Macy’s reported Wednesday a nearly 16 percent increase in net income for its second quarter, helped by cost-cutting and its strategy to tailor its merchandise to local markets.
The department chain also raised its annual earnings guidance.
Macy’s Inc., which has been a standout among its peers throughout the economic recovery, is the first in a series of major retailers that will report second-quarter results that will provide insight into how Americans are spending. The results from Macy’s may reassure economists concerned that shoppers could pull back as the crucial back-to-school selling season begins.
Like many department stores, Macy’s suffered during the recession. But the retailer has been able to navigate through the slow recovery better than rivals such as J.C. Penney Co. and Kohl’s Corp. Macy’s, however, acknowledged continued economic challenges.
“Clearly, we are not operating in an ideal macroeconomic environment,” Karen Hoguet, Macy’s chief financial officer, told analysts during a call.
Macy’s also conceded business was hurt in the second quarter by lower spending by international tourists and temporary disruptions related to its major renovation of its flagship store in Manhattan.
In a statement, Terry J. Lundgren, chairman, CEO and president, said Macy’s is staying firmly focused on driving profitable sales growth while running the business with discipline.
Macy’s said that its net income rose to $279 million, or 67 cents per share, for the three-month period ended July 28. That’s up from $241 million, or 55 cents per share, in the year-ago period. Revenue rose 3 percent to $6.12 billion from $5.94 billion a year ago.
Analysts surveyed by FactSet had expected earnings of 64 cents per share on revenue of $6.13 billion.
Revenue at stores open at least a year, a key gauge in measuring a retailer’s health, also rose 3 percent, helped by surging online sales. Sales were uneven with June’s sales below expectations followed by a July rebound, Hoguet said.
“We are entering the fall season with optimism about our ability to grow sales and capture market share,” Lundgren said in a statement.
A big part of Macy’s strategy has been to tailor its fashions to local markets.
Macy’s, based in Cincinnati, has been catering to local customers in a way that had been lacking since the chain ditched its numerous regional nameplates such as Marshall Field’s and Hecht’s in 2006.
The company also has added exclusive brands like Tommy Hilfiger. It has improved sales force training. By the end of the month, Macy’s will be using 290 stores, or more than a third of its total, as online sales fulfillment centers.
“Macy’s has a very good reputation for what they do,” said Ron Friedman, head of the retail and consumer products group at Marcum LLP, an accounting firm. “They have got their customers coming into the store because of special merchandise and sales.”
Analysts say that Macy’s is benefiting from the woes at J.C. Penney, which implemented a new pricing plan that hasn’t yet resonated with shoppers. The plan involves dumping hundreds of sales events in favor of lower pricing every day. Some Penney shoppers miss the big sales signs and coupons.
Hoguet told analysts in May that sales were rising at Macy’s stores that share malls with Penney stores. Penney is expected to report its second consecutive quarterly loss and drop in sales when it reports results Friday.
Arnold Aronson, managing director of retail strategies at consulting firm Kurt Salmon, says, “Mathematics don’t lie. Macy’s certainly has to be picking up some share from Penney.”
Meanwhile, Macy’s said Wednesday that it will take a planned break in the multiyear remodeling of its Herald Square store renovations.
Macy’s said that it now expects earnings per share for the full year to be in the range of $3.30 to $3.35. That’s an increase from its previous guidance of $3.25 to $3.30. The company, however, still believes that revenue at stores opened at least a year will rise about 3.7 percent for the year. Analysts expected $3.36.