But the sales drop was less than the company expected, leading to the raised guidance for the fourth quarter and full year. Macy's now expects comparable sales will be down 1% to 2% in the fourth quarter and down 5.4% to 5.6% for the year, better than the 6% to 8% it had forecast before. Earnings per share will hit $1.01 to $1.06 for the year, better than the 70 cents to 80 cents Macy's was expecting until recently.

All regions around the country showed better sales results, as did most product categories. The weaker ones included dresses, fragrances, men's shoes, handbags and tablewear.

"Sense of Momentum"

The parent of the Macy's and Bloomingdale's chains has cut costs and had a higher profit rate during the third quarter, said Chief Financial Officer Karen Hoguet. Macy's ended the quarter with more cash on its balance sheet than it had last year at the same time, she said.

"There's a sense of momentum at Macy's Inc." said Hoguet in a conference call with investors. She said comparable-store sales were about six percentage points better than in spring, and the falloff in revenue per unit sold in the third quarter mirrored the sales drops, which means store traffic and sales volume are also improving with time.

"We are well prepared for the holiday season," said Hoguet. "Marketing support will be strong, the stores look terrific.... Our inventories have been well edited."

Responding to Customer Demand

Macy's ended the quarter with inventories 7% below last year's levels, but Hoguet said not to worry, that the stores will have fresh merchandise for the holidays. Macy's is working with its vendors to react more quickly to customer demand, and while Macy's still expects to end the year with less inventory, it won't be 7% below than last year's, she added.

"In every Christmas season we end up out of stock on the most wanted item, but I don't see a significant risk," Hoguet said. "[Merchandise] is fresher, and there's less of it, so the markdowns should be a lot less than a year ago."

But all predictions have caveats, Hoguet warned. Indeed, amid the current economic uncertainty, recovery is still hardly a sure thing. "Unfortunately," she added, "we will all have to wait and see."