Macy's Outperforms, Ups Outlook

Macy's Inc

Macy's Inc. (M) has posted second-quarter 2010 results that beat Zacks' expectations. The quarterly earnings of 35 cents a share outperformed the Zacks Consensus Estimate of 28 cents, and rose 75% from 20 cents delivered in the prior-year quarter.

The company has been taking prudent steps to increase sales, profitability and cash flows, which include integration of operations, consolidation of divisions and customer-centric localization initiatives. To help drive traffic, Macy's continues to focus on price optimization, inventory management and merchandise planning.

The Cincinnati, Ohio-based Macy's said that total sales grew 7.2% to $5,537 million from $5,164 million in the prior-year quarter. Total revenue also comfortably surpassed the Zacks Consensus Revenue Estimate of $5,481 million. Comparable-store sales for the quarter increased 4.9%.

Online sales, which include macys.com and bloomingdales.com, sustained their growth momentum and were up 28.1% in the quarter, favorably impacting comparable-store sales by 0.5%.

Macy's, the operator of about 850 department stores, hinted that it is seeking to expand both the Macy's and Bloomingdale's brands. The company plans to open two new Macy's stores in Palmdale and Tracy, and four new Bloomingdale's Outlet stores in the second half of 2010. The company has already opened a new Bloomingdale store in Santa Monica, CA.

Despite rise in cost of sales by 6.4%, gross profit for the quarter soared 8.4% to $2,323 million, aided by top-line growth. Macy's notified that gross profit margin expanded 40 basis points to 41.9%. Operating income also soared 31.2% to $370 million, whereas operating margin increased 120 basis points to 6.7%.

The better-than-expected second-quarter results prompted management to raise its outlook. Macy's opined that it expects comparable-store sales to rise in the range of 3% to 3.5% in the second half of 2010, which would result in comparable-store sales increase of 4% to 4.2% for fiscal 2010. The company had previously anticipated comparable-store sales to rise between 3% and 3.5%.

Management guided fiscal 2010 earnings in the range of $1.85 to $1.90 per share, up from $1.75 to $1.80 per share predicted earlier. The current Zacks Consensus Estimate for fiscal 2010 is $1.85.

Macy's ended the quarter with cash and cash equivalents of $1,208 million, long-term debt of $7,493 million, reflecting a debt-to-capitalization ratio of 60.5% and shareholders' equity of $4,887 million.

The company shares rose 1.7% or 33 cents to $19.71 in pre-market trading.

Macy's Outperforms, Ups Outlook

By: Abhishek

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