Macy's posts lower profit

By Karen Jacobs

ATLANTA (Reuters) - Retailer Macy's Inc. (M.N) reported a 77 percent drop in second-quarter profit on Wednesday and cut its earnings outlook for the year, sending down its shares by as much as 3.4 percent.

"The fundamentals are still quite weak," said Brian Sozzi, a retail sector analyst with Wall Street Strategies, who said profit margins contracted as the company marked down prices on slow-selling goods.

The operator of Macy's and Bloomingdale's stores said earnings fell to $74 million, or 16 cents a share, in the second quarter ended August 4, from $317 million, or 57 cents a share, a year earlier.

Excluding acquisition costs, earnings were 29 cents a share as the retailer reduced expenses.

That was better than the 26 cents a share analysts expected on average, according to Reuters Estimates.

Macy's had cut its second-quarter profit outlook in July, citing disappointing sales.

Sales fell 1.7 percent to $5.89 billion, while sales at stores open at least a full fiscal year fell 2.6 percent.

The company, formerly called Federated Department Stores, is boosting marketing and promotions in a bid to spur traffic at hundreds of May Department Stores it acquired in 2005 and converted to the Macy's name last year, reversing a previous strategy to pare back discounts.

In its earnings statement, Macy's said sales trends at the former May stores and home-goods results were improving.

But Chief Financial Officer Karen Hoguet said during a conference call that sales at those newer Macy's were still below company expectations.

"Macy's has not shown any definitive signs that these (former May) stores are turning the corner," Sozzi said.

"I think it's going to take more time for the consumer to embrace what Macy's is all about."

Weakness at the ex-May stores has been a major drag on the company. As a string of disappointing monthly same-store sales piled on this year, speculation arose that Macy's could be ripe for a takeover.

MARTHA STEWART

Hoguet said early sales of a Martha Stewart line of home products showed promise, and that more promotions were planned to spur store traffic.