Macy's Inc.'s (M) reported strong third-quarter results, reflecting the continuation of a turnaround strategy that emphasizes local tastes and is allowing the retailer to outpace competition.

Macy's posted a profit for the period ended Oct. 30, coming back from a loss the same time a year ago, as sales rose.

"Throughout 2010, we have gained confidence and momentum as customers have responded favorably to our execution of key strategies developed and activated over the past few years," CEO Terry Lundgren said.

But the results may have come at some cost. Gross margin, which gauges how much profit is derived from sales, fell in the third quarter, suggesting that already highly promotional Macy's may be becoming even more so.

Macy's game plan of late has been to more closely tailor merchandise to local tastes and needs, with efforts ranging from having more warm weather gear in the south for longer in the season to stocking Kentucky Derby merchandise in the Louisville, Ky., area as the big race draws near. The company has continued to benefit from prior consolidation of its divisions and introduction of new brands, including the recent launch of the Material Girl Line by Madonna and her daughter.

The approach appears to be paying off, with Macy's outdistancing major competitors Kohl's Corp. (KSS) and J.C. Penney Co. (JCP) in monthly comparable-store sales. Kohl's and J.C. Penney report their third quarter results on Thursday and Friday, respectively.

Macy's is also enjoying the resurgence of upper-end spending, with its Bloomingdale's chain seeing strength in the latest period. The retailer also saw a surge in online sales.

The third quarter showing, taken in its entirety, makes Macy's "well positioned to take market share this holiday season," said Citigroup analyst Deborah Weinswig.

Macy's in the third quarter reported a profit of $10 million, or 2 cents a share, compared with a prior-year loss of $35 million, or 8 cents a share. Excluding debt-repurchase and other impacts, earnings were 8 cents compared with a loss of 3 cents.

Analysts polled by Thomson Reuters most recently forecast a 5-cent profit.

The retailer for the full-year expects earnings of $1.94 to $1.99 a share, based on second half guidance it raised last week and what Macy's reported in the first two quarters.

Gross margin edged down to 40% from 40.5%, while overhead costs were flat.

Macy's last week reported total sales increased 6.6% to $5.62 billion as same-store sales grew 3.9%. A year earlier total sales fell 3.9% and same-store sales fell 3.6%.

Sales grew 24% at its online business, which includes macys.com and bloomingdales.com.

Shares are off 0.7% to $25.09.

 
   (Tess Stynes contributed to this article.)

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com
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