Macy’s Inc. Posts Weak Q4 Results, Unleashes Action Plan

Updated on Feb. 27 at 4:28 p.m. EST

Macy’s Inc.’s, amid declining sales in a volatile retail climate, is springing into action to deliver what investors and customers have been waiting for: change.

On Tuesday, the company’s new chief executive officer Tony Spring said Macy’s will close approximately 150 underproductive locations through 2026, including about 50 by the end of the fiscal year, prioritize investment in approximately 350 “go-forward” locations, and further expand its small-format store chains. The corporation’s small retail formats are Bloomie’s, the specialized and downsized Macy’s units, Bloomingdale’s outlets and Backstage off-price units.

Spring said the plan, dubbed “A Bold New Chapter,” calls for:

While disclosing the strategy for change, Macy’s Inc. also posted its latest financial results, including a fourth-quarter net loss of $71 million compared to a profit of $508 million in the year ago quarter. However, on an adjusted basis, net income rose to $685 million last quarter from $524 million in the year-ago quarter.

The retailer’s profit picture was significantly impacted by a $1 billion impairment charge, $950 million of which was related to the approximate 150 locations seen closing over the next three years.

During the fourth quarter, which ended Feb. 3, Macy’s Inc. generated net sales of $8.1 billion, down 1.7 percent from $8.3 billion in the year-ago quarter.

“We had a decent quarter relative to the landscape and certainly from a bottom-line and gross margin perspective, we greatly improved from a year ago,” Spring said in interview with WWD.

Investors reacted positively to the results and the new strategy, pushing Macy’s stock price up 3.8 percent, or 65 cents, to $19.95 on Tuesday.

“This is the beginning of a bold new chapter that I would characterize as trying to fundamentally reposition the company for growth, provide a better customer experience and unlock the value of Macy Inc.,” Spring told WWD, when asked if the plan disclosed Tuesday was distinct from past strategies under former CEO Jeff Gennette or an acceleration of those strategies. Spring succeeded Gennette this month.

“It’s very diagnostic. It’s very cleared eye. It’s unemotional,” Spring said in an interview. “We have a tremendous opportunity to deliver better results and experiences for each of our nameplates. This is an evolution, a little bit of a show-me story, and we accept that challenge.”

In 2020, Gennette unveiled Macy’s Polaris three-year strategy centered on personalization, the loyalty program, expanding assortments through online marketplace formats; accelerating digital growth, closing 125 department stores, opening smaller-scale off-mall stores; boosting certain private brands, and reducing costs. Macy’s in 2020 cut 2,000 positions and shut its dot-com headquarters in San Francisco and corporate offices in Cincinnati. And last January, Macy’s let go 2,300 employees, mostly corporate jobs, accounting for 3.5 percent of the retailer’s total workforce.

Spring said some of the strategies of the past were right for the time, some were impacted by the pandemic, and some served different purposes. But he said the new plan is “consumer-led” based on in-depth research into what consumers want, what they are shopping for and where, demographics, and analysis into store performances. Certain stores to be closed are four-wall profitable, though not profitable enough to warrant further investment and could be subject to worsening market conditions.

“A Bold New Chapter serves as a strong call to action. It challenges the status quo to create a more modern Macy’s Inc.”

Tony Spring, Macy’s Inc. CEO

In 2005, Macy’s, then called Federated, purchased May Co., doubling its department store count to 950 and creating what’s been called “America’s department store.” While the May acquisition led to coverage across many more markets, particularly in the Midwest, it also led to hundreds of store closings over time and the dismantling of regional nameplates.

This latest round of 150 closings through 2026, which does include several former May stores, will bring Macy’s department store count down to 350. Locations being closed will be announced at a later date.

The retailer also did not provide an estimate on how many employees will lose their jobs due to the closings. “Our intent is to retain as many people as we can,” Spring said. Macy’s will relocate many employees to stores and digital facilities remaining open, hopefully not too far from where they had been working or live. “We will start closing stores most likely next January and into fiscal 2025,” Spring said.

During the interview with WWD, the CEO emphasized assortment changes on the horizon. “Opportunities exist in women’s ready-to-wear and center core through both private and market brands, he said. Among other advancements, Spring said Macy’s will launch a new men’s private brand in the spring; other private brands are undergoing “reinventions,” and some private brands are being dropped, he said. With private label, “Our intent to refresh the entire portfolio by the end of 2025. The majority of the private brand portfolio will be done by the later part of this year with the exception of home furnishings.” Macy’s also expects to introduce some market brands to its assortment, and expand presentations of Nike and Under Armour.

Asked for his outlook on 2024, Spring said: “The consumer is under pressure. We feel like we have to take market share. This is an investment and transition year to deliver a better experience for the customer.”

