BUSINESS

Macy's explores China, selling off stores

Alexander Coolidge
acoolidge@enquirer.com
Macy’s store in Downtown Cincinnati.

Macy's second quarter profit plunged 25.7 percent to $217 million and the retailer cut its sales forecast for the year as weak tourist spending and West Coast port delays hurt operations.

The Cincinnati-based retailer's sales slid 2.6 percent to $6.1 billion compared with the same period a year ago. Profit and revenues both missed Wall Street expectations, but the company urged investors to look ahead as it unveiled new initiatives to boost sales and improve efficiency. The company announced a joint venture to test e-commerce in China. It also said it would sell half of a prime Brooklyn location for $270 million.

Bowing to Wall Street pressure to consider the sale of at least part of its real estate empire, Macy's also said it has retained real estate advisers to "intensely study its real estate portfolio to determine where opportunities exist." Some analysts and activist investors have pressed Macy's to consider splitting its real estate holdings into a separate company that would rent the store space back to Macy's.

In the latest quarter, a strong U.S. dollar has sapped Macy's stores in major cities where international tourists are a major source of customer traffic. Additionally, labor disputes at a major West Coast port slowed merchandise shipments that delayed sales and planned promotions.

Macy's reaffirmed its profit outlook for the year, thanks to its windfall from the Brooklyn real estate deal, but lowered its sales guidance. The retailer predicted total annual sales are expected to dip 1 percent instead of climb 1 percent. Macy's annual sales were $28.1 billion last year. Also, comparable-store sales, which measures the average store performance excluding new or closed locations, are predicted to be flat instead of climb 2 percent.

Macy's stock slumped Wednesday in heavy trading as low as $63.52, down $4.01 per share or 5.9 percent. Shares closed at $64.11, down $3.42 or 5.1 percent.

Still, Macy's said it was taking steps to grow the company in the long-term.

“We are disappointed in our second quarter results, which were impacted by a variety of factors," Macy's CEO Terry Lundgren said. "We expect an improvement in trend beginning in the second half of 2015 based on a range of promising new strategic initiatives."

The retailer said it plans to begin selling online in China late this year through Alibaba Group's Tmall Global, which connects retailers with Chinese consumers. Macy's will invest $16.3 million and own 65 percent of the joint venture, to be based in Hong Kong and called Macy's China Limited.

Macy's said the venture will allow it to study Chinese shopping habits and preferences and noted an estimated 668 million Chinese shop online. It predicted it will sell $50 million worth of goods in 2016.

The Brooklyn real estate transaction won't spell the end of the Macy's at that location. Macy's will continue to operate the site's bottom four floors and its basement, which will be reconfigured to maintain most of its sales area. The top floors of the building will be redeveloped into office space.

Since the beginning of 2015, Macy's has aggressively sought new growth initiatives. It bought Bluemercury, a Washington, D.C. cosmetics and skincare retailer, in spring. It's getting ready to open the first four outlet stores called Macy's Backstage this fall in and around New York City.

The Associated Press contributed.