Macy's Plans to Re-equip

In an economy fraught with risks, being well-equipped to face the unprecedented hurdles becomes the order of the day for every company. After the short-lived advantages from Thanksgiving, Black Friday and Christmas it’s time again to face the ripple effect of the 2011 turmoil. The 2012 scenario will not be any different from the last year, and retailers must be ready to face a replay of soft consumer demand, plagued by an unhelpful job market.

Macy’s Inc.’s (M - Analyst Report) relentless endeavors to keep itself on the growth trajectory have had paid off in an uncertain economy and the recent announcement of closing the underperforming Macy's and Bloomingdale's stores and opening of new ones to tap the under-penetrated local markets, is just another step to face the headwinds in 2012.

It’s true that the closing of stores will make many jobless in an economy where finding another job is proving to be a herculean task. But Macy’s hinted that the displaced employees will be offered jobs in nearby stores or in the new ones to the greatest possible extent possible. However, those laid off will be provided with severance benefits.

Macy’s anticipates to record $25 million to $30 million of costs in the fourth quarter of 2011, in conjunction with store closings. However, these costs were not taken into consideration, when the company had provided its earnings projections. Management had earlier guided earnings between $1.52 and $1.57 for the fourth quarter and between $2.70 and $2.75 per share for fiscal 2011.

Macy’s Store Account

The 5 Macy’s stores, which are slated for closure in early spring 2012 are located in West Ridge Mall, Topeka; Laurel Mall, Laurel; Parmatown, Parma; Hickory Hollow, Antioch; and Mall of the Mainland, Texas City. This will directly affect 375 staff associated with the stores.

In turn, the company plans to open five new Macy’s stores – in Salt Lake City and Greendale in March 2012, Victorville in mid 2013, Gurnee in spring 2013 and The Bronx in fall 2013 or spring 2014 – which will create 841 jobs in total. The company will also open one replacement store in fall 2013 in Bay Shore, and will employ 180 associates.

The changes once implemented will result in 804 Macy’s stores operating in 45 states, the District of Columbia, Puerto Rico and Guam.

Bloomingdale's Store Account

Management also plans to close down four Bloomingdale's stores in early spring 2012, located in Perimeter Mall, Atlanta; Oakbrook Home and Furniture, Oak Brook; White Flint, North Bethesda; and Mall of America, Bloomington. In consequence, 463 associates will lose their jobs.

The company also plans to open one Bloomingdale's store in Glendale Galleria in Glendale in fall 2013, and hire 175 workers. In addition, the company plans to open a new store in Stanford Shopping Center in Palo Alto, to be operational in spring 2014 as a replacement of an existing Bloomingdale’s store in the same mall. The store will absorb all 180 associates working there.

The company did not stop here, and went on to announce the opening of 5 new Bloomingdale’s Outlet stores, slated to open in 2012 that will require the hiring of 35 people for each store of 25,000 square feet. This will bring the total store count to 12. The company had earlier opened 3 Bloomingdale’s Outlet stores in 2011 and 4 in 2010, the year when the concept was unveiled.

The planned openings and closures will result in a total of 38 full-line and home stores, and 12 Outlet stores. Bloomingdale’s also has a licensing agreement with Al Tayer Group to carry out operations in Dubai.

Closing Comment

We believe Macy’s will continue with its positive momentum as it enters 2012. The company’s sustained focus on price optimization, inventory management, merchandise planning and private label offering positions it to drive traffic, meet customer-oriented demand and improve the shopping experience.

In an attempt to increase sales, profitability and cash flows, the company has been taking steps such as integration of operations, consolidation of divisions as well as developing the e-commerce business and online order fulfillment centers.

Macy’s, which competes with J. C. Penney Company Inc. (JCP - Analyst Report) and Dillard’s Inc. (DDS - Analyst Report), currently operates approximately 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.

Currently, we maintain our long-term Outperform recommendation on the stock. Moreover, Macy’s holds a Zacks #1 Rank that translates into a short-term ‘Strong Buy’ rating, which correlates with our long-term view.

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