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Macy's Loss Beats Estimates, But Shares Fall on Outlook

AP
Wednesday, 11 Nov 2009 | 2:09 PM ET

Macy's third-quarter loss shrunk as tight inventory controls and a move to localize merchandise at its department stores by region paid off. The company also raised its full-year profit and sales outlook.

Macy's
Macy's

The profit outlook, including a tempered forecast for the fourth quarter, didn't go as high as analysts expected, and shares fell more than $1, about 7 percent, in midday trading.

In a conference call with investors Wednesday morning, Karen Hoguet, chief financial officer at Macy's, said that while she's encouraged by improving sales, she warned that there's still plenty of uncertainty heading into the holiday season.

"We are just going to have to wait and see," Hoguet said. "All of us need to be careful not to judge based on one day, one week or even one month's business."

Some of Macy's best-performing districts were the original test beds for the locally tailored merchandise. Other bright spots were its growing Internet business and rebounding sales performance at Bloomingdale's, another sign that affluent shoppers are slowly going back to shopping after a sudden retreat last fall.

The department store operator, based in Cincinnati, said Wednesday that it lost $35 million, or 8 cents per share, in the quarter ended Oct. 31. That compares with $44 million, or 10 cents per share, in the year-ago period.

Excluding costs to consolidate several divisions and roll out the localization plan, Macy's lost 3 cents per share.

Macy's reported revenue fell almost 4 percent to $5.28 billion. Sales at stores open at least a year were down 7.5 percent in the quarter. That barometer is considered a key indicator of a retailer's health because it excludes the effects of expansion.

Analysts surveyed by Thomson Reuters forecast a loss of 7 cents on revenue of $5.25 billion.

Macy's Earnings Analysis
Dana Telsey, retail analyst at the Telsey Advisory Group, shares her analysis of Macy's quarterly results.

Department stores like Macy's have faced big challenges as shoppers — worried about job security and tight credit — keep their focus on basics like food. But they are starting to see consumers spend a bit more on little indulgences. Still, overall business remains weak.

Macy's has been shoring up its results with aggressive cost-cutting, including job cuts, lower capital spending and reduced contributions to employees' retirement funds.

The localization drive seeks to concentrate Macy's top talent in local markets and stay on top of trends by grouping Macy's stores into districts of 10 to 12 stores each. Meanwhile, online sales rose 21.1 percent in the third quarter.

Overall, Hoguet told investors that sales in the Midwest are the strongest, but Macy's saw improved performance in every region. The best-performing businesses include moderate-price men's and women's sportswear, shoes, home furnishings, housewares and mattresses. The weakest categories included dresses, fragrances, men's shoes, and handbags.

Macy's said it now expects sales at stores opened at least a year to be down 1 percent to 2 percent in the critical fourth quarter, which translates to a decrease of 2.1 percent to 2.6 percent in the second half of 2009.

Macy's expects full-year sales at stores open at least a year to fall between 5.4 percent and 5.7 percent, better than the original forecast of a 6 to 8 percent decline.

The company said that it expects fourth-quarter earnings per share to be anywhere from $1.00 to $1.05 per share. Analysts surveyed by Thomson Reuters forecast $1.05 per share.

Macy's raised its full-year guidance to $1.01 to $1.06 per share. That's up from previous guidance issued in August of 70 cents to 80 cents per share. The forecast excludes restructuring charges. Wall Street analysts forecast $1.11 per share.

Macy's shares have almost doubled since the beginning of the year as investors turned to the beaten-down shares of such upscale companies, which Wall Street believed were ready to rise as stores benefit when shoppers start spending again. It has been trading near its 52-week high of $20.84.

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