Macy's posts lower profit

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.

But he cautioned that consumer demand appeared less strong than expected, and singled out Florida as an area where the weak economy had hurt business.

Macy's, whose rivals include J.C. Penney Co. (JCP.N) and Kohl's Corp. (KSS.N), forecast same-store sales in a range of down 1 percent to up 1 percent for the third quarter, flat to up 2 percent for the fourth quarter, and down 1 percent to up 0.5 percent for the full year.

"With the overall retail environment being a lot more promotional in general, consumers are going to have greater choice in terms of where they can shop," said Standard & Poor's equity analyst Jason Asaeda.

Asaeda said he expected negative same-store sales at Macy's for the balance of the year.

Macy's forecast per-share profit of 5 cents to 10 cents for the third quarter and $1.70 to $1.80 a share for the fourth quarter, excluding merger costs.

Analysts expected per-share profit of 19 cents for the third quarter and $1.83 for the fourth period, according to Reuters Estimates.

The company now expects full-year earnings of $2.15 to $2.30 a share. That's down from a May forecast of $2.45 to $2.60 a diluted share, excluding merger costs.

Analysts expect $2.35 a share for the year, according to Reuters Estimates.

During the conference call, Macy's said it might consider buying some apparel brands that are up for sale.

Liz Claiborne Inc. (LIZ.N) is exploring options for Dana Buchman, Ellen Tracy and other brands, while Jones Apparel Group Inc. (JNY.N) is also looking to sell some lines.

"We do believe that having brands and having exclusive merchandise is important," Hoguet said in response to a question. "So as you would expect, we might consider some of those."

Macy's shares fell 63 cents, or 2 percent, to $31.10 on the New York Stock Exchange. The stock is down about 18 percent this year, compared with a 19 percent drop in shares of J.C. Penney.