Feb. 2 (Bloomberg) -- Macy’s Inc., the second-largest U.S. department-store company, is eliminating 7,000 jobs, slashing its quarterly dividend and buying back bonds to manage its debt load as sales drop.

The job cuts cover 3.9 percent of its workforce and will help save $250 million this year and $400 million annually starting in 2010, the Cincinnati-based company said. It also plans to buy back as much as $950 million in bonds due this year.

“The overriding message is a simple confirmation that the retail environment is tough and likely to stay that way,” said Patricia Edwards, a retail analyst and founder of Storehouse Partners LLC in Seattle. “This is a time when retailers are in survival mode.”

Macy’s is reducing costs after discounts of 60 percent failed to stem revenue declines during the worst holiday season in 40 years. Profit in the year ending Jan. 30, 2010, will be about half of the prior year’s, the retailer said.

Sales at stores open at least a year may fall as much as 8 percent in fiscal 2009. Same-store sales declined 4.6 percent in the 11 months through December.

Credit-default swaps protecting against a default by Macy’s jumped 35 basis points today to 672 basis points, according to CMA DataVision. The contracts, which typically rise as investor sentiment deteriorates, are used to hedge against losses or to speculate on the company’s creditworthiness.

Macy’s fell 4 percent to $8.59 at 4:15 p.m. in New York Stock Exchange composite trading. It reached a peak of $46.51 in March 2007.

Regional Divisions

Macy’s debt ballooned when the retailer acquired May Department Stores Co. for $11 billion in 2005, and then repurchased shares.

It lost some Marshall Field’s customers when it eliminated the May nameplates as part of a strategy to create a national Macy’s chain. The retailer tried to reduce the use of coupons in 2007, and reversed the decision when sales slowed.

Consumer spending, particularly on women’s apparel and other discretionary goods carried by department stores, plunged as the U.S. economy slowed and then began to shrink in the past year.

The retailer is closing regional divisions in Atlanta, Miami, and San Francisco and will run one Macy’s buying office out of New York.

The step follows a decision a year ago to reduce the number of Macy’s regional divisions from seven to four, axing 2,300 jobs. Bloomingdale’s will continue to operate separately, Macy’s said today.

401K Matches

It also said it is eliminating executives’ merit increases for 2008, and curbing the amount it is contributing to employees’ 401K retirement-savings plans.

“This is a time when nothing should be considered a sacred cow,” Chief Executive Officer Terry Lundgren said on a conference call with investors and analysts.

Moody’s Investors Service said it may downgrade the company company’s debt because of its lower earnings forecast.

Macy’s is working with ratings agencies to keep its investment-grade credit rating, Lundgren said in a telephone interview.

The retailer cut its quarterly dividend to 5 cents a share from 13.25 cents.

Earnings per share, excluding restructuring costs, will be 40 cents to 55 cents in the year ending in January 2010, Macy’s predicted. Fifteen analysts surveyed by Bloomberg estimated 83 cents, on average.

The retailer on Jan. 8 reduced its profit forecast for the year ended Jan. 31 to as little as $1.10 a share from a previous minimum of $1.30, and said it would close 11 stores, cutting 960 jobs. That brought its store count to 848, including 40 in its Bloomingdale’s chain. It employs about 180,000.

To contact the reporter on this story: Cotten Timberlake in Washington at ctimberlatke@bloomberg.net.

Last Updated: February 2, 2009 17:03 EST