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Macy’s Stock up on Strong Holiday Season Sales; Company Plans to Lay Off 2,500 Employees

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By: Nancy Kross
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The stock price of Macy’s Inc. (M) surged 5% in after-hours trading as the company announced a jump in same store sales during the holiday season of 4.3%, which includes revenues generated from licensed stores. The company also provided upbeat guidance for 2014.

“Even in a questionable macroeconomic environment with challenging weather in multiple states, the positive response from our customers during the holiday season is yet another vote of confidence that our well-established strategies continue to work for us,” said Terry J. Lundgren, Chief Executive Officer of Macy’s, while announcing results that were better than its competitors’ for November and December. Recently released estimates by ShopperTrak forecast retail store sales rose just 2.7% during this holiday season, marking the slowest gain since 2009.

The Cincinnati-based department store maintained its earnings guidance for 2013 in the range of $3.8-$3.9. Same store sales (SSS) in the fourth quarter are expected to rise from 2.3% to 2.5%. The company has narrowed its second half sales guidance range to 2.8-2.9%, which was previously projected to be in the range of 2.5-4%.

The management predicts earnings to be in the range of $4.4-$4.5 for 2014, while analysts estimate earnings of $3.87 per share, according to Reuters. The company also expects comparable store sales to grow between 2.5% and 3%.

In a restructuring program, the nation’s premier retailer plans to consolidate districts and shut five underperforming stores in spring, to save about $100 million annually.

The restructuring will also result in 2,500 job cuts, about 1.4% of the company’s total US workforce. According to the management, the layoffs will include the elimination of district planners from its Home and Miscellaneous category, since the demand for products in this category is stable and doesn’t require much planning.

Nonetheless, the company still expects to maintain the bulk of its 175,000 employees because it will soon be opening new stores as well as investing in its online business. There is a possibility that workers will be reassigned or transferred and some job openings will remain unfulfilled. Macy’s intends to open five new stores under its namesake brand, and add three new stores under its upscale Bloomingdale’s banner.

The decision to restructure comes in-line with Macy’s growth strategy, known as M.O.M, which aims to to consolidate its online and in-store business, customize its merchandize planning according to the needs of the local market, and better train its employees.

“We have identified some specific areas where we can improve our efficiency without compromising our effectiveness in serving the evolving needs of our customers,” says Lundgren. The company expects to incur charges of $120-135 million this quarter in relation to its restructuring program.

Macy’s stock is currently trading at $54.6, representing an upside of 37% over the last 12 months.

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