Macy's profits tumbled 13% in its latest quarter, dragged down by the costs from store closures and job cuts as the retailer attempts to cope with declining sales.
The department store company, which owns the namesake Macy's stores and Bloomingdale's stores, still managed to beat expectations on the bottom line and shares ticked up 3% to $33.21 in pre-market trading.
Like many traditional retailers with a heavy presence in shopping malls, Macy's has struggled to attract shoppers as online retailers like Amazon and discount chains such as T.J.Maxx gain market share. The retailer just endured another disappointing holiday season and said last month that it would eliminate 10,000 jobs as part of its plan to close 100 stores.
The process of scaling back is weighing on its bottom line. During the fourth quarter, Macy's recorded $166 million in pre-tax costs associated with its latest round of layoffs and $38 million in write-offs for store closures.
Overall, net income fell to $475 million, or $1.54 per share, from $544 million, or $1.73 per share, a year earlier. Excluding items, earnings came in at $2.02 per share, topping Wall Street analyst estimates of $1.96 per share.
Sales also continue to disappoint and fell 4% to $8.51 billion, missing analyst estimates of $8.62 billion. Sales at existing stores, including at departments that are licensed, slid 2.1% during the quarter.
“While 2016 was not the year we expected, we made significant progress on key initiatives that are starting to bear fruit," said CEO Terry Lundgren, who will be stepping down on March 23. He will be succeeded by Macy's president Jeff Gennette.
Macy's has been trying to leverage its sprawling physical footprint and said it generated $675 million in cash last year from various real estate transactions. For example, the company said it made $250 million from the sale of its Union Square Men’s building in San Francisco. It has been shuttering stores that are doing poorly and has hired Brookfield Asset Management to redevelop certain locations.
It has also been investing in its digital platforms, rejiggering its approach to clearance items and adding to the number of items that are sold exclusively at Macy's.
The year ahead will continue to be one of investment for the company, said Lundgren, who noted that Macy's must "evolve [its] strategy and execute faster" in the face of a difficult retail environment and shifting consumer preferences.
Macy's doesn't see the sales slump ending anytime soon. In 2017, total sales are projected to decline 3.2% or 4.3%, which it says reflects the closure of 66 stores last year. It expects sales at existing stores to decline 2% or 3%.
Macy's has reportedly been approached by Hudson Bay, the Canadian owner of Lord & Taylor and Saks Fifth Avenue, about a takeover. On a call with analysts and investors on Tuesday, Macy's management said it was "obviously aware of recent headlines" but wouldn't be answering questions about rumors or speculation.
Shares have fallen 7% since the beginning of the year and are down 19% over the last twelve months.
