“Making the best out of a bad situation” continues to be the operating mantra of big box retailers which are getting crushed by the e-commerce behemoth known as Amazon (AMZN).
In that vein, Macy's Inc. (M) fourth quarter earnings beat Tuesday, driven mostly by the sale of some of its stores and lower costs due to store closures, fell into that category. And with revenue falling 4% year over year and missing estimates by about $100 million, the Cincinnati-based department store operator, which forecasts another year of declining sales, still has plenty of deficits it needs to address.
In the three months that ended January, Macy’s net income declined to $475 million, or $1.54 per share, down from $544 million, or $1.73 per share, a year earlier. On an adjusted basis, when talking out one-time gains and costs, the company earned $2.02 per share, which beat the average analysts' estimate of $1.96, according to Thomson Reuters. Meanwhile, not only did net revenue fall 4% year over year to $8.52 billion, which missed Street estimates of $8.62 billion, it marked the eighth straight quarter of decline.
Macy’s, which suffered from weak demand for clothes and accessories during the holiday quarter, continues to face intense competition from Amazon. Chairman and Chief Executive Terry Lundgren has closed low-performing stores in an effort to boost profits, while separating its real estate assets from its retail business. While these moves were pivotal in the earnings beat Tuesday, the future still looks ominous for the company.
Macy’s, which has real estate assets worth some $21 billion, says it will close an additional 34 stores in the next few years, after shutting 66 stores last year. The company expects 2017 total comparable sales, which measures the performance of stores opened at least one year, to fall between 2% to 3%, following a 3% decline in 2016.
“We will be investing for the future in 2017. Looking at the continued challenges in the retail environment and changing consumer shopping behaviors, we know we must evolve our strategy and execute faster,” Lundgren said.
By this time next year, Macy's, which once operated 728 locations, has a plan in place to shutter about 15% of its stores. The company says it will use the cost savings and reinvest in its top-performing locations where the company get better returns on investments. The company said in 2016 it bought back 7.9 million shares of its common stock for approximately $316 million.
Macy's shares have declined 9.44% year to date, while falling 20% over the past twelve months, trailing the S&P 500 index in both spans.