Turnarounds

Macy’s Cost-Cutting Helps Profit Beat Estimates

The outlook for sales growth, however, remains weak, with comp sales expected to decline between 2.0% and 3.0% this year.
Matthew HellerFebruary 22, 2017
Macy’s Cost-Cutting Helps Profit Beat Estimates

Macy’s comparable store sales fell for an eighth straight quarter but profit beat analysts’ estimates, reflecting the sale of some of its stores and lower costs and taxes.

As Reuters reports, Macy’s, like other department store chains, has been struggling to “overcome stiff competition from Amazon.com Inc. and weak demand for clothes and accessories.”

That struggle continued in the fourth quarter of 2016 as same-store sales fell 2.1%, compared with the 2.2% drop analysts polled by research firm Consensus Metrix had expected. Net sales fell 4% to $8.52 billion, missing the average analysts’ estimates of $8.62 billion.

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But excluding items, Macy’s earned $2.02 per share, beating estimates of $1.96. CEO Terry Lundgren has been cutting costs by closing underperforming stores, with the closure of another 34 stores planned in the next few years.

“We continued to make progress on the execution of our real estate strategy in the fourth quarter of 2016 and will carry that momentum into 2017,” Lundgren said in a news release. “Overall, real estate transactions in fiscal 2016 generated cash proceeds of approximately $675 million, which is helping to fund continued reinvestment in the business.”

Macy’s has also separated its real estate assets from its retail business to better monetize its physical stores. On Tuesday, it sold its men’s clothing store in San Francisco’s Union Square for $250 million.

But according to Reuters, “growth in the company’s underlying business looks distant.” For fiscal 2017, it is projecting comparable sales will decline between 2.0% and 3.0% and adjusted earnings per share will come in between $3.37 and $3.62, compared with earnings of $3.11 in 2016.

“We will be investing for the future in 2017. Looking at the continued challenges in the retail environment and changing consumer shopping behaviors, we know we must evolve our strategy and execute faster,” Lundgren said.

On the retail side, Macy’s initiatives include improving its digital platforms, increasing its exclusive merchandise, and refining its clearance and off-price strategy. Such initiatives will “help us gain market share, return to growth and drive enhanced value for our shareholders over time,” Lundgren said.