Macy’s Profits Tumble Ahead of the Holidays, Announces New Brookfield Deal

Macy’s Inc.’s shares continue to gain — up 8.3 percent to $41.58 as of 11:40 a.m. ET today— despite a third-quarter earnings miss.

While the department store chain’s sales and profits were less than market watchers had predicted in the quarter, investors were likely cheering the firm’s upward adjusted full-year guidance — signaling that the company sees better days ahead — as well as its newly announced deal with Brookfield Asset Management. The new partnership will give Brookfield an exclusive right for up to two years to create a “pre-development plan” for 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets to the deal. The assets include owned and ground-leased stores and associated land, most of which are located in malls.

The Brookfield alliance strengthens our ability to improve the customer shopping experience by giving us greater flexibility to invest in our most productive and highest-potential locations, and to make the most of our real estate assets, or portions of them,” Macy’s chairman and CEO Terry Lundgren said in a release.

During the third quarter, Macy’s reported net income declined 86 percent, to $17 million, or 5 cents per diluted share. Adjusted diluted EPS were 17 cents per share, a significant miss against estimates for diluted earnings per share of 41 cents.

Sales in the third quarter totaled $5.6 billion, a decrease of 4.2 percent year-over-year and slightly below forecasts for revenues of $5.7 billion. Comparable sales on an owned-plus-licensed basis were also down 2.7 percent. On an owned basis, third quarter comparable sales declined by 3.3 percent.

Despite the miss, Lundgren — who will step down in the first quarter of 2017 and pass the torch to current president Jeff Gennette — said he is hopeful that the firm will see a boost in the holiday shopping period.

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,” Lundgren said. “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.”

Macy’s reaffirmed its full-year EPS guidance but predicts full-year sales to be better than its prior guidance. Macy’s expects full-year 2016 comparable sales on an owned plus licensed basis to decrease in the range of 2.5 percent to 3 percent (compared with previous guidance of a decrease in the range of 3 percent to 4 percent), with comparable sales on an owned basis to be approximately 50 basis points lower. The company continues to expect diluted earnings per share (excluding asset impairment charges and retirement settlement charges) in fiscal 2016 to be in a range of $3.15 to $3.40.

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,” Lundgren said. “We are reallocating and prioritizing our spending to drive growth, improve the customer experience, increase our agility and deliver strong financial results. We also are making good progress on our strategies to create shareholder value through our real estate, while preserving our ability to operate as a top retailer with a healthy balance sheet.”

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