UPDATE 5-Macy's expects its Christmas stocking to be full

Wed Nov 10, 2010 7:01pm EST

* Q3 ex-items $0.08 vs Street view $0.05

* Sees Q4 same-store sales up 3-4 pct

* Now sees FY 2010 EPS $1.94-$1.99 vs Wall St view $1.96

* Kohl's sees Q4 same-store sales up 2-4 pct

* Macy's shares off 1.4 pct; Kohl's up 1 pct after-hours (Adds Kohl's results, analyst quote)

By Phil Wahba

NEW YORK, Nov 10 (Reuters) - Macy's Inc (M.N) forecast strong sales during the upcoming holiday season, saying it expects the success of its efforts to cater to local tastes and an uptick in spending at its upscale Bloomingdale's chain to continue.

Chief Executive Terry Lundgren said his company's performance "bodes well for our business as we enter the holiday selling season" after it reported better-than-expected third-quarter sales and profits.

Lower-priced rival Kohl's Corp (KSS.N) also forecast higher sales during the holiday season. [ID:nN10231951]

Macy's has led the charge among department store operators, consistently beating Wall Street sales forecasts, winning market share from rivals such as J.C. Penney Co Inc (JCP.N), and deftly positioning itself to take advantage of the recovery in the middle class's ability to spend, analysts said.

Sales rose 6.6 percent to $5.62 billion during the quarter ended Oct. 30, beating Wall Street forecasts of $5.56 billion, according to Thomson Reuters I/B/E/S.

Macy's sales at stores open at least a year, or same-store sales, rose 3.9 percent during the quarter, and Macy's reaffirmed its forecast that fourth-quarter same-store sales would grow by 3 percent to 4 percent.

(For a graphic of Macy's recent same-store sales performance, please see: r.reuters.com/res74q)

Later on Wednesday, Kohl's said it expected same-store sales to rise 2 percent to 4 percent in the fourth quarter, and its shares rose 1 percent in after-hours trading.

The holiday forecast comes after Kohl's last week reported an unexpected 2.5 percent drop in same-store sales in October.

"The sales forecast implies October was an anomaly for Kohl's," said Walter Stackow, an analyst with Manning Napier.

"Kohl's and Macy's have been gainers all year and market share begets market share," Stackow said.

Macy's gross margins edged down only slightly, falling 0.2 percentage point to 40 percent, signaling the retailer's inventory did not build up too much and a lower risk of discounting during the upcoming holidays.

"I think they're well positioned for the holidays in the sense that inventory is clean-- they've got stuff people want," said Morningstar analyst Paul Swinand.

Swinand also said that Bloomingdale's, which accounts for about 10 percent of sales, had allowed Macy's to benefit from the strong comeback in luxury sales in the United States.

Macy's shares, which last week hit a yearly high after the company reported strong October sales and raised its forecast, closed down 36 cents or 1.43 percent at $24.86. The S&P Retail Index .RLX was up 0.8 percent. Kohl's shares ended down 3 cents at $52.26 before rising to $52.75 in after-hours trading following its earnings report.

MORE EXCLUSIVE, MORE REGIONAL

Macy's credited its exclusive product lines by top names such as Madonna and Kenneth Cole for differentiating it from rivals and luring shoppers for its strong quarter.

The company has also aggressively sought to land more exclusive lines in a bid to give shoppers a reason to go to Macy's rather than Penney and Kohl's, which have also been racing to win their own exclusive merchandise lines.

Swinand and other analysts have said that the company's MyMacy's program, launched two years ago, has allowed Macy's regional managers to focus on each market's tastes and garner sales.

Macy's reported net income of $10 million, or 2 cents per share, for the third quarter ended Oct. 30, compared with a year-earlier loss of $35 million, or 8 cents per share.

Excluding one-time items, Macy's reported a profit of 8 cents per share, beating Wall Street's average forecast of 5 cents.

Macy's raised its full-year profit outlook by 5 cents to a range of $1.94 to $1.99 a share. That compares with Wall Street's average estimate of $1.96, according to Thomson Reuters I/B/E/S. (Reporting by Phil Wahba; Editing by Lisa Von Ahn, Dave Zimmerman, Phil Berlowitz)

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