Macy's expects a slowdown in real estate sales this year, to $175 million from $283 million in proceeds in 2024, as it closes and divests underperforming stores in its turnaround effort.
The New York-based retailer — the owner of not only its namesake chain but also Bloomingdale's and Bluemercury — on Thursday said it remained committed to shutting roughly 150 Macy's locations and had closed just over 60 last year. The company declined to disclose exactly how many stores it will be shuttering in fiscal 2025.
Macy's executives described the progress they've made during the past year in instituting their "Bold New Chapter" strategy. That multipronged plan, unveiled by Macy's Chairman and CEO Tony Spring in February 2024, entails selling some stores, namely monetizing parts of its portfolio, to generate $600 million to $750 million in revenue over a three-year span.
The department store sector has struggled in recent years, as e-commerce, off-price chains, and discounters more effectively attract its customers, and Macy's is no exception. It has come under fire from several different dissident groups — including Arkhouse Management, Brigade Capital Management, Barington Capital Group, and Thor Equities — critical of what they described as its lagging performance with shoppers and on Wall Street alike.
Those activists called for the company to monetize its real estate portfolio for the benefit of shareholders. Another department store chain, Kohl's, as well as other retailers have faced similar pressure over the years. Spring, as Macy's newly named CEO, crafted a plan that includes shedding and selling stores in an apparent effort to address dissident complaints.
Monetizing assets
For fiscal 2025, Macy's now expects "asset sales gains," or profits, of $90 million on $175 million in real estate sales, Chief Financial Officer Adrian Mitchell said. That's down from last year's $175 million of profits on $283 million in asset sales. But there's no need to rush to close deals, according to Mitchell.
"We're off to a solid start," he said on the earnings call. "When you look at what we were able to close and monetize last year, we exceeded our own expectations that we actually shared with the Street. Also, we're very pleased with the momentum on the monetization side of those closures. We spoke to the range of opportunity of sales proceeds to come into the business. We really are pleased with what we saw last year, but we're just giving ourselves the flexibility over the course of this fiscal year and next fiscal year to really be patient given the strength of our balance sheet."
Macy's "took advantage of favorable dealmaking" to shut 64 stores last year, ahead of the 50 closings it had planned for 2024, according to Spring.
"These closures allow us to focus our resources and attention on our go-forward fleet," he said. "We are executing store closures methodically. ... Although the closed locations benefited 2024 sales, gross margin and [earnings before interest, taxes, depreciation, and amortization] dollars, they are no longer as financially or operationally viable, especially when you compare their contribution to their monetization value."
Not financially viable
Macy's remains committed to closing its target of about 150 stores by the end of fiscal 2026, according to Mitchell.
"The reality is we continue to see that these stores are not financially and operationally viable, especially relative to the monetization opportunity that we've recognized and demonstrated last year," he said.
In the past year, Macy's sold stores to a variety of buyers, including mixed-use developers, religious institutions, mall landlords and local government bodies.
Neil Saunders, a retail analyst and managing director of analytics firm GlobalData, in a note Thursday said he liked some of the changes that Macy's is making.
"Some may be impatient about the pace of change at Macy’s," he said. "However, we have always recognized that transformation of such a huge and complex business is a journey with many steps. Those steps are not taken simultaneously, but over time they should add up to an advance. ... Macy’s is now at least headed in the right direction in the retail race, and it is training itself to become faster."
Macy's didn't respond to an email from CoStar News seeking comment on Saunders' remarks.