Macy’s Raises Buyback, Holds Forecast Despite Weak Sales

Macy’s Inc. (M), the second-largest U.S. department-store company, maintained its annual profit forecast and increased its share buyback program after cost cuts helped it cope with a first quarter marked by weak shopper traffic.

While sales in the quarter through May 3 unexpectedly declined, Macy’s boosted net income 3.2 percent to $224 million, or 60 cents a share, matching analysts’ estimates. The retailer said earnings this year still will meet its projections and that it will repurchase $1.5 billion more in stock than originally planned while raising its dividend.

Chief Executive Officer Terry Lundgren has been cutting jobs to trim costs as flagging mall traffic and unfavorable weather plague retailers. The company has eliminated about 1,800 positions this year to save about $100 million annually.

“Expenses were tightly managed,” Richard Jaffe, an analyst with Stifel Financial Corp. in New York, wrote in a note to clients today. “Management indicated that trends improved in April when the weather turned seasonable. We believe Macy’s is well-positioned as a dominant apparel retailer and in a better position than most to gain market share.”

He recommends buying the shares.

Macy’s was little changed at $57.83 at the close in New York. The retailer’s stock has climbed 8.3 percent this year, compared with a 2.2 percent increase in the Standard & Poor’s 500 Index.

Photographer: Ron Antonelli/Bloomberg

Shoppers walk through the Macy's Inc. flagship store in New York. Close

Shoppers walk through the Macy's Inc. flagship store in New York.

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Photographer: Ron Antonelli/Bloomberg

Shoppers walk through the Macy's Inc. flagship store in New York.

Sales Drop

Lundgren’s moves helped cushion the blow from first-quarter sales that fell 1.7 percent to $6.28 billion. Analysts estimated revenue would advance to $6.47 billion, on average.

Selling, general and administrative expenses shrank to $2 billion from $2.04 billion a year earlier, the Cincinnati-based company said today in a statement. Macy’s also managed to expand its gross margin, or earnings left after subtracting the cost of goods, to 38.9 percent of sales from 38.8 percent a year ago. Analysts estimated 38.7 percent.

Earnings per share still are expected to be $4.40 to $4.50 for the year through January 2015. Analysts estimate $4.46.

Macy’s said today that the shift of a portion of its annual “Friends & Family” sale into May from April damped first-quarter revenue.

The retailer said its quarterly dividend will increase to 31.25 cents a share from the current 25 cents, with the first payout at the new level happening July 1 to shareholders of record as of June 13.

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

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, John Lear

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