For 2024, the Macy’s forecast is for between $22.2 billion and $22.9 billion in sales; comparable sales from down 1.5 percent to up 1.5 percent, and adjusted earnings per share between $2.45 to $2.85.

In other fourth-quarter results, Macy’s Inc.’s earnings before interest, depreciation and amortization fell to $156 million, from $887 million in the year-ago period. Adjusted EBITDA was $1.17 billion last quarter versus $970 million in the year-ago period.

The company lost $0.26 on a diluted loss per share basis, but on an adjusted basis yielded a positive $2.45. This compares to diluted earnings per share of $1.83 and adjusted diluted earnings per share of $1.88 in the fourth quarter of 2022.

By channel, Macy’s Inc. reported digital sales decreased 4 percent versus the fourth quarter of 2022; brick-and-mortar sales were roughly flat versus the fourth quarter of 2022. Comparable sales, owned and licensed, were down 4.2 percent.

By division, Macy’s comparable sales, on a 13-week basis, were down 6 percent on an owned basis and down 4.7 percent, on an owned-plus-licensed basis. Macy’s saw strength in beauty, particularly fragrances and prestige cosmetics, and its Backstage off-price business while women’s shoes saw continued softness along with relatively weaker performance in cold-weather apparel and accessories.

Bloomingdale’s comparable sales, on a 13-week basis, were down 1.5 percent on an owned basis and down 1.6 percent on an owned-plus-licensed basis. Bloomingdale’s saw strength in beauty, women’s contemporary sportswear and the Bloomingdale’s the Outlets business, while men’s and designer handbags continued to be soft.

Bluemercury’s comparable sales, on a 13-week basis, were up 2.3 percent on an owned basis. Bluemercury continued to see strength in skincare and color cosmetic categories.

For the year, Macy’s Inc. generated $105 million in net income and sales of just over $23 billion. That compares to a net of $1.18 billion and sales of just over $24.4 billion in 2022. EBITDA came to $1.16 billion last year, versus $2.57 billion in 2022. Diluted earnings per share of $0.38 and adjusted diluted earnings per share of $3.50 in 2023 compares to a diluted earnings per share of $4.19 and adjusted diluted earnings per share of $4.48 in 2022.

Macy’s is under pressure by Arkhouse and Brigade Capital Management, which recently bid $5.8 billion to buy Macy’s Inc. Macy’s rejected the offer. The activists last week launched a proxy fight with Macy’s by submitting nine individuals to stand for election to the retailer’s board of directors at the company’s 2024 annual meeting. But Macy’s showed support for its board, calling it diverse, experienced and engaged.

Spring’s strategy, while dramatic and comprehensive, is not entirely unexpected. Industry pundits and other retailers have long criticized Macy’s for having too many stores in poor shape, and in need of major change to improve profitability. It was incumbent on Spring and the board to demonstrate some decisiveness, and for Spring himself to come out strong as a leader in his early days as CEO. Additionally, the new strategy should help thwart unwanted activist activity.

David Silverman, senior director at Fitch Ratings, in a note Tuesday wrote, “While Macy’s reported better than expected earnings on strong inventory control and limited markdown activity, the big news was new CEO Tony Spring’s plans to close 150 of its approximately 500 Macy’s branded locations to focus growth on its most profitable locations, its luxury Bloomingdale’s footprint and small store expansion. Fitch views Macy’s store closure plans as an opportunity to get ahead of secular challenges in the regional mall space and focus its efforts on best performing locations. A smaller footprint will allow management to direct capital and attention to its best performing assets and, if it executes its plans effectively, optimize future growth.

“Macy’s 2024 guidance dovetails Fitch’s view that 2024 will be a challenging year for many discretionary goods categories, given softening consumer health levels — albeit from very strong levels — and ongoing post-pandemic recalibration of consumer budgets between goods and services. Fitch expected Macy’s 2024 comps to be modestly negative and as such guidance was relatively in line, and suggests Macy’s views 2024 as a volatile year for apparel and home spending.”

Addressing the planned store closings, Craig Johnson, president of Customer Growth Partners, said, “This is just what the doctor ordered. For over a decade, Macy’s has tried to rightsize the company in a shrinking market, but has always been a dollar short and a day late.”

“A Bold New Chapter serves as a strong call to action. It challenges the status quo to create a more modern Macy’s Inc.,” Spring said in a statement.

“We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value,” Spring said. “Our teams are energized by the work ahead as we accelerate our path to market share gains, sustainable, profitable growth and value creation for our shareholders.”

“Over the past several years, we have taken proactive actions to fortify our operations, including strengthening our balance sheet, managing expenses and tightening inventory controls,” Adrian Mitchell, chief operating and chief financial officer, said in a statement. “The dedicated work of our teams delivered a solid close to 2023 and provides a strong foundation for us to execute A Bold New Chapter.”