Macy's profits suffer from transition costs

CINCINNATI -- Macy's said Wednesday its second-quarter earnings fell 77 percent as it continues to be hurt by costs from its takeover of a former rival along with lower sales. It also warned third-quarter and full-year earnings would come in below Wall Street estimates, and its stock hit a 52-week low.

Profit declined to $74 million, or 16 cents per share, for the quarter ended Aug. 4, from $317 million, or 57 cents per share.

Excluding costs of $60 million, or 13 cents per share, from the acquisition of May Department Stores, Cincinnati-based Macy's earned 29 cents per share in the latest period, compared with 33 cents in the 2006 second quarter.

Sales slipped about 2 percent to $5.89 billion from nearly $6 billion last year.

Analysts surveyed by Thomson Financial, who typically exclude one time charges such as integration costs, had forecast profit of 26 cents per share on revenue of $5.88 billion. Last month, Macy's cut its third-quarter profit outlook to 20 to 30 cents a share from 35 to 45 cents.

Macy's projected third-quarter earnings, excluding merger costs, will now be 5 to 10 cents per share, with earnings for the full year, without the merger costs, of $2.15 to $2.30 per share. Analysts have projected 19 cents a share for the third quarter and $2.37 per share for the year.

Macy's shares fell 2 percent, or 63 cents, to $31.10 in trading Wednesday, below its 52-week low of $31.67. Shares have traded as high as $46.70 in the past year.

While unhappy with its second-quarter performance, Chief Financial Officer Karen Hoguet told analysts in a conference call that the retailer was encouraged by improving sales trends in home-related merchandise and in the former May stores it acquired in 2005. She said the gap between the former May stores and Macy's legacy stores began to narrow late in the quarter.

The company lowered its profit outlook for the third quarter and the year given the trends to date and concern over the economy, Hoguet said.

Macy's has attributed disappointing sales partly to strategic changes made too quickly at the former May stores -- including moving away from coupons -- and has boosted those promotions.

Macy's changed its name from Federated Department Stores this year after converting its former May stores -- including popular regional names such as Marshall Field's, Foley's and Filene's -- into Macy's in its push to make Macy's a national department store brand.