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Macy’s profit surges in the 2Q; boosts outlook

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NEW YORK — Macy's Inc.'s net income surged in the second quarter as the department store chain saw a payoff from its focus on exclusive moderate-price fashions and tailoring merchandise to local markets.

The company, based in Cincinnati, boosted its profit outlook and increased its forecast for a key revenue measure as it takes market share from rivals such as J.C. Penney.

In premarket trading, Macy's shares rose 1.4 percent to $19.65.

The chain said Wednesday that it posted net income of $147 million, or 35 cents per share, for the period ended July 31. That compares with $7 million, or 2 cents per share, in the same period last year.

Revenue rose 7.2 percent to $5.54 billion. For the quarter, revenue at stores opened at least a year increased 4.9 percent. Revenue at stores opened at least a year is considered a key measure of a retailer's health because it excludes the effects of new stores and stores that close during the year.

Analysts surveyed by Thomson Reuters had expected 28 cents per share on revenue of $5.5 billion.

Macy's is expected to be among only a few bright spots in the pile of retailers' second-quarter earnings reports. After a suprise pickup in consumer spending earlier in the year, most retailers have seen a slowdown since April as the economic recovery is stalling and the job market remains stagnant.

With shoppers keeping a lid on spending, any sales gains are coming at the expense of other retailers.

Clearly, Macy's is emerging as a winner heading into the fierce battle for the critical back-to-school season. In fact, July's revenue reports released last week showed that Macy's sales is making sales at the expense of J.C. Penney Co.

Macy's posted a stronger-than expected increase in revenue at stores opened at least a year, but rival J.C. Penney Co. suffered a surprise drop, missing expectations. Penney, which reports its second-quarter net income results on Friday, warned last week that its second-quarter net income will come at the low end of its previous forecast.

"We believe our business is beginning to hit its stride after implementing significant structural and organizational changes over the past two years," Terry J. Lundgren, Macy's chairman, president and CEO, said in a statement. "While the economic environment remains uncertain, Macy's and Bloomingdale's have a terrific opportunity to continue to take market share and grow our business profitably."

Lundgren said Macy's improvement isn't the result of a single factor but a combination of several strategic changes. In particular, Macy's has greatly benefited from its localization plan, dubbed My Macy's, which puts decisions on what merchandise to stock closer to customers. It has also put more experienced workers on its sales floor.

Its moderately priced fashion exclusives include the recently launched Material Girl, a teen line created by pop star Madonna and her 13-year-old daughter Lourdes. The line sells from $12 to $40.

Based on strong revenue expectations, Macy's boosted its full-year profit forecast to $1.85 to $1.90 per share for the second time. The company's previous guidance was $1.75 to $1.80 per share. At the beginning of the year, Macy's had forecast $1.55 per share to $1.60 per share. Analysts were expecting $1.86 per share.

The company said it now expects revenue at stores opened at least a year to rise between 3 percent and 3.5 percent. That would result in a full-year increase between 4 percent and 4.2 percent.

At the beginning of the year, the company's initial forecast was for revenue at stores open at least a year to increase 1 to 2 perent.