Macy’s profit climbs despite drop in sales

Macy's

By Ryan Sachetta

Shares of Macy’s, Inc. moved higher Wednesday after the company released stronger-than-expected third quarter earnings. Sales at the national retailer showed unexpected weakness, however, in a performance that underscored the pressures that continue to squeeze the retail industry.

For the quarter ended November 1, Macy’s reported net income of $217 million, or 61 cents per diluted share, compared with $177 million, or 47 cents per diluted share, a year earlier. Sales sagged to $6.2 billion from $6.28 billion a year earlier. Analysts had estimated third quarter sales would increase to $6.34 billion, according to Bloomberg.

The Cincinnati, Ohio-based company’s 61 cents per diluted share bested the 50 cents analysts surveyed by Yahoo Finance had been anticipating.

“We found that we were not immune to the weaker than anticipated consumer spending, which has been acknowledged or reported by other retailers,” Chief Financial Officer Karen Hoguet told analysts during Wednesday’s conference call. The slump in spending prompted the company to lower its forecast for earnings per share for the full-year 2014 to $4.25 to $4.35 from its previous $4.40 to $4.50.

Comparable store sales – those at stores open at least twelve months — declined 0.7 percent in the third quarter, in sharp contrast to the a 3.5 percent increase from a year earlier.

Macy’s was able to ring up higher earnings on lower sales because it has been cutting costs: As a result of that effort selling, general and administrative expenses in the third quarter declined 4.4 percent from a year earlier to $2.01 billion.

“Macy’s has made steady progress on operating margins since the recession,” wrote Morningstar analyst Paul Swinand in a research note published Wednesday. “And despite being later in the operations improvement process and ongoing investments to drive online selling and engagement, we believe management can continue to uncover opportunities for the next several years.”

Hoguet, the CFO, said that the company performed particularly well in fragrances, handbags and millennial apparel, but characterized third quarter sales of cosmetics, housewares, women’s shoes, and non-millennial feminine apparel as weak. “We were disappointed, however, that we did not sustain the momentum of the strong start to our back-to-school business in kids,” she said.

The retail industry hopes to capitalize on the recent decline in gas prices, which is putting more money in shoppers’ pockets.

In early afternoon New York Stock Exchange trading Wednesday, Macy’s shares rose $2.50, or 4.27 percent, to trade at $61.09.

Macy’s recently announced that it plans to open on Thanksgiving at 6 p.m., two hours earlier than last year, to attract Black Friday shoppers.