Macy's Q2 Profits Surge on Growing Market Share

Macy’s Inc.‘s net income surged in the second quarter as the department store chain saw a payoff from its focus on exclusive moderate-price fashions and tailoring merchandise to local markets.

The company, based in Cincinnati, boosted its profit outlook and increased its forecast for a key revenue measure as it takes market share from rivals such as J.C. Penney.

“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,” Karen Hoguet, Macy’s chief financial officer, told investors during a conference call Wednesday.

The indications that Macy’s will be a clear winner as retailer’s earnings season gets under way drove its stock up $1.14, or 5.9 percent, to close at $20.52 Wednesday.

The chain said Wednesday that it posted net income of $147 million, or 35 cents per share, for the period ended July 31. That compares with $7 million, or 2 cents per share, in the same period last year.

Revenue rose 7.2 percent to $5.54 billion. For the quarter, revenue at stores opened at least a year increased 4.9 percent. Revenue at stores opened at least a year is considered a key measure of a retailer’s health.

Analysts surveyed by Thomson Reuters had expected 28 cents per share on revenue of $5.5 billion.

Macy’s is expected to be among only a few bright spots in the pile of retailers’ second-quarter earnings reports. After a suprise pickup in consumer spending earlier in the year, most retailers have seen a slowdown since April as the economic recovery is stalling and the job market remains stagnant.

With shoppers keeping a lid on spending, any sales gains are coming at the expense of other retailers. In fact, July’s revenue reports released last week showed that Macy’s better-than-expected sales is coming at the expense of J.C. Penney Co., which reported a surprise decline and warned that its second-quarter net income will come at the end of its previous forecast. The figure was based on revenue at stores opened at least a year.

“We believe our business is beginning to hit its stride after implementing significant structural and organizational changes over the past two years,” Terry J. Lundgren, Macy’s chairman, president and CEO, said in a statement.

In particular, Macy’s has greatly benefited from its localization plan, which puts decisions on what merchandise to stock closer to customers. It has also put more experienced workers on its sales floor.

For example, Lundgren has said that Macy’s added more career dresses and navy pumps at its Washington, D.C. store, a move that helped to boost sales. Washington, with a strong base of government workers, typically has shoppers with more conservative fashion tastes.

Its moderately priced fashion exclusives include the recently launched Material Girl, a teen line created by pop star Madonna and her 13-year-old daughter Lourdes. The line sells from $12 to $40.

Hoguet told investors that the early signs of back-to-school selling have been “encouraging” and that its Material Girl launch is off to a “terrific” start. She noted that Macy’s expects its business to be further boosted by a better-trained sales force. By the start of September, Macy’s will have trained about 130,000 sales associates and managers on engaging customers.

“We have never done such a comprehensive effort before,” she said. A big component,she added, is more intense coaching of workers by its store and district management teams.

Based on strong revenue expectations, Macy’s boosted its full-year profit forecast to $1.85 to $1.90 per share for the second time. The company’s previous guidance was $1.75 to $1.80 per share. At the beginning of the year, Macy’s had forecast $1.55 per share to $1.60 per share. Analysts were expecting $1.86 per share.

The company said it now expects revenue at stores opened at least a year to rise between 3 percent and 3.5 percent. That would result in a full-year increase between 4 percent and 4.2 percent.

At the beginning of the year, the company’s initial forecast was for revenue at stores open at least a year to increase 1 to 2 percent.

ANNE D'INNOCENZIO, AP Retail Writer NEW YORK