Macy's Q3 Results Miss View; Forms Alliance With Brookfield Asset Management

(RTTNews) - Macy's, Inc. (M) reported that its third-quarter net income attributable to shareholders fell to $17 million or $0.05 per share from $118 million or $0.36 per share in the same quarter last year.

Excluding non-cash retirement plan settlement charges of $62 million, or 12 cents per share, earnings per share for the latest-quarter were $0.17. Analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude special items. The prior year earnings per share were $0.56, excluding asset impairment and other charges of $111 million, or $0.20 per share, primarily related to store closings.

Sales in the third quarter of 2016 totaled $5.626 billion, a decrease of 4.2 percent, compared with sales of $5.874 billion in the same period last year. Wall Street expected revenues of $5.65 billion. Comparable sales on an owned plus licensed basis were down by 2.7 percent in the third quarter. On an owned basis, third quarter comparable sales declined by 3.3 percent. The 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.

The company also reaffirmed its previous earnings-per-share guidance and raised its sales guidance for full-year 2016.

Macy's expects full-year 2016 comparable sales on an owned plus licensed basis to decrease in the range of 2.5 percent to 3.0 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 50basis pointslower. 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 to $3.40. Analysts expect annual earnings of $3.35 per share.

Separately, Macy's announced it is forming a strategic alliance with Brookfield Asset Management, a leading global alternative asset manager, to create increased value in its real estate portfolio.

Under the alliance, Brookfield will have an exclusive right for up to 24 months to create a "pre-development plan" for each of approximately 50 Macy's real estate assets, with an option for Macy's to continue to identify and add assets into the alliance. These assets primarily include owned and ground- leased stores and associated land, most of which are located in malls not owned by major mall owners. The breadth of opportunity within the portfolio ranges from the additional development on a portion of an asset to the complete redevelopment of an existing store.

Macy's has signed a contract to sell its 248,000 square-foot Union Square Men's building in San Francisco for $250 million, 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 expects the transaction to close in January 2017 and expects to recognize a gain of approximately $235 million in January 2018. The company 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. The transaction is expected to close in the fourth quarter of 2016, at which time a gain of approximately $36 million will be recognized. The downtown Portland store will continue operations through the holiday season and will be closed in spring 2017.

The Brookfield alliance is part of Macy's previously-announced strategy to generate value from its real estate portfolio consistent with the company's commitment to stores as a critical element of its long-term omnichannel strategy and its balance sheet objectives. The company is also exploring options for its flagship stores and closing approximately 100 full-line Macy's stores due to underperformance or because the value of the real estate exceeds the value to Macy's as a retail store location.