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Macy's says profit drop will exceed its forecast

October 11, 2008|From Bloomberg News

Macy's Inc. said Friday that fiscal-year profit would fall more than it had forecast as the U.S. economy and consumer confidence weaken.

Macy's is the latest retailer to project earnings declines as the global credit crisis deepens, retirement accounts plunge and shoppers spend less. Department stores have been hit especially hard because people aren't spending much on anything other than the basics. J.C. Penney Co., Kohl's Corp. and Nordstrom Inc. projected earnings declines earlier this week.

"It's a dreadful environment out there for consumer spending," said Dan Poole, senior vice president of equity research at National City Bank.

Macy's shares sank $1.54, or 13%, to $9.92. The stock has declined 55% in the last month.

"My clear hope is that we'll see a turnaround in 2009," Chief Executive Terry Lundgren said. "It is looking more like the back half of 2009."

Earnings per share may fall to $1.30 to $1.50 for the fiscal year ending Jan. 31, compared with its Aug. 13 projection of $1.70 to $1.85. Analysts surveyed by Bloomberg estimate profit of $1.74.

Sales at stores open at least a year may fall 3% to 6% for the second half of the year, compared with an Aug. 13 projection of a 1% decline at most, the Cincinnati-based retailer said. In the first eight months of the year, those sales declined 3.2%.

Macy's assured investors that it was "financially healthy" and its cash flow was better than it forecast at the beginning of the year even as sales slowed. The retailer suspended a share repurchase program, reduced capital spending and tightened inventory and expense controls.

Macy's comparable sales will continue to outperform those of most of its major competitors, Lundgren said. Macy's trails Sears Holding Corp. in sales.

Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, was less hopeful.

"We remain concerned that the final quarter could be even lighter than the down 3% to 6% comparable sales," Hastings said.

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