NEW YORK — Macy's will close 150 non-namesake stores over the next three years, including 50 stores by the end of the year, the department store operator said Tuesday after reporting a fourth-quarter loss and declining sales.
As part of the strategy, Macy's aims to upgrade its remaining 350 stores, with plans to add more salespeople to fitting areas and shoe departments, while adding more visual displays such as mannequins. At the same time, the company signaled its shift into luxury, which has generally performed better. It said it will open 15 upscale Bloomingdale's stores and 30 upscale Blue Mercury cosmetics locations.
The Macy's stores scheduled to close represent less than 10% of its sales, the company said.
While net income and adjusted revenue beat Wall Street expectations, Macy's gave a muted outlook for the year.
“We are taking steps to revitalize relationships with our customers through enhanced shopping experiences, relevant assortments and attractive value,” said Macy's CEO Tony Spring, the former Bloomingdale's CEO who succeeded Jeff Gennette earlier this month.
Macy's shares rose nearly 4% in morning trading.
The plans come as the department store chain faces a proxy battle from Arkhouse Management, which nominated a slate of nine directors for election to Macy's board last week. Last month, Macy's rejected a $5.8 billion takeover offer from hedge fund and investment management firm Brigade Capital Management.
Activist investors and pressure to increase sales are two critical issues facing the new CEO.
Even before the pandemic, department stores were facing stiff competition from online rivals. Neiman Marcus and JCPenney filed for bankruptcy protection and emerged as smaller entities.
Consumers have proven resilient and willing to shop even after a bout of inflation, although behaviors have shifted, with some Americans pulling back from buying lower-priced goods.
While inflation has slowed, employment and wage growth has also slowed, Spring told analysts.
“As such, we expect the consumer to remain under pressure,” Spring said, noting that the company will have to fight for market share in a difficult environment. Even “aspirational” luxury shoppers have pulled out, he said.
Macy's is maneuvering to shore up sales by accelerating the expansion of smaller-format stores that can provide more convenience to its customers. It announced plans in October to add up to 30 small-format locations through fall 2025, bringing the total to approximately 42 locations. The next round of expansion begins in the fall.
However, Macy's is still cutting jobs to cut costs. In January, Macy's said it would cut about 3.5% of its total workforce, roughly 2,350 employees, and close five locations. Spring told The Associated Press during a phone interview that he did not have an estimate of how many workers would be affected because the closures would occur over three years.
Arkhouse and Brigade offered $21 for each share of remaining Macy's stock they did not already own. Macy's said it had concerns about the financing plan and the value of the offer.
Last week, Macy's said it was seeking additional financing information from Arkhouse and Brigade to advance conversations with its board. Instead of providing that additional information, Macy's said Arkhouse sought to extend the director nomination window by 10 days.
Spring told analysts that the retailer still believes in its physical footprint.
“We believe in stores,” he said. “We have to focus on making sure we have the best stores, not the most stores.”
This strategy comes after Macy's surveyed 60,000 customers about what they liked and did not like about the shopping experience. What they found was that customers wanted less crowded stores and more service. Macy's is also overhauling its own brands, which helps stores stand out and have better profit margins. The company is focusing on upgrading the first group of 50 Macy's namesake stores, which will serve as “incubators,” Spring told the AP.
Macy's had a quarterly loss of $71 million, or 26 cents per share. Adjusted for impairment and restructuring charges, Macy's earned $2.45 per share, beating Wall Street expectations of $1.98, according to FactSet.
This compares to a profit of $508 million last year in the same period.
Sales fell nearly 2% to $8.12 billion but were still better than the $8.09 billion that industry analysts had expected.
Online sales fell 4% while in-store sales remained roughly flat.
Overall, comparable sales, which include sales at stores and their digital channels open for at least a year, fell 5.4%.
At its namesake stores, sales at stores open at least a year fell 6% including its franchise business during the latest quarter, while the measure at Bloomingdale's fell 1.5%.
The company expects earnings for the current fiscal year to range from $2.45 to $2.85 per share, while sales range from $22.2 billion to $22.9 billion.
Analysts had expected annual earnings of $2.77 per share on sales of $22.81.
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