By Suzanne Kapner
Macy's Inc. said it would close 100 stores, admitting that some
locations were worth more as real estate than retail outlets as
shoppers continue to spend more online and at discount chains.
The decision to shrink its footprint by 14% came as Macy's,
Kohl's Corp. and Nordstrom Inc. reported falling sales for the
latest quarter. Kohl's also cut its profit target for the year.
The results, however, were better than anticipated, and
investors -- encouraged that some of the overcapacity is starting
to exit the department store space -- pushed up the major chains's
stock prices.
Macy's shares jumped 17% to $39.81 on Thursday, their largest
percentage gain since December 2008. Kohl's shares rallied 16% to
$44.19. Nordstrom, which reported after the close, gained 8% to
$47.56 and J.C. Penney Co., which reports Friday, rose 9% to
$9.94.
"We believe there is too much retail square footage in the
department store space," Macy's President Jeff Gennette, who will
take over as CEO next year, said in an interview.
The retailer has been evaluating its real estate since it came
under attack by activist investor Starboard Value LP last year.
Macy's executives said they haven't completed which of the
company's 728 locations they will close; and they will continue to
operate most of the stores through the end of the fiscal year.
"Most of these stores are underperformers or in weak locations"
but the company also will close a few locations because
"desirability as a redevelopment opportunity exceeds their value to
us as a retail store," Macy's finance chief, Karen Hoguet, told
analysts Thursday.
The closures will free up $1 billion in sales that will be up
for grabs by Macy's competitors.
"Although this is partly a reaction to being in a tough
competitive position within the landscape, they are being more
offensive than most," wrote Citi analyst Paul Lejuez in a note to
clients. "It is not only good for [Macy's] but also for the
industry."
While chains including Macy's, Kohl's and Penney have closed
hundreds of stores in recent years, the culling hasn't been fast
enough to offset persistent sales declines. Others also have moved
to shrink, with chains such as Office Depot Inc., Sports Authority
Inc. and Wal-Mart Stores Inc. announcing hundreds of closures this
year.
Kohl's executives said Thursday that they have no plans to close
additional stores beyond the 18 locations closed in the latest
quarter, which left it with a store count of 1,150.
"Fewer stores generally are not going to be a ticket to success
in our mind," Kevin Mansell, Kohl's chairman and CEO, told analysts
on a conference call. "We monitor stores all the time, but there
are no stores that we would anticipate closing next year right
now."
Mr. Mansell said having a broad network of brick-and-mortar
locations is "a big advantage" that can help drive online sales and
serve as shipping locations. He said 21% of e-commerce sales in the
June quarter came from customers who ordered online and picked up
at a physical store.
The Macy's closures, as well as other asset sales such as the
potential divestiture of its men's store in the Union Square
section of San Francisco, will free up capital that Macy's plans to
invest in its remaining stores by upgrading the merchandise, adding
sales staff and improving technology.
Some loyal Macy's shoppers were upset at the news that the
company was closing more stores but said they weren't
surprised.
One of the biggest complaints was the clutter. "There's no rhyme
or reason," said Ella Eskridge, as she thumbed through a sales rack
at Macy's in Atlanta.
Other shoppers complained about the quality of Macy's
merchandise.
"The quality is getting lower and lower," said Aileen Antonier,
who was visiting the Herald Square flagship store in New York City.
"I kind of see it as a Macy's problem," she said, noting better
quality at rival chains such as Lord & Taylor.
Macy's sales fell 3.9% to $5.87 billion in the three months to
July 30. Sales at existing stores including licensed departments
fell 2%. Ms. Hoguet, however, said she was encouraged by improved
apparel sales, a strong start to the back-to-school shopping season
and a moderation in the falloff in spending by tourists.
Net income fell to $11 million from $217 million a year earlier.
The company took a $249 million charge in the current period for
the store closures.
At Kohl's, sales declined 2% to $4.18 billion in the same
period. Sales at existing stores slipped 1.8%. Net income edged up
to $140 million from $130 million a year earlier.
Mr. Mansell, the Kohl's CEO, said Amazon.com Inc. and off-price
retailers such as TJ Maxx and Marshalls were continuing to gain
share.
Nordstrom's profits fell 45% to $117 million, and sales slipped
0.2% to $3.6 billion in the three months to July 30. Sales at
existing stores fell 1.2%, while off-price Nordstrom Rack stores
grew 5.3%.
Nordstrom took increased markdowns to clear excess goods.
Co-President Blake Nordstrom said the move helped the company make
"substantial progress bringing down inventory in line with sales."
Macy's and Kohl's also ended their quarters with lower
inventory.
--
Imani Moise
and Lisa Beilfuss contributed to this article.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
August 11, 2016 18:41 ET (22:41 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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