Two of the country's biggest department stores, Macy's Inc. and Kohl's Corp., posted another quarter of declining sales as the chains struggle with changing shopping habits and competition from discount rivals.

Macy's booked a 2.7% decline in same-store sales, the seventh straight quarter in which sales and profits have declined. The retailer also struck a deal Thursday with Brookfield Properties that could further shrink its retail footprint.

Kohl's same-store sales fell 1.7% in the period, its third straight drop, despite what it said was a strong back-to-school shopping period. Unlike Macy's, most of the chain's locations aren't part of traditional shopping malls and the company doesn't plan to shrink its store base.

Executives at both chains, however, said shopping trends were improving and gave upbeat outlooks for the key holiday season. Shares of the companies rallied in Thursday morning trading, giving a lift to other retail stocks.

"We have momentum coming out of October," said Kohl's Chief Executive Kevin Mansell. "We feel we're very well positioned for the upcoming holiday season."

Shoppers are increasingly opting to make purchases online, especially at Amazon.com Inc. or at fast fashion chains like H&M Hennes & Mauritz AB, leaving department stores scrambling with lower foot traffic.

Both Macy's and Kohl's have tried to adapt. Macy's has been closing weaker stores and adding kiosks that sell Apple Inc. watches or other electronics. Kohl's has brought in more national brands, such as Nike Inc. and American Girl dolls. But both still rely on heavy discounts to drive foot traffic.

Neil Saunders, the chief executive of Conlumino, a retail research firm, noted that Macy's made just 2 cents for every $1 in revenue in the latest quarter. The results, Mr. Saunders said, "show a company grappling with what looks like a terminal decline."

Some brands, such as Coach Inc. and Ralph Lauren Corp., that have historically relied heavily on department stores are starting to pull back from those chains in an effort to sell more goods at full price. On Thursday, Ralph Lauren reported that sales to department stores fell 10% in its latest quarter.

Macy's said the average purchase price of an item increased during the quarter, which helped offset fewer transactions, and that online sales continued to grow by double digits. Inventory declined 3% putting the company on stronger footing heading into the holidays than last year, when it resorted to discounting to clear unsold goods. Macy's reaffirmed its profit forecast for the year, and said it now expects sales to decline less than expected.

Chief Executive Terry Lundgren said its strategy of adding more exclusive products has helped apparel sales recover, and added that Macy's was also seeing strong sales in technical watches, in part due to having an Apple kiosk in its Herald Square store, and new offerings from Michael Kors Holdings Ltd. in the category.

Mr. Lundgren, who has announced plans to step aside next year, said it was too soon to tell what impact the presidential election would have on sales. "To have a group of the population feeling like their voices have been heard is a positive thing," he said. With wages rising and unemployment low, he added, "there is a potential for consumers to spend in our categories in the fourth quarter."

Over all, Macy's reported a third-quarter profit of $17 million, down from $118 million a year earlier, hurt by restructuring costs. Sales fell 4.2% to $5.63 billion.

On the real estate deal, Macy's said Thursday Brookfield will be able to redevelop up to 50 properties, either by adding on to a particular store or redeveloping the entire site. Financial terms weren't disclosed. "They will reimagine not just some of our store locations, but our parking lots, and property we own," Mr. Lundgren said.

The Brookfield deal is part of Macy's strategy to generate value from real estate as many of its stores underperform in a rocky retail environment. Over the summer, Macy's said it would shut 100 more stores, about 15% of its base, on top of 40 closures announced earlier this year. Activist investors have called for Macy's to generate more value from its real estate.

Macy's shares, which have climbed 13% in the past three months, popped up 5.9% while shares of Kohl's rose 11%. That helped buoy other retail stocks that will report financial results in the coming days. J.C. Penney Co. increased 6.7% and Nordstrom Inc. gained 5.8%.

Kohl's profit rose 22% to $146 million. Revenue fell 2.3% to $4.33 billion.

Mr. Mansell, the CEO, said better inventory management could help shield the company from seasonal or political volatility. "We are doing things with an eye to the long-term and that it's benefiting us and it will continue to benefit us regardless of whether or not you think the consumer is in a buying mood for holiday or is still not so much."

For the period ended Oct. 1, Ralph Lauren reported a profit of $45 million, down from $160 million a year earlier. Revenue declined 7.6% to $1.82 billion. Sales at the company's retail stores excluding newly opened and closed locations declined 8%.

Earlier this year the luxury apparel and accessories company embarked on a turnaround plan that included refocusing on its core Ralph Lauren, Polo and Lauren brands, as well as store closings and job cuts.

Joshua Jamerson and Ezequiel Minaya contributed to this article.

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

 

(END) Dow Jones Newswires

November 10, 2016 12:45 ET (17:45 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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