Macy's hopeful despite forecast miss

Retailer sticks to full-year outlook after April sales surge

Macy’s Inc. said Wednesday that its business improved in April as the weather improved and more shoppers flocked to stores, such as this one in Braintree, Mass.
Macy’s Inc. said Wednesday that its business improved in April as the weather improved and more shoppers flocked to stores, such as this one in Braintree, Mass.

NEW YORK -- After a slow, cold winter, Macy's Inc. saw its business improve in April as the spring thaw heated up shoppers' demand for shorts and T-shirts, the department store chain said Wednesday.

But Mother Nature's aid came too late to help the department store chain's first-quarter sales, which missed expectations despite a 3.2 percent increase in profit.

Macy's stuck by its full-year earnings outlook, indicating that it thinks the April sales surge will continue.

"Expenses were tightly managed," Richard Jaffe, an analyst with Stifel Financial Corp. in New York, wrote in a note to clients Wednesday. "Management indicated that trends improved in April when the weather turned seasonable. We believe Macy's is well-positioned as a dominant apparel retailer and in a better position than most to gain market share."

Investors pushed shares slightly higher in midday trading as Macy's raised its dividend by 25 percent and increased its stock buyback program as a reflection of its confidence.

"Overall, business trends were soft in January through March, with the exception of the Valentine's Day shopping period," Macy's Chairman and Chief Executive Officer Terry J. Lundgren said in a statement. "The trend improved in April when the weather began to turn in northern climate zones. We see this as a good sign moving forward into the second quarter."

Macy's, a standout among its peers throughout the economic recovery, is the first of the major retailers to report first-quarter results, which should provide insight into shoppers' mindsets heading into the summer season. Wal-Mart Stores Inc. and J.C. Penney Co. are scheduled to report their results today.

Like many retailers, Macy's, which has corporate offices in Cincinnati and New York, was hurt by winter snowstorms and rain that kept shoppers away from malls. It's still unknown whether stores can make up for the lost business.

Macy's and others that cater to middle-class shoppers are facing economic hurdles. While the job market is improving and the housing market is rebounding, the gains are not strong enough to sustain big shopping sprees.

"We think that the consumer is OK, but not great," Karen Hoguet, Macy's chief financial officer, told investors on Wednesday.

That's why Macy's, which also operates the upscale Bloomingdale's chain, has to focus on controlling what it can.

The retailer has benefited from its focus on tailoring merchandise to local markets. Macy's is also trying to create a more seamless experience for shoppers who are going back and forth from stores to websites.

Cost-cutting efforts that will trim 1,800 jobs, saving the company $100 million per year, helped first-quarter profit.

Macy's said it earned $224 million, or 60 cents per share, in the quarter that ended May 3. That compares with $217 million, or 55 cents per share, a year earlier.

Revenue slipped 1.7 percent to $6.28 billion.

Analysts expected a profit of 59 cents on revenue of $6.46 billion.

Revenue at stores open at least a year fell 0.8 percent, matching Wall Street estimates.

Macy's raised its dividend to 31.25 cents from 25 cents. It also announced its board reauthorized a $1.5 billion increase in its share buyback program.

The company also reiterated its outlook for earnings of $4.40 per share to $4.50 per share. Analysts expected $4.46 per share, according to FactSet.

Macy's shares fell 1 cent to close Wednesday at $57.83.

Information for this article was contributed by Cotten Timberlake of Bloomberg News.

Business on 05/15/2014

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