US retailer Macy’s reports 59 per cent drop in Q4 profit

US retailer Macy's Inc, said Tuesday fourth-quarter net profit dropped 59 per cent, hurt by restructuring costs and discounts that hurt margins, but its shares jumped after results exceeded Wall Street expectations and the company reported improvement in pilot stores targeting local markets.

The Cincinnati-based department store chain reported net earnings of $310 million for the fiscal quarter ended 31 January, compared with $750 million in the year-ago quarter. That comes to 73 cents a share, compared with $1.73 a share in the fourth quarter of 2007.

Quarterly sales dipped 7.7 per cent to $7.9 billion. Macy's operates almost 850 department stores. Earnings include more than $200 million in costs associated with a massive reorganization, store closings and brand acquisitions.

For the year, Macy's reported net income of $280 million, down from $893 million in fiscal 2007, reflecting costs related to the consolidations, store closures and asset impairment. Sales fell 5.4 per cent to $24.9 billion, while same-store sales declined by 4.6 per cent.

Excluding costs for division consolidation and other one-time items, the company aid it would have earned $1.06 a share, beating its most recent projection of $1 to $1.02 a share. Macy's, on average, had been expected to earn 99 cents a share on sales of $7.93 billion.

Macy's shares jumped 12 per cent to close at $8.29.

In a press release, Macy's CEO Terry Lundgren pointed out, as he has in past earnings and sales reports, that his company outperformed its competitors.

''This speaks well of the value, quality and fashion delivered by Macy's and Bloomingdale's through the holiday season, and of the determination and strength of our organization,'' he said in the release. ''While 2008 results reflect the worst economic environment of our generation, we have taken aggressive action to drive sales, maintain profitability and conserve cash.''

The department store operator, which also owns Bloomingdale's, said it ended the year with more cash than it planned a year earlier.

"My Macy's" pilot stores in the fourth quarter performed better than its other stores, a reversal of the trend from the first half, said Macy's CFO Karen Hoguet on a conference call with analysts. While discretionary luxury assortments including handbags and fine jewelry were weak, practical merchandise such as shoes and house wares that were driven by "affordable newness" performed well, she said. The company is rolling out the "My Macy's" concept to all of its stores. (See: American department store chain Macy's to slash 7,000 jobs, restructure operations)

Macy's has moved to cut expenses and shut stores. The management is lowering its 2009 capital spending by more than half as retailers across the board place a greater emphasis on cost control in the face of uncertain sales. For 2009, Macy's maintained its earnings outlook of 40 cents to 55 cents a share, excluding restructuring costs.