By Lisa Beilfuss
Macy's Inc. said it would shut 100 more stores, representing
about 15% of its store base and about 4% of its annual revenue, in
the retailer's latest move to contend with falling foot traffic and
sliding sales.
The company's stock has tumbled over the past year as results
have disappointed investors. Macy's shares gained 17.25% to $39.88
Thursday morning, but the stock is still down 42% over the past 12
months.
Despite posting a sharp drop in quarterly profit and another
period of declining sales, Macy's helped lift retailers across the
spectrum Thursday morning. Shares in fellow department store
Nordstrom Inc. rose 7.33%, while J.C. Penney Co. stock gained 8.25%
and Target Corp. shares rose 1.3%.
The move to shutter additional stores comes on top of 40
closures Macy's announced earlier this year.
"We operate in a fast-changing world," said Chief Executive
Terry Lundgren, and "this involves doing things differently and
making tough decisions."
Macy's executives said they haven't finalized which 100 stores
they will close, and they will continue to operate most of them
through the end of the fiscal year.
"Most of these stores are underperformers or in weak locations,"
but some were sitting on real estate that was worth more than their
retail sales, the company's finance chief, Karen Hoguet, told
analysts Thursday.
The company reached the number of closures by analyzing the
performance of each store and the strategic importance of the
location to the company's foot print. It also looked at
demographics such as changes in population and income, and noted
that in some good markets it has stores in underperforming
malls.
Certain employees would receive severance pay, the company
said.
"By closing weaker stores and monetizing some of our real estate
where the redevelopment opportunities are significant, we will grow
faster and we will produce higher return on invested capital," Ms.
Hoguet said.
While sales declined in the June quarter, Macy's executives said
they saw improvement from the first quarter of the year. The
company said the number of transactions declined 5% in the second
quarter from a year earlier, but average unit retail sale rose
2.8%.
Sales on international credit cards fell 12% in the second
quarter, but that was an improvement from the first quarter when
they fell 20%.
Mr. Lundgren said in May, after Macy's reported its worst
quarterly sales result since the recession, that he wasn't counting
on consumers to spend more. Americans have been spending -- the
Commerce Department said late last month that personal consumption
climbed 4.2% in the second quarter, the best rate since late 2014
-- but what they buy and where they buy it is changing. Shoppers
are increasingly opting to make purchases online, especially at
Amazon.com, leaving traditional retailers scrambling as foot
traffic drops and consumers shell out less on things like clothing
and more on services.
During the quarter, sales at Macy's stores open at least a year
fell 2%, an improvement from the steep 5.6% decline in the first
quarter and less severe than the 4.7% fall analysts expected.
Still, it marked the sixth straight quarterly decline.
Jeff Gennette, Macy's president and the designated successor to
Mr. Lundgren, said the store closures will shrink sales in the near
term.
"In the short term, our company's top-line sales will be
somewhat smaller, but the changes being made will position us to
grow comparable sales more quickly and generate a level of
profitability that stands out among retailers," he said.
Annual net sales of the stores flagged for closure are about $1
billion, Mr. Gennette said.
Over all for the latest quarter, Macy's reported a profit of $11
million, or 3 cents a share, down from $217 million, or 65 cents a
share, a year earlier. Excluding impairments stemming from store
closures, among other items, per-share profit fell to 54 cents from
94 cents.
Along with a 3.9% decline in revenue, to $5.87 billion,
promotional pricing bit into earnings. For example, the company
held its first "Black Friday in July" event, which Mr. Lundgren
said brought in customers and boosted online sales, though at the
expense of the bottom line.
Analysts predicted 45 cents in adjusted earnings per share and
$5.75 billion in revenue, according to Thomson Reuters.
Macy's backed its view for the year, still forecasting a 3% to
4% slide in same-store sales. The company expects to report $3.15
to $3.40 an adjusted share, bracketing the $3.26 average analyst
estimate.
Suzanne Kapner contributed
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
August 11, 2016 12:13 ET (16:13 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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