Macy's Inc said it plans to close about 100 stores, or 14 percent of its store base, and would continue to seek partnerships for its flagship locations as it seeks to turn around its business after six quarters of falling sales.
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Shares of the company, which also reported a smaller-than-expected drop in quarterly sales at established stores, were up 15 percent at $39.21 in early trading on Thursday.
Department stores have been struggling with stiff competition from online and off-price retailers. They are also under pressure as shoppers are spending more on big-ticket items such as electronics and cars than on clothes.
Unseasonable weather in the first few months of the year and a strong dollar, which has reduced tourist spending in the United States, have also weighed on sales.
Macy's also reported better-than-expected second-quarter profit and revenue, mirroring the performance of smaller rival Kohl's Corp and lifting stocks across the sector.
Kohl's shares were up 5 percent, while those of Nordstrom, which reports results later on Thursday, were up 9 percent.
Macy's Chief Executive Terry Lundgren said warm weather during the latest quarter boosted apparel sales and a smaller drop in tourist spending helped overall results.
"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," Lundgren said.
Macy's said same-store sales fell 2 percent in the latest quarter. Analysts polled by research firm Consensus Metrix had expected a 4.6 percent drop.
Macy's, under pressure from activist investor Starboard Value LP, is working on partnerships to monetize its huge real estate portfolio, which includes landmark properties such as its Herald Square store in New York and the Union Square store in San Francisco.
The number of stores Macy's is planning to shut accounts for 14 percent of its 728 stores and represents annual net sales volume of about $1 billion.
Macy's said it would add new vendors to its existing stores, enter into more license agreements and increase the size of its staff.
The company also said it was in talks to sell its Men's Store on Union Square in San Francisco for redevelopment.
Net income slumped to $11 million, or 3 cents per share, in the second quarter ended July 30, mainly due to $255 million in charges related to the upcoming store closures.
Excluding the charges, the company earned 54 cents per share.
Total sales fell nearly 4 percent to $5.87 billion in the second quarter after falling 7.4 percent in the first quarter.
Analysts' on average had expected earnings of 45 cents per share and revenue of $5.75 billion, according to Thomson Reuters I/B/E/S.
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty)