Macy’s Deals Real Estate To Boost Flagging Performance

Macy’s is looking to leverage its real estate assets as it plans a turnaround from softer sales and earnings.

For the third quarter ended October 29, Macy’s reported company net income of $17 million, or five cents per diluted share, versus $118 million, or 36 cents per diluted share, in the year-previous period.

With the exclusion of non-cash retirement plan settlement charges, third quarter earnings per share were 17 cents, the company reported. In the third quarter of 2015, excluding asset impairment and other charges primarily related to store closings, earnings per diluted share were 56 cents.

In the quarter, comparable sales on an owned plus licensed basis slipped 2.7% versus the period in the year earlier. On an owned basis, comps declined by 3.3%.

Net sales were $5.63 million versus $5.87 billion in the fiscal year prior. Operating income was $107 million or $169 million excluding non-cash settlement charges related to the company’s retirement plans. In the quarter a year before, operating income was $258 million or $369 million excluding asset impairment and other charges.

“The trends we saw in the third quarter give us confidence that we can deliver our expectations for the fourth quarter and our guidance for fiscal 2016,” said Terry Lundgren, Macy’s chairman and CEO. “Our third quarter top line results were better than the first half of the year and our sales-driving initiatives continue to gain traction. Additionally, the strengthening trend across the apparel businesses, coupled with new initiatives like tech watches from Apple, Michael Kors and others, are good indicators for an improved performance in the fourth quarter.”

Lundgren added, “Our customers tell us we are their holiday shopping destination, and we are excited about our gift assortments, marketing strategies and digital enhancements, all of which should set us up for a stronger finish to the year and position us well for an improved performance in 2017 and beyond. As we have said, a setback is a setup for a comeback, and that is why we continue to look with confidence at the close of 2016 and our longer-term outlook. We are reallocating and prioritizing our spending to drive growth, improve the customer experience, increase our agility and deliver strong results. We also are making good progress on our strategies to create shareholder value through our real estate.”

Macy’s also announced that it had entered into a strategic alliance with Brookfield Asset Management, an alternative asset manager, to create increased value in its real estate portfolio. Brookfield will have an exclusive right for up to 24 months to create a pre-development plan for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to identify and add assets. The assets include owned and ground-leased stores, and associated land, most of which are located in shopping centers not owned by major mall owners, which may now be set for additional development on a portion of an asset, such as a Macy’s-controlled land parcel adjacent to a store, or complete redevelopment of an existing store.

“We have real estate assets with significant value creation opportunities, and we believe that partnering with a leading global real estate investor like Brookfield is the best way to unlock the potential of those assets,” Lundgren said.

Separately, Macy’s has signed a contract to sell its 248,000 square-foot Union Square building in San Francisco for $250 million. The company has also signed a contract to sell its downtown Portland, OR, store for $54 million.

The company operates about 880 stores across its retail banners.