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Macy's Earnings Climb, Will Raise Some Prices

Tuesday, 22 February 2011 01:17 PM

A tight hold on expenses helped Macy's Inc. increase its fourth-quarter net income by 50 percent, but the department store operator said Tuesday that it will raise some prices to contend with rising costs.

The Cincinnati company's price hikes do not come as much of a surprise, though. Many clothing sellers, including Abercrombie & Fitch and Brooks Brothers, either already have increased spring prices or said they will hike prices soon.

Macy's, which operates the Bloomingdale's and Macy's chains and their websites, remains upbeat on its prospects for the year, forecasting 2011 earnings in a range that includes analysts' average estimate.

Its stock fell 56 cents, or 2.4 percent, to $23.19 in midday trading.

For the fourth quarter, Macy's earned $667 million, or $1.55 per share. It posted net income of $445 million, or $1.05 per share, a year earlier.

Adjusted earnings for the period that ended Jan. 29 were $1.59 per share. That excludes charges of 4 cents per share for store closing expenses and to reflect the declining value of some assets.

By comparison, analysts polled by FactSet predicted Macy's would post adjusted earnings $1.51 per share, and Macy's forecast $1.44 to $1.49 per share.

Chief Financial Officer Karen Hoguet said during a conference call that selling, general and administrative expenses of approximately $2.25 billion were slightly higher than a year earlier but were better than expected. She credited expense controls, property tax settlements and year-end adjustments.

Macy's performance is important because it can serve as a barometer of spending by middle- and upper-income shoppers. The company is the second-largest department store operator behind Sears Holdings Corp. Sears will report its earnings results on Thursday.

Quarterly revenue rose 5 percent to $8.269 billion, narrowly missing Wall Street's average forecast for $8.277 billion.

A key metric — revenue at stores open at least a year — fared better, rising 4.3 percent. This comparison is an important gauge of a retailer's health because it excludes stores that opened or closed during the year.

The figure got a 1.1 percentage-point boost from an increase in online sales of 29.1 percent for the quarter.

Faster-than-expected online growth prompted Macy's to speed expansion of a distribution center and start construction on a fourth fulfillment center, Hoguet said.

Macy's has picked up market share from competitors in part by tailoring stock in each store to its region and by placing more emphasis on exclusive brands such as Material Girl from Madonna and her daughter Lourdes. Hoguet said that the company gets about 43 percent of its business from private, exclusive and limited distribution brands.

Macy's is looking at raising some prices, but Hoguet explained that the retailer is able to add certain features and fashion details to products that allow it to charge higher prices.

She also noted that "a significant portion of our business is in categories that are not impacted by the escalation in raw material prices."

Still, Hoguet said Macy's is implementing a number of strategies to deal with pricing concerns, including working closely with its vendors to increase efficiencies.

Hoguet said the company will test and monitor price increases in the spring.

Looking at the full year, Macy's net income more than doubled to $847 million, or $1.98 per share, This compares with $329 million, or 78 cents per share, in the previous year.

Adjusted earnings increased to $2.11 per share from $1.36 per share.

Annual revenue climbed 6 percent to $25 billion from $23.49 billion.

For fiscal 2010, revenue at stores open at least a year increased 4.6 percent — the best performance in at least 15 years. The results were also well above Macy's forecast for a 1 percent to 2 percent rise. Online sales gained 28.7 percent for the fiscal year.

"Fiscal 2010 was a very successful year for Macy's and Bloomingdale's based on a combination of strong sales, steady margins and continued expense discipline," Chairman, President and CEO Terry Lundgren said in a statement.

Macy's forecasts fiscal 2011 earnings between $2.25 and $2.30 per share. This assumes a 3 percent hike in revenue at stores open at least a year. The company also expects its annual revenue to rise about 3 percent, which implies total revenue of approximately $25.8 billion.

Analysts expect full-year net income of $2.27 per share and revenue of $25.7 billion.

Macy's runs about 850 Macy's and Bloomingdale's department stores in 45 states, the District of Columbia, Guam and Puerto Rico and four Bloomingdale's outlet stores.

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A tight hold on expenses helped Macy's Inc. increase its fourth-quarter net income by 50 percent, but the department store operator said Tuesday that it will raise some prices to contend with rising costs.The Cincinnati company's price hikes do not come as much of a...
Earns Macys
Tuesday, 22 February 2011 01:17 PM
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