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My Macy's Pilots a Bright Spot in Second Quarter

Macy's Inc.'s localized “My Macy's” district strategy is paying off for the department store chain as the program's 20 pilot stores outperformed and continue to outpace the rest of the retailer's units, giving Macy's hope after a second quarter during which profit again declined.

In terms of the pilot stores' strong performance during the quarter, Karen Hoguet, evp and cfo, said during last week's conference call with analysts, “I think they are representative in terms of the profitability of the company, and it's really coming from improved merchandising and I think also energy from the sales associates in the stores.”

Aside from the sales gains My Macy's is providing the company, the program has created “more informal” and frequent vendor relations, she added.

“A benefit of the division elimination that at least I had underestimated was the benefit that we're now getting on how we can now collaborate with our vendors,” she explained. “The New York location as a central organization has allowed us to be with our vendors day-in and day-out on a very informal basis, and that increased level of partnership is just terrific.”

Earnings fell 88.2% to 2 cents per share for the quarter ended Aug. 1, owing to 18 cents worth of restructuring charges. But with the $77 million in after-tax charges removed (18 cents per share), Macy's 20 cents per share profit beat the company's guidance for 15 cents to 17 cents per share earnings excluding charges.

Macy's subsequently raised its outlook for the year. The company now expects 2009 fiscal comps to decline in the range of 7.0% to 7.5% as opposed to an earlier estimate of 6.0% to 8.0%. The company anticipates comps during the second half will fall between 5% and 6%.

“As we head into the fall season and especially the critical fourth quarter, we are therefore feeling cautiously optimistic that we can begin to make some progress on the top line in spite of the expected continued economic weakness,” Hoguet said.

Second-quarter sales fell 9.7% to $5.16 billion, from sales of $5.72 billion in the second quarter of 2008. On a same-store basis, the department store chain's second-quarter sales were down 9.5%.

Year-to-date, Macy's sales totaled $10.363 billion, a 9.6% drop from the year-ago 26-week period, when sales were $11.465 billion. Comps fell 9.3%.

“Bloomingdale's performance has been less favorable than Macy's,” Hoguet said.

But during this past spring selling season, My Macy's districts in total outperformed the remaining stores by 2.6 percentage points, “and in the first half of the year, eight of our top 10 districts were My Macy's pilot markets, with the remaining two being the Houston and Louisiana area,” she added.

Encouraged by the results, My Macy's began to roll out to 49 new districts nationwide during the second quarter — and now My Macy's is fully implemented, Hoguet said.

Going forward, Macy's expects the new district additions to “come up to speed and begin producing results that parallel the pilot districts,” said Terry Lundgren, chairman, president and ceo. “As previously stated, we expect to see some improvement in these new districts in the fourth quarter of 2009 and especially in spring 2010.”

While the second quarter was soft for Macy's overall, the retailer's exclusive Martha Stewart Collection as well as housewares were singled out as bright spots. Furniture and mattresses, however, were among the weakest families of the business.

The company's e-commerce business also showed strong sales. Online sales for www.macys.com and www.bloomingdales.com combined rose 9.4% in the second quarter and 12.7% for the first half — positively affecting the company in the two periods with same-store sales improving by 0.5 percentage points. Online sales are included in the same-store sales calculation for Macy's, Inc.

“Our online sales continued to be strong … as we continued to develop a more integrated store-and-website strategy at both Macy's and Bloomingdale's,” Hoguet said.

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