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Macy's 3Q earnings rise; raises outlook

Pedestrians pass the Macy's department store location Nov. 8, 2011, in New York. Macy's Inc. is reporting Wednesday, Nov. 9, 2011, that earnings surged in the third quarter as the department store chain reaps the benefits from tailoring its merchandise to local markets Pedestrians pass the Macy's department store location Nov. 8, 2011, in New York. Macy's Inc. is reporting Wednesday, Nov. 9, 2011, that earnings surged in the third quarter as the department store chain reaps the benefits from tailoring its merchandise to local markets (AP Photo/Frank Franklin II)
By Anne D'Innocenzio
AP Retail Writer / November 9, 2011

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NEW YORK—Macy's Inc.'s net income surged in the third quarter as the department store chain benefited from tailoring its merchandise to local markets.

The retailer also raised its full-year profit outlook Wednesday but shares fell 5 percent as its profit margins eroded because of its free shipping program. It also offered conservative guidance for the current quarter, which covers the holiday period.

Macy's earned $139 million, or 32 cents per share, for the three months ended Oct. 29. That compares with $10 million, or 2 cents per share, in the same period last year. Revenue rose 4.1 percent to $5.85 billion.

Analysts had expected earnings of 16 cents per share on revenue of $5.87 billion, according to FactSet.

"You can feel the momentum and confidence that has been building at Macy's since our organizational changes in 2009, and especially over the past nine months," Terry J. Lundgren, chairman, president and CEO of Macy's, said in a statement. "We believe this will help us to continue to capture market share in the fourth quarter and lay the foundation for continued innovation in our business in 2012."

Lundgren also noted that sales at its upscale Bloomingdale's division have remained strong and customers continue to buy designer merchandise. That's a good sign that affluent shoppers are still spending despite volatile swings in the stock market.

Macy's is the first in a series of major retailers reporting third-quarter results as they head into the critical holiday shopping season, which can account for as much as 40 percent of annual revenue. Macy's has a lot of momentum going into the season.

The chain has benefited from the strategy Lundgren conceived to localize merchandise as consumer spending began slowing down in 2007. Stocking more products that cater to specific regions, like more business suits in Washington, D.C., for instance, was lacking since the chain ditched its regional nameplates such as Marshall Field's and Hecht's.

A better-trained sales force also helped. In September 2010, the company trained about 130,000 sales associates and managers on engaging customers. A big component is more intense coaching of workers by store and district management teams.

Such strategies have helped it to outperform its peers. Macy's revenue at stores opened at least a year rose 4 percent for the third quarter. However, the company saw a slowdown in sales in October because of the warmer-than-usual weather in the early part of the month and the snowstorm at the end of the month. However, Karen Hoguet, Macy's chief financial officer, said that business has improved with the colder weather since then, and she said the company feels confident that it will see revenue at stores opened at least a year rise anywhere from 4 percent to 4.5 percent for the current quarter.

Rival J.C. Penney Co. reported that the figure fell 1.6 percent for the third quarter. Kohl's Corp.'s saw a 2 percent increase. Kohl's is slated to reports its third-quarter results on Thursday, with J.C. Penney's due on Monday.

Revenue at stores open at least a year is an important indicator of a retailer's health because it excludes stores that recently opened or closed.

"We have great fashions, exceptional gifts, memorable experiences and well -trained associates in our stores and online for shoppers this holiday season," Hoguet told investors during a conference call following the earnings results.

But the company said that profit margins in the quarter slipped to 39.4 percent from 40 percent in the year-ago period. Hoguet blamed it on its free shipping program for online purchases of at least $99 at Macy's.com and what she described as the "enormous growth of that business." Macy's offered the free shipping program during the holiday 2010 season, and it became a permanent offer this past January. The online business increased 39.8 percent in the third quarter from a year ago.

Macy's on Wednesday raised its full-year outlook to a range of $2.70 to $2.75 per share. The company had said in August that it had expected to earn anywhere from $2.60 to $2.65 per share. Analysts had projected $2.66 per share for the year. The guidance included a conservative outlook for the fourth quarter. It said it expects earnings per share to be in the range of $1.52 to $1.57 per share. Analysts had projected $1.65 per share.

Macy's, based in Cincinnati, operates more than 800 stores under the Macy's brand and 41 Bloomingdale's stores.

Shares fell 5.3 percent, or $1.71 per share, to close at $30.45.