Macy’s tops 4Q expectations, optimistic outlook

FILE (Photo: Macy’s/Facebook)

NEW YORK —  Macy’s reported a better-than-expected gain for a key sales measure for the critical holiday period, as it benefited from an improving economy and its own initiatives like an overhauled customer loyalty program.

The department store chain also reported fourth-quarter earnings that nearly tripled from a year earlier, as it benefited from the sale of some real estate assets. It also issued an upbeat outlook.

Shares shot up more than 10 per cent in premarket trading.

The report Tuesday offered some encouraging signs that the department store is starting to see improving business, but it still has a long way to go.

Macy’s marks the first major retailer to report fourth-quarter results so its performance serves as a barometer of how others fared. Kohl’s and Nordstrom are slated to report on Thursday. J.C. Penney is set to report Friday.

Macy’s said sales at established stores rose 1.4 per cent, which includes sales in licensed departments like jewelry. That was well above the 0.4 per cent increase estimate from analysts. The increase reversed nearly three years of straight quarterly declines for that measure. For the year, that figure was down 1.9 per cent.

CEO Jeff Gennette, who took the reins of the company almost a year ago from longtime executive Terry Lundgren who retired, says the company’s focus has been expanding online, stabilizing its stores and laying the foundation for growth.

Macy’s also said earlier in the year it will close another 11 stores, cut jobs and streamline non-store functions to save about $300 million. Macy’s expects the headcount will be reduced by 5,000, or about 3.5 per cent of its total workforce. Macy’s has a total of 140,000 employees

Macy’s had been a stellar performer after the recession but has seen slower sales growth in the past year and a half as it faces stiffer competition online and from rivals like T.J. Maxx.

Under Lundgren, the company has sought growth opportunities, like the acquisition of upscale beauty brand Bluemercury and particular attention to its exclusive assortments in fashion.

In time for the holiday shopping season, it launched an Apple shop late last year at its Herald Square store. That marks the first U.S. department store with a hub devoted to the brand. Beyond the Apple shop, it’s highlighting consumer tech at 180 stores, rolling out a display of smart watches.

Macy’s has also launched its own off-price chain and is testing an artificial intelligence tool that would free up sales assistants to provide higher levels of customer service. It also overhauled its loyalty program that catered to its higher spenders.

Macy’s says it continues to evaluate its real estate holdings. For the latest fiscal year, the company’s assets sales totalled $411 million in cash proceeds. These sales included stores as well as non-store real estate such as warehouses and parking garages Over the last three years, Macy’s has completed transactions totalling about $1.3 billion in cash proceeds.

It said that it just signed an agreement to sell floors 8 through 14 of its State Street store in Chicago to a private real estate fund sponsored by Brookfield Asset Management. Brookfield plans to convert these largely unused floors into creative office space. As part of the transaction, Macy’s will receive a total of $30 million. The transaction, it said, will enable to make Macy’s on State Street a more vibrant shopping destination. It anticipates closing the transaction in the first half of fiscal 2018.

It’s now exploring opportunities to sell the 240,000 gross square foot I. Magnim portion of the main Union Square building in San Francisco. Macy’s had sold the Union Square men’s building and is incorporating the men’s business into the main store.

The Cincinnati company earned $1.3 billion, or $4.31 per share, in the fourth quarter. Earnings, adjusted for pretax gains, were $2.82 per share, easily beating Wall Street per-share expectations of $2.69, according to Zacks Investment Research.

Revenue of $8.67 billion was just short of analysts’ expectations.

Macy’s expects full-year earnings in the range of $3.55 to $3.75 per share. Analysts are expecting $3.05 per share for the year.

Shares of Macy’s Inc. soared 10 per cent, or $2.81, to $30.25 per share before the opening bell Tuesday.