Macy’s Rages Higher on News of Massive Store Closings

The company beat earnings, but that’s not the reason why shares are lifting by 14% this morning. The good news for shareholders is that Macy’s will seek to exist in a variety of locales across the country.

In an effort to continue to ‘cost save’ and have more money to buy back stock, they’re closing 14% of their stores, or 100 of them. For each percent of stores they close, the stock rises in tandem. Had they announced 100% of their stores would close and instead they’d become the sentinel from the movie Matrix, the stock might’ve been up 100% this morning. But we’ll take what we can get.

Reports Q2 (Jul) adj. earnings of $0.51 per share, excluding non-recurring items, $0.03 better than the Capital IQ Consensus of $0.48; revenues fell 3.9% year/year to $5.87 bln vs the $5.77 bln Capital IQ Consensus.

Comparable sales on an owned plus licensed basis were down by 2.0 percent in Q2 vs ests closer to -4.5%. On an owned basis, second quarter comparable sales declined by 2.6 percent. The difference between the year-over-year change in total and comparable sales largely resulted from the closing of 41 underperforming Macy’s stores in fiscal 2015.

Co reaffirms guidance for FY17, sees EPS of $3.15-3.40, excluding non-recurring items, vs. $3.26 Capital IQ Consensus; comps down 3-4%.

“We are encouraged by the distinct improvement in our sales and earnings trend in the second quarter. Over the past few months, we have been saying that a setback is a setup for a comeback, and we now believe we are set up well to proceed to a comeback. Our sales strengthened month-by-month throughout the second quarter. This trend improvement gives us confidence in our plans for the back half of the year, and in our strategic planning for improvements to our business model going forward. A number of factors worked in our favor in the second quarter, including a normalized weather pattern, which contributed to a sales lift in our apparel business in particular.

We also saw a smaller decrease in tourist spending during prime summer travel months, supported by strengthened promotional events designed to increase customer traffic and conversion.”

Co intends to close ~100 Macy’s full-line stores (out of a current portfolio of 728 Macy’s stores, including 675 full-line locations). Most of these stores will close early in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. In a number of cases, stores will be closed as the value of the real estate exceeds their value to Macy’s as a retail store. The locations of the 100 stores to be closed will be announced at a later date, once the company makes final decisions.

Together, annual sales volume of the ~100 closed locations, net of sales expected to be retained in nearby stores and online, is expected to be roughly $1 billion. The reduction in EBITDA is expected to be offset by expense savings beyond those associated with store closings.

Macy’s will invest in improvements in ongoing stores and digital vehicles. These investments will take a range of forms.
The company continues to pursue opportunities to generate value from its real estate portfolio, consistent with our commitment to stores as a critical element of our long-term omnichannel strategy and balance sheet leverage objectives.

Fantastic. The company will close the stores in an effort to build out its digital store and also generate value from its real estate portfolio. Where have I heard this before (cough: Sears).