NEW YORK (Reuters) - Department store chain Macy’s Inc (M.N) posted a better-than-expected quarterly profit on Tuesday and kept its forecast for the current year as it cuts costs to ride out the U.S. recession.
Its shares rose nearly 11 percent, as investors took heart in the retailer’s confidence in its profit and same-store sales outlook issued earlier this month. Shares of rivals such as J.C. Penney (JCP.N) and Kohl’s (KSS.N) also rose amid a wider uptick in the retail sector.
“They (Macy’s) have been upfront about where they see their guidance already,” said Thomas Weisel Partners analyst Liz Dunn. “And the whole retail sector is mostly positive today with lots of gains of 2, 3, and 4 percent.”
Macy’s, fresh from the worst holiday shopping season in nearly 40 years, also said it is reviewing goodwill tied to the August 2005 purchase of May Department Stores as a result of the recession and drop in its share price and market capitalization. The review could result in a $4.5 billion to $5.5 billion writedown in the fourth quarter of 2008, but no decision has been made yet, Macy’s said.
Though the review had no practical impact, the magnitude of the potential writedown was surprising, Dunn said.
Macy’s net profit fell to $310 million, or 73 cents a share, in the fiscal fourth quarter ended January 31, from $750 million or $1.73 a share a year earlier.
Excluding some items, Macy’s earned $1.06 a share, topping the average analyst expectation of $1.01 a share, according to Reuters Estimates.
Sales fell 7.7 percent to $7.93 billion, as same-store sales dropped 7 percent in the quarter. Online sales, which combine business from the Macy’s and Bloomingdale’s websites, was a lone bright spot, up 24 percent. The company includes online sales in same-store sales calculations.
Consumer cutbacks have curbed sales at other department stores like Penney, and more upscale retailers like Saks SKS.N and Nordstrom (JWN.N), which warned on Monday that the weak economy would hurt sales through 2009.
Macy’s recently took steps to reduce expenses, boost sales, and pay down debt. It also cut its dividend and slashed about 7,000 jobs as it hunkers down until the recession clears.
“We believe that Macy’s Inc is well-positioned to continue to weather this downturn and to accelerate results once the economy begins to rebound,” Chief Executive Terry Lundgren said in a statement.
However, any significant recovery is not likely before the middle of fiscal 2010, Lundgren said earlier this month.
For the current year, Macy’s still expects to earn 40 to 55 cents a share, excluding restructuring costs. It originally forecast those earnings earlier in February. Analysts expect it to earn 52 cents a share for the year.
Macy’s continues to expect same-store sales to fall between 6 and 8 percent during the year. Macy’s has cut its capital expenditure to about $450 million in 2009, while its original budget called for about $1 billion.
Macy’s, with more than 840 stores, unveiled a restructuring plan less than a month ago to integrate its business divisions into one unit. The plan aims at centralizing its buying and merchandise planning primarily in New York.
The retailer is also expanding efforts to localize stores to cater to individual markets. The initial plan, announced about a year ago, helped sales in trial markets, and the expansion will help it capture market share, Macy’s has said.
The company closed 11 Macy’s stores in the fourth quarter. It expects to open three new stores in 2009, and a replacement store in Nampa, Idaho. Three stores damaged due to Hurricane Ike in the Houston market are also expected to be reopened.
Shares of Macy’s were up 80 cents at $8.20. Penney shares were up 4.2 percent and Kohl’s rose 3.4 percent.
Reporting by Aarthi Sivaraman, editing by Dave Zimmerman and Matthew Lewis