Macy’s Rises on Plan to Shut Stores as Shoppers Move Online

Updated on
  • Retailer to close 100 locations to focus on better performers
  • Chain’s second-quarter profit exceeds analysts’ estimates

Macy's CEO Lundgren: Seeing Continuous Improvement

Macy’s Inc. surged the most in more than seven years after announcing plans to close 14 percent of its stores, a major attempt to adjust to a world where consumers increasingly prefer shopping online to visiting malls.

The largest U.S. department-store company will shut about 100 full-line stores out of its portfolio of 728 locations to focus its better performers. Second-quarter profit and revenue topped analysts’ estimates as new sales events drew shoppers.

Terry Lundgren

Photographer: Andrew Harrer/Bloomberg

Chief Executive Officer Terry Lundgren is looking to secure his legacy before handing the reins over to his successor, President Jeff Gennette, in 2017. Even before Thursday’s announcement, Lundgren had been slashing costs, closing some stores and adding off-price options to appeal to customers. Yet analysts had questioned whether those measures were sufficient to help the company cope with the long-term slide in mall traffic and consumers’ seismic shift toward shopping online.

“They’re finally moving in the right direction,” said Poonam Goyal, an analyst at Bloomberg Intelligence. “This just shows you online is taking over. It’s really about taking their destiny into their own hands.”

The shares rose as much as 17 percent to $39.74 in New York, the biggest intraday gain since December 2008. The stock had slipped 2.8 percent this year through Wednesday.

Lundgren’s earlier initiatives already appeared to be bearing some fruit. Profit was 54 cents a share, excluding some items, in the quarter ended July 30, the Cincinnati-based company said in a statement. Analysts projected 45 cents, on average. While revenue fell 3.9 percent to $5.87 billion, that beat analysts’ $5.76 billion projection.

Sales Events

Lundgren said in the statement that Macy’s first-ever “Black Friday in July”’ promotional event drove sales and that normal weather patterns helped the retailer’s apparel business. He also credited investments in store staffing and visual presentation as well as enhanced fine jewelry departments and a more intense focus on athletic apparel.

Macy’s cautioned that its store-closing plan will hurt top-line revenue, but said it will ultimately help the company increase sales at its existing locations. Lundgren said that the U.S. is oversaturated with department stores at a time when consumers are doing more of their shopping online.

“We’re getting in front of a trend that we know is occurring,” Lundgren said in an interview on Bloomberg Television. “By closing 100 stores, we can take the capital, the inventory, the talent we would have invested in those stores and put them in the remaining stores and reinvest our capital there, which will clearly improve our business.”

To watch video of Lundgren’s interview, click here

The retailer booked a charge of $249 million for the store-closing plan last quarter.

Real Estate

Macy’s also is moving ahead with plans to generate value from its real estate portfolio. The company said it’s examining opportunities for four of its downtown flagship stores in various cities, without identifying them, and is in negotiations to sell its Macy’s Men’s store on Union Square in San Francisco for redevelopment.

In related news, rival department-store chain Kohl’s Corp. also showed some improvement in adjusting to the sluggish consumer environment in its second-quarter earnings report Thursday. While the chain isn’t shutting locations at the pace that Macy’s is, CEO Kevin Mansell has focused on trimming expenses and reducing the amount of inventory the retailer is carrying.

The moves helped the company post second-quarter profit of $1.22 a share, excluding some items, topping analysts’ $1.03 average estimate. The company was carrying $3.93 billion in inventory at the end of the quarter, down 7.6 percent from the end of the year-earlier period. The shares rose as much as 16 percent to $43.98, the biggest intraday gain since November 2008.

“Everyone was looking for such terrible numbers,” Goyal said. “It’s not as bad as expected.”

(Updates with analyst’s comment in fourth paragraph.)
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