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Macy’s Earnings Disappoint, But New Real Estate Plan Buoys Shares

Thursday, November 10, 2016 6:41
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Retail giant Macy’s Inc (NYSE:M) this morning posted disappointing earnings results, but announced a new alliance that it hopes will generate value from its real estate assets.

The Cincinnati-based company reported Q3 EPS of $0.17, which badly missed Wall Street’s estimate of $0.41. Revenues fell 4.2% from last year to $5.63 billion, matching analyst expectations.

Macy’s said that comparable sales on an owned plus licensed basis fell 2.7%, and fell 3.3% on an owned basis. The company closed 41 underperforming Macy’s stores at the end of fiscal 2015, so there was a smaller basis for comparison this time around.

“The trends we saw in the third quarter give us confidence that we can deliver our expectations for the fourth quarter and our guidance for fiscal 2016,” Macy’s commented.

Looking ahead, the company reiterated its full-year EPS forecast of $3.15-3.40, while analysts are looking for $3.35 per share for the year. Comparable sales on an owned plus licensed basis are now expected to call 2.5% to 3.0%, which is better than Macy’s prior outlook for a 3% to 4% decline.

The biggest news coming out of the report was a new strategic alliance with Brookfield Asset Management (NYSE:BAM) that will “create increased value in its real estate portfolio.” Details below:

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 (such as a Macy’s-controlled land parcel adjacent to a store) to the complete redevelopment of an existing store.

Macy’s shares were mostly flat in premarket trading Thursday. Prior to today’s report, M had gained 9.72% year-to-date.

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