Macy’s on Thursday topped Wall Street’s quarterly expectations, as inventory and margin improvement helped offset an 7% year-over-year decline in sales.

The department store chain’s shares surged more than 12% at the open.

In an interview with CNBC, CEO Jeff Gennette said the company has seen steady business across key categories for the holiday season, especially beauty.

He said Macy’s sees factors that could work in its favor during the holidays: Its inventory levels are roughly flat to a year ago, giving the company flexibility to buy more or less of merchandise depending on what shoppers want. Customers have an extra weekend to shop this year before Christmas. And after warmer weather in parts of the country, Macy’s has started to see shoppers respond to cooler temperatures by buying winter gear.

Here’s what the retailer reported for the fiscal third quarter compared with what analysts expected, according to consensus estimates from LSEG, formerly known as Refinitiv:

• Earnings per share: 21 cents adjusted vs. 0 cents expected
• Revenue: $4.86 billion vs. $4.82 billion expected

In the three month period that ended Oct. 28, Macy’s net income fell to $43 million, or 15 cents per share, from $108 million, or 39 cents per share a year earlier. Excluding certain items, per-share earnings were 21 cents.

The company’s revenue fell from $5.23 billion in the year-ago period.

Macy’s also adjusted its full-year guidance. It raised the low end of its expected sales range to $22.9 billion from $22.8 billion. For comparable, or same-store sales, the company said it expects a decline of up to 7%, an improvement from its previous estimate of a 7.5% decline at most.

For full-year adjusted EPS, Macy’s now projects a tighter range of $2.88 to $3.13, versus an earlier estimate of $2.70 to $3.20. The guidance implies higher profit expectations for the fourth quarter than what Wall Street had projected.

Macy’s has looked for new drivers of growth, as it tries to refresh its legacy brand. As sales as its namesake mall stores lag, the company announced in October that it would open up to 30 smaller stores in strip malls over the next two years. It has also refreshed some of its private brands and launched new ones, such as On 34th, a new women’s clothing brand.

The company’s strongest sales have come from higher-end department store chain, Bloomingdale’s, and its beauty chain, Bluemercury.

Overall, on an owned-plus-licensed basis, the company reported a same-store sales decline of 6.3%, better than the 7.75% decline expected by analysts.

On an owned basis, Bluemercury posted comparable sales growth of 2.5%, while Bloomingdale’s reported a 3.2% decline. The namesake Macy’s chain saw comparable sales fall 7.6%.

Lower permanent markdowns on merchandise helped boost the company’s gross margin to 40.3% from 38.7% a year earlier. Merchandise inventories fell 6%.

Shares of Macy’s closed on Wednesday at $12.61, up 7.5%. The company’s stock has struggled this year, falling nearly 39% compared to the 17% gains of the S&P 500.

The company is also in the middle of a leadership change. Gennette will retire in February and be succeeded by Tony Spring, the CEO of Bloomingdale’s.

–CNBC’s Robert Hum contributed to this report.