Macy’s Sues J.C. Penney Over Martha, Reports Growth

Terry Lundgren

Terry Lundgren

By David Gill

Coupled with its court action against Martha Stewart Living Omnimedia (MSLO), Macy’s has filed suit against J.C. Penney over the agreement between the retailer and MSLO to open Martha Stewart home shops in J.C. Penney stores.

Macy’s had sued MSLO concerning this deal in January. J.C. Penney and MSLO announced their partnership in December, which calls for the opening of Martha Stewart home shops in the majority of J.C. Penney stores along with the creation of an e-commerce site devoted to Martha Stewart home products. The in-store shops are scheduled to open in February 2013, and the site will also debut next year.

In the filing, a copy of which was sent to HFN, Macy’s said, “J.C. Penney has tortiously interfered, and continues to tortiously interfere, with a contract that Macy’s validly entered into with Martha Stewart Living Omnimedia Inc. (MSLO). J.C. Penney knew that such a contract existed, and nonetheless induced MSLO to materially breach that contract.

“Billions of dollars of sales are involved,” the filing went on to say. “J.C. Penney has no justification for its unlawful conduct, which is transparently designed to eliminate the competitive advantage that Macy’s enjoys in the area of home products by virtue of its exclusive relationship with MSLO.”

In a statement also given to HFN, Macy’s said, “On July 13, the Supreme Court of the State of New York issued a preliminary injunction preventing MSLO from allowing the manufacture, marketing, distribution or sale of any Martha Stewart-branded product in these categories through another retailer. The lawsuit…seeks to expand injunctive relief to J.C. Penney and seeks to have J.C. Penney pay damages for its tortious interference with the contract between Macy’s and MSLO.”

The statement added that Macy’s plans to continue to support the Martha Stewart Collection product sold under its MSLO contract, which currently extends through January 2018.

J.C. Penney did not respond to requests for comment.

Meanwhile, Macy’s said a wary eye on expenses combined with a sales gain to boost its net income by 15.8 percent in the second quarter, to $279 million.

Net sales in the quarter, which ended on July 28, rose 3 percent to $6.1 billion, which included a 3 percent increase in same-store sales. The pickup at the cash registers also included a 36.1 percent jump in online sales, encompassing both macys.com and bloomingdales.com.

Gross margin rose 10 basis points to 41.9 percent. Selling, general and administrative expenses were up 1.7 percent on a dollar basis, but were down 50 basis points as a percentage of sales to 32.8 percent.

Terry Lundgren, Macy’s chairman, president and CEO, said the company was able to post positive results in the second quarter despite the soft economy, reduced spending by international tourists and disruptions associated with the remodeling of the Macy’s Herald Square flagship store in New York City. “In response to these challenges,” Lundgren said, “we have stayed very firmly focused on driving profitable sales growth while running the business with discipline to maintain margins and manage expenses.”

Lundgren added that Macy’s is entering the fall season prepared with brand-driven merchandise for gift giving and self-purchase. “Meanwhile, we will continue to maintain our expense discipline, especially in those areas that are not readily apparent to the customer,” he said.