The profit outlook, however, didn't go as high as analysts expected, and shares fell 76 cents, or 3.9 percent, to $18.67 in premarket trading.
Some of the company's best-performing districts were the original test beds for the locally tailored merchandise. Other bright spots were its growing Internet business and rebounding sales performance at Bloomingdale's, another sign that affluent shoppers are slowly going back to shopping after a sudden retreat last fall.
The department store operator, based in Cincinnati, said Wednesday that it lost $35 million, or 8 cents per share, in the quarter ended Oct. 31. That compares with $44 million, or 10 cents per share, in the year-ago period.
Excluding costs to consolidate several divisions and roll out the localization plan, Macy's lost 3 cents per share.
Macy's reported revenue fell almost 4 percent to $5.28 billion. Sales at stores open at least a year were down 7.5 percent in the quarter. That barometer is considered a key indicator of a retailer's health because it excludes the effects of expansion.
Analysts surveyed by Thomson Reuters forecast a loss of 7 cents on revenue of $5.25 billion.
Department stores like Macy's have faced big challenges as shoppers worried about job security and tight credit keep their focus on basics like food. But they are starting to see consumers spend a bit more on little indulgences like shoes and home accessories. Still, overall business remains weak.
Macy's has been shoring up its results with aggressive cost-cutting, including job cuts, lower capital spending and reduced contributions to employees' retirement funds.
The company has also been working hard to add more exclusive merchandise in an effort to differentiate itself from rivals. Tommy Hilfiger women's and men's sportswear and children's wear is now sold only at Macy's and in the U.S. online and at Hilfiger's own stores.
The localization drive seeks to concentrate Macy's top talent in local markets and stay on top of trends by grouping Macy's stores into 69 districts with 10 to 12 stores each. Twenty of the districts in the Midwest, Upper Midwest and Pacific Northwest were created as pilots in spring 2008.
The initiative rolled out to the remaining 49 districts in the second quarter.
Meanwhile, online sales, including macys.com and bloomingdales.com, rose 21.1 percent in the third quarter and 15.6 percent for the year to date.
Macy's said it now expects sales at stores opened at least a year to be down 1 percent to 2 percent in the critical fourth quarter,which translates to a decrease of 2.1 percent to 2.6 percent in the second half of 2009. That's better than the company's previous forecast for this key metric to be down 5 percent to 6 percent for the second half.
Macy's expects full-year sales at stores open at least a year to fall between 5.4 percent and 5.7 percent, better than the original forecast of a 6 to 8 percent decline.
The company raised its full-year guidance to $1.01 to $1.06 per share. That's up from previous guidance issued in August of 70 cents to 80 cents per share. The forecast excludes restructuring charges. Analysts surveyed by Thomson Reuters forecast $1.11 per share.