By Karen Talley
Macy's Inc.'s first-quarter earnings jumped as the department store continued its drive to gain market share through initiatives to tailor merchandise to local tastes and offer more exclusive brands.
The retailer, which also operates Bloomingdale's, said Wednesday it isn't that worried about the business impact from increased costs as it has run some tests of higher prices and generally seen little resistance.
While the matter is challenging, "I think the concerns about price inflation have been overstated," Macy's Chief Financial Officer Karen Hoguet told analysts during a conference call.
Still, she indicated that gross margin will likely be flat this year because of higher costs. "There are so many good things happening that would lead you to believe the margin should go up, but given what's happening with cost inflation I just don't think we can commit to it so I think flattish for the year is still the right answer," she said.
The comments came after Macy's posted its best first-quarter earnings since merging with May Department Stores Co. in 2005.
The results set a high bar for competitors Kohl's Corp. and J.C. Penney Co., which report earnings Thursday and Monday, respectively. Major department stores are jockeying for consumers who have become more selective and potentially scarce amid higher gasoline prices and increased costs for apparel due to higher cotton prices.
Macy's local approach to merchandise—from selling flamboyant hats in Louisville, Ky., around the time of the Kentucky Derby to displaying bedding with lighthouses in stores near coastal areas of Maryland—is gelling with compelling mixes of its own brands, exclusive lines and name brands. Exclusive lines include Madonna and her daughter's Material Girl, as well as Ellen Tracy, Rachel Roy and lines by designers that are offered for only a limited time, including, later this year, Karl Lagerfeld.
While continuing initiatives like expanding its Internet operation, Macy's is also taking steps like broadening its youth-oriented offerings, investing in new businesses like outdoor furniture and starting to use Apple Inc.'s iPad tablet computers in stores, initially in cosmetics departments to help customers select skin-care products.
Macy's said its first quarter benefited from strong sales, margin and expense management and better credit performance and lower interest expense. The company raised its full-year guidance while doubling its dividend.
The showing sent shares to a near four-year high during Wednesday's session. In 4 p.m. New York Stock Exchange composite trading, Macy's shares rose 7.7% to $28.36.
"We are still in the early innings of implementation of our current strategies," Chief Executive Terry Lundgren said. "We also are developing and testing a wide range of new ideas and innovations that will allow us to evolve with our customers and continue to improve our performance."
For the quarter ended April 30, Macy's reported a profit of $131 million, or 30 cents a share, up from $23 million, or five cents a share, a year earlier. The year-ago quarter included debt-repurchase costs of four cents a share. Sales rose 5.7% to $5.89 billion.
Analysts polled by Thomson Reuters had forecast earnings of 18 cents a share on revenue of $5.86 billion.
Gross margin slipped to 39.1% from 39.4%.
Same-store sales rose 5.4%, while online sales were up 38%.
The company expects full-year earnings of $2.40 to $2.45 a share on a 4.3% same-store sales increase, up from its February forecast of $2.25 to $2.30 on a 3% same-store sales increase.
It also raised its quarterly dividend to 10 cents from five cents, which will cost an additional $86 million a year.
