Updated from 9:10 a.m. EDT

May Department Stores

(MAY)

swung to a second-quarter profit and posted operating earnings Tuesday that beat estimates. The stock was recently up $1.03, or 4%, to $25.93.

May said it sees August same-store sales rising in the low single digits, citing "the sluggish sales trend that began in the latter part of the month." The company said it is on track to integrate the 62 Marshall Field's department stores it recently acquired from

Target

(TGT) - Get Report

in the third quarter.

May earned $101 million, or 33 cents a share, in the most recent second quarter, compared with a loss of $110 million, or 39 cents a share, a year ago. Backing out store divestiture costs, May earned $110 million, or 36 cents a share, compared with $92 million, or 30 cents a share. On that basis, analysts were calling for 35 cents a share in the latest quarter.

Total sales fell 1.5% to $2.96 billion, while same-store sales fell 2.2% in the period.

May said that sales of sandals, shorts and other summer merchandise did not come in as strong as last year, while an apparel clearance sale in July was weaker than expected. In addition, home furnishing sales were soft.

Categories performing well in the quarter were accessories, including handbags, jewelry and sunglasses; ladies' sportswear and suits; men's tailored clothing; and young men's clothing. Early fall sales were strong in denim and career apparel for both men and women.

Gross margins improved by 70 basis points during the quarter, predominantly due to higher initial markups and improved markdown rates. Selling, general and administrative expenses decreased 50 basis points as a percent of sales.

In June, Target announced that May would buy the Marshall Field's department store chain, three distribution centers and $600 million in credit card receivables for $3.2 billion. The deal closed on July 31. May's credit rating was cut in July by Standard & Poor's, which said the company's debt-financed acquisition impairs its credit quality.

May said that it plans to delay converting Marshall Field's to its own IT systems in order to "minimize the sales risk prior to the holiday season." Instead, May will convert the new stores to May's suite of IT systems early next year. "Target is committed to supporting these

Marshall Field's systems through March 2005," May said.

May does plan to roll out the credit business it acquired prior to the holiday, however. "We do not see a business risk of integrating credit prior to the holidays. We're on track to convert from Target's system to May's system during the month of October. We're not delaying the conversion of everything until after Christmas."

St. Louis-based May now operates 497 department stores, including Filene's, Lord & Taylor and Hecht's. Shares of the company closed at $24.90 Monday on the

New York Stock Exchange

, within range of their 52-week low of $23.70 hit on Sept. 30, 2003.