Macy's expects to generate nearly twice as much revenue this year, $275 million, than it originally expected from sales of its real estate properties, citing a favorable market.
The New York-based retailer — parent of its namesake department store chain as well as Bloomingdale's and Bluemercury — updated its fiscal 2024 guidance when it reported its third-quarter earnings Wednesday. In addition to revising its outlook for selling some stores, Macy's said it also plans to hasten the planned closing of brick-and-mortar retail locations this year to 65, up from prior expectations of 55 provided on a second-quarter earnings call and 50 cited on a first-quarter call. The closings will come after the holidays, according to company officials.
In an investor presentation, Macy's said it was "encouraged by the pace and economics of non-go-forward-stores asset sales" and "accelerating planned closure activity."
Like other retailers operating in today's challenging macroeconomic environment, Macy's wants to streamline its store fleet. In February, newly named CEO Tony Spring announced that Macy's planned to shutter about 150 underperforming stores, with about a third of them closing this year and the rest through 2026. The company aimed to focus on improving the remainder of its fleet by selling off properties with expected proceeds of $600 million to $750 million. It also intended to expand its luxury Bloomingdale's and Bluemercury chains.
"We at the start of the closure strategy said we had locations that were less profitable and less productive and we wanted to monetize them as soon as possible," Spring told Wall Street analysts Wednesday. "So the fact that we are closing more stores this year is a reflection of the fact that our assets have value and even in this less stable market, we're transacting. And the number remains approximately 150. ... But the core is to get to a fleet that we think can provide sustainable profitable growth for the enterprise."
'Favorable deals'
With its updated 2024 forecast, Macy's now expects to see $275 million generated by property sales, netting a profit of $135 million. That's nearly double the original expectation of $150 million in sales proceeds, netting a profit of $115 million, according to Macy's CFO Adrian Mitchell.
"So when we're able to have favorable deals that are at or above our expectations, we're certainly taking advantage of that opportunity," he said. "And as we said earlier, we do have a long history in terms of managing these opportunities unlocking value. ... That gives us capital to invest in the go-forward enterprise and capital to return to our shareholders."
In the third quarter, Macy's realized $66 million in profits from real estate sales. As of Nov. 2, Macy's overall had 735 stores, with 512 namesake locations, 59 Bloomingdale's and 164 Bluemercury sites.
Most recently, Macy's sold its store in Brooklyn to an investor group that includes United American Land, led by Albert Laboz, along with his partners Isaac Chera of Crown Acquisitions and the Chehebar family of the Jackson Group. In addition, this year Macy's has sold 13 stores for a total of $155.3 million working with broker Atlantic Retail. At least two potential buyers, TMG Partners and Prado Group, are reportedly interested in Macy's flagship in downtown San Francisco, as well.
Small-format openings
The retailer announced its latest financial results two days after activist investors, Barington Capital Group and Thor Equities, disgruntled about the company's performance and stock price made a series of recommendations. Those included the suggestion that Macy's create an in-house real estate department.
In the third quarter, Macy’s net sales dipped 2.4% to $4.7 billion, with comparable sales down 1.3%. The initial group of stores that Macy's has fast-tracked for improvements, its "First 50" locations, delivered its third consecutive quarter of comparable sales growth, up 1.9%. But comparable sales for all of Macy's banner stores combined dropped 2.2%. Bloomingdale’s reported comparable sales growth of 3.2%. Cosmetics retailer Bluemercury had a comparable sales growth of 3.3%.
Macy's continues to roll out small-format versions of its namesake stores and Bloomingdale's. It now has 24 small-format Macy's locations and recently debuted its fourth small-format Bloomingdale's, called Bloomie's, in Shrewsbury, New Jersey, the only one so far that is strictly targeted to women, Spring said.