Macy’s Blames Loss on Christmas Competition

R. H. Macy & Co., one of the nation’s best-known retailers, Tuesday blamed a weak Christmas season and its competitors as it reported a $39-million loss for its second quarter.

New York-based Macy, which owns the Bullock’s and I. Magnin stores in Southern California, said the loss resulted from “turmoil” during the holidays created by competitors who discounted aggressively. The retailer was taken private in a 1986 leveraged buyout.

The U.S. department store chains operated by Campeau Corp. of Canada--including Bloomingdale’s, Jordan Marsh and other stores--cut prices heavily over the holidays to raise cash to pay their debts. They filed for bankruptcy protection in January.

Macy’s loss for the fiscal quarter ended Jan. 27 contrasted with a profit of $72.6 million in the year-ago period, the company’s quarterly financial statement said.

While Macy had reported that a loss for the quarter was likely, the decline’s magnitude surprised some industry analysts.

In a letter to investors, Macy said its strategy had been to protect its share of the market and pare inventories. The strategy worked, Macy said, as sales rose 7.2% to $2.44 billion in the quarter. Sales at stores open longer than one year rose 5.4%. But the increases came at the expense of profits.

“As expected, margins were severely affected by unusually heavy promotions, but we believe this was an atypical time,” Chairman Edward Finkelstein said in the letter.

The nine Campeau store chains resorted to heavy price-cutting to raise cash to meet interest and other payments on the large debts incurred when they were acquired by Campeau. But the strategy was not successful, and the retail chains were plunged into bankruptcy.

Macy’s losses “reflect the effects of the well-publicized turmoil in the retail industry, especially during the important holiday season,” its quarterly report said.

“In selected key markets, several competitors, which were experiencing cash-flow problems, initiated significant price-cutting activity during this quarter,” it said.

Macy had warned bankers, investors and suppliers that it expected a loss for the period.

“I knew they were not doing well, but the extent of the negative numbers really surprised me,” said Kurt Barnard, publisher of the Barnard’s Marketing Report, an industry newsletter.

It was the fourth consecutive quarterly loss for the retailer and one of its biggest.

Despite the weak performance, the company said that its financial structure is sound and that it will have enough cash to meet obligations.

The company’s long- and short-term debt totals $5.61 billion, Macy said.

Much of the debt was incurred when Finkelstein and Mark Handler, Macy’s president, led a group of about 400 management associates who took the company private in July, 1986.

For the six months, Macy reported a loss of $72.2 million, contrasted with a profit of $53.6 million in the year-ago period. Sales rose 6.4% to $4.15 billion.