Macy's to close 150 unproductive stores as sales slip, planning a pivot to luxury business

Brian Kersey/AP file

NEW YORK — Macy's will close 150 unproductive namesake stores over the next three years including 50 by the end of 2024, the department store operator said Tuesday after posting 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 like mannequins. At the same time, the company signaled a pivot to luxury, which has fared better overall. It said it would open 15 of its higher end Bloomingdale’s stores and 30 of its luxury Blue Mercury cosmetics locations.

The Macy's stores set to close account for less than 10% of its sales, the company said.

While adjusted net income and revenue topped Wall Street expectations, Macy's offered a muted outlook for the year.

“We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value,” said Macy’s CEO Tony Spring who succeeded Jeff Gennette last month.

Shares of Macy's ralllied about 7% in morning trading.

The plans come as the department store chain faces a proxy fight from Arkhouse Management which nominated a slate of nine director for election to Macy's board last week. 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 were facing intense competition from online rivals. Neiman Marcus, JCPenney and Bed Bath & Beyond all filed for bankruptcy protection.

Consumers have proven resilient and willing to shop even after a bout of inflation, though behaviors have shifted, with some Americans trading down to lower priced goods.

Spring told analysts that while inflation has slowed, so has labor and wage growth.

“As such, we expect our consumer to remain under pressure, ” Spring said.

Macy’s is maneuvering to shore up sales by accelerating the expansion of small-format stores that can provide more convenience to its customers. It announced plans in October to add up to 30 small-format locations through the fall of 2025, bringing the total number to roughly 42. The next round of expansion starts in the fall.

Yet Macy's is still cutting jobs to lower costs. In January, Macy's said it would trim about 3.5% of its total workforce, roughly 2,350 employees, and close five locations.

Arkhouse and Brigade offered $21 for each of the remaining shares in Macy’s they don’t already own. Macy’s said it had had concerns about the financing plan and the value of the offer.

Last week, Macy said that it was seeking additional financing information from Arkhouse and Brigade to potentially advance talks with its board. Rather than providing that additional information, Macy’s said Arkhouse sought to extend its director nomination window by 10 days.

Spring told analysts the retailer still believes in its physical footprint.

“We believe in stores,” he said. “We have to focus on making sure that we have the best stores, not the largest number of stores."

The strategy comes after Macy's surveyed 60,000 customers about what they liked and disliked about the shopping experience. What they found was that customers wanted less cluttered stores and more service. Macy's also is overhauling its private brands, which help stores stand out and also have better profit margins.

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, topping Wall Street projections for $1.98, according to FactSet.

That compares with a profit of $508 million last year in the same period.

Sales fell nearly 2% to $8.12 billion but still better than the $8.09 billion that industry analysts had expected.

Online sales decreased 4% while sales at stores were roughly flat.

Overall, comparable sales, which included sales at stores and its digital channels opened at least a year, slipped 5.4%.

At its namesake stores, sales at stores opened at least a year fell 6% including its licensed business during the latest quarter, while the metric at Bloomingdale's was down 1.5%.

The company expects profit for the current fiscal year in the range of $2.45 to $2.85 per share, while sales should range from $22.2 billion to $22.9 billion.

Analysts were expecting an annual profit of $2.77 per share on sales of $22.81.