Macy’s Inc (NYSE:M) today reported diluted earnings per share of 5 cents in the third quarter of 2016 ended October 29, 2016. Excluding non-cash retirement plan settlement charges of $62 million, or 12 cents per diluted share (as described below), third quarter earnings per share were 17 cents. The company’s earnings for the third quarter of 2016 compare with 36 cents per diluted share in the third quarter of 2015, or 56 cents per diluted share excluding asset impairment and other charges of $111 million, or 20 cents per diluted share, primarily related to store closings.

The company also reaffirmed its previous earnings-per-share guidance and raised its sales guidance for full-year 2016.

(Editor’s Note: This morning, Macy’s, Inc. also issued a separate news release announcing a strategic alliance with Brookfield Asset Management as part of its strategy to create increased value from its real estate portfolio.)

Macy’s, Inc.’s diluted earnings per share for the first three quarters of 2016 were 46 cents ($1.11 per share excluding asset impairment and other charges primarily related to upcoming store closings and non-cash retirement plan settlement charges, as described below), compared with diluted earnings per share of $1.56 in the same period last year ($1.76 per diluted share excluding asset impairment and other charges of $111 million primarily related to store closings).

“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. Our third quarter top line results were better than the first half of the year and our sales-driving initiatives continue to gain traction.  Additionally, the strengthening trend across the apparel businesses, coupled with new initiatives like tech watches from Apple, Michael Kors and others, are good indicators for an improved performance in the fourth quarter,” said Terry J. Lundgren, Macy’s chairman and chief executive officer.

“Our customers tell us we are their holiday shopping destination, and we are excited about our gift assortments, marketing strategies and digital enhancements, all of which should set us up for a stronger finish to the year and position us well for an improved performance in 2017 and beyond.

“As we have said, a setback is a setup for a comeback and that is why we continue to look with confidence at the close of 2016 and our longer-term outlook. We are reallocating and prioritizing our spending to drive growth, improve the customer experience, increase our agility and deliver strong financial results. We also are making good progress on our strategies to create shareholder value through our real estate, while preserving our ability to operate as a top retailer with a healthy balance sheet.”
Sales

Sales in the third quarter of 2016 totaled $5.626 billion, a decrease of 4.2 percent, compared with sales of $5.874 billion in the same period last year. Comparable sales on an owned plus licensed basis were down by 2.7 percent in the third quarter. On an owned basis, third quarter comparable sales declined by 3.3 percent. The difference between the year-over-year change in total and comparable sales largely resulted from the closing of 41 underperforming Macy’s stores at the end of fiscal 2015.

For the year to date, Macy’s, Inc.’s sales totaled $17.263 billion, down 5.2 percent from total sales of $18.210 billion for the first three quarters of 2015. Comparable sales on an owned plus licensed basis were down by 3.5 percent year to date in 2016. On an owned basis, year to date comparable sales declined by 4.0 percent.

In the third quarter, the company opened a new Macy’s store in Kapolei, HI, a Macy’s Backstage store in San Antonio, TX, and seven Bluemercury freestanding specialty stores. Earlier this month, the company opened a Bloomingdale’s Outlet in Orange County, CA.

Operating Income

Macy’s, Inc.’s operating income totaled $107 million or 1.9 percent of sales for the quarter ended October 29, 2016. Excluding non-cash settlement charges related to the company’s retirement plans of $62 million, operating income for the third quarter was $169 million or 3.0 percent of sales. This compares with operating income of $258 million or 4.4 percent of sales for the same period last year or $369 million or 6.3 percent of sales excluding asset impairment and other charges of $111 million.

For the first three quarters of 2016, Macy’s, Inc.’s operating income totaled $500 million or 2.9 percent of sales. Excluding asset impairment and other charges of $249 million and non-cash settlement charges related to the company’s retirement plans of $81 million, operating income for the first three quarters of 2016 was $830 million, or 4.8 percent of sales. This compares with operating income of $1.103 billion, or 6.1 percent of sales, for the first three quarters of 2015 or $1.214 billion or 6.7 percent of sales excluding asset impairment and other charges of $111 million.
Cash Flow

Net cash provided by operating activities was $308 million in the first three quarters of 2016, compared with $278 million in the first three quarters of last year. Net cash used by investing activities in the first three quarters of 2016 was $491 million, compared with $861 million a year ago. Investing activities in the first three quarters of 2015 included the acquisition of Bluemercury. Net cash used by financing activities in the first three quarters of 2016 was $469 million, compared with $1.189 billion in the first three quarters of 2015.

