With Strong Q2, Macy's ‘Locked and Loaded' for 2nd Half

Susan Andrews, Retail Editor 7, September 3, 2010

KAREN HOGUET Macy’sCINCINNATI - Thanks to higher- than-expected sales, improved margins, a reduced expense rate and more disciplined inventory management, Macy's Inc.'s second quarter exceeded expectations on several fronts, and earnings per share surged to 35 cents from 2 cents in the year-ago period.
     "We believe our business is beginning to hit its stride after implementing signifi cant structural and organizational changes over the past two years," said Terry Lundgren, chairman, president and ceo, in 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."
     During the 850-unit department store chain's earnings call last week, cfo said quarterly results "exceeded our expectations in all key components of our performance," and added that home was "strong," particularly in the luggage, furniture and mattress categories.
     "Private brands and exclusive products also achieved terrific growth throughout the store during the quarter," she added.
     For the quarter, ended July 31, sales rose 7.2% to $5.5 billion, with consolidated comps up 4.9%. Combined online sales for macys.com and bloomingdales.com jumped 28.1% in the quarter.
     "Our internet continues to grow...Both Macys.com and Bloomingdales.com are proving how important they are by driving store traffic...," Hoguet explained, adding that the company "now has the capability in all Macy's stores to access the dot-com inventory to satisfy a customer. We are finding tremendous excitement for it both among store associates and customers."
     Year to date, Macy's sales rose 7.2% to $11.1 billion, and comps increased 5.2%. Online sales for both macys.com and bloomingdales.com jumped 31.0%, positively affecting the company's same-store sales by 0.5 percentage points in the second quarter and 0.8 percentage points in the year to date. Online sales are included in the same-store sales calculation for Macy's, Inc., the company said.
     "Year to date, all 69 of our districts were at or ahead of expectations," Hoguet added. "This widespread success is very encouraging."
     First-half earnings per share were 40 cents, compared with a loss of 19 cents per share in the first half of 2009. Excluding restructuring-related costs of $172 million ($97 million after tax; 23 cents per diluted share), earnings were 4 cents per diluted share in the first half of 2009.
     Buoyed by this upswing and stronger sales expectations, the company increased its full-year 2010 earnings guidance to $1.85 to $1.90 per share. This compares with previous guidance of $1.75 to $1.80 per share, and initial earnings guidance of $1.55 to $1.60 per share provided at the beginning of the year.
     Hoguet summarized the performance of the company's nameplates during the quarter. At Macy's, the My Macy's approach has contributed to "stronger sales and gross margin rates." Bloomingdale's, she said, "produced great sales in the quarter and continued to outpace its nearest competitor."
     By this fall, Macy's Inc. will open its first four Bloomingdale's Outlet stores, "about which we are very excited," Hoguet said.
     Each slated to measure about 25,000 square feet, the four new sites will be located in: Bergen Town Center in Paramus, N.J.; Dolphin Mall in Miami, Fla.; Potomac Mills in Woodbridge, Va.; and Sawgrass Mills in Sunrise, Fla. The outlets will offer a range of apparel and accessories, including women's ready-to-wear, men's, children's, women's shoes, fashion accessories, jewelry, handbags and intimate apparel.
     Additional Bloomingdale's Outlet stores are expected to roll out to selected locations across the country in 2011 and beyond.
     Also this fall, the company said it is adding "one more element to our efforts which we expect to further drive our top line - a more engaged selling season in our stores."
     By early September Macy's expects to have trained approximately 130,000 sales associates and managers on selling engagements.
     The task is a first for the retailer, Hoguet noted.
     "We have never done such a comprehensive training effort before, and we are very excited about the feedback we are already getting from our associates and our customers," she continued. "A key component of the program is more intense coaching of our associates on an ongoing basis by our stores and district management teams."
     In anticipation of the fourth quarter, the Macy's team is "more ready than ever before," Hoguet said. "We have reinvented our gift strategy and will have a whole new level of newness, distinction, and value in all of our doors, along with a terrific marketing campaign. We don't have a crystal ball on the economy, but we do have confidence that we can continue to gain share profitably no matter the environment."
     Still, when asked by an analyst during the conference call's question-and-answer session about fourth-quarter expectations, Hoguet admitted: "This business has been very promotional for very many years, and we don't expect that to change. So I expect this fall to be promotional, and we are locked and loaded."

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