Macy's to close 100 stores as big-box retailer shrinks further
Faced with sliding sales and profits, Macy's will close about 100 stores next year as the department store chain continues to shrink in the face of online competition and shoppers seeking new alternatives.
The company announced a series of strategic changes Thursday aimed at setting up the retailer for more sustained growth in the future. The plan includes bringing in more brand shops within the stores, improving online search and ordering and hosting in-store events to drive traffic.
The 100 closures, about 15% of Macy's 675 full-line locations, are only the latest round of closures Macy's has undertaken in recent years to cast off its lowest-producing stores when profitability has waned. Macy's hasn't announced which locations will close, but said they represent about $1 billion in annual sales, excluding sales the company expects to retain online or at nearby stores. That's nearly 4% of Macy's total annual sales in 2015.
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Investors greeted news of the changes enthusiastically, sending Macy's stock up 17% Thursday to $39.81 a share, up $5.81. Still, the stock is down about 40% from its 52-week high.
Macy's rebound, however, also drove other retail stocks. Department-store chains Kohl's soared nearly 15% and J.C. Penney was up nearly 8%. High-end retailer Nordstrom saw its stock rise nearly 7%, Sears was 2% higher and Gap increased 3.5%.
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Macy's has been undergoing significant transformations lately to try to become more valuable to shoppers who have hundreds of other options, online or off. Now, the company is rethinking the role physical stores play in an environment where fewer people see the need to shop in them, Macy's President Jeff Gennette said.
"We decided to close a larger number of stores proactively so we can invest in a winning customer experience in our most productive and highest-potential locations," he said in a statement. Gennette is set to take the CEO post from Terry Lundgren in early 2017.
The closures are generally seen as a good idea by analysts who follow the company because they'll allow Macy's to focus more on digital investments and improving the better-performing stores.
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"We are encouraged by the fact that Macy’s sees this move as part of a wider program to reinvent itself and will direct the savings from shuttered stores into its remaining locations," Neil Saunders, CEO of retail research firm Conlumino, wrote in a note Thursday.
Due in large part to the projected cost of the store closings, Macy's net earnings in the second quarter fell to $11 million, down from $217 million in the same quarter last year, primarily due to charges related to store closures. Sales were off 3.9% to about $5.9 billion, beating analyst expectations for sales of $5.8 billion, according to S&P Global Market Intelligence. Sales at stores open at least a year fell 2%.
The company also beat earnings estimates for 48 cents a share — excluding certain one-time costs, it earned 54 cents a share. Investors seemed pleased with the financial performance and plans to become a leaner business.
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Some of the troublesome trends that have plagued the company in recent quarters seemed to level off, as summer travel led to a smaller decline in tourist spending and weather patterns became more normal, driving up sales in apparel. Transactions fell 5% in the quarter and tourist credit card sales were down 12%, but the company noted that was better than a 20% drop in the first quarter.
Macy's also continues to look for opportunities to unlock value from its real-estate portfolio, particularly at flagship locations in cities, a move it's faced pressure to do for the past year. It's in talks to sell its men's store in San Francisco, which would likely result in the store closing.