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Macy’s announced Wednesday its sales dropped 7 percent in the 3^rd quarter amid a dramatic drop in consumer spending. The department store giant also cut its budget for 2009 capital expenditures by almost half to help survive the deteriorating economy.

The Cincinnati-based chain reiterated its profit outlook, saying it would be at the lower end of the range if current sales trends continue.

Macy’s says in all it lost $44 million, that’s about 10 cents per share, after a $33 million profit at 8 cents a share last year.

The company said sales fell to almost $5.5 billion from $5.9 billion a year earlier.

Macy’s chairman, president and chief executive Terry Lundgren said in a statement, “Macy’s Inc remains financially healthy, with strong cash flow, a solid balance sheet and ample borrowing capacity. We are committed to continuing to aggressively manage expenses and inventories consistent with planned sales levels.”

In February, Macy’s announced a reorganization that dispersed more managers to local markets. In the plan the company also combined three regional divisions and eliminated nearly 2,300 management jobs. To continue to set themselves apart from competitors Macy’s expanded its offering in exclusive merchandise.

This past fall, it became the exclusive department store retailer for Tommy Hilfiger U.S.A. men's and women's sportswear. It also has a partnership with FAO Schwarz to open toy stores in close to 700 Macy's stores across the country; about 75 full-size FAO toy stores have opened in the department store chain this fall.

Macy's expects earnings in the range of $1.10 to $1.30 per share in the fourth quarter. Analysts surveyed by Thomson Reuters forecast $1.37 per share for the year, and $1.24 per share in the fourth quarter.

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