It also takes what can be a widely distributed category and make it uniquely ours.

So that's what we're doing. We're looking at that for the opportunity of doing that on the men's side.

But you'll see us really beef up our assortments from Nike to Under Armour, Adidas. You'll certainly see us do that. And just when you look at the trajectory of what's happened with athletic footwear, keeping pace in apparel makes all the sense in the world, highly profitable for us, and nothing but growth ahead of us.

So looking at kids as an area of doing it. Bring it into the accessories area. What do you do with cold weather? What goes with the puffer jacket or the white-filled down jacket? We had, really looking at the whole active influences across all categories of the store and scaling that.

So you get these amazing growth engines in parts of your business, and you start to say, how do I leverage that across other pieces of my business? And that's been our journey.

So active continues to be a huge growth story for us, and we're going to continue to go after share.

LORRAINE HUTCHINSON: Another category that you mentioned was watches and jewelry.

JEFF GENNETTE: Yes.

LORRAINE HUTCHINSON: How do you think about the new watch cycle, with wearable technology? Will you be able to take your piece of the pie there? And then what's the opportunity with jewelry?

JEFF GENNETTE: I'd say that on -- I think everybody is waiting for Apple on wearable technology and what is going to happen with that in 2015. We're testing the waters on all of that right now, some successful, some not.

You might see us do something that balances the risk of that particular business, which has generally been low margin. The watch business is really, though, jewelry, in many respects. It's when you have -- what kid now looks at their watch? But the idea that they would wear a watch and they layer it with other jewelry has really been a huge growth engine for many retailers over the past number of years. We don't see that abating.

I think the whole idea about having the pyramid of wearable technology in your stores, though, is very important to sell that whole base. So we're going to be very focused on that.

There are fine watch vendors, though, that we're getting tremendous growth in. So when you look at the Swiss-made movement and when you look at, really, the Fossil group and all of their brands, we have dominant assortment there. It's a stable, healthy, very profitable piece of our business. So we're going to really push that.

But wearable technology is going to be the headline story to get foot traffic into our stores and online.

The jewelry complex is, it's nothing but opportunity for us. So you've got -- we're one of the few retailers that from fashion all the way through fine jewelry offers the spectrum of price points and brands and experiences that we can. So very profitable for us, customers expect it of us.

When we put those energies against those businesses, we're successful. So you're going to see us make a big play there. I would love to come back a year from now and tell you what that's meant in our fine jewelry business. Our fine jewelry businesses is where we're focusing right now and our opportunity with that.

DAVID GREEN: David [Green] from [Paxton]. You've done a great job, obviously in boosting your EBITDA margin targets, and you're up now to your long-term target of 14%.

Just wanted to get a feel, given you're now embarking on investment into Omni Channel and labor, where you see the steady state of the EBITDA margin going forward.

And just second part for that is credit income and also low retirement expenses have been -- have helped and been a beneficiary to that EBITDA margin. And just any thoughts on evolution of those two through 2015, and beyond.

KAREN HOGUET: Yes. I think what we've said is that we're expressing in 2015 the EBITDA margin to be flattish. And the intent is to stay around that 14%, and not go above it.

Now, could it happen that we go above it? Of course. But strategically, we don't think it makes sense to aim to go above it. And so, therefore, we'd like to keep it flattish and, again, fund the growth and do all the things. But again, keep it at that high level that we've worked so hard to achieve.

In 2015, retirement expenses will go up. So that's one of those things that we knew we had to fund with the $140 million reduction. Credit income, we expect to be flattish, maybe down a little as interest rates go up, as assumed in our plan, for the end of the year. But again, not a significant movement in terms of credit income.

UNIDENTIFIED AUDIENCE MEMBER: Thank you. Given the events surrounding Hudson Bay, is there anything Macy's is going to do regarding its real estate position?

KAREN HOGUET: It's one of the subjects we look at all the time. And given our investment-grade status and the ability to get great financing as a result of that, I don't think it makes sense for us. But we look at it constantly. And the more ideas that come up, you might imagine we study all of them.

So there's no answer forever. But at this point, I don't think it makes sense for us. We like having control of our real estate. But again, I'd never say never, and we're constantly looking.

UNIDENTIFIED AUDIENCE MEMBER: Good morning. Wonder if you could just talk about women's handbag market and what you've been seeing in that business. Any trends recently? Best brands? Any slowdown, et cetera?

JEFF GENNETTE: Not to comment specifically on brands that are working or not, but we expect continued growth in handbags. It's been a growth engine in our Center Core world, and I expect that to continue.

