In a high-stakes gamble, Macy’s Inc. has doubled down for the fourth quarter.

This story first appeared in the November 13, 2008 issue of WWD. Subscribe Today.

Unlike many retailers, the department store on Wednesday affirmed its expectations for the full year even as it reported a net loss of $44 million in the third quarter ended Nov. 1. The guidance leaves the vast majority of its projected earnings for the fiscal year dependent on fourth-quarter results and the whims of increasingly skittish consumers, who appear more reluctant than ever to part with disposable dollars.

Reflective of its questions about 2009, the retailer cut its capital expenditure plans nearly in half.

Excluding onetime consolidation costs and asset impairment charges, Macy’s, as it has since last month, continues to anticipate earnings of $1.30 to $1.50 a diluted share this year, with $1.10 to $1.30 of that expected in the current quarter.

The company’s loss in the third quarter translated to 10 cents a share and compared with year-ago earnings of $33 million, or 8 cents. Excluding divisional consolidation costs this year and integration costs last year, the retailer swung to losses of 8 cents a diluted share from profits of 10 cents. Analysts were looking for even steeper losses of 19 cents a share, according to Yahoo Finance.

Sales for the three months slid 7 percent to $5.49 billion from $5.91 billion. Same-store sales declined 6 percent.

For the first nine months, Macy’s losses weighed in at $30 million, or 7 cents a diluted share, and compared with earnings of $143 million, or 31 cents, a year earlier. Sales fell 4.3 percent to $16.96 billion from $17.72 billion as same-stores sales dipped 3.5 percent. Excluding special charges, year-to-date EPS is 20 cents a share.

But Macy’s is far from alone, and concerns about holiday business and beyond helped drive the Standard & Poor’s Retail Index down 5.8 percent Wednesday to 245.20, within striking distance of its all-time low of 241.69 on Oct. 24. The index’s records go back to its June 2002 recalibration.

Macy’s shares fell $1.04, or 11.1 percent, to $8.37, just 1 cent above their low for the day.

Beyond the difficult holiday season ahead, the outlook for Macy’s and its retailing peers only becomes murkier, and the company said it won’t be able to project what the business climate will look like next year until the end of December.

“We do feel very prepared for the next 60 days,” Karen Hoguet, Macy’s chief financial officer, said on a dour conference call with Wall Street analysts. “Our assortments are looking great and full of great values and newness. Our price points are sharper than ever….But we can only control so much. We’ll have to see how it plays out, but we still hope to improve on our third-quarter sales trend.”

Hoguet said fourth-quarter sales and profits would be at the lower end of those projections if sales don’t improve from October and the trend in the third quarter.

“But while we are hopeful for the fourth quarter, I have to caution we are less confident about spring 2009,” she said. “Until we are through the next 60 days, we won’t know how to guide you about 2009. But I’ll tell you that we are taking a conservative approach and planning those longer lead time items.”

The company said it was financially healthy, with strong cash flow and a solid balance sheet, but would cut capital expenditures next year to $550 million to $600 million, down from the $1 billion previously projected and the $950 million expected for this year.

Macy’s has had to beat back market speculation about its debt levels and financial fortitude since the summer. On the conference call, Hoguet fielded pointed questions from Wall Street on the company’s debt position.

Charles Grom, a J.P. Morgan Chase & Co. equity analyst, asked, hypothetically, what would happen if the company violated one of its debt covenants, or conditions under which the credit was granted, during the fourth quarter of next year.

Hoguet said she didn’t think that would happen but noted: “My guess is if that would happen, we would be able to renegotiate, possibly a smaller [credit] facility than $2 billion and for sure more expensive than what we are paying today. But I don’t think it would be likely that the bank group would walk away from us….Obviously, all the banks in our credit facility, we have close relationships with, which theoretically should help in that situation.”

Ed Henderson, vice president and senior analyst at Moody’s Investors Service, concurred with Hoguet’s assessment.

“If they trip a covenant for whatever reason, particularly for a noncash charge, the banks aren’t going to walk away from them,” Henderson said. “Why do they want to create a major issue with Macy’s, which is still generating cash? They’re still a strong entity.”

For now, at least, investors are nervous about holding onto retail stocks to see how consumer behavior plays out. Some are reportedly moving into short stocks, betting they will fall.

In a rash of discouraging reports revolving around consumer sentiment, electronics retailer Best Buy Co. cited “uncertainty regarding future consumer spending” in lowering its earnings guidance Wednesday and a downgrade from Brean Murray Carret & Co. analyst Eric Beder to “sell” from “hold” sent J. Crew Group’s stock down 16.3 percent to $11.64. The intraday low of $11.60 was its lowest level ever.

“The company has continued to reel under a weak economy and a customer base that is not shopping for J. Crew’s bread and butter basics,” Beder said in a report titled “Believe Worst Still to Come.” “Further, it is becoming increasingly obvious to us, through our surveys and store tours, that J. Crew has been forced to become more and more aggressive to clear out inventory after entering [the third quarter] with an additional $15 million in goods.”

J. Crew has had 30 percent online discounts and 50 percent in-store promotions.

Wal-Mart Stores Inc., J.C. Penney Co. Inc., Kohl’s Corp. and Abercrombie & Fitch Co. are among the stores scheduled to weigh in with third-quarter results this week and are expected to give further testament to the damage wrought on consumer spending when the banking crisis hit high gear in September and October.

Among the handful of advancers Wednesday was Charlotte Russe Holding Inc., which saw its stock shoot up 18.3 percent to $8.15 after an investment group led by a former director offered to buy the firm for $9 to $9.50 a share in cash. (See related story: Karp Investment Group Bids for Charlotte Russe.)

Retail decliners for the day included Pacific Sunwear of California Inc., down 23.6 percent to $2.04; Eddie Bauer Holdings Inc., 16.4 percent to $1.43; The Talbots Inc., 15.2 percent to $4.20; Chico’s FAS Inc., 12.8 percent to $2.38; Charming Shoppes Inc., 11 percent to 97 cents; Saks Inc., 11.8 percent to $4.18; Sears Holdings Corp., 10.6 percent to $44.88; Urban Outfitters Inc., 10.1 percent to $15.21; Abercrombie & Fitch Co., 9.9 percent to $20.96; Gap Inc., 8.8 percent to $11.06; American Eagle Outfitters Inc., 8.7 percent to $8.79 and Target Corp., 7.2 percent to $33.28.

Traders also pushed down shares of key vendors, including Liz Claiborne Inc., which fell 17.5 percent to $4.70 after posting third-quarter losses earlier in the week; Jones Apparel Group Inc., 11.8 percent to $6.81; G-III Apparel Group Ltd., 9.9 percent to $10.15; True Religion Apparel Inc., 7.5 percent to $12.38 and The Warnaco Group Inc., 7.2 percent to $16.83.

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