Macy's To Cut Thousands Of Jobs, And Slashes Its Profit Outlook

Macy's Inc. (M) said that it will cut thousands of jobs and slashed its profit outlook, after disappointing holiday sales. It will hire more advisers to re-examine its real-estate holdings in markets including New York and San Francisco. It is not expecting a major change in sales trend in January.

The retailer announced that its comparable sales on an owned plus licensed basis declined by 4.7 percent in the months of November and December 2015 combined, compared with the same period last year.

On an owned basis, comparable sales declined by 5.2 percent in the combined November/December period.

"The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry. In the November/December period, we were particularly disadvantaged by the historically warm weather in northern climate zones where both Macy's and Bloomingdale's are especially well-represented," said Terry Lundgren, Macy's, Inc. chairman and chief executive officer.

"About 80 percent of our company's year-over-year declines in comparable sales can be attributed to shortfalls in cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. We also continued to feel the impact of lower spending by international tourists as the value of the dollar remained strong," said Terry Lundgren.

The company noted that it is not expecting a major change in sales trend in January and expects a comparable sales decline on an owned plus licensed basis in the fourth quarter of 2015 to approximate the 4.7 percent decline in November/December (from previous guidance of down between 2 percent and 3 percent for the fourth quarter).

This calculates to guidance for comparable sales on an owned plus licensed basis in the full-year 2015 to decline by approximately 2.7 percent (from previous guidance of down 1.8 percent to 2.2 percent).

The decline in fourth quarter comparable sales on an owned basis is expected to be approximately 50 basis points greater than on an owned plus licensed basis.

Earnings per share for the full-year 2015 now are expected in the range of $3.85 to $3.90, excluding expenses related to cost efficiencies announced today and asset impairment charges associated primarily with spring 2016 store closings. This compared with previous guidance in the range of $4.20 to $4.30. Earnings guidance for 2015 includes an expected $250 million gain on the sale of real estate in downtown Brooklyn. Analysts polled by Thomson Reuters expect the company to report earnings of $4.24 per share for fiscal year 2015. Analysts' estimates typically exclude special items.

The company expects earnings for fourth quarter to be in the range of $2.18 to $2.23 per share, excluding charges associated with cost efficiencies and store closings. This compared with previous guidance for earnings per share of $2.54 to $2.64 in the fourth quarter. Analysts project fourth-quarter earnings of $2.53 per share.

In a separate press release, Macy's announced a series of cost-efficiency and process improvement measures to be implemented beginning in early 2016 that will reduce SG&A expense by approximately $400 million while still investing in growth strategies, particularly in omnichannel capabilities at Macy's and Bloomingdale's. The actions represent progress toward the company's previously stated goal of re-attaining over time an EBITDA rate as a percent of sales of 14 percent.

"In light of our disappointing 2015 sales and earnings performance, we are making adjustments to become more efficient and productive in our operations....... The cost efficiencies represent more than two-thirds of our goal of annual SG&A expense reduction of $500 million, net of growth initiatives, from previously planned levels by 2018", Terry Lundgren said.

To address the need for greater efficiency and productivity, among the changes being implemented by Macy's, Inc. in early 2016 are Consolidating the grouping of existing Macy's stores into five regions and 47 local districts (down from the current structure of seven regions and 58 local districts), as well as other field support functions. This reflects a smaller portfolio of stores and new technologies and techniques for managing the store business and tailoring assortments to local customer preferences.

The company noted that it will adjust staffing levels at each Macy's and Bloomingdale's store in line with current sales volume to increase productivity and improve efficiency. An average of three to four positions will be affected in each of Macy's and Bloomingdale's approximately 770 going-forward stores (out of an average workforce of approximately 150 associates in each store), for a total of about 3,000 affected associates nationwide. Roughly 50 percent of affected store associates are expected to be placed in other positions.

The retailer will implement a voluntary separation opportunity for about 165 senior executives in Macy's and Bloomingdale's central stores, office and support functions who meet certain age and service requirements and chose to leave the company beginning in spring 2016. Approximately 35 percent of these executive positions will not be replaced.

The company plans to reduce an additional 600 positions in back-office organizations by eliminating tasks, simplifying processes and combining positions, with about 150 of these associates reassigned to other positions.

It will consolidate the four existing Macy's, Inc. credit and customer services center facilities into three. The call center in St. Louis will be closed in spring 2016, affecting approximately 750 employees. Work currently performed in St. Louis will be divided among existing credit and customer services centers in Tempe, AZ, Clearwater, FL, and Mason, OH, where a total of about 640 positions will be added.

It will decrease non-payroll budgets companywide in areas such as travel, meetings and consulting services.

In addition, the company listed 40 Macy's store closings (out of a current total of about 770 Macy's stores). Of the 40, 36 will be closed in early spring 2016, consistent with its announcement in September 2015. The other four stores were closed in the final three quarters of 2015, as previously announced.

The 36 Macy's stores being closed in early 2016, along with four others closed in the final three quarters of 2015, account for approximately $375 million in annual sales, some of which are expected to be retained in nearby stores and with online/mobile sales.

The implementation of cost reductions is estimated to generate annual SG&A savings of approximately $400 million, beginning in 2016. This will help the company to achieve modest improvement in its EBITDA rate (as a percent to sales) in 2016 compared with 2015 excluding gains from the expected sale of real estate in Brooklyn - while still investing in growth strategies, particularly in omnichannel capability at Macy's and Bloomingdale's.

In conjunction with today's announcements, as well as incremental asset impairment charges related to store closings, approximately $200 million of charges, of which approximately $165 million is expected to be cash, are expected to be booked in the fourth quarter of 2015. These charges were not previously included in earnings guidance provided by the company and are in addition to the $111 million, or 20 cents per share, booked in the third quarter as an estimate of asset impairment charges related to 2016 store closings.

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