M Macys Inc

By Anne Steele 

Macy's Inc. said revenue will continue to decline this year as it works on ways to improve sales and draw in more customers who are increasingly using the internet to plan and make their purchases.

During the December quarter, sales at Macy's stores open at least a year fell 2.1%, not as bad as the 2.9% decline in the year-ago fourth quarter and the 2.2% decrease analysts expected. Still, it marked the eighth straight quarterly decline.

Earnings, meanwhile, came in better than Wall Street estimates, and Macy's shares edged 0.8% higher midday to $32.55. Still, they are down by one-fourth in the past three months.

Foot traffic continues to dwindle at brick-and-mortar retailers as more shoppers are shifting more sales online.

Last month, Macy's said it would slash more than 10,000 jobs and detailed plans to close dozens of stores after another holiday season of weak sales, providing more evidence that department stores have lost their once-central place in American retailing.

Chief Executive Terry Lundgren, on his last investor call at the helm, said 2016 "frankly wasn't the year we expected nor hoped for."

However, the department store made significant progress on key initiatives "that are starting to bear fruit," including improved digital platforms, the rollout of a new approach to fine jewelry and women's shoes, an increase in exclusive merchandise and the refinement of the clearance and off-price strategy.

"We also took a big step forward in rightsizing our physical footprint and restructuring our entire organization," said Mr. Lundgren.

The company, which closed 66 stores during fiscal 2016 and plans to close another 34, said it received $673 million in cash from real-estate transactions last year and continues to explore options for its properties, including redeveloping some as hotels or condos.

Macy's expects sales in fiscal 2017 to be down between 3.2% and 4.3% -- less severe than the 4.4% decline analysts polled by Thomson Reuters have forecast. Adjusted earnings are expected between $2.90 to $3.15 a share, bracketing the average analyst estimate for $3.05 a share.

Karen Hoguet, Macy's finance chief, said guidance "reflects the desire to test and learn before we roll out initiatives nationally" and the department store anticipates "little to no sales improvement" meanwhile.

Over all for the fourth quarter, Macy's earned $475 million, or $1.54 a share, down from $544 million, or $1.73 a share, a year earlier.

Excluding impairments, store closings, settlement charges and other costs, per-share profit fell to $2.02 from $2.09.

Sales slipped 4% to $8.52 billion.

Analysts, polled by Thomson Reuters, predicted $1.96 in earnings per share and $8.62 billion in revenue.

Gross margin expanded to 38.3% from 37.4%.

Ms. Hoguet said in-store sales continued to be below what the company expected.

"Clearly customers are choosing to purchase less in-store and more through digital means," she said.

Macy's management said in the earnings report and on the call that changes need to be more dramatic and made faster. But executives also emphasized 2017 would be a year for testing new concepts before rolling them out nationally. That includes new merchandise and entertainment options, enhanced technology, updated marketing and a simplified pricing structure.

Ms. Hoguet said Macy's is testing strategies to move away from coupon reliance, but added "we all know making dramatic changes in coupons is not good."

Mr. Lundgren pointed to more-organized customers entering stores with mobile devices and making their decisions before they leave their homes or cars.

"They've already done their homework and searches for what they want to buy and where they want to buy it," he said. "They're visiting fewer stores once they get to the mall -- we have to be top of mind in that search process for them and make sure we match up well."

Earlier this month, The Wall Street Journal reported Canada's Hudson's Bay Co. has approached Macy's about a takeover, as the biggest U.S. department-store chain grapples with disappointing results and restive shareholders. There was no mention of any discussions in Tuesday's report.

Hudson's Bay is an acquisition-hungry owner of marquee names in retail including Lord & Taylor department stores and Saks Fifth Avenue. While its market value is dwarfed by that of Macy's, Hudson's Bay could raise equity and debt against its real-estate portfolio, which could be worth $14 billion, according to people familiar with the matter.

Write to Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

February 21, 2017 13:16 ET (18:16 GMT)

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