Macy’s Inc.’s profits and sales tumbled in the second quarter due to the rough economy and costs from eliminating divisions and the My Macy’s localization initiative.
Profits fell 90.4 percent and same-store sales dropped 9.5 percent in the second quarter ended Aug. 1.
However, officials stressed Macy’s cash flow continues, that the chain is performing on par or ahead of department store competitors, and they raised the earnings guidance for the year to 70 cents to 80 cents per share, excluding restructuring-related costs, from the previous 40 cents to 55 cents.
Macy’s also fine-tuned its same-store sales projection in the second half to be down 5 to 6 percent, and down 7 to 7.5 percent for the full year. Previously, Macy’s saw the range for 2009 of negative 6 to 8 percent.
Overall, profits in the quarter declined to $7 million, or 2 cents a diluted share, from $73 million, or 17 cents a share, a year ago. The results include restructuring charges of $34 million ($77 million after tax, or 18 cents a diluted share) related to division consolidations and localization initiatives. Excluding these charges, the company earned 20 cents a diluted share in the second quarter, which beat recent guidance of 15 cents to 17 cents.
For the first half, Macy’s lost 19 cents a diluted share, compared with earnings of 3 cents in the first half of 2008. Excluding restructuring costs of $172 million ($97 million after tax, or 23 cents a diluted share), earnings were 4 cents in the first half of 2009.
Sales in the second quarter totaled $5.16 billion, down 9.7 percent from $5.72 billion in the year-ago period. For the half, Macy’s sales totaled $10.36 billion, down 9.6 percent from total sales of $11.47 billion, and on a same-store basis fell 9.3 percent.
Online sales rose 9.4 percent in the quarter and 12.7 percent in the half.
Macy’s operating income totaled $248 million compared with $259 million for the same period last year. Cash flow was $436 million in the first half of 2009, compared with $592 million in the 2008 half.
“We were able to exceed our expectations with strong earnings and cash flow in the second quarter, despite lower sales in an economic environment that continues to be very difficult,” said Terry J. Lundgren, chairman, president and chief executive officer of the 840-unit, $25 billion Macy’s Inc. “In particular, we successfully lowered inventories and managed expenses to align more closely with current levels of business. Our second-quarter same-store sales performed as well as or better than most department store retailers even while we were completing the largest organizational transition in Macy’s recent history,” involving eliminating divisions to create a central organization. “Most of that transition work is behind us now.”
Lundgren said the new structure is “settling in and working well.…It has allowed us to streamline decision-making and build closer relationships with our key vendor resources.”
“It was a very encouraging quarter for Macy’s,” added Karen Hoguet, chief financial officer, during a conference call. Apparently, Wall Street agreed, pushing the stock up 93 cents, or 6 percent, to $16.40.
But she said Macy’s would have done better if inventories were more in line with sales. “This remains a very promotional environment,” said Hoguet.
Due to the new central structure, “We are even getting more offers to do exclusive lines or exclusive parts of lines,” Hoguet said. “Over time, this will be a bigger part of our mix.”
Officials cited other progress in the quarter, including the My Macy’s initiative, which is being rolled out nationally, with those stores originally operating under the localization program since 2008 outpacing other stores by 2.6 percentage points. “So many great ideas are being generated to help meet the needs of local customers,” Hoguet said.
Last quarter, moderate apparel in men’s and women’s, housewares, cosmetics, kids’ apparel, private brands and the exclusive Tommy Hilfiger and Martha Stewart collections were the strongest sellers and early selling in the store’s newest exclusive, Rachel by Rachel Roy, is encouraging. Macy’s weakest categories were furniture, mattresses and handbags. The Midwest and Texas were the best-performing regions; California and the Southeast were the worst. Bloomingdale’s sales were weaker than Macy’s, though Bloomingdale’s saw some improvement in the second quarter.