Macy’s Jumps 10% After Sales, Earnings Decline; Will Close 100 Full-Line Stores

Nothing says panic-buy a retail stock like the shuttering of 100 stores (14%) but that is what Macy's is doing. Having beaten expectations on the top and bottom line (and reaffirming the year's forecast), we do note that the drop from last year in earnings and revenues is drastic to say the least. Macy's continues to explore asset sales, but the closure of 100 of its 728 stores (with a loss of $1 billion in revenues) seems like an odd reaction to what CEO Terry Lundgren has blamed on "abnormal weather patterns."

During the fiscal second quarter, Macy's comparable sales fell 2 percent, aided by the closing of 41 underperforming stores. Retail Metrics had been forecasting a 4.4 percent decline in comparable sales.

 

"A number of factors worked in our favor in the second quarter, including a normalized weather pattern, which contributed to a sales lift in our apparel business in particular," CEO Terry Lundgren said.

 

"We also saw a smaller decrease in tourist spending during prime summer travel months, supported by strengthened promotional events designed to increase customer traffic and conversion."

Full report:

Macy’s is re-creating its physical store footprint to capitalize on Macy’s unique competitive advantage of operating in the most attractive retailing locations in America. While still maintaining a significant bricks-and-mortar presence in 49 of the top 50 U.S. markets, Macy’s will operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations. Stores will remain critical customer touchpoints for Macy’s, along with online shopping and mobile apps, as omnichannel retailing continues to evolve.

 

As part of this strategy, the company intends to close approximately 100 Macy’s full-line stores (out of a current portfolio of 728 Macy’s stores, including 675 full-line locations). Most of these stores will close early in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. In a number of cases, stores will be closed as the value of the real estate exceeds their value to Macy’s as a retail store. The locations of the 100 stores to be closed will be announced at a later date, once the company makes final decisions. The company will act to remain connected to customers of the stores it will be closing by supplementing merchandise assortments in surrounding locations, as well as through the company’s online site and mobile app.

 

“Customers nearly everywhere in America will have easy access to Macy’s stores, with the additional convenience and increased functionality of our dynamic digital offering,” Gennette said.

 

“We believe that this reduction of 100 locations in the short term will result in a more appropriate store portfolio for Macy’s in the longer term and help us to accelerate our progress in building a vibrant omnichannel brand experience. With this strategy, we will be able to reinvest in a more energized shopping experience in our remaining stores and elevate our total customer experience across all methods of shopping,” he added.

 

Together, annual sales volume of the approximately 100 closed locations, net of sales expected to be retained in nearby stores and online, is expected to be roughly $1 billion. The reduction in EBITDA is expected to be offset by expense savings beyond those associated with store closings.

Of note, today's data is marekdly lower than last year...

  • EPS: $0.54 in Q2 vs. $1.19 in the same period last year.
  • Revenue: $5.87 billion in Q2 vs. $6.10 billion in the same period last year.

Lower bar?

The only thing we worry about here is that this was merely a big illiquid stop run above last month's cycle high...

 

Macy's is "fixed" now...

 

Less stores, less jobs, lower sales, lower earnings, higher stocks.

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