Department store operator Macy's Inc posted a better-than-expected quarterly profit and raised its full-year outlook as cost-cuts overshadowed lower sales, but mixed results from two of its suppliers showed that the retail industry remains tough.

Liz Claiborne Inc , whose brands include Juicy Couture and Kate Spade along with its namesake label, posted a deeper-than-expected loss, while intimate apparel maker Maidenform Brands Inc reported a better-than-expected profit and raised its full-year forecast.

Shares of Macy's and Maidenform were both up over 5 percent, while shares of Liz were off nearly 3 percent.

Where other companies that are in our industry have cash-cow, fully-scaled businesses, the two largest and most mature components of our business are, in fact, losing money, Liz Claiborne Chief Executive William McComb said in a conference call, referring to its domestic wholesale business and international retail business, including the Mexx chain.

Retailers including Macy's have cut orders from clothing manufacturers to meet lower demand from budget-conscious shoppers in order to limit markdowns, which hurt profits for retailers and vendors.

Macy's also began tailoring its stores to specific areas, a move Chief Financial Officer Karen Hoguet said is paying off.

Sales in the pilot 'My Macy's' districts ... continue to outperform the rest of our stores, and in fact the outperformance accelerated in the second quarter, she said.

Macy's quarterly net profit fell to $7 million, or 2 cents a share, from $73 million, or 17 cents a share, a year ago.

Excluding items, Macy's earned 20 cents a share, while analysts had expected 17 cents, according to Reuters Estimates.

Macy's said sales fell about 10 percent to $5.16 billion. Same-store sales fell 9.5 percent.

Sales at Liz Claiborne fell an even deeper 29 percent to $684 million, hurt by double-digit declines in its wholesale segment and its retail stores, which are often forced to mark down merchandise after department stores do.

In contrast, Maidenform said sales rose 6 percent, citing strong sales of shape-improving underwear, market share gains and the launch of its Donna Karen and DKNY businesses.

The industry's real test will come in the fourth quarter, and Macy's said it is cautiously optimistic that sales could improve.

It is the holiday season that investors in general hope will be better than last year, said Edward Jones analyst Matt Arnold. (Macy's) eventually is going to need to wean the consumer off promotions for its earnings power to shine through.

DIFFICULT HOLIDAY AHEAD

Macy's now expects to earn 70 to 80 cents a share this year, excluding items. That compares with a prior forecast of 40 to 55 cents a share and analyst estimates of 80 cents.

It now sees full-year sales falling 7 to 7.5 percent, while it had earlier expected a 6 to 8 percent drop.

Liz Claiborne does not give earnings forecasts but said it expects sales to fall 20 to 25 percent in the third quarter and 10 to 15 percent in the fourth quarter, when it will face softer comparisons from the economic downturn of last September.

Despite expected benefits from lower costs, inventory reductions and a wider array of lower-priced items, Liz Claiborne's CEO predicted that the fourth quarter may end up being more promotional than some analysts and rivals think.

We think that this could be the industry surprise of holiday 2009 -- sales declines on top of sales declines as demand remains tepid, begetting unplanned markdowns and fewer gross profit dollars to cover expenses, McComb said.

He also said it is likely that a high number of retailers will close stores in 2010 as they continue their work to bring supply in line with the new demand curve.

Meanwhile, Maidenform said it expects total sales growth in the low to mid-single-digit percentage range for fiscal 2010.

Maidenform shares were up 82 cents at $15.07, while Macy's shares gained 80 cents to $16.27. Liz shares fell 12 cents to $3.89 on the New York Stock Exchange.

(Additional reporting by Martinne Geller in New York, Ben Klayman in Chicago and Abhishek Takle in Bangalore, editing by Gerald E. McCormick)

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