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Macy’s to shutter another 15% of stores, will ramp up e-commerce as comp sales woes continue into Q2

The first cut isn’t always the deepest as Macy’s proved Thursday. The US department store giant’s latest attempt at a turnaround will see more than 100 stores close with significant job losses yet to be numbered.

These are in addition to the 40 store closures announced earlier this year and represent about 15% of its store base and about 4% of its annual revenue, or around $1bn.

The market reacted positively to the news with Macy’s shares gaining 15% in early Thursday morning trade. However, the stock is still down 42% over the past 12 months.

The rise of e-commerce, generally declining footfall with fewer tourists to attract, poor weather and steep promotions , the latter leading some major retailers, including Coach and Michael Kors, to withdraw some of their business, all adds up to a department store sector in deep trouble.

“We operate in a fast-changing world,” said chief executive Terry Lundgren. “This involves doing things differently and making tough decisions.”

Lundgren said most of the closures would happen early next year and that the move would enable Macy’s to ramp up its digital business.

Jeff Gennette, president and the designated successor to Lundgren, said the store closures will shrink sales in the near term “but the changes being made will position us to grow comparable sales more quickly and generate a level of profitability that stands out among retailers,” he said.

For Q2, also announced Thursday, Macy’s recorded its sixth consecutive comp sales fall, down 2%. But that was an improvement on Q1’s 5.6% decline and better than the 4.7% dip analysts had expected. Total sales for the quarter fell 3.9% to $5.87bn.

Macy’s also reported a cost-hit profits of $11m/3 cents a share, down from $217m/65 cents a share, a year earlier. The cost of promotions bit heavily into into earnings and margins, Macy’s said.

Excluding impairments from store closures, among other items, per-share profit fell to 54 cents from 94 cents a year ago. Analysts predicted 45 cents in adjusted earnings.

But the retailer is standing by its full year outlook, forecasting a 3-4% slide in same-store sales with adjusted earnings of $3.15-$3.40, bracketing the $3.26 analysts’ estimate.