Macy's Profit Surges 64%, Boosts Outlook

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Macy's Inc. (M) reported a 64 percent increase in its second-quarter profit as its strategy of tailoring merchandise to local markets is helping to overcome an overall sluggishness in the economy. The department store chain is also boosting its full-year profit outlook.

Chairman and CEO Terry J. Lundgren described the quarter as "the most successful second quarter and spring season in more than a decade."

The results announced Wednesday beat Wall Street estimates. Its shares rose 77 cents, or 3 percent, to $26.21 in premarket trading.

The company that operates Bloomingdale's as well as its namesake Macy's stores reported that its net income climbed 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.

Revenue rose 7.3 percent to $5.94 billion from $5.54 billion a year ago.

Analysts had expected earnings of 48 cents on revenue of $5.84 billion.

Revenue at stores opened at least a year rose 6.4 percent. The measure is a key indicator of a retailer's health.

"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," said Lundgren in a 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," he said.

Given the recent stock market turbulence and increasing concerns about the health of the economy, Lundgren added that the company will "closely monitor developments in the economy and financial markets" and is "staying focused on those factors we can control."

Lundgren conceived of the localization strategy as consumer spending was slowing down in 2007. Stocking more products that cater to specific regions, like more business suits in Washington, D.C., was lacking since the chain ditched its numerous regional nameplates such as Marshall Field's and Hecht's during the mid-decade. The benefits starting to hit their stride starting late last year after the strategy went national.

A better-trained sales force is also helping. Last September, the company trained about 130,000 sales associates and managers on engaging customers, its most comprehensive effort. A big component is more intense coaching of workers by its store and district management teams.

The company gets about 43 percent of its revenue from private, exclusive and limited-distribution brands, which has also beefed up profit margins.

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.

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