UPDATE: Macy’s to close 150 stores over 3 years as it fights takeover bid

Macy’s announced Tuesday it would close 150 of its namesake department stores over the next three years as part of a new strategy that will include expanding its higher end Bloomingdale’s and Bluemercury chains.

Macy’s Inc., which has stores at Castleton Square and Greenwood Park malls, said it will close “unproductive” stores but did not release a list of locations. It said the moves are part of an effort to increase its overall market value by modernizing its brands.

The move comes as the company fights a takeover attempt from activist investor Arkhouse Management Co.

Also on Tuesday, Macy’s reported a fourth-quarter loss of $71 million or 26 cents per share, although the results surpassed Wall Street expectations.

The department store operator posted revenue of $8.12 billion in the period, also exceeding Street forecasts. Five analysts surveyed by Zacks expected $8.09 billion.

The company didn’t give an estimate of the number of employees that will be impacted by the closures, which represent almost a third of the company’s Macy’s stores in the United States. It said it will close about 50 stores by the end of this fiscal year. Many of the stores are near other Macy’s locations, which could allow some employees to transfer.

In Indiana, Macy’s also has stores in Lafayette, Evansville and Fort Wayne.

The company plans to add 15 new Bloomingdale’s and 30 Bluemercury locations by 2026 in an effort to accelerate growth of its higher-end brands.

The announcement, accompanied with fourth-quarter results, follow a $5.8 billion buyout offer from Arkhouse Management and Brigade Capital Management in December. Macy’s rejected the offer, but last week Arkhouse nominated nine directors to Macy’s board as the activist investor persists in its efforts.

The new real estate strategy, which comes less than a month into the tenure of CEO Tony Spring, is expected to free up between $600 million and $750 million of assets through 2026, the company said.

For the full year, Macy’s anticipates adjusted earnings per share will be in a range of $2.45 and $2.85, below the average analyst estimate of $3 a share and weaker than last year. The company’s net sales outlook was also below the average analyst estimate. Macy’s described 2024 as a year of “transition and investment.”

Same-store sales at the Macy’s namesake brand fell 6% on an owned basis in the fourth quarter, while sales at the higher-end Bloomingdale’s fell 1.5%. Bluemercury, which sells beauty and skin-care products, rose 2.3%. While sales across the company were down from a year earlier, Macy’s beauty and off-price categories performed well during the holiday season.

Macy’s, like many mall-based retailers, has struggled with a long-term shift in consumer behavior that favors online and off-mall shopping. In 2020, just before the pandemic, the company announced a separate strategy, known as Polaris, which was meant to stabilize profitability and included a plan to close 125 stores.

Much of the company’s value is tied up in real estate. It currently operates 489 Macy’s stores, 32 Bloomingdale’s locations and 158 Bluemercury stores across the US. By closing another 150 Macy’s stores, the company will be able to prioritize investment in the remaining locations and continue to expand small format, off-mall locations, Macy’s said in a statement.

As part of the strategy, Macy’s aims to upgrade its remaining 350 stores, with plans to add more salespeople to fitting areas and shoe departments, while adding more visual displays like mannequins. At the same time, the company signaled a pivot to luxury, which has fared better overall. It said it would open 15 of its higher end Bloomingdale’s stores and 30 of its luxury Blue Mercury cosmetics locations.

The Macy’s stores set to close account for less than 10% of its sales, the company said.

While adjusted net income and revenue topped Wall Street expectations, Macy’s offered a muted outlook for the year.

“We are making the necessary moves to reinvigorate relationships with our customers through improved shopping experiences, relevant assortments and compelling value,” said Macy’s CEO Tony Spring who succeeded Jeff Gennette last month.

Shares of Macy’s ralllied about 7% in morning trading.

The plans come as the department store chain faces a proxy fight from Arkhouse Management which nominated a slate of nine director for election to Macy’s board last week. Last month, Macy’s rejected a $5.8 billion takeover offer from the hedge fund and Brigade Capital Management, an investment manager.

Activist investors and pressure to increase sales are just two critical issues facing the new CEO.

Even before the pandemic, department stores were facing intense competition from online rivals. Neiman Marcus, JCPenney and Bed Bath & Beyond all filed for bankruptcy protection.

Consumers have proven resilient and willing to shop even after a bout of inflation, though behaviors have shifted, with some Americans trading down to lower priced goods.

Spring told analysts that while inflation has slowed, so has labor and wage growth.

“As such, we expect our consumer to remain under pressure, ” Spring said.

Macy’s is maneuvering to shore up sales by accelerating the expansion of small-format stores that can provide more convenience to its customers. It announced plans in October to add up to 30 small-format locations through the fall of 2025, bringing the total number to roughly 42. The next round of expansion starts in the fall.

Yet Macy’s is still cutting jobs to lower costs. In January, Macy’s said it would trim about 3.5% of its total workforce, roughly 2,350 employees, and close five locations.

Arkhouse and Brigade offered $21 for each of the remaining shares in Macy’s they don’t already own. Macy’s said it had had concerns about the financing plan and the value of the offer.

Last week, Macy said that it was seeking additional financing information from Arkhouse and Brigade to potentially advance talks with its board. Rather than providing that additional information, Macy’s said Arkhouse sought to extend its director nomination window by 10 days.

Spring told analysts the retailer still believes in its physical footprint.

“We believe in stores,” he said. “We have to focus on making sure that we have the best stores, not the largest number of stores.”

The strategy comes after Macy’s surveyed 60,000 customers about what they liked and disliked about the shopping experience. What they found was that customers wanted less cluttered stores and more service. Macy’s also is overhauling its private brands, which help stores stand out and also have better profit margins.

Macy’s had a quarterly loss of $71 million, or 26 cents per share. Adjusted for impairment and restructuring charges, Macy’s earned $2.45 per share, topping Wall Street projections for $1.98, according to FactSet.

That compares with a profit of $508 million last year in the same period.

Sales fell nearly 2%, to $8.12 billion, but still better than the $8.09 billion that industry analysts had expected.

Online sales decreased 4% while sales at stores were roughly flat.