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Home shaping up at Macy’s   

Cincinnati – Macy’s is “encouraged” by the recent strengthening of its home business, not just at its legacy doors but especially at former May Co. units where home was “the biggest weakness” last year.

During its third-quarter conference call today, the 850-unit department store chain attributed “a confluence of factors” to home’s turnaround. Evp and cfo Karen Hoguet outlined them as: the Martha Stewart launch two months ago; the introduction of big-ticket business on Macys.com; improved localization of assortments; and improved marketing, including internet advertising.

While Macy’s shared neither statistics nor product specifics on the progress of its Martha Stewart Collection thus far, Hoguet said the program is credited with not only performing well on its own merit but also with driving traffic to Macy’s home department, even “perhaps other parts of the store,” and has been a catalyst in aiding Macy’s overall home business.

On the localization of assortments aspect, Macy’s has stepped up its efforts to differentiate its offerings store by store, based on market needs, since centralizing its home business three years ago.

Related to this is a new store-wide project, which is already underway at the home division, titled “My Macy’s” that is focused on tailoring assortments unit by unit. “We’re trying to better localize assortments and get more of what’s selling and less of what’s not and trying to react,” Hoguet said. “The better product and more differentiated product is what is selling everywhere. We just need to continue to refine it. It will happen.”

The company reported third-quarter net income of $33 million, breaking into the black ink compared to last year’s third-quarter net loss of $3 million. Sales of $5.91 billion were essentially flat compared with last year’s $5.89 billion.

Gross margin, at 39.3% of sales, was down 100 basis points from 40.3% a year ago, while SG&A costs crept up 30 basis points to 35.9% from 35.6% of sales.

While generally on track with earlier projections, Macy’s is now projecting full year 2007 same store sales down 1.3% to down 0.3%, a marked difference from its guidance three months ago, which had full year comps pegged at down 1.0% to up 0.5%. Against 2006 sales of $27 billion, Macy’s now projects 2007 sales of $26.4 billion to $26.6 billion.

The company is still plans to hit its earlier fourth-quarter profit projection: earnings per diluted share are aimed from $1.70 to $1.80.

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