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Macy’s Second-Quarter Net Up 16%

Retailer overcame economic headwinds and disruptive renovations at its Herald Square flagship to post its 10th-straight quarterly gain.

The Macy's building, originally ZCMI, dates to 1876.

Macy’s feels good about the future, particularly after a strong second quarter overcoming economic headwinds and disruptive renovations at its Herald Square flagship here.

This story first appeared in the August 9, 2012 issue of WWD.  Subscribe Today.

On Wednesday, Macy’s Inc. reported that net income in the quarter ended July 28 rose 16 percent to $279 million from $241 million, marking the retailer’s 10th-straight quarterly gain. As a result, the retailer raised its earnings guidance for 2012 to a range of $3.30 to $3.35 a diluted share, compared with previous guidance of $3.25 to $3.30. However, Macy’s kept its forecast for same-store sales in fiscal 2012 unchanged at about 3.7 percent ahead.

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Sales last quarter rose 3 percent on a comparable-store basis to $6.12 billion, from $5.94 billion. Earnings per diluted share were up 22 percent to 67 cents, compared with 55 cents in the year-ago quarter.

“I really do think that what separates the very best retailers is the consistency of execution and performance,” Terry J. Lundgren, Macy’s chairman, president and chief executive officer, told WWD. “You can have a good month or good quarter on top of a bad month or quarter, which is fine, but to have growth on top of growth is a real tribute to the strategy and the organization. We feel the momentum we have going now will continue into the second half.”

Lundgren characterized the Macy’s team as “very competitive” and thinking every day about how to elevate the business. “Our competition is not just the other stores in the mall — it’s ourselves.”

Macy’s was also able to overcome slower spending among international tourists. There will be a break in the renovation work at Herald Square so that customer shopping patterns are uninterrupted during the holiday season.

“We expect all of our first- and second-floor selling space at Herald Square to be fully reopened over the next 90 days, including the world’s largest women’s shoe department, which opens partially this month and will continue in stages in the months ahead,” Lundgren said. The first phase of the shoe floor opens Friday.

Watches, handbags, cosmetics, textiles, furniture and mattresses did best last quarter. Men’s wear, in general, had a tougher second quarter than first quarter, though the business is still strong on a two-year basis. Women’s apparel overall remains the weakest part of Macy’s, though many retailers have seen softness in women’s over a sustained period.

“In spite of our strong gains in overall comp-store sales for the last two-and-a-half years, women’s apparel has been much more challenging,” Lundgren said. “It’s been the weakest performer of all categories. The good news is it’s starting to get better, partly because we are up against weaker numbers. Another part is the brands we counted on for so long are beginning to perform. There are some brands really just starting to check. We are not out of the woods yet but there has been a turn for the better.” It’s noticeable in younger businesses, including juniors, kids’ and young men’s, while contemporary apparel has been a better part of the apparel business for a while, Lundgren said.

Karen Hoguet, Macy’s chief financial officer, said during a conference call: “We’ve had a very good spring season with some of the classic businesses, most notably private brands like Charter Club and Karen Scott, but the strength there wasn’t enough to pull up the whole [women’s] category to make it strong.

Hoguet said Bloomingdale’s had a tougher second quarter than first quarter, but as with Macy’s, July was stronger than June. Both macys.com and bloomingdales.com had “great” second quarters, Hoguet said.

Noting advancements in its omnichannel strategy, the cfo said Macy’s currently has 280 stores fulfilling orders either from other stores and/or from macys.com. “We will be at 290 stores by the end of the month. And that’s where we will stay for the remainder of the year. This 292, though, compares to just 23 locations at this time last year. We are also now utilizing the fulfillment logic which is directing our orders more intelligently. The logic is based primarily on filling orders from stores or warehouses with the lowest sell-through of a particular item as well as the distance to the customer’s home.”

Hoguet noted that this year, there are two extra days between Thanksgiving and Christmas compared with 2011, fueling optimism for the fourth quarter, when Macy’s expects a higher comp increase than in the third quarter.