2nd UPDATE: Macy's Second-Quarter Net Rose 64% On Higher Sales

Macy's Inc.'s (M) and Polo Ralph Lauren Corp. (RL) posted strong quarterly earnings, reflecting robust consumer spending prior to the U.S. debt downgrade.

Macy's second-quarter earnings rose 64%, propelled by strong same-store sales throughout the period and a continuation of initiatives to make stores more appealing to customers.

Polo Ralph Lauren, which sells a significant amount of merchandise through Macy's, also had a very strong quarter, with higher demand countering increased cotton prices.

Still, Macy's Chief Executive Terry Lundgren and Polo Ralph Lauren Chief Operating Officer Roger Farah sounded words of caution about how customers may act amid a softening economy and Standard & Poor's downgrade last week of the U.S.'s debt.

"As we continue to closely monitor developments in the economy and financial markets, we are cautious but optimistic about this fall and are staying focused on those factors we can control," Lundgren said.

Macy's Bloomingdale's unit, part of an upper-end group that can be severely hurt when the stock market falls, has not experienced any difficulties, Hoguet said. "I think it's a little bit early to be judging, but at this point, business has continued strong there."

As for Polo Ralph Lauren, "We enter the fall and holiday selling seasons concerned about macroeconomic uncertainty and cost-of-goods inflation, but we are confident in the strength of our brands," Farah said.

Macy's, which kicks off second-quarter earnings reports for department stores, like other retailers is facing higher pricing of cotton-intensive merchandise. Chief Financial Officer Karen Hoguet said average unit prices will be up 5% to 7% this fall. Hoguet said factors besides higher cotton costs include merchandise mix changes and product initiatives geared toward fashion, not commodities.

She also said Macy's has reached its credit-ratio targets sooner than expected, which has opened the door to share buybacks, although any "significant" repurchase would be after the holiday. Retailers often tie up the bulk of their cash during the holidays as they bulk up on merchandise for the year's biggest selling season.

Macy's feels it has its own initiatives to continue bringing in customers, including tailoring merchandise to local tastes and offering more exclusive brands. The retailer at the end of this month will also introduce high fashion at its Macy's stores with a limited-edition exclusive collection by Karl Lagerfeld. Fellow department store Kohl's Corp. (KSS) reports on Thursday and J.C. Penney Co. (JCP) on Friday.

During the quarter, Macy's was able to raise estimates on the back of strong monthly same-store sales. On Wednesday, the retailer said it now sees full-year earnings of $2.60 to $2.65 a share on same-store sales growth between 4.8% and 5.1%, up from its May view of $2.40 to $2.45 a share and its July view of about 4.8% same-store sales increase.

For the quarter ended July 30, Macy's reported a profit of $241 million, or 55 cents a share, up from $147 million, or 35 cents a share, a year earlier. Revenue was up 7.3% to $5.94 billion.

Analysts polled by Thomson Reuters had most recently predicted earnings of 50 cents a share on revenue of $5.88 billion.

Gross margin edged down to 41.8% from 41.9%.

Same-store sales were up 6.4% while online sales were up 40%.

Ralph Lauren fiscal first-quarter earnings climbed 52% as the retailer posted better-than-expected sales helped by strength in its retail segment. Polo lifted its full-year revenue forecast, calling for growth in the mid-to-high teens, an improvement from its May forecast for growth in the mid-teens.

For the current quarter, Polo said it expects revenue growth in the high-teens to low-20% range. Analysts polled by Thomson Reuters currently expect revenue growth of 16%.

Macy's shares were down 2.5% to $24.79 and Ralph Lauren shares were up 4.7% to $125.51 in early trading.

-By Karen Talley, Dow Jones Newswires; 212-416-2196;

karen.talley@dowjones.com

--Nathalie Tadena and Mia Lamar contributed to this article

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