UPDATE: Macy's 4Q Net Up 12%, Helped By Strong Holiday

Handbags and shoes, along with other holiday gifts, helped to propel Macy's Inc.'s (M) fourth-quarter earnings.

The results continued the strength that the department-store chain has seen as it spent the past couple of years revamping operations to embrace more fully Internet selling, localized shopping and special training for its staff. Macy's has been faring better than peers J.C. Penney Co. (JCP) and Kohl's Corp. (KSS). As Penney's remodels itself, Macy's has even more opportunity to pick up business, analysts said.

Macy's shares were recently up 4.5% to $37.88, a four-and-half-year high.

"Our year was punctuated with a terrific holiday selling season as our customers responded to our assortment of most-wanted merchandise for gifts and self-purchase, as well as compelling marketing campaigns," Macy's Chief Executive Terry Lundgren said. Internet sales rose 40% in the fourth quarter and, for the new year, Lundgren predicted online sales of more than $2 billion.

Chief Financial Officer Karen Hoguet said the company's best-performing categories during the fourth quarter included cosmetics and fragrances, shoes, handbags, watches, men's, textiles, housewares and furniture. Areas with the most notable weakness were cold-weather merchandise areas, juniors and traditional casual women's apparel. The average unit price was up 9%, while transactions rose about 1% and units per transaction were down about 4%.

For the quarter ended Jan. 28, Macy's reported a profit of $745 million, or $1.74 a share, up from a year-earlier profit of $667 million, or $1.55 a share.

Stripping out gains from the sale of store leases and other items, per-share earnings rose to $1.70. Macy's earlier this month raised its earnings target to a range of $1.63 to $1.65 a share.

Gross margin narrowed to 41% from 41.3%.

Earlier this month, Macy's reported sales for the quarter rose 5.5% to $8.72 billion, topping the $8.7 billion expected by analysts. Same-store sales were up 5.2%.

The retailer again recorded solid demand from shoppers online, helping it post a 40% leap in online sales in the fourth quarter.

Looking to the new year, Macy's, which also operates the upscale Bloomingdale's chain, forecast a per-share profit of $3.25 to $3.30, bracketing the $3.26 a share currently expected by analysts polled by Thomson Reuters. Same-store sales are seen rising roughly 3.5%.

"We continue to view Macy's as a core portfolio holding, given market-share leadership in the moderate space and gross margin drivers on the horizon," said Matthew Boss, retail analyst with J.P. Morgan.

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

--Mia Lamar contributed to this article.

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