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Macy’s Will Not Spin Off E-commerce Arm After Beating Expectations in Q4

Coming of the heels of a strong Q4, Macy’s said it has no plans to spin off its e-commerce business from its store fleet.

The department store retailer on Tuesday rejected a request from activist shareholder Jana Partners LLC to split its online and store businesses to capitalize on an impressive digital growth in the last few quarters. Saks Fifth Avenue’s parent company Hudson’s Bay Co. did this in March when it split the retailer’s website and stores into two separate businesses.

Executives argued that despite strong digital growth, an omnichannel strategy will deliver better results than standalone businesses. Macy’s conducted a review of the valuation for the split and potential third party investments via consulting group AlixPartners, which was also retained to help Nordstrom navigate a potential spin off.

“We found that the combination of our profitable digital platform with our national footprint will deliver greater value to shareholders than a separation of our digital and physical assets,” Macy’s CEO and chairman Jeff Gennette said in a call with investors.

Gennette added that integrating all of the banners under Macy’s Inc., including off-price and luxury channels, is “the most appealing to our diverse and multigenerational customer base.”

Macy’s shares were up more than 1% on Tuesday morning following its earnings announcement that surpassed analysts’ estimates.

Macy’s beat earnings and revenue expectations when it reported results for Q4 and full-year 2021. Q4 net income was $742 million, with adjusted diluted earnings per share of $2.45 compared to an expected $1.99. Net sales were $8.67 billion, beating expectations of $8.47 billion from analysts surveyed by Yahoo Finance. Same-store sales rose 27.8% over 2020 on an owned-plus-licensed basis.

Digital sales for Macy’s in Q4 were up 12% over 2020 and 36% over 2019.

The strong results, executives said, came from the company’s Polaris turnaround strategy for growth, which Macy’s announced in 2020. The five-tier strategy involves strengthening relationships with consumers, leaning into private label brands, focusing on the digital business, implementing changes in corporate structure, and revamping a store fleet by shuttering stores and experimenting with new retail formats.

The department store announced a plan to close a total of 125 stores in lower-tier malls by 2023. 10 locations were shuttered in January as the company continues to consider how it will close a batch of 60 stores.

“Today, we’re in just a much different competitive position than we were even just two years ago,” said CFO Adrian Mitchell in a call with investors. “We’re financially a much stronger business. We have a healthier balance sheet. And we’re more efficient in how we think about our capital structure.”

Macy’s updated its outlook for 2022 and expects sales to reach between $24.46 billion and $24.7 billion.

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