Macy's reports fall in Q3 sales and earnings

Macy's reported diluted earnings per share of 5 cents in the third quarter ended October 29, 2016. Excluding non-cash retirement plan settlement charges of 62 million dollars or 12 cents per diluted share, third quarter earnings per share were 17 cents against 36 cents per diluted share in the third quarter of 2015, or 56 cents per diluted share excluding asset impairment and other charges of 111 million dollars or 20 cents per diluted share, primarily related to store closings. The company also reaffirmed its previous earnings-per-share guidance and raised its sales guidance for full-year 2016.

"The trends we saw in the third quarter give us confidence that we can deliver our expectations for the fourth quarter and our guidance for fiscal 2016. Our third quarter top line results were better than the first half of the year and our sales-driving initiatives continue to gain traction. Additionally, the strengthening trend across the apparel businesses, coupled with new initiatives like tech watches from Apple, Michael Kors and others, are good indicators for an improved performance in the fourth quarter," said Terry J. Lundgren, Macy's Chairman and CEO in the company release.

Review of the quarter and nine months results

The company’s diluted earnings per share for the first three quarters were 46 cents or 1.11 dollars excluding asset impairment and other charges primarily related to upcoming store closings and non-cash retirement plan settlement charges, compared with diluted earnings per share of 1.56 dollars in the same period last year or 1.76 dollars excluding asset impairment and other charges of 111 million dollars primarily related to store closings.

Sales in the third quarter totaled 5.626 billion dollars, a decrease of 4.2 percent, compared with sales of 5.874 billion dollars in the same period last year. Comparable sales on an owned plus licensed basis were down by 2.7 percent and on an owned basis, comparable sales declined by 3.3 percent. The company said, difference between the year-over-year change in total and comparable sales largely resulted from the closing of 41 underperforming Macy's stores at the end of fiscal 2015.

For the year to date, Macy's sales totaled 17.263 billion dollars, down 5.2 percent from total sales of 18.210 billion dollars for the first three quarters of 2015. Comparable sales on an owned plus licensed basis were down by 3.5 percent and on an owned basis, year to date comparable sales declined by 4 percent.

In the third quarter, the company opened a new Macy's store in Kapolei, HI, a Macy's Backstage store in San Antonio, TX, and seven Bluemercury freestanding specialty stores. Earlier this month, the company opened a Bloomingdale's Outlet in Orange County, CA.

Financial highlights

Macy's operating income totaled 107 million dollars or 1.9 percent of sales for the quarter ended October 29, 2016. This compares with operating income of 258 million dollars or 4.4 percent of sales for the same period last year or 369 million dollars or 6.3 percent of sales excluding asset impairment and other charges. For the first three quarters, operating income totaled 500 million dollars or 2.9 percent of sales. Excluding asset impairment and other charges of 249 million dollars and non-cash settlement charges related to the company's retirement plans of 81 million dollars, operating income was 830 million dollars or 4.8 percent of sales.

Macy's has signed a contract to sell its 248,000 sq. ft. Union Square Men's building in San Francisco for 250 million dollars and will use part of the proceeds to consolidate the men's store into its main Union Square store. Macy's will lease the men's store property for two to three years as it completes the reconfiguration of the main store. The company also continues to explore options for its downtown Minneapolis, State Street (Chicago) and Herald Square (New York City) stores. The company has also signed a contract to sell its downtown Portland, OR store for 54 million dollars.

The company announced last week the sale of five locations to General Growth Properties. In addition, as a result of lease terminations or expirations, the company will be closing Macy's stores in Douglaston Mall, Douglaston, NY and Lancaster Mall, Salem, OR in early 2017.

Expects better sales performance in FY16

The company expects full-year sales to be better than its prior guidance. Macy's expects full-year 2016 comparable sales on an owned plus licensed basis to decrease in the range of 2.5 percent to 3 percent compared with previous guidance of a decrease in the range of 3 percent to 4 percent, with comparable sales on an owned basis to be approximately 50 basis points lower. The company continues to expect diluted earnings per share (excluding asset impairment charges and retirement settlement charges) in fiscal 2016 to be in a range of 3.15 dollars to 3.40 dollars.

Picture:Facebook/Macy's