In the third quarter of 2016, the company resumed its stock buyback program and repurchased approximately 3 million shares of its common stock for a total of approximately $108 million.  In the first nine months, the company repurchased approximately 6 million shares of its common stock for approximately $238 million. At October 29, 2016, the company had remaining authorization to repurchase up to approximately $1.8 billion of its common stock.

Real Estate Update

Macy’s, Inc. continues to make progress toward its goal of creating value from its real estate assets. The company announced today (see separate news release) that it has formed a strategic alliance with Brookfield Asset Management, to further explore value creation opportunities in its real estate portfolio.

Separately, Macy’s has signed a contract to sell its 248,000 square-foot Union Square Men’s building in San Francisco for $250 million, and will use part of the proceeds to consolidate the Men’s store into its main Union Square store. Macy’s will lease the Men’s store property for two to three years as it completes the reconfiguration of the main store. The company expects the transaction to close in January 2017 and expects to recognize a gain of approximately $235 million in January 2018. The company continues to explore options for its downtown Minneapolis, State Street (Chicago) and Herald Square (New York City) stores.

The company has also signed a contract to sell its downtown Portland, OR store for $54 million. The transaction is expected to close in the fourth quarter of 2016, at which time a gain of approximately $36 million will be recognized. The downtown Portland store will continue operations through the holiday season and will be closed in spring 2017.

The company announced last week the sale of five locations to General Growth Properties. In addition, as a result of lease terminations or expirations, the company will be closing Macy’s stores in Douglaston Mall, Douglaston, NY and Lancaster Mall, Salem, OR in early 2017.

Since the beginning of 2015, Macy’s has announced or completed asset sales with anticipated proceeds exceeding $800 million and we expect continued progress going forward.

Looking Ahead

The company remains confident in its previously provided full-year earnings per share guidance and expects full-year sales to be better than its prior guidance.

Macy’s, Inc. expects full-year 2016 comparable sales on an owned plus licensed basis to decrease in the range of 2.5 percent to 3.0 percent (compared with previous guidance of a decrease in the range of 3 percent to 4 percent), with comparable sales on an owned basis to be approximately 50 basis points lower. The company continues to expect diluted earnings per share (excluding asset impairment charges and retirement settlement charges) in fiscal 2016 to be in a range of $3.15 to $3.40.

Important Information Regarding Financial Measures

Please see the final pages of this news release for important information regarding the calculation of the company’s non-GAAP financial measures.

Macy’s, Inc., with corporate offices in Cincinnati and New York, is one of the nation’s premier retailers, with fiscal 2015 sales of $27.079 billion. The company operates about 880 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy’s, Bloomingdale’s, Bloomingdale’s Outlet, Macy’s Backstage and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com websites. Bloomingdale’s in Dubai is operated by Al Tayer Group LLC under a license agreement.

All statements in this press release that are not statements of historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of Macy’s management and are subject to significant risks and uncertainties. Actual results could differ materially from those expressed in or implied by the forward-looking statements contained in this release because of a variety of factors, including conditions to, or changes in the timing of, proposed real estate and other transactions, prevailing interest rates and non-recurring charges, store closings, competitive pressures from specialty stores, general merchandise stores, off-price and discount stores, manufacturers’ outlets, the Internet, mail-order catalogs and television shopping and general consumer spending levels, including the impact of the availability and level of consumer debt, the effect of weather and other factors identified in documents filed by the company with the Securities and Exchange Commission.

 (NOTE: Additional information on Macy’s, Inc., including past news releases, is available at www.macysinc.com/pressroom. A webcast of Macy’s, Inc.’s call with analysts and investors will be held today (November 10) at 10 a.m. (ET). Macy’s, Inc.’s webcast is accessible to the media and general public via the company’s website at www.macysinc.com. Analysts and investors may call in on 1-888-215-6825, passcode 6176641. A replay of the conference call can be accessed on the Web site or by calling 1-888-203-1112 (same passcode) about two hours after the conclusion of the call.

Macy’s, Inc. management will present at the Morgan Stanley Global Consumer & Retail Conference at 8 a.m. (ET) on Wednesday, November 16, 2016, in New York City. Media and investors may access the live webcast of the presentation at www.macysinc.com at that time.