February 23, 2016 / 1:16 PM / a year ago

Macy's in talks for real estate deals, sales fall less than feared

3 Min Read

The sign of a Macy's department store is pictured in Pasadena, California May 12, 2015.Mario Anzuoni

(Reuters) - Macy's Inc's (M.N) sales fell less than expected for the first time in four quarters, helped by a last-minute blast of cold weather in January, and the department store operator said there was a "high degree" of interest among parties it approached for real estate deals.

The retailer's sales have fallen the past year as a strong dollar hurt tourist spending at its Bloomingdale's and flagship Macy's stores, and as consumers preferred to spend on big-ticket items such as automobiles and homes rather than on apparel.

Added to that, shareholder Starboard Value LP has been pressuring Macy's since July to monetize its real estate assets, which the hedge fund estimates at about $21 billion.

Macy's has been trying to fight both battles, by selling some real estate assets, closing stores and cutting jobs to lower costs, and opening off-price stores, called Backstage, and boosting its online presence to power sales.

The company's sales fell a smaller-than-expected 5.3 percent in the holiday quarter, while a lower store count and cost-cutting measures helped it forecast 2016 earnings largely above analysts' estimates.

Macy's shares were up nearly 5 percent at $43.08 midday on Tuesday, amid a decline in the broader market .SPX.

But Macy's is not done.

It said on Tuesday it plans to test the off-price stores within 15 Macy's stores, rather than as standalone stores, this year.

Macy's outlined a capital expenditure budget of about $900 million for 2016, roughly $200 million less than last year, and said cost cuts would help offset investments in Backstage stores and digital operations.

Macy's said there was "a high degree of initial interest" among parties it approached for partnerships or joint ventures for its flagship and mall-based stores, but did not give further details.

Cold Blast

Sales at Macy's stores open at least a year fell 4.3 percent in the fourth quarter ended Jan. 30, slightly less than the 4.7 percent fall it had estimated.

Total sales fell to $8.87 billion, but beat analysts' estimates of $8.83 billion as sales got a boost from the colder weather in January compared with November and December.

A warmer-than-usual winter had hit most apparel retailers hard, especially Macy's rivals Nordstrom Inc (JWN.N) and Kohl's Corp (KSS.N).

Macy's net income fell 31.5 percent to $543 million. Excluding items, it earned $2.09 per share, beating analysts' estimate of $1.89.

It forecast earnings of $3.80-$3.90 per share for the year ending January 2017. Analysts were expecting $3.83.

Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Savio D'Souza

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