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Macy's on State decked in holiday splendor. The retail chain surprised Wall Street with sizable third-quarter profits.

Macy's surprises Wall Street with strong sales, profits

by Sarah Fentem
Nov 07, 2012

Department-store giant Macy's, Inc., helped by strong sales, cost control efforts and an ongoing strategy of reaching customers with locally targeted merchandise, turned in stronger than-expected third-quarter profits Wednesday.

In the quarter ended Oct. 27, the Cincinnati-based retailer posted a third-quarter net income of $145 million, or 36 cents per diluted share, up 4.3 percent from the year-ago quarter’s $139 million, or 32 cents per diluted share.

Macy’s results substantially topped the 29 cents a share that analysts surveyed by Zacks Investment Reserach were expecting. Sales rose 3.8 percent to $6.08 billion from $5.8 billion, movement Brian Yarbrough, an analyst at Edward Jones, attributed to the chain's strategic business initiatives and consistent pricing.

"It goes back to initiatives they've implemented in their store," he said in an interview. "They're doing a better job with marketing and advertising, and they're seeing a nice increase in sales."

For example, Yarbrough says the "My Macy's" initiative, which rolls out "stores and merchandise assortments focused on local customer needs and preferences" has boosted the brand above its competitors.

Additionally, Macy's is focused on keeping its prices steady. In an environment where prices are rising, “they're doing a great job of holding down costs," the analyst said.

Share buybacks also contributed to the retail giant's per-share earnings bump. Macy’s had 395.5 million shares outstanding at the end of the latest quarter, down from 420.6 million a year ago.

In a letter to investors, Macy's detailed how the company repurchased over 10 million shares for a total of approximately $403 million, adding to the $586 million worth of common stock it has already repurchased this year. Macy's has stated it plans to repurchase at least $1 billion in shares before the fiscal year is out.

The impact of Hurricane Sandy remains a big question mark for fourth-quarter results at Macy’s and other retailers. Because people along the East Coast “didn't shop during that period, there's definitely going to be a loss of sales and everybody realizes it," said Yarbrough.

"Any retailer is going to be impacted, but in the grand scheme it's not a huge impact," he added.

In the first nine months, Macy's profits rose 18.4 percent to $605 million, or $1.45 per share, up from $511 million or $1.20 per share in the same period last year. Nine-month sales rose 3.7 percent from $17.7 billion to $18.3 billion.

On a day when the stock market closed down a substantial 2.6 percent, Macy's shares closed on the New York Stock Exchange down 93 cents, or 2.3 percent, at $40.45.