Nov. 11 (Bloomberg) -- Macy’s Inc., the second-biggest U.S. department-store chain, reported a third-quarter loss and forecast full-year earnings that trailed analysts’ estimates, pushing its shares down the most in almost seven months.

The net loss narrowed to $35 million, or 8 cents a share, in the quarter ended Oct. 31, from $44 million, or 10 cents, a year earlier, the Cincinnati-based company said today in a statement. Sales dropped 3.9 percent to $5.28 billion.

Sales at stores open at least a year declined 3.6 percent as consumers held back on discretionary purchases in the face of job losses and lower home values. The chain forecast annual profit, before restructuring costs, of as much as $1.06 a share, compared with the analysts’ average estimate of $1.15 in a Bloomberg survey.

“The consumer spending appetite in the holiday season isn’t exactly certain, so a wild card is how promotional retailers need to be and so maybe the gross margin will get hit,” Matt Arnold, an analyst with Edward Jones & Co., said in a telephone interview today. “They probably are leaving themselves room for error.”

Arnold, based in Des Peres, Missouri, recommends holding Macy’s shares.

Macy’s, which trails Sears Holdings Corp. in sales, fell $1.57, or 8.1 percent, to $17.86 at 4:01 p.m. in New York Stock Exchange composite for the biggest drop since April 20. The shares has added 73 percent this year.

Gross Margin

The gross margin -- the share of sales after subtracting the cost of goods sold -- expanded to 40.2 percent last quarter from 39.5 percent a year earlier. During last year’s holiday quarter, the margin contracted to 39.3 percent from 41.6 percent in the fourth quarter of 2007.

The retail environment is more uncertain than usual, making fourth-quarter gross margin hard to predict, Chief Financial Officer Karen Hoguet said on a conference call with analysts and investors.

“We are encouraged by the recent trends,” Hoguet said, referring to sales.

The third-quarter loss before restructuring costs was 3 cents a share, the company said. Fourteen analysts estimated an average loss of 7 cents in a Bloomberg survey. Expenses fell and the chain reduced inventories by 7.4 percent from a year ago.

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

Last Updated: November 11, 2009 16:16 EST