So I would tell you that the brands that have figured out their customer, that are designing products that specifically address a product or a customer that is underserved, those brands are winning right now.

LORRAINE HUTCHINSON: Just wanted to follow up on the marketing reorg. You said you're moving the marketing from three pyramids to one. What will the consumer facing message be? And how would that change?

JEFF GENNETTE: Yes. You'll see a more seamless creative. So that's that you've had today is that if you go online and you look at our creative and you go into our stores, you might see a different creative. And then if you look at some of the bricks-generated marketing, it might be a third creative. Not good. Not when you have a customer who basically is shopping both channels.

We now have over, when you think about the majority of our customers experiencing our brand from both an online and bricks perspective, regardless if they buy in both channels. So the opportunity is, is really how do we be seamless and maximize the creative that we've got. So I would tell you that creative is a big one.

The next one is really just value add in terms of the media spend and what we're doing with that. And you would expect that -- you can't always isolate that this particular media generated this particular action, because it's this layered approach that we do about how many -- it all builds.

But there's enough in all the algorithms that will point out directionally what you need to do differently. And we are, because of our budget, we found ways. We're always looking to increase our ROI on whatever activity that is.

So we're spending a lot of time on the mobile piece right now, as everybody is, and that's been very fruitful force.

So I would tell you that creative customer spend and what we're doing with that, the opportunity to really see the customer and how they spend online, how we message to them when they leave a orphan basket online, and what we can understand from that, and do we offer them some opportunities then that would [gauge on] that's something that they looked online, understanding fully what that is for the technology, and then having that feed to our marketing engine, that's going to be really our pursuit. One-on-one marketing messaging on something that the customer cares about specifically, that's going to be our journey.

UNIDENTIFIED AUDIENCE MEMBER: I had a question on your e-commerce, I guess on your website. I think Sears and Kohl's have opened up their website to become more of a marketplace where you can sell like shot glasses and like random doodads.

What do you think of that strategy? And would you ever open up your own website to become kind of like a marketplace where vendors can just sell random knickknacks?

KAREN HOGUET: Yes. And I think the answer is, we've looked at that many times and sort of like the real estate question, we'll continue to look at it.

For now, we're completely focused on building it out as Macy's and also Bloomingdale's, because we think there's so much opportunity there. And again, sometimes it will be product that may not be in the stores, so there may be a broader offering online, but not through a marketplace concept.

UNIDENTIFIED AUDIENCE MEMBER: You are spending a fortune on your Internet, your websites, all you're doing, more and more every year. Then let's look for a moment at Kohl's and Penny's. They don't seem to be able to spend as much as you do.

What competitive advantages are you developing with your advanced state-of-the-art that puts you ahead of them to push -- you're a generation ahead of them, really, in a way in what you're spending and what you're doing. Penney doesn't have the money to really compete with new investment to the extent you are.

What is your -- how are you, in the state-of-the-art, superior and more developed than those two competitors?

KAREN HOGUET: I think what I'd say, put aside the two companies you mentioned. Seriously, I mean, just put that aside. But in terms of what we're doing, we think that investing in the Internet at the levels we have been, absolutely is making us the world-class retailer. And you cannot compete today if you're not investing at these levels, my opinion. You just have to.

So if you're regional or you don't have the resources, aren't investing in the same way, I don't know how you compete going forward. And it's not something you can suddenly jump in and make up.

We started Macys.com over 15 years ago. And I really do believe if we hadn't started back then, we wouldn't be where we are today.

So it's money, but it's also the ability to attract and retain the talent. We've got a spectacular group of people out in California, in San Francisco, also in the merchandising and marketing site here in New York as well.

So again, I don't think it's something you can catch up on. Specifics as to why we think we're going to win, I'm not going to tell you, because I don't want them to know what to go after. But we do think it's critical and we are incredibly proud of what we have built to date. But it's still just at the infancy of where this whole Omni Channel experience can go.

UNIDENTIFIED AUDIENCE MEMBER: It would just seem to me that you're way ahead, that you're building the lead. But I just wonder how one can see that or define it. I mean, obviously, you've been at it longer, spent more money, and built a better mousetrap. I just wonder how that will show itself or is showing itself.

KAREN HOGUET: That's going to show itself on the top line. I mean that's sort of the report card. And obviously the ROIC. We're not just throwing money at it. I think you'll find that we're doing a lot of testing and we learn, and then we roll things out. And I think that's worked well for us both in terms of the top line and the bottom line. But I think at the end of the day, we've got to win on the top line.

LORRAINE HUTCHINSON: I think that's all the time we have today. Thank you very much, Karen and Jeff.

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