AP News

Macy's posts 16 percent hike in 2Q net income


NEW YORK (AP) — Macy's reported a nearly 16 percent increase in net income for its second quarter, helped by cost-cutting and its strategy to tailor its merchandise to local markets.

The department chain, which operates stores under its namesake and upscale Bloomingdale's names, also raised its annual earnings guidance. Its shares rose almost 3 percent in afternoon trading.

Macy's Inc., which has been a standout among its peers throughout the economic recovery, is the first in a series of major retailers that will report second-quarter results that will provide insight into how Americans are spending. The results from Macy's may reassure economists concerned that shoppers may pull back just as the crucial back-to-school selling season begins.

Like many department stores, Macy's suffered during the recession. But the retailer has been able to navigate through the slow recovery better than rivals like J.C. Penney Co. and Kohl's Corp. Macy's, however, acknowledged continued economic challenges.

"Clearly, we are not operating in an ideal macroeconomic environment," Karen Hoguet, Macy's chief financial officer, told analysts during a call Wednesday. "Issues like unemployment and housing prices continue to be on the minds of our customers. But we believe that Macy's and Bloomingdale's still have the opportunity to grow sales and earnings by listening closely to our customer and delivering exactly what they need, when and where they need it. That is the underlying principle behind our core strategies."

Macy's also conceded business was hurt in the second quarter by lower spending by international tourists and temporary disruptions related to its major renovation of its flagship store in Manhattan.

In a statement, Terry J. Lundgren, chairman, CEO and president, said Macy's is staying firmly focused on driving profitable sales growth while running the business with discipline.

Macy's said that its net income rose to $279 million, or 67 cents per share, for the three-month period ended July 28. That's up from $241 million, or 55 cents per share, in the year-ago period. Revenue rose 3 percent to $6.12 billion from $5.94 billion a year ago.

Analysts surveyed by FactSet had expected earnings of 64 cents per share on revenue of $6.13 billion.

Revenue at stores open at least a year, a key gauge in measuring a retailer's health, also rose 3 percent, helped by surging online sales. Sales were uneven with June's sales below expectations followed by a July rebound, Hoguet said.

"We are entering the fall season with optimism about our ability to grow sales and capture market share," Lundgren said in a statement.

A big part of Macy's strategy has been to tailor its fashions to local markets.

Macy's, based in Cincinnati, Ohio, has been catering to local customers in a way that had been lacking since the chain ditched its numerous regional nameplates such as Marshall Field's and Hecht's in 2006. For example, the retailer has increased its offerings of conservative business suits in Washington, D.C.-area stores.

The company also has added exclusive brands like Tommy Hilfiger. It has improved sales force training. By the end of the month, Macy's will be using 290 stores, or more than a third of its total, as online sales fulfillment centers.

"Macy's has a very good reputation for what they do," said Ron Friedman, head of the retail and consumer products group at Marcum LLP, an accounting firm. "They have got their customers coming into the store because of special merchandise and sales."

Analysts say that Macy's is benefiting from the woes at J.C. Penney Co., which implemented a new pricing plan that hasn't yet resonated with shoppers. The plan involves dumping hundreds of sales events in favor of lower pricing every day. Some Penney shoppers, miss the big sales signs and coupons.

Hoguet told analysts in May that sales were rising at Macy's stores that share malls with Penney stores. She didn't comment on that during Wednesday's call. Penney is expected to report its second consecutive quarterly loss and drop in sales when it reports results on Friday.

Arnold Aronson, managing director of retail strategies at consulting firm Kurt Salmon, says, "Mathematics don't lie. Macy's certainly has to be picking up some share from Penney."

Meanwhile, Macy's said Wednesday that it will take a planned break in the multi-year remodeling of its Herald Square store renovations so as not to interrupt holiday shopping. The company expects to reopen all first and second floor selling space within the next 90 days, including what it describes as the largest women's shoe department.

Macy's said that it now expects earnings per share for the full year to be in the range of $3.30 to $3.35. That's an increase from its previous guidance of $3.25 to $3.30. The company, however, still believes that revenue at stores opened at least a year will rise about 3.7 percent for the year. Analysts expected earnings of $3.36 for the year.

Its shares rose $1.06, or 2.9 percent, to $38.06 in afternoon trading. They are approaching their 52-week high of $42.17 set May 2. They traded as low as $22.66 last August.


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