Macy's reports 59% drop in profit, beats expectations

Macy's m reported an almost 59% drop in fourth-quarter earnings Tuesday as results were dragged down by weak sales and one-time costs associated with the consolidations of regional divisions and store closings.

The Cincinnati-based company said Tuesday that in the three months ended Jan. 31, it earned $310 million, or 73 cents a share. That compares with $750 million, or $1.73 a share, a year earlier.

Sales fell 7.7% to $7.93 billion from $8.59 billion a year ago. Same-store sales, or sales at stores open at least a year, fell 7%. Same-store sales are considered a key indicator of a retailer's health.

Fourth-quarter results included $17 million in expenses associated with the consolidation announced last year, $30 million in costs tied to further such moves announced this month and $11 million related to 11 store closings announced last month.

Excluding those one-time items, Macy's earned $1.06 a share. That was above the $1.01 a share estimate from analysts surveyed by Thomson Reuters, who generally exclude one-time factors. Results also exceeded the company's recent forecast of $1 to $1.02 a share. Thomson Reuters forecast revenue of $7.92 billion.

"While 2008 results reflect the worst economic environment of our generation, we have taken aggressive action to drive sales, maintain profitability and conserve cash," said Terry Lundgren, Macy's chairman, president and chief executive.

Department stores such as Macy's are facing big challenges as shoppers — worried about their shrinking retirement funds and job security — are in full retreat and focusing on basics.

Macy's announced this month that it will eliminate 7,000 jobs, almost 4% of its work force, and cut capital spending, reduce contributions to its employees' retirement funds and slash its dividend to preserve cash. Macy's also announced the national rollout of a plan to localize merchandising to specific markets, which it began in some regions last year.

The moves follow Macy's announcement in January — on the heels of the worst holiday season in decades — that it would close 11 stores, affecting 960 employees.

Lundgren said Macy's remains "financially healthy," with strong cash flow and ample borrowing capacity. He said the company ended the year with $1.3 billion in cash, more than planned at the beginning of the year and no borrowings against its $2 billion bank credit agreement.

Macy's reiterated that for the current fiscal year it expects to earn 40 cents to 55 cents a share, excluding costs tied to restructuring. Analysts surveyed by Thomson Reuters expect 53 cents a share. Macy's also said it still expects same-store sales to fall between 6% and 8%.