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Macy's Q2 profits better than expected on lower inventories and cost cutting

By Tiffany Montgomery
August 12, 2009 6:04 AM

The good news: Macy's earnings and cash flow were better than expected in the second quarter.

The bad news: That upside suprise came from lowered inventories and cost cutting, not improving sales. While Macy's beat expectations, profits are still significantly lower than last year.

Other highlights:

Sales fell 9.7 percent

Net income of 2 cents per share, including restructuring costs vs. 17 cents per share in the same period last year, which also included restructuring costs.

The company projects same-store sales in the second half of the year to be down 5 percent to 6 percent. For the full year, same-store sales should be down between 7 percent and 7.5 percent - within the company's original guidance.

Press Release:

Macy's, Inc. Second Quarter Earnings, Cash Flow Exceed Expectations

Net Income is 2 Cents Per Diluted Share, 20 Cents Excluding Restructuring Costs; Company Raises Earnings Guidance for Full-Year 2009

Press Release
Source: Macys, Inc.
On Wednesday August 12, 2009, 8:00 am EDT

CINCINNATI--(BUSINESS WIRE)--Macy's, Inc. (NYSE:M - News) today reported earnings of 2 cents per diluted share for the second quarter of 2009, ended Aug. 1, 2009. These results include restructuring charges of $34 million ($77 million after tax; 18 cents per share) related to division consolidations and localization initiatives announced in February 2009. Excluding these charges, the company earned 20 cents per diluted share in the second quarter of 2009. This exceeds recent guidance for earnings of 15 to 17 cents per diluted share, excluding restructuring costs.

In the second quarter of 2008, Macy's, Inc. earned 17 cents per diluted share. Excluding restructuring charges related to divisional consolidations and localization initiatives announced in 2008 of $26 million ($17 million after tax; 4 cents per diluted share) and a non-cash asset impairment charge of $50 million ($31 million after tax; 8 cents per diluted share), second quarter 2008 diluted earnings per share were 29 cents.

"We were able to exceed our expectations with strong earnings and cash flow in the second quarter, despite lower sales in an economic environment that continues to be very difficult," said Terry J. Lundgren, Macy's, Inc. chairman, president and chief executive officer. "In particular, we successfully lowered inventories and managed expenses to align more closely with current levels of business. Our second quarter same-store sales performed as well as or better than most department store retailers even while we were completing the largest organizational transition in Macy's recent history. Most of that transition work is behind us now.

"Our new unified organizational structure is settling in and working well. It has allowed us to streamline decision-making and build closer relationships with our key vendor resources. And we continue to be very pleased with results from the My Macy's initiative, which began to roll out to 49 new districts nationwide in the second quarter. Same-store sales performance in the 20 pilot districts launched in 2008 continued to outpace the remainder of the company, and the gap continued to widen in the second quarter. Going forward, we expect the gap to become less meaningful as the 49 new districts launched in 2009 come up to speed and begin producing results that parallel the pilot districts. As previously stated, we expect to see some improvement in these new districts in the fourth quarter of 2009 and especially in spring 2010," Lundgren said.

For the first half of 2009, Macy's, Inc. reported a loss of 19 cents per diluted share, compared with earnings of 3 cents per diluted share in the first half of 2008. Excluding restructuring-related costs of $172 million ($97 million after tax; 23 cents per diluted share), earnings were 4 cents per diluted share in the first half of 2009. In the first half of 2008, diluted earnings per share were 28 cents, excluding restructuring-related costs of $113 million ($72 million after tax; 17 cents per diluted share) and asset impairment charges of $50 million ($31 million after tax; 8 cents per diluted share).

Sales

Sales in the second quarter totaled $5.164 billion, down 9.7 percent from total sales of $5.718 billion in the second quarter of 2008. On a same-store basis, Macy's, Inc.'s second quarter sales were down 9.5 percent.

For the year to date, Macy's, Inc.'s sales totaled $10.363 billion, down 9.6 percent from total sales of $11.465 billion in the first 26 weeks of 2008. On a same-store basis, Macy's, Inc.'s year-to-date sales were down 9.3 percent.

Online sales (macys.com and bloomingdales.com combined) were up 9.4 percent in the second quarter and 12.7 percent for the first half of 2009. Online sales positively affected the company's second quarter and first half 2009 same-store sales by 0.5 percentage points. Online sales are included in the same-store sales calculation for Macy's, Inc.

The company opened no new stores in the second quarter of 2009. At the beginning of the third quarter, Macy's opened two new stores in the Dallas-Ft. Worth and Kansas City markets as well as re-opened a store in the Houston market that had been damaged last year by Hurricane Ike.

Operating Income

Macy's, Inc.'s operating income totaled $248 million or 4.8 percent of sales for the quarter ended Aug. 1, 2009, compared with operating income of $259 million or 4.5 percent of sales for the same period last year. Second quarter 2009 operating income included $34 million in restructuring-related costs. Excluding these costs, operating income for the second quarter of 2009 was $282 million or 5.5 percent of sales. Macy's, Inc.'s second quarter 2008 operating income included $26 million in restructuring-related costs and $50 million in asset impairment charges. Excluding these costs, operating income for the second quarter of 2008 was $335 million or 5.9 percent of sales.

For the first half of 2009, Macy's, Inc.'s operating income totaled $134 million or 1.3 percent of sales, compared with operating income of $289 million or 2.5 percent of sales for the same period last year. Macy's, Inc.'s first half 2009 operating income includes $172 million in restructuring-related costs. Excluding these costs, operating income in the first half of 2009 was $306 million or 3.0 percent of sales. Macy's, Inc.'s first half 2008 operating income was $452 million or 3.9 percent of sales, excluding $113 million in restructuring-related costs and $50 million in asset impairment charges.

Cash Flow

Net cash provided by operating activities was $436 million in the first half of 2009, compared with $592 million in the first half last year. Net cash used by investing activities in the first half of 2009 was $182 million, compared with $312 million a year ago. Net cash used by financing activities in the first half of 2009 was $1.045 billion, including $958 million used to repay debt. Net cash provided by financing activities was $430 million in the first half last year. In the second quarter of 2008, Macy's, Inc. issued $650 million in senior notes, the proceeds from which were used to pay amounts due on $650 million in senior notes that matured in the second half of 2008.

Looking Ahead

The company expects same-store sales in the second half of fiscal 2009 to be in the range of down 5 percent to 6 percent. This would result in full-year 2009 same-store sales to be down between 7 percent and 7.5 percent - within the original guidance for fiscal 2009 same-store sales to be down between 6 percent and 8 percent.

Macy's, Inc. now is projecting that fiscal 2009 earnings per share on a diluted basis will be 70 cents to 80 cents per share, excluding restructuring-related costs. This is an increase from previous guidance (provided in February 2009) for 40 cents to 55 cents per diluted share on the same basis. The company continues to expect to book a total of approximately $400 million in pre-tax restructuring-related costs related to the February 2009 announcements.

Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2008 sales of $24.9 billion. The company operates more than 840 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's and Bloomingdale's. The company also operates macys.com and bloomingdales.com. Prior to June 1, 2007, Macy's, Inc. was known as Federated Department Stores, Inc.


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