Macy's has once again lowered its projections for real estate sales this year as the retailer inches toward its goal of divesting up to $750 million in underperforming stores as part of a turnaround.
The New York-based company — parent of its namesake chain as well as Bloomingdale's and Bluemercury — on Tuesday reported third-quarter earnings and revised its full-year guidance, raising its outlook for net sales. It saw sales that were its strongest in 13 quarters.
As part of that update, the retailer also said that it expects to rack up $150 million in property sales, down from the $175 million it projected earlier this year and less than the $275 million in 2024. Macy's said it is seeking "transactions to achieve the optimal monetization value" for its stores.
Under new Chairman and CEO Tony Spring, Macy's has embarked on a "Bold New Chapter" to revitalize the lagging banner chain and said it is seeing results. The strategy that Spring set forth in February last year calls for, in part, closing 150 poorly performing stores, a process it has started with about 60 shuttered, and selling from $600 million to $750 million in real estate properties.
This year's projected real estate sales and last year's add up to about $425 million.
"We remain committed to closing underproductive stores and are being disciplined with our approach to transactions," Macy's Chief Financial Officer Tom Edwards said on the earnings call. "The strength of our balance sheet provides us with the patience and flexibility to ensure we are achieving the best value."
Macy's expects to see "asset sales gains" of $60 million to $65 million from $150 million in proceeds from store divestitures this year, according to an investor presentation. That compares to the $90 million in gains it had expected to see from $175 million in real estate sales under its previous guidance.
David Swartz, a senior equity analyst at Morningstar, said Macy's is wise not to rush into selling any stores at this time.
"The real estate market probably isn't in the best shape right now," Swartz said in an email to CoStar News. "It makes sense to hold off on marketing certain properties if it thinks it can get a better price later. Realistically, there isn't any great need to sell any properties at any specific time."
Macy's didn't specify what properties it had sold this year, but it notched up three sales in July.
The retailer sold a 50,000-square-foot former Macy's Furniture Gallery at 98 Richmond Hill Road in Staten Island, New York, to Crown Acquisitions for $16 million, according to CoStar data. Also in July, Macy's sold a 332,500-square-foot store at 414 K St. in Sacramento, California, for $15 million to the Shingle Springs Band of Miwok Indians, according to CoStar.
And in the same month, Macy's sold a 223,000-square-foot former store at 14251 Burnhaven Drive in Burnsville, Minnesota, for $4 million to Burnsville Commercial Partners, according to CoStar.
"Macy's real estate sales are going to be inconsistent as long as it keeps selling properties one-by-one," Swartz said. "There aren't a lot of uses for 180,000-square-foot buildings. It takes time to find a buyer. The only way that this will change is if Macy's decides to form a REIT or sell its properties as a group to a financial buyer or something."
Both Spring and Edwards also discussed the $640 million customer-fulfillment-and-store-replenishment center that the company opened in October in China Grove, North Carolina. That 2.5 million-square-foot facility is equipped with state-of-the-art automation and an advanced warehouse management system, according to Macy's, with the largest storage capacity in the company's supply chain.
"We continue to improve our network and make strategic investments to increase speed of delivery and reduce costs," Edwards told Wall Street analysts. "Positioned in the Southeast, the 2.5 million-square-foot facility expands our reach, enabling faster, efficient service for millions of customers. By supporting all product categories from apparel and beauty to home presentation and toys, more orders can be shipped from a single location helping customers receive everything they need faster and in fewer boxes."
That center will initially support only the Macy's chain but will expand to serve others under the company's umbrella, he said.
On the retail front, Macy's is making improvements to a core group of stores, now expanded to 125 locations, that are outperforming its overall fleet. The stores saw 2.7% comparable sales growth.