Macy's, the nation's largest department store chain, says its earnings for the quarter that includes the holiday period dropped nearly 13 percent as results were dragged down by lower sales, store closures and other costs.
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The profit results beat Wall Street expectations, but Macy's said it would post another year of sales declines for a key revenue measure. Like many department stores, Macy's has faced sluggish sales as customers buy more online and less at the malls where they are often an anchor. Macy's has been shuttering stores as it tries to regroup.
Macy's has also been under pressure from shareholders to get more value out of its real estate holdings, valued by activist investor Starboard at nearly $21 billion. The chain has reportedly been in preliminary talks with Hudson's Bay about a takeover or a real estate deal. However, Macy's declined to talk about the topic to investors on a call Tuesday, saying it doesn't comment on rumors. It did say it will be looking to further monetize its locations and that it made $673 million in the latest year in asset sales.
For the three months ended Jan. 28, Macy's earned $475 million, or $1.54 per share. That compares with $544 million, or $1.73 per share, in the year-ago period. Adjusted earnings per share came to $2.02. Analysts had expected $1.95 per share for the quarter, according to FactSet. Revenue fell 4 percent to $8.52 billion, while analysts had expected $8.61 billion.
"While 2016 was not the year we expected, we made significant progress on key initiatives that are starting to bear fruit," Macy's CEO Terry Lundgren said in a statement. He will be stepping down March 23 and will be succeeded by president Jeff Gennette.
Lundgren has been credited for nearly doubling sales during his 13-year tenure at the top. And Macy's had been a stellar performer after the recession, but has seen sales slow as it and other traditional department store chains face competition from online leader Amazon and off-price rivals. They're also wrestling with shoppers' shift away from buying clothing in favor of experiences.
The Macy's brand still has around 700 stores, though it has been more aggressive about closings while also scrambling to offer more exclusive merchandise and expand online. It's also tried launching its own off-price stores called Macy's Backstage, highlighting consumer tech like smart watches and testing an artificial intelligence tool that would free up sales assistants to provide higher levels of customer service.
Cincinnati-based Macy's is the first major department store chain to report its fourth-quarter results. Last month, J.C. Penney and Kohl's both announced poor holiday sales. Both chains will be announcing final fourth-quarter results later this week. Ailing Sears Holdings Corp., which operates Sears and Kmart, announced earlier this month that it expects sales at established stores to fall more than 10 percent for the quarter. Sears Holdings, which has been losing money for years, has been closing stores too. In January, it announced the closing of 150 of its 1,500 stores, and said earlier this month it may sell more locations.
But analysts say department stores need to close more. Real estate research firm Green Street Advisors says about 800 stores, or 20 percent of all U.S. mall anchor space, would need to close to match the inflation-adjusted sales productivity of 2006.
Macy's said it expects revenue at stores opened at least a year will be down 2.2 percent to 3.3 percent for the current quarter. That includes licensed businesses like perfume.
Shares were flat at $32.30 in midday trading.