Stuck in a sales slump, Macy’s is shrinking to grow.
The department store chain announced Tuesday it plans to shut 125 stores over the next three years and slash about 2,000 corporate jobs, as it closes its Cincinnati headquarters and tech offices in San Francisco.
Macy’s said it plans to exit weaker shopping malls, and instead shift its focus toward opening smaller-format stores in strip centers. Macy’s has shuttered more than 100 stores since 2015.
Still, looking ahead three years from now, even with these changes, growth at Macy’s looks abysmal.
With a smaller base of stores, Macy’s said net sales in fiscal 2022 are expected to be within a range of $23.2 billion to $23.9 billion, while earnings per share, on an adjusted basis, will be between $2.50 and $3.00. Same-store sales, on an owned plus licensed basis, are forecast to be down 1% to flat.
“We are taking the organization through significant structural change to lower costs, bring teams closer together and reduce duplicative work,” CEO Jeff Gennette said in a statement. “The changes we are making are deep and impact every area of the business, but they are necessary. I know we will come out of this transition stronger, more agile and better fit to compete in today’s retail environment.”
Macy’s shares were recently down less than 1% in extended trading, after initially jumping more than 3% on the news. Over the past five years, Macy’s stock has lost well over half its value, and its market value has tumbled to $5.1 billion.
Meanwhile, other retailers, which have focused on value and have provided fast online delivery have grown. Walmart’s stock is up nearly 22% over the past year, while Amazon‘s market cap topped $1 trillion Tuesday.
Macy’s planned closures and job cuts come ahead of a meeting with investors in New York on Wednesday, where it is expected to walk through its fresh multiyear plan.
The company has lost market share in core categories like apparel, and its profits have been pressured, as fewer shoppers take trips to malls, and instead are buying on Amazon and other online retailers.
The steps Macy’s is taking are expected to generate annual gross savings of about $1.5 billion, which will be fully realized by the end of 2022. This year, Macy’s expects to save roughly $600 million.
While the company plans to reinvest its savings back into its business, some of the cost cuts will flow to the bottom line this year in order to stabilize its operating margin.
Macy’s said its focus will be on growing its off-price business, known as Backstage, expanding outside of the mall and improving its online business.
Earlier Tuesday, Macy’s had confirmed with CNBC that it was closing its tech offices in San Francisco, consolidating these operations in New York and Atlanta.
As it also shuts its headquarters in downtown Cincinnati, and an office in Lorain, Ohio, the company said New York will become its sole corporate headquarters. It also is closing its Tempe, Arizona, customer contact center.
Macy’s said the 125 stores now planned for closure, which include the roughly 30 it already announced, account for roughly $1.4 billion in annual sales.
Meantime, Macy’s said it is planning to open an additional 50 Backstage stores within its existing department stores, along with seven freestanding Backstage locations, in 2020.
The roughly 2,000 jobs being cut represent about 9% of its corporate workforce, Macy’s said.
Macy’s said it expects the total costs related to these changes to amount to between $450 million and $490 million, the majority of which will be recorded in 2019.
‘A transition year’
Macy’s is calling 2020 a “transition year” and says it expects same-store sales to be negative, “due to the trajectory of the business over the past six months.”
Macy’s said Tuesday it expects revenues in fiscal 2020 to fall because of store closures. It is calling for net sales to be within a range of $23.6 billion to $23.9 billion, with same-store sales, on an owned plus licensed basis, dropping 1.5% to 2.5%. Analysts had been calling for net sales of $24.36 billion, according to a poll by Refinitiv.
While it hasn’t yet reported fourth-quarter and full-year earnings for 2019, Macy’s shared preliminary results ahead of its investor meeting.
Net sales for the fourth quarter, which includes the latest holiday season, are expected to be $8.3 billion, while net sales for fiscal 2019 are expected to be $24.5 billion, Macy’s said. It added it anticipates full-year earnings per share to be near the high-end of a prior outlook, of $2.57 to $2.77.
Same-store sales, on an owned plus licensed basis, are expected to drop 0.5% during the fourth quarter, and drop 0.7% for fiscal 2019, Macy’s said.
Macy’s is set to report fourth-quarter and full-year sales and earnings on Feb. 25.
“We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams,” Gennette said. “Over the past three years, we have shown we can grow the top-line; however, we have significant work to do to improve the bottom-line.”