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New York • 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, says it's also raising its annual earnings guidance.
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. Economists have worried that renewed fears about the U.S. job market and the European debt crisis will make shoppers pull back, particularly as they head into the crucial back-to-school selling season.
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.
"We were pleased with our spring season results, and they came on top of exceptionally strong spring season performances in each of the past two years," said Terry J. Lundgren, Macy's chairman, president and chief executive in a statement. "This indicates that our business continues to have forward momentum, even with challenges that include a soft economy, lower spending by international tourists and temporary disruptions" related to its major renovation of its flagship store in Manhattan.
Lundgren emphasized that 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. Revenue at stores open at least a year, a key gauge in measuring a retailer's health, also rose 3 percent. Its online sales soared 36.1 percent in the quarter.
Analysts surveyed by FactSet had expected earnings of 64 cents per share on revenue of $6.13 billion.
"We are entering the fall season with optimism about our ability to grow sales and capture market share...The direction of the overall economy is outside our control, so we will concentrate on what our company does best," 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 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.,
The company also has added exclusive brands like Tommy Hilfiger. Other initiatives included better training for its sales force.
Analysts also believe 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 getting rid of hundreds of sales events in favor of every day lower pricing, but Penney shoppers, used to big sales signs and coupons, have been turned off. Macy's chief financial officer Karen Hoguet told analysts in May after reporting its first-quarter results that sales were rising at Macy's stores that share malls with Penney stores.
Meanwhile, Macy's said Wednesday that it will be taking a planned break in the multi-year remodeling of its Herald Square store renovations so that customer shopping isn't interrupted during the holiday season. The company expects all of its first and second floor selling space at the store to be fully re-opened within the next 90 days, including what it describes as the largest women's shoe department. The shoe department, which will carry as many as 300,000 pair of shoes, will open partially this month and will continue in stages in the months ahead.
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.