Macy’s Shares Surge 13% as Company Will Close 100 Stores

macys-m-logoEmbattled retailer Macy’s Inc (NYSE:M) posted a solid Q2 report this morning and announced plans to shutter 100 of its stores, or 14% of its total, amid a plan to reinvigorate the franchise.

The Cincinnati-based company reported adjusted second quarter net income of $0.51 per share, beating Wall Street estimates of $0.48. Revenue slid 3.9% from last year to $5.87 billion, but also beat analysts’ view.

Looking ahead, Macy’s backed its previously-announced full-year forecast for adjusted EPS of $3.15 to $3.40. Analysts expect $3.26 per share for the year.

Other notes from the report included:

  • Comparable sales on an owned plus licensed basis were down by 2.0%, much better than estimates for a -4.5% plunge.
  • On an owned basis, second quarter comparable sales fell by 2.6 percent%.
  • Company closed 41 underperforming Macy’s stores in fiscal 2015, which helped comps this year.

From the press release:

“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.”

Perhaps the biggest news coming out of the report was Macy’s plan to shutter 100 of its 728 stores, or about 14% of its total locations. The company hasn’t made final decisions on what stores will be affected because the final decisions haven’t been made yet, but most of the stores will shutter in early 2017. Macy’s expects to take an initial hit from the closures, but will save a bundle in the long run:

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.

Macy’s shares surged $4.60 (+13.53%) to $38.60 in premarket trading Thursday. Prior to today’s report, M had fallen 2.8% since the start of 2016.

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