Takeover of May weighs on Macy’s; profit off 77%

Macy’s Inc. said Wednesday that its second-quarter profit fell 77%, weighed down by its takeover of a rival, and warned that it would miss Wall Street expectations for the third quarter and the year.

Net income declined to $74 million, or 16 cents a share, from $317 million, or 57 cents, a year earlier. Excluding May Department Stores takeover costs of $60 million, or 13 cents a share, the company earned 29 cents a share, compared with 33 cents in the 2006 second quarter.

Sales slipped about 2% to $5.89 billion.

Analysts surveyed by Thomson Financial, who typically exclude one-time charges such as integration costs, had forecast profit of 26 cents a 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 that third-quarter earnings, excluding merger costs, would now be 5 to 10 cents a share, with earnings for the full year, without the merger costs, of $2.15 to $2.30 a share. Analysts have projected 19 cents a share for the third quarter and $2.37 a share for the year.

Macy’s stock fell 63 cents to $31.10, below its 52-week low. Shares have traded as high as $46.70 in the last year.

“While the second quarter was below our initial expectations, we did see improving sales trends through the quarter in former May Co. stores and in home-related merchandise categories,” said Terry J. Lundgren, Macy’s chairman, president and chief executive. “We are optimistic that our business can and will improve in the second half of the year.”

Lundgren told shareholders at their annual meeting in May that disappointing sales results were partly due to strategic changes made too quickly at the former May Department Stores. Lundgren orchestrated Macy’s $11-billion acquisition of May in 2005.

Macy’s changed its name from Federated Department Stores this year after converting most of 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.

The turnaround of the former May stores hasn’t progressed as well as expected, and the retailer also has been facing challenges such as a weakening home market, which has depressed its home furnishings sales.

Macy’s operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy’s and Bloomingdale’s.