NEW YORK – Macy's will close 150 unproductive namesake stores over the next three years, including 50 by the end of the year, the department store operator said Tuesday, after posting a loss and declining sales in the fourth quarter.
As part of the strategy, Macy's will modernize its remaining 350 stores and plans to add more salespeople in the fitting areas and shoe departments as well as adding more visual displays such as mannequins. At the same time, the company signaled a shift toward luxury, which performed better overall. The company said it will open 15 of its upscale Bloomingdale's stores and 30 of its Blue Mercury luxury cosmetics locations.
The closure of Macy's stores accounts for less than 10% of sales, the company said.
While adjusted net income and adjusted sales beat Wall Street expectations, Macy's offered a muted outlook for the year.
“We are taking the necessary steps to reinvigorate relationships with our customers through enhanced shopping experiences, relevant assortments and compelling offers,” said Tony Spring, CEO of Macy's and former CEO of Bloomingdale's, who succeeded Jeff Gennette earlier this month .
Shares of Macy's rose nearly 4% in morning trading.
The plans come as the department store chain faces a proxy fight from Arkhouse Management, which last week nominated a slate of nine directors for election to Macy's board. Last month, Macy's rejected a $5.8 billion takeover offer from the hedge fund and Brigade Capital Management, an investment manager.
Activist investors and pressure to increase sales are just two critical issues facing the new CEO.
Even before the pandemic, department stores faced strong competition from online competitors. Neiman Marcus and JCPenney filed for bankruptcy protection and turned out to be smaller companies.
Consumers have proven resilient and willing to spend even after a period of inflation, although their behavior has changed and some Americans are turning to cheaper goods.
Spring told analysts that while inflation has slowed, so has job and wage growth.
“As a result, we expect our consumer will continue to be under pressure,” Spring said, noting that the company will have to fight for market share in a difficult environment. Even “ambitious” luxury buyers have pulled back, he said.
Macy's is trying to boost sales by accelerating the expansion of smaller stores that can provide more convenience to its customers. In October, the company announced plans to add up to 30 small-format locations by fall 2025, bringing the total to around 42. The next round of expansion starts in autumn.
Yet Macy's is still cutting jobs to cut costs. In January, Macy's announced it would cut about 3.5% of its total workforce, about 2,350 employees, and close five locations. Spring told The Associated Press in a telephone interview that he did not have an estimated number of workers affected because the closures would occur over a three-year period.
Arkhouse and Brigade offered $21 for each of the remaining Macy's shares they didn't already own. Macy's said it had concerns about the financing plan and the value of the offer.
Last week, Macy said it was seeking additional funding information from Arkhouse and Brigade to potentially advance discussions with its board. Instead of providing this additional information, Arkhouse wanted to extend its director nomination window by 10 days, according to Macy's.
Spring told analysts that the retailer still believes in its physical footprint.
“We believe in business,” he said. “We need to focus on making sure we have the best stores, not the largest number of stores.”
The strategy is based on Macy's surveying 60,000 customers about what they like and don't like about the shopping experience. They found that customers wanted less crowded stores and more service. Macy's is also revamping its private label brands, helping stores differentiate and achieve better profit margins. The company is focused on modernizing Macy's first group of 50 namesake stores, which will act as “incubators,” Spring told The AP.
Macy's reported a quarterly loss of $71 million, or 26 cents per share. Adjusted for impairment and restructuring costs, Macy's earned $2.45 per share, beating Wall Street forecasts of $1.98, according to FactSet.
In comparison, profit for the same period last year was $508 million.
Revenue fell nearly 2% to $8.12 billion, but was still above the $8.09 billion expected by industry analysts.
Online sales fell 4%, while in-store sales remained about the same.
Overall, comparable sales, which include sales at stores and their digital channels open at least a year, fell 5.4%.
At its namesake stores, sales at stores open at least a year, including licensed stores, fell 6% last quarter, while the metric at Bloomingdale's fell 1.5%.
The company expects earnings in the range of $2.45 to $2.85 per share for the current fiscal year, while sales are expected to be between $22.2 billion and $22.9 billion.
Analysts expected full-year earnings of $2.77 per share on revenue of $22.81.
______
Follow Anne D'Innocenzio: http://twitter.com/ADInnocenzio