Macy’s Posts Q3 Loss, Raises FY09 Sales and Earnings Guidance

“Given the difficult economic climate, we had an excellent quarter. Our business improved progressively each month during the period and we are entering the holiday selling season confident in our locally-focused organizational structure and the high caliber of our talent,” said Terry J. Lundgren, Macy's, Inc. chairman, president and chief executive officer.

Macy's, Inc. lost 8 cents per diluted share for the third quarter of 2009, ended Oct. 31, 2009. This compares with a loss of 10 cents per share in the same period last year. Excluding restructuring costs, the company lost 3 cents per diluted share in the third quarter of 2009 compared with a loss of 8 cents per share in the same period in 2008. In the third quarter of 2009, restructuring charges were $33 million ($23 million after tax; 5 cents per share) related to division consolidations and localization initiatives announced in February 2009 that were designed to reduce costs and make the company more locally responsive to customers. In the third quarter of 2008, restructuring charges related to division consolidations and localization initiatives announced in 2008 were $16 million ($10 million after tax; 2 cents per diluted share).

“We continue to see encouraging results from our My Macy's approach to local markets. Of our Top 10 districts in same-store sales in the third quarter, seven were among the original My Macy's pilot districts,” Lundgren said. “Other bright spots in the third quarter included a strong sales performance at Bloomingdale's and outstanding growth in our Internet businesses, which are being fueled by the ongoing multi-channel integration at both Macy's and Bloomingdale's.”

For the first three quarters of 2009, Macy's, Inc. reported a loss of 27 cents per diluted share, compared with a loss of 7 cents per diluted share in the same period in 2008. Excluding restructuring-related costs of $205 million ($120 million after tax; 28 cents per diluted share), earnings were 1 cent per diluted share in 2009 to date. In the first three quarters of 2008, diluted earnings per share were 20 cents, excluding restructuring-related costs of $129 million ($81 million after tax; 19 cents per diluted share) and asset impairment charges of $50 million ($31 million after tax; 8 cents per diluted share).

Sales

Sales in the third quarter totaled $5.277 billion, down 3.9% from total sales of $5.493 billion in the third quarter of 2008. On a same-store basis, Macy's, Inc.'s third quarter sales were down 3.6%.

For the year to date, Macy's, Inc.'s sales totaled $15.640 billion, down 7.8% from total sales of $16.958 billion in the first 39 weeks of 2008. On a same-store basis, Macy's, Inc.'s year-to-date sales were down 7.5%.

Online sales (macys.com and bloomingdales.com combined) were up 21.1% in the third quarter this year and 15.6% for the year to date. Online sales positively affected the company's same-store sales by 0.6%age points in the third quarter and 0.5%age points in the year to date. Online sales are included in the same-store sales calculation for Macy's, Inc.

In the third quarter, Macy's opened four new stores in the Fresno, CA, Visalia, CA, Dallas-Ft. Worth and Kansas City markets and a replacement store in Nampa, ID, as well as re-opened two stores in the Houston market that had been damaged last year by Hurricane Ike. In all, Macy's opened or re-opened eight stores in 2009.

Operating Income

Better-than-expected sales, combined with inventory levels at the end of the quarter down 7.4% from a year ago, resulted in gross margins that were higher than anticipated and allowed the company to flow in additional fresh goods for the holiday season.

Macy's, Inc.'s operating income totaled $55 million or 1.0% of sales for the quarter ended Oct. 31, 2009, compared with operating income of $68 million or 1.2% of sales for the same period last year. Third quarter 2009 operating income included $33 million in restructuring-related costs. Excluding these costs, operating income for the third quarter of 2009 was $88 million or 1.7% of sales. Macy's, Inc.'s third quarter 2008 operating income included $16 million in restructuring-related costs. Excluding these costs, operating income for the third quarter of 2008 was $84 million or 1.5% of sales.

For the first three quarters of 2009, Macy's, Inc.'s operating income totaled $189 million or 1.2% of sales, compared with operating income of $357 million or 2.1% of sales for the same period last year. Macy's, Inc.'s year-to-date 2009 operating income includes $205 million in restructuring-related costs. Excluding these costs, operating income in the first three quarters of 2009 was $394 million or 2.5% of sales. Macy's, Inc.'s year-to-date 2008 operating income was $536 million or 3.2% of sales, excluding $129 million in restructuring-related costs and $50 million in asset impairment charges.

Cash Flow

Cash flow has been strong throughout the year, enabling the company to buy merchandise through peak periods without borrowing against its $2 billion bank credit agreement.

Net cash provided by operating activities was $384 million in the first three quarters of 2009, compared with $317 million in the first three quarters last year. Net cash used by investing activities in the first three quarters of 2009 was $275 million, compared with $606 million a year ago. Net cash used by financing activities in the first three quarters of 2009 was $926 million, including $964 million used to repay debt. Net cash provided by financing activities was $6 million in the first three quarters last year.

The company ended the quarter with $489 million in cash, higher than last year, even after paying down $964 million in debt during 2009.

Looking Ahead

The company currently expects same-store sales to be down 1% to 2% in the fourth quarter of 2009, which calculates to down 2.1% to 2.6% in the second half of 2009. This is better than previous guidance for second half same-store sales to be down 5% to 6%. At the level of current guidance for the fourth quarter, full-year 2009 same-store sales are expected to be down between 5.4% and 5.7% – better than the company's original guidance, provided at the beginning of the year, for fiscal 2009 same-store sales to be down between 6% and 8%.

Macy's, Inc. is assuming fourth quarter earnings per share on a diluted basis will be $1.00 to $1.05 per share, excluding restructuring-related costs. At the level of current guidance for the fourth quarter, full-year 2009 diluted earnings per share will be $1.01 to $1.06, excluding restructuring-related costs. This is an increase from previous guidance (provided in August 2009) for 70 cents to 80 cents per share on the same basis. (Original guidance for fiscal 2009 earnings per share, provided at the beginning of the year, was 40 cents to 55 cents per diluted share, excluding restructuring-related costs.) The company continues to expect to book a total of approximately $400 million in pre-tax restructuring-related costs.