| NEW YORK
NEW YORK Macy's said it is concerned U.S. shoppers will continue to curb spending and avoid all but the most crucial purchases well into spring of next year as the economic crisis deepens, sending its shares down 5 percent.
"We are increasingly concerned that we won't see the improvement that we had anticipated as recently as a month ago," Macy's Chief Financial Officer Karen Hoguet said during a conference call with analysts.
"That doesn't mean we are expecting further deterioration, but we may not get as much improvement as we had hoped. But until we are through the next 60 days, we won't know how to guide you about 2009," Hoguet said.
Macy's reported a quarterly loss on Wednesday but beat Wall Street estimates as it kept a tight reign on inventory and bumped up promotions entering the critical holiday season, a time when most retailers earn the bulk of their yearly profit.
The better-than-expected results at Macy's came on the same morning that consumer electronics retailer Best Buy Co Inc (BBY.N) slashed its fiscal 2009 earnings forecast. Best Buy shares were down 7 percent in afternoon trade.
U.S. consumers have stayed away from department stores for months as rising food and fuel prices pressured household budgets hampered by the housing market slump, job losses and the credit crunch.
Since the beginning of October, Macy's shares have fallen 47 percent, while the Standard & Poor's retail index .RLX is down 28 percent.
Macy's, which runs both its namesake department stores and the upscale Bloomingdale's chain, reported a loss of $44 million, or 10 cents per share, for the third quarter ended November 1, compared with net profit of $33 million, or 8 cents per share, a year earlier.
Excluding division consolidation costs of 2 cents per share, the quarterly loss was 8 cents per share. Analysts, on average, were expecting a loss of 19 cents per share, according to Reuters Estimates.
Sales fell 7 percent to $5.49 billion, and sales at stores open at least a year, or same-store sales, were down 6 percent. Gross margin edged higher to 39.5 percent from 39.3 percent.
CUSTOMERS BUYING LESS, STICKING TO NECESSITIES
The average amount spent per customer fell in October "for the first time I can remember," Hoguet said, as shoppers scaled back spending amid the worst financial crisis since the Great Depression.
Macy's also sold less full-priced items as shoppers sought out discounts and stuck to practical purchases like coats, scarves and boots as the weather in North America turned colder.
Analysts said they are confident a bottom is forming for Macy's, which they say is being realistic about deteriorating sales trends.
Adjusting its forecast to account for expected poor holiday sales "separates Macy's from the rest of the department store pack, in our view, who all still need to confess" on fourth-quarter earnings expectations, including Saks, J.C. Penney and Nordstrom, wrote J.P. Morgan analyst Charles Grom in a research note.
Macy's said it expects fourth-quarter earnings per share of $1.10 to $1.30, excluding one-time items. Analysts' average forecast is $1.20. Macy's forecast fourth-quarter same-store sales would be down 1 percent to 6 percent.
The retailer's quarterly same-store sales have "been somewhat better relative to peers," said Atlantic Equities analyst Daniela Nedialkova. "This and the margin outperformance appear to be positives in light of the clear deterioration in consumer traffic" and more promotions.
Macy's warned that if deteriorating sales trends from the latter half of the third quarter continue through the current quarter, sales and earnings could be toward the lower end of its forecast.
Macy's stood by its full-year earnings forecast of $1.30 to $1.50 per share excluding consolidation costs and other one-time charges.
Macy's said it will continue to reduce inventory levels to improve margins. It cut its 2009 capital spending forecast to a range of $550 million to $600 million, from a previous view of $1 billion, due to the weak economy.
Macy's said it expected to close underperforming stores next year, but no more than usual.
WHERE ARE THE SHOPPERS?
During the quarter, shoppers watched as a financial crisis swept across the globe, erasing trillions of dollars of wealth and raising the prospect of a deep worldwide recession.
Even wealthier shoppers pared spending, spooked by falling stock portfolios and declining real estate values.
In October, Macy's slashed its full-year forecast, warning that sales could fall sharply in the back half of its fiscal year as shoppers stick to buying necessities.
Other department stores -- such as mid-tier J.C. Penney Co (JCP.N) and more upscale Saks Inc SKS.N -- also reported poor October sales and warned of grim expectations for the holiday season. Penney is set to report quarterly results on Friday, while Kohl's (KSS.N) and Nordstrom (JWN.N) are due to report on Thursday.
Macy's shares were down 50 cents to $8.91 in afternoon trade on the New York Stock Exchange. The shares have traded in a 52-week range of $31.59 to $7.65.
(Additional reporting by Nicole Maestri; editing by John Wallace, Leslie Gevirtz)