By  on November 11, 2009

Macy’s, the nation’s biggest department store chain and an industry bellwether, cut its losses in the third quarter and now has a brighter outlook on the holiday season.

Executives, in a surprisingly upbeat mood despite the nation’s rising unemployment and economic uncertainties, said the new view stems from a recent uptick in mall traffic; strong sales of private labels, exclusive merchandise and online; better business at Bloomingdale’s; lower inventories overall, and the My Macy’s localization program. However, the retailer’s shares fell Wednesday after its fourth-quarter profit projection was below Wall Street’s expectations.

“I’m relatively surprised at the positive trends in traffic in the malls and the fact that our business is doing as well as it is,” Terry Lundgren, Macy’s Inc. chairman, chief executive and president, told WWD on Wednesday, after the 850-unit chain reported net losses for the quarter ended Oct. 31 narrowed to $35 million, or 8 cents a share, from $44 million, or 10 cents, a year earlier.

“There is no question unemployment at above 10 percent looms very large on the minds of consumers and my mind as well,” Lundgren added. “But I am encouraged that we’re getting our share of the business that’s out there. I’ve been out to my stores a lot — 25 of our 69 districts in the last 100 days — not only am I seeing traffic generally positive in the malls, but our people are very upbeat.”

“Our third-quarter performance exceeded our expectations. It was driven by our improved sales performance, almost six full points from our spring trend,” said Karen Hoguet, chief financial officer, during a conference call. “It bodes well for the very important fourth quarter.…We continued to see strong results in My Macy’s pilot districts,” which outperformed legacy doors by 1.9 points, Hoguet said.

Excluding restructuring charges, losses narrowed to 3 cents a share and were better than the 7-cent deficit analysts expected. Sales slipped 3.9 percent to $5.28 billion in the quarter from $5.49 billion a year ago. On a same-store basis, sales were down 3.6 percent, representing an improved trend compared with the year-to-date at negative 7.5 percent.

Adjusted fourth-quarter earnings are slated to come in at $1 to $1.05 a share, putting profits for the full year at $1.01 to $1.06. Analysts have been looking for fourth-quarter profits of $1.17. With Macy’s profit projection, its shares ended the day at $17.86, down $1.57 or 8.1 percent.

“I can’t control the Street,” Lundgren said. “We beat the consensus for the third quarter and then they get way out in front of us for the fourth quarter. We forecast in a range we believe we can achieve. There continues to be a challenging business environment. It’s going to be a market share game in the fourth quarter this year. We believe we are prepared to capture market share. We have an organization structure like no other in the retail industry.”

Fourth-quarter comparable-store sales are slated to be down 1 percent to 2 percent, which is pretty much in line with various industry estimates for the period ranging from down 2 to plus 2 percent. The National Retail Federation, for example, projects holiday sales to drop 1 percent from last year to $437 billion.

Macy’s raised its sales guidance to down 2.1 percent to 2.6 percent in the second half of 2009 from previously predicting down 5 percent to 6 percent. And for the year, sales are now seen at down 5.4 percent to 5.7 percent, from the previous forecast of negative 6 percent to negative 8 percent.

For months, Lundgren and his top lieutenants have been talking up the My Macy’s strategy, which established a field organization of merchandisers and planners across 69 districts around the country to get a better read on local preferences and needs at individual stores, and feeds the information to the central offices to make assortment changes. It’s been a big investment for Macy’s coming up against major cost-cutting initiatives involving layoffs and centralizing by eliminating regional nameplates and operations. My Macy’s has already had some positive impact on the business, although the real impact should be in the spring and fall of 2010, Lundgren said. “We are capturing information like we have never captured before at point of sale,” including details about sizes and styles. “If you talk to sales associates on the floor, clearly they feel that their voice is being heard and responded to,” he said.

Among Macy’s bestsellers last quarter, Lundgren cited the INC private brand; the Rachel Rachel Roy exclusive, which will be rolled out well beyond the initial 80 doors; Tommy Hilfiger in men’s and women’s, and the Donald Trump and Martha Stewart brands, which are also exclusive.

Specifically in apparel, “Right now, what’s working best is our social occasion product,” Lundgren said, noting the category has been abetted by new ‘Bedazzled’ visual statements in better sportswear departments. They take “a strong point of view” on glitter, and spotlight sweaters, social occasion dresses, shoes and handbags, he said. Leggings for cold weather and with some shine, and skinny pants for men and women, are also selling well.

Lundgren also singled out Bloomingdale’s for “coming on strong in September and October. It got hit harder than Macy’s [last year] but did not drop as much as its high-end competitors and is now outperforming competitors, even on a two-year basis.”

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