November 13, 2013 / 1:53 PM / 4 years ago

Macy's sales turnaround adds to holiday sales hopes

4 Min Read

(Reuters) - Sales at Macy's Inc (M.N) rebounded in the latest quarter, joining signs at other retailers that consumers will spend this holiday season if the price is right.

Wednesday's earnings report reassured investors that Macy's was back on track after a disappointing prior quarter, when it said it had not offered enough lower-priced merchandise in a difficult economy. Shares of the retailer closed up 9.4 percent at $50.68.

Last week, Gap Inc (GPS.N), Victoria's Secret parent L Brands Inc LTD.N and J.C. Penney Co Inc (JCP.N) reported much stronger sales for October than they had for September and August. And fashion company Ralph Lauren (RL.N), whose biggest single customer is Macy's, said last week wholesale orders would be up "significantly" for the rest of the year.

Deutsche Bank said in note that Macy's results and those of several other chains are "indicative of a stronger-than-expected consumer heading into the holiday season."

Macy's results lifted shares of several rivals, with Kohl's Corp (KSS.N) up 1.1 percent, Penney up 3.6 percent and Nordstrom Inc (JWN.N) up 2.5 percent. The S&P Retail Index .SPXRT ended up 1.9 percent on Wednesday, outpacing the broader S&P 500 Index increase of 0.8 percent.

Macy's reported that discounts and ramped up advertising had improved business markedly in its fiscal third quarter that ended November 2, especially in October.

Comparable sales, which include those online and at stores open at least a year, rose 3.5 percent, while analysts were expecting an increase of 2.1 percent, according to Thomson Reuters I/B/E/S.

After the disappointing summer, Macy's increased its selection of lower-priced items and boosted advertising and in-store signage during sales events to tout its least-expensive merchandise.

"We have consciously gone after that opening price point business lately and have been very successful there," Chief Financial Officer Karen Hoguet said on a conference call.

A sign is seen outside a Macy's retail store in San Francisco, California August 14, 2013.Robert Galbraith

Macy's, which caters to a middle-class clientele, offers a broad range merchandise, from $10 cotton T-shirts to Louis Vuitton handbags.

Despite the strong results, Macy's did not raise its full-year forecast for comparable sales, which it expects to be up between 2.5 percent and 4 percent.

Edward Jones analyst Brian Yarbrough attributed some of the sales increase to more-aggressive promotions and extended sales events. But those efforts hurt gross profit margin, which fell slightly to 39.2 percent of sales from 39.6 percent.

Macy's Hoguet said she expected gross margin to remain under pressure.

Nonetheless, Yarbrough said Macy's was ahead of many rivals in its ability to leverage its stores to fill online orders, and he praised the retailer's merchandise selection.

"They're in good shape," he said. "Unless something changes abruptly in consumer sentiment, they should have a great holiday season."

Macy's, which also operates the upscale Bloomingdale's chain, stuck by its previous forecast for a profit of $3.80 to $3.90 per share for the year, higher than Wall Street projections of $3.78.

The retailer reported net income of $177 million, or 47 cents a share, for the quarter, compared with $145 million, or 36 cents per share, a year earlier. Analysts had been expecting 39 cents per share.

Kohl's and Nordstrom will report quarterly results on Thursday, and Penney will do so on November 20.

Reporting by Phil Wahba in New York; Editing by Lisa Von Ahn, Gerald E. McCormick and Tim Dobbyn

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