Macy's says its local market strategy pushes up profits

Macy's intense focus on tailoring its merchandise to local markets helped push the department store chain to profitability in the first quarter.

More customers who had defected to rivals returning to its stores, the chain said, helping to drive better-than-expected sales.

However, the department store operator, which boosted its annual outlook last month, said it's too early to further raise its guidance for the year because of economic uncertainty.

"We are off to a great start this year, and we have every expectation that it will continue," chief financial officer Karen Hoguet told investors during a conference call.

But while Macy's continues to see strong sales, "we don't want to get ahead of ourselves," she added. "While the economy has been stronger than we anticipated, it is unclear how strong it really is," she said.

Macy's Inc., based in Cincinnati, said Wednesday that it posted net income of $23 million, or 5 cents per share, for the period ending May 1. That compares with a loss of $88 million, or 21 cents per share, in the year-ago period.

Revenue reached $5.57 billion in the quarter. That's up from $5.19 billion in the last year's first quarter. Revenue at stores open at least a year rose 5.5 percent. The measure is a key indicator of a retailer's health because it excludes the effects of expansion.

Analysts surveyed by Thomson Reuters were expecting 5 cents per share on revenue of $5.54 billion.

"With major changes now behind us, the Macy's organization has settled in and is hitting a stride in capitalizing on the advantages of [localization])," said Terry J. Lundgren, Macy's chairman, president and CEO, said in a statement.

Hoguet said its smallest-volume stores - those in small markets or small in size - enjoyed the biggest sales increases, confirming that its plans to tailor its merchandise to local markets is working. In the past, those stores' business was overlooked and was the toughest to reignite, she noted. Hoguet also noted that the company is seeing a strong return of its customers but declined to specify which rivals Macy's was taking business from.

Macy's localization plan, dubbed My Macy's, concentrates on putting decisions on what merchandise to stock closer to customers.

It seeks to focus Macy's top talent in local markets and stay on top of trends by grouping Macy's stores into districts of 10 to 12.

That approach has allowed Macy's to react better to local needs by putting more experienced workers on its sales floors.

The department store chain is making plans to expand both the Macy's and Bloomingdale's brands including investments in integrating its online business with its stores.

Online sales surged 34 percent, helping to lift revenue at stores open at least a year by 0.9 percentage points during the first quarter.

Bloomingdale's plans to open a new, smaller store this fall in Santa Monica, Calif., and to launch a Bloomingdale's outlet with four locations this fall. Such efforts follow Bloomingdale's opening its first international location in Dubai during the first quarter.

Macy's boosted its earnings outlook on April 27. Macy's predicts profit of between $1.75 and $1.80 per share for fiscal 2010, higher than previous guidance for earnings between $1.55 and $1.60 per share.

Analysts surveyed by Thomson Reuters still expect more - $1.87 per share.