Macy's Q3 Adj. Profit Tops View, But Revenues Miss; Cuts 2015 Profit View

(RTTNews) - Macy's Inc. (M) reported that its net income attributable to shareholders for the third-quarter 2015 fell 45.6% from last year, reflecting asset impairment charges of $111 million. The company has decided not to pursue the formation of a REIT at this time. The company has revised its 2015 guidance.

Adjusted earnings per share topped analysts' expectations, while quarterly revenues missed their estimates.

"We are disappointed that the pace of sales did not improve in the third quarter, as we had expected. Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy's and Bloomingdale's stores in tourist centers, which are some of our company's largest-volume and most profitable locations," said Terry Lundgren, chairman and chief executive officer of Macy's, Inc.

The company expects earnings per share for fourth quarter earnings to be in the range of $2.54 to $2.64, excluding any additional charges associated with store closings or cost reductions. Analysts project fourth-quarter earnings of $2.90 per share.

The company projects fourth quarter comparable sales on an owned plus licensed basis to decline by 2.0 percent to 3.0 percent.

Macy's and Luxottica Group S.p.A. (LUX) announced an agreement to bring the LensCrafters optical retail experience to as many as 500 Macy's department stores in the U.S. over the next three years. LensCrafters will open its first new Macy's location in April of 2016, with the goal of opening approximately 100 locations by the end of next year.

Macy's has revised its 2015 guidance. Earnings per share for the full-year 2015 now are expected in the range of $4.20 to $4.30, excluding asset impairment charges associated primarily with previously announced store closings. Analysts expect annual earnings of $4.65 per share. This compared with previous guidance in the range of $4.70 to $4.80.

Earnings guidance for 2015 includes gains from asset sales, including approximately $60 million from the sale of real estate in Seattle and an expected $250 million gain on the sale of real estate in downtown Brooklyn.

The company expects 2015 total sales to be down by 2.7 percent to 3.1 percent, compared to previous guidance for total sales to be down approximately 1 percent.

Guidance is for full-year 2015 comparable sales on an owned plus licensed basis to decrease by 1.8 percent to 2.2 percent, compared with previous guidance of approximately flat.

Full-year and fourth quarter 2015 comparable sales on an owned basis will be approximately 50 basis points lower than on an owned plus licensed basis.

Net income attributable to shareholders for the third-quarter dropped to $118 million or $0.36 per share from $217 million or $0.61 per share in the same quarter last year.

Excluding asset impairment charges of $111 million, or 20 cents per share, primarily related to the previously-announced plans to close 35 to 40 stores in early 2016, third quarter earnings per share were $0.56 per share. Analysts polled by Thomson Reuters expected the company to report earnings of $0.54 per share for the third-quarter. Analysts' estimates typically exclude special items.

Sales in the third quarter of 2015 totaled $5.874 billion, a decrease of 5.2 percent, compared with sales of $6.195 billion in the same period last year. Wall Street expected revenues of $6.09 billion for the quarter. Comparable sales on an owned plus licensed basis were down by 3.6 percent in the third quarter. On an owned basis, third quarter comparable sales declined by 3.9 percent.

After extensive review with the assistance of experienced financial, tax, legal and real estate advisors, the company said it has decided not to pursue the formation of a REIT at this time. The board of directors has concluded that a REIT does not offer sufficient upside potential for value creation. To the extent that circumstances change, the company may revisit this alternative in the future.

In early 2016, the company will be closing 35 to 40 of its current portfolio of about 800 Macy's and Bloomingdale's stores, as previously announced, and expects it will continue to reduce the number of stores over time.

Macy's, Inc.'s target is to reduce annual SG&A by $500 million, net of growth initiatives, from previously planned levels by 2018, with incremental progress in 2016 and 2017 toward that goal. These structural expense reductions will result in charges to be taken in each of the three years. Specific plans to achieve these savings are being formulated. Macy's, Inc. will reduce capital spending to less than $1 billion in 2016 from the $1.2 billion expected in 2015.