Macy's to close more stores in turnaround push, stock jumps

August 11, 2016 8:20 AM EDT

A sign that marks the Macy's store is seen at the Herald Square location in New York, U.S., May 9, 2016. REUTERS/Shannon Stapleton/File Photo


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By Sruthi Ramakrishnan

(Reuters) - Macy's Inc (NYSE: M) said it plans to shutter 100 more stores, representing about 14 percent of its total, as it tries to turn around its business after six quarters of falling sales.

The closures are the latest in a long list of moves to spur growth as department stores such as Macy's continue to battle with online retailers such as Amazon.com Inc (NASDAQ: AMZN) and discount stores like TJX Cos Inc (NYSE: TJX).

Consumers are also spending more on big-ticket items such as electronics and cars than they are on clothes, further pressuring sales at department stores.

Macy's sales fell nearly 4.0 percent during the second quarter, it said on Thursday, but that was better than analysts had expected and helped to send its shares and those of other department stores higher.

Analysts said the store closures and other recent initiatives were steps that would help Macy's recover but some said there were still issues that needing addressing.

"We believe that today's announcement (store closures) will go a long way to improving profitability levels and focusing investments on higher return opportunities," said Bridget Weishaar, an analyst at Morningstar Equity Research.

Macy's said it would close most of the stores by early 2017, which would be the fastest pace at which the company has closed stores after shutting a net 77 stores over the past six years.

The company did not identify the store locations, but said the 100 mostly underperforming stores would represent annual net sales volume of about $1 billion.

Macy's is under pressure from activist investor Starboard Value LP to unlock value in its properties and on Thursday said it would keep trying to monetize real estate at its flagship and mall-based locations, including the iconic Herald Square store in New York. It is in talks to sell its Men's Store on Union Square in San Francisco for redevelopment.

Over the past year, the company has also announced plans to open discount stores in the United States, start new stores that will sell luxury beauty products, and offer same-day delivery services in more U.S. markets than Amazon.

Retail consultancy firm Customer Growth Partners' Craig Johnson said Macy's still needed to make more progress.

"They have a lot of work they need to do ... like making the stores more relevant to a millennial consumer and the stores are currently not there," he said.

While apparel sales were stronger in the quarter reversing trends from the prior three quarters, sales of handbags, fashion jewelry and watches continued to be weak, Chief Financial Officer Karen Hoguet said on a call with analysts.

Macy's same-store sales fell 2.0 percent in the latest quarter while analysts polled by research firm Consensus Metrix had expected a 4.6 percent drop. But Macy's stuck to its full-year forecasts and said its target of limiting the fall in comparable sales to 3-4 percent "feels achievable."

Macy's shares closed up 17 percent at $39.83. The percentage gain was its biggest intraday percentage gain in seven years.

Upmarket department store operator Nordstrom Inc (NYSE: JWN) also reported late on Thursday better-than-expected comparable sales and quarterly profit, citing higher sales during its anniversary sale and at its off-price Rack business, sending its shares up 12 percent in extended trading.

Kohl's, which also reported better-than-expected sales and profit, closed up 16 percent at $44.19.

(Additional reporting by Siddharth Cavale in Bengaluru and Nandita Bose in Chicago; Editing by Saumyadeb Chakrabarty and Jo Winterbottom)



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