JCP J C Penney Company Inc

As shoppers spend more at discount chains and online, retailers work to boost revenue

By Suzanne Kapner 

Macy's Inc. said it would close 100 stores, admitting that some locations were worth more as real estate than retail outlets as shoppers continue to spend more online and at discount chains.

The decision to shrink its footprint by 14% came as Macy's, Kohl's Corp. and Nordstrom Inc. reported falling sales for the latest quarter. Kohl's also cut its profit target for the year.

The results, however, were better than anticipated, and investors -- encouraged that some of the overcapacity is starting to exit the department store space -- pushed up the major chains's stock prices.

Macy's shares jumped 17% to $39.81 on Thursday, their largest percentage gain since December 2008. Kohl's shares rallied 16% to $44.19. Nordstrom, which reported after the close, gained 8% to $47.56 and J.C. Penney Co., which reports Friday, rose 9% to $9.94.

"We believe there is too much retail square footage in the department store space," Macy's President Jeff Gennette, who will take over as CEO next year, said in an interview.

The retailer has been evaluating its real estate since it came under attack by activist investor Starboard Value LP last year. Macy's executives said they haven't completed which of the company's 728 locations they will close; and they will continue to operate most of the stores through the end of the fiscal year.

"Most of these stores are underperformers or in weak locations" but the company also will close a few locations because "desirability as a redevelopment opportunity exceeds their value to us as a retail store," Macy's finance chief, Karen Hoguet, told analysts Thursday.

The closures will free up $1 billion in sales that will be up for grabs by Macy's competitors.

"Although this is partly a reaction to being in a tough competitive position within the landscape, they are being more offensive than most," wrote Citi analyst Paul Lejuez in a note to clients. "It is not only good for [Macy's] but also for the industry."

While chains including Macy's, Kohl's and Penney have closed hundreds of stores in recent years, the culling hasn't been fast enough to offset persistent sales declines. Others also have moved to shrink, with chains such as Office Depot Inc., Sports Authority Inc. and Wal-Mart Stores Inc. announcing hundreds of closures this year.

Kohl's executives said Thursday that they have no plans to close additional stores beyond the 18 locations closed in the latest quarter, which left it with a store count of 1,150.

"Fewer stores generally are not going to be a ticket to success in our mind," Kevin Mansell, Kohl's chairman and CEO, told analysts on a conference call. "We monitor stores all the time, but there are no stores that we would anticipate closing next year right now."

Mr. Mansell said having a broad network of brick-and-mortar locations is "a big advantage" that can help drive online sales and serve as shipping locations. He said 21% of e-commerce sales in the June quarter came from customers who ordered online and picked up at a physical store.

The Macy's closures, as well as other asset sales such as the potential divestiture of its men's store in the Union Square section of San Francisco, will free up capital that Macy's plans to invest in its remaining stores by upgrading the merchandise, adding sales staff and improving technology.

Some loyal Macy's shoppers were upset at the news that the company was closing more stores but said they weren't surprised.

One of the biggest complaints was the clutter. "There's no rhyme or reason," said Ella Eskridge, as she thumbed through a sales rack at Macy's in Atlanta.

Other shoppers complained about the quality of Macy's merchandise.

"The quality is getting lower and lower," said Aileen Antonier, who was visiting the Herald Square flagship store in New York City. "I kind of see it as a Macy's problem," she said, noting better quality at rival chains such as Lord & Taylor.

Macy's sales fell 3.9% to $5.87 billion in the three months to July 30. Sales at existing stores including licensed departments fell 2%. Ms. Hoguet, however, said she was encouraged by improved apparel sales, a strong start to the back-to-school shopping season and a moderation in the falloff in spending by tourists.

Net income fell to $11 million from $217 million a year earlier. The company took a $249 million charge in the current period for the store closures.

At Kohl's, sales declined 2% to $4.18 billion in the same period. Sales at existing stores slipped 1.8%. Net income edged up to $140 million from $130 million a year earlier.

Mr. Mansell, the Kohl's CEO, said Amazon.com Inc. and off-price retailers such as TJ Maxx and Marshalls were continuing to gain share.

Nordstrom's profits fell 45% to $117 million, and sales slipped 0.2% to $3.6 billion in the three months to July 30. Sales at existing stores fell 1.2%, while off-price Nordstrom Rack stores grew 5.3%.

Nordstrom took increased markdowns to clear excess goods. Co-President Blake Nordstrom said the move helped the company make "substantial progress bringing down inventory in line with sales." Macy's and Kohl's also ended their quarters with lower inventory.

--

Imani Moise

and Lisa Beilfuss contributed to this article.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

August 12, 2016 02:48 ET (06:48 GMT)

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