Macy's Inc. on Wednesday reported a 64 percent increase in second-quarter earnings, becoming the first major retailer to post results following a downgrade of U.S. debt late last week that led to growing fears among consumers about the possibility of another recession.
The department store chain, which also boosted its full-year outlook, said its strategy of tailoring merchandise for local markets is helping it to overcome an overall sluggishness in the economy. Macy's results, which beat Wall Street estimates, cover the period before Standard & Poor's downgrade came late Friday, but so far executives say business has continued strongly since then.
Karen Hoguet, Macy's chief financial officer, cautioned that it's too early to judge how shoppers will react to the stock market falloff that followed the downgrade and other bad economic news. She said Macy's will be carefully watching the financial markets and will adjust its strategies if needed.
"We remain cautious but optimistic," Hoguet said. "We can't ignore all that is going on in the world this week, but we also can't ignore the momentum we have nor the confidence we have in our strategies."
Macy's is the first of a series of retailers that plan to report earnings this week as they head into the two biggest shopping periods of the year __ back-to-school and the winter holidays. The back-to-school season, which runs roughly from mid-July through September, started off well, but there is fear in the industry that consumers will pull back on spending amid a shaky stock market, rising prices on food and clothing and overall economic uncertainty. That would be bad news since retailers count on the combined shopping periods for as much as half of their annual revenue and consumer spending accounts for 70 percent of the economy.
Macy's, which owns Macy's and Bloomingdales chains, reported that its net income rose to $241 million, or 55 cents per share, in the three months ended July 30. That's up from $147 million, or 35 cents per share in the year-ago period. Analysts had expected earnings of 48 cents on revenue of $5.84 billion.
Revenue rose 7.3 percent to $5.94 billion from $5.54 billion a year ago. Revenue at stores opened at least a year __ a key indicator of a retailer's wealth __ rose 6.4 percent. Online revenue, which are included in the calculations of revenue at stores opened at least a year, soared 40.2 percent in the second quarter.
Chairman and CEO Terry J. Lundgren described the quarter in a statement Wednesday as "the most successful second quarter and spring season in more than a decade."
The company said it's benefiting from the strategy Lundgren conceived to localize merchandise as consumer spending began slowing down in 2007. Stocking more products that cater to specific regions, like more business suits in Washington, D.C., for instance, was lacking since the chain ditched its regional nameplates such as Marshall Field's and Hecht's.
A better-trained sales force also helped. Last September, the company trained about 130,000 sales associates and managers on engaging customers. A big component is more intense coaching of workers by its store and district management teams.
Macy's, like other retailers, also has raised prices recently to offset increasing costs for materials and production. The company said that prices on goods are rising on average anywhere from 5 to 7 percent this fall compared with a year ago. So far, there's been less price resistance on trendy fashion as opposed to basics, as expected, and the chain has reduced the number of basics.
"To date this year, we have driven significant additional sales growth, gained market share, maintained strong margins, managed expenses and generated a very healthy level of cash," Lundgren said in the statement. "We have moved quickly to establish a culture of growth at Macy's Inc. since reorganizing the company in 2008 and 2009, and yet we feel we are just beginning to take advantage of the benefits we envision."
Macy's said it expects revenue at stores opened at least a year for the second half to be up between 4 percent and 4.5 percent. That would result in the key revenue measure being up anywhere from 4.8 percent to 5.1 percent.
Based on stronger-than-expected business, Macy's says it now expects full-year earnings to be in the range of $2.60 to $2.65. That compares with a previous guidance of $2.40 to $2.45 per share. Analysts had expected $2.58 per share for the year.
Macy's shares were unchanged at $25.44, dragged down by a broad stock market drop.