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Macy's reverses lackluster quarter, helped by ad campaign

The magic of Macy's

Macy's reported a quarterly profit that handily beat Wall Street expectations on Wednesday, with the department store chain citing stepped up advertising for a stronger sales.

Its shares surged more than 7 percent in premarket trading. (Click here to track the market's reaction to Macy's report)

Macy's Inc., based in Cincinnati, Ohio, is the first of the major retailers to report third-quarter results and is often seen as a barometer of spending among middle- to upper-income shoppers.

People walk in front of Macy's Holiday Shopping Windows outside Macy's Herald Square in New York City.
Ilya S. Savenok | Getty Images

The company has been a standout among its peers throughout the economic recovery and has been reaping the benefits of its strategy of tailoring merchandise to local markets. But like other clothing merchants, Macy's saw sales slow over the summer amid new worries about the economy.

Still, the chain said Wednesday that it saw "particular strength" in October and that it was heading into the critical holiday shopping season "with confidence."

Wall Street analysts cheered the results. "There's no question there's optimism in this report," Matt Boss, senior retail analyst at JPMorgan Chase, told CNBC. He cited strength in Macy's beauty, home retail and jewelry segments as being a potential bellwether for the upcoming holiday season.

"Some of the components that heading into the holiday season would be the drivers, they look to be accelerating as the quarter progressed," he added.

Macy's Q3 a 'low quality beat': Pro

Rival J.C. Penney, meanwhile, is trying to recover from a botched-up strategy under its former CEO Ron Johnson. Under Mike Ullman, who took back the helm in April, Penney has gone back to more frequent sales events and brought back basic merchandise that Johnson eliminated.

For the quarter ended Nov. 2, Macy's earned $177 million, or 47 cents per share. That compares with $145 million, or 36 cents per share, a year ago.

Revenue rose 3 percent to $6.28 billion. Analysts expected earnings per share of 39 cents on revenue of $6.19 billion.

Revenue at stores opened at least a year, a key metric, was up 3.5 percent, stronger than the 2.1 percent analysts expected.

The company reaffirmed its guidance for sales at stores open at least a year to rise between 2 percent and 2.9 percent for the full year. Earnings are expected to be between $3.80 and $3.90 per share. Analysts expected revenue of $3.78 per share.

--By The Associated Press, with CNBC.com

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