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May 16, 2018

Macy's shares soar as profit tops expectations

Macy's

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NEW YORK -- With customers in a mood to spend, particularly on clothing, Macy's surpassed all profit and revenue expectations for the first quarter of the year and raised its outlook.

Its shares surged nearly 7 per cent Wednesday, and the results helped the stocks of other department store chains, all trying to appeal to shoppers who are spending more online.

Macy's, the first of the major department store to release its quarterly results, has been expanding its store label brands, adding more of the off-price Backstage stores, and upgrading its checkout technology to make it faster and easier for shoppers.

Chairman and CEO Jeff Gennette said the company saw strength across its Bloomingdale's, Bluemercury and Macy's brands. He said results are improving at its stores, coupled with robust online and mobile growth.

"While we have more work to do, the continuing improvement in our stores is encouraging," Gennette said in a statement.

Macy's results follow government data released Tuesday showing that U.S. retail sales rose a solid 0.3 per cent in April, a sign that shoppers may be rebounding from weak spending earlier this year. The spending gains were spread across most retail categories, especially big increases at furniture and clothing stores. Those are trends that could help department stores.

A strong job market could help drive spending gains in the months ahead. Tax cuts have also left most U.S. households with more money to spend, though higher gasoline prices have been cutting into that. Measures of consumer confidence remain mostly healthy.

Neil Saunders, managing director of GlobalData Retail, described Macy's results as "solid progress" but cautioned that much of the momentum is fueled by the favourable economic backdrop. He also noted that the shift of the big Friends and Family promotion to the first quarter helped results.

"Macy's still has many fundamental issues that it needs to work through," he wrote, noting a still-unattractive store experience, customer traffic declines in many locations and tough competition.

For the period ended May 5, Macy's Inc. earned US$139 million, or 45 cents per share. A year earlier, the company earned US$78 million, or 26 cents per share. Stripping out impairment charges and other costs, earnings were 48 cents per share. Excluding asset sales gains, earnings were 42 cents per share.

Analysts polled by Zacks Investment Research were calling for earnings of 36 cents per share.

Revenue rose to US$5.54 billion from US$5.35 billion, also beating Wall Street's view. Sales at company-owned stores open at least a year increased 3.9 per cent. At owned and licensed locations, they climbed 4.2 per cent.

Macy's now foresees a fiscal 2018 adjusted profit of US$3.75 to US$3.95 per share. Revenue is now expected to be down 1 per cent to up 0.5 per cent. The chain's prior outlook was for an adjusted profit between US$3.55 and US$3.75 per share and revenue that would be down 0.5 per cent to 2 per cent.

The company, which has corporate offices in Cincinnati and New York, also announced that it's ending its China e-commerce joint venture with Fung Retailing Ltd. It will remain active on Alibaba's e-commerce platform TMall and social media channels.

Shares rose US$1.94 to US$31.89 on Wednesday.