Shares of the department store retailer exploded over 15% higher as investors cheered better-than-expected second-quarter earnings and a dramatic new store closure plan that will save a good chunk of money.
Macy's divulged it will close 100 stores by early 2017, or almost 15% of its current 728 locations. The company plans to take the savings from operating these low volume stores and reinvest them in its top-performing locations.
The retailer did not disclose where those 100 stores are located. That information is expected to come later in the year.
What incoming CEO Jeff Gennette did say, in a statement, is, "Nearly all of the stores to be closed are cash flow-positive today, but their volume and profitability in most cases have been declining steadily in recent years. We recognize that these locations do not yield an adequate return on investment and often do not represent a customer shopping experience that reflects our aspirations for the Macy's brand."
Gennette, who will take the reins from long-time Macy's CEO Terry Lundgren in early 2017, added, "We decided to close a larger number of stores proactively so we can invest in a winning customer experience in our most productive and highest-potential locations, as well as invest in growth sooner and more aggressively in digital and mobile."
Macy's said the 100 stores had $1 billion in annual sales value combined. It didn't disclose their profitability, but execs noted the reduction in operating profit from the closures is expected to be offset by expense savings associated by the decision.
Taking a backseat was Macy's stronger-than-anticipated second-quarter earnings. The company reported earnings, excluding one-time items, of 54 cents a share compared to Wall Street forecasts for 45 cents a share. Same-store sales fell 2%.
"A number of factors worked in our favor in the second quarter, including a normalized weather pattern, which contributed to a sales lift in our apparel business in particular. We also saw a smaller decrease in tourist spending during prime summer travel months, supported by strengthened promotional events designed to increase customer traffic and conversion," said Lundgren in a statement.
Macy's reiterated its full-year earnings guidance of $3.15 to $3.40 a share and still expects same-store sales to fall by 3% to 4%.