Macy's Q3 Profit Up 23%, Beats View; Lowers 2014 Outlook

(RTTNews) - Department store chain Macy's, Inc. (M) Wednesday reported a 23 percent increase in profit for the third quarter from last year as a decline in sales was offset by lower expenses and higher operating margins.

Earnings per share for the quarter beat analysts' expectations, while revenues missed their estimates. Looking ahead to fiscal 2014, the company lowered its outlook for earnings and comparable-sales growth.

Terry Lundgren, chairman and chief executive officer, said, "We knew we were up against very strong third quarter sales growth for our company last year, and thus we had anticipated that our year-over-year comparison would be lower in the third quarter than in the fourth quarter. Even so, sales did not live up to our expectations in the quarter."

The Cincinnati, Ohio-based retailer reported net income for the third quarter of $217 million or $0.61 per share, up from $177 million or $0.47 per share in the prior-year quarter.

On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $0.50 per share for the quarter. Analysts' estimates typically exclude special items.

However, net sales for the quarter declined 1 percent to $6.20 billion from $6.28 billion in the same quarter last year. Analysts were looking for revenue of $6.34 billion.

Comparable sales for the quarter, exclusive of licensed businesses, declined 1.4 percent. Comparable sales together with comparable sales of departments licensed to third parties decreased 0.7 percent.

Gross margin for the quarter was flat with the year-ago period at 39.2 percent, while operating margin improved 110 basis points to 6.8 percent.

Macy's noted that it was able to maintain gross margin flat to last year and reduce selling, general and administrative expense, even excluding the timing benefit of some items, including the sale of certain assets.

Cost of sales decreased 1 percent from the year-ago period to $3.77 billion, while selling, general and administrative expenses declined 4 percent to $2.01 billion.

Looking ahead to the fourth quarter, Macy's forecast comparable sales together with comparable sales of departments licensed to third parties to grow by about 2 percent to 3 percent, or increase in a range of 1.8 percent to 2.8 percent on a comparable sales basis, exclusive of licensed businesses.

For fiscal 2014, Macy's lowered its outlook for earnings to a range of $4.25 to $4.35 per share, from the prior range of $4.40 to $4.50 per share. Street expects the company to earn $4.40 per share for the year.

Macy's now forecasts full-year comparable-store sales, exclusive of licensed businesses, to increase in a range of 0.7 percent to 1 percent, down from its earlier expectations for an increase of 1.5 percent to 2 percent.

Full-year comparable sales together with comparable sales of departments licensed to third parties are now expected to increase by 1.2 percent to 1.5 percent, down from the prior range for increase of 2 percent to 2.5 percent.

Macy's said it has entered into a multi-year renewal agreement with Citi Retail Services for operation of the Macy's and Bloomingdale's proprietary as well as co-branded American Express credit card business. The new agreement, with substantially similar financial terms, will run through March 2025.

M closed Tuesday's trading at $58.59. In Wednesday's pre-market activity, the stock is up $0.86 or 1.47 percent to $59.45.