Macy's profit benefits from cost cuts, tops estimates

(Reuters) - Department store chain Macy's Inc reported a higher-than-expected rise in quarterly profit, as it continued to close stores and keep a tight leash on inventory in a gloomy U.S. retail industry.

Shares of Macy's were up 1 percent in premarket trading on Thursday. Rival Kohl's Corp, which also reported a better-than-expected rise in profit, was down 2 percent.

However, gross margins at both companies slipped as they continued to offer discounts and promotions to woo customers to their stores.

Macy's gross margins fell to 40.3 percent from 40.9 percent a year earlier, while those of Kohl's fell to 39.4 percent from 39.5 percent.

Department store operators have been struggling with declining mall traffic and tough online competition and have responded by cutting costs through shuttering stores, selling or leasing their real estate and reducing inventory.

To boost traffic, Macy's is revamping its beauty business, investing in Backstage, its off-price discount business, and improving its e-commerce site, while Kohl's has been adding more national brands such as Under Armour Inc to its stores.

These moves helped sales at Macy's stores open more than 12 months fall by a smaller-than-expected 2.5 percent. Analysts polled by research firm Consensus Metrix had estimated a 3 percent drop.

Kohl's same-store sales fell for the sixth-straight quarter to 0.4 percent, but were better than the 1.5 percent estimated decline, according to Consensus Metrix. Kohl's cited improved sales trends in July for its sales performance.

Net income attributable to Macy's shareholders rose to $116 million, or 38 cents per share, in the second quarter ended July 29 from $11 million, or 3 cents per share, a year earlier.

The company recorded impairment charges of $249 million in the year-earlier period.

Excluding items, Macy's earned 48 cents per share, beating the average analyst estimate of 46 cents, according to Thomson Reuters I/B/E/S.

Net sales fell 5.4 percent to $5.55 billion, but beat analysts' estimates of $5.52 billion.

(Reporting by Sruthi Ramakrishnan in Bengaluru, Editing by Anil D'Silva)