Macy’s Inc. announced Monday that it will eliminate 7,000 jobs, almost 4 percent of its work force, and cut capital spending, reduce its contributions to its employees’ retirement funds and slash its dividend to preserve cash amid a severe pullback in consumer spending.
The Cincinnati-based department store chain also announced the national rollout of a plan to localize merchandising to specific markets, which it began in some regions last year.
The company, which also delivered downbeat earnings and sales forecasts for the year on Monday, said it plans to integrate all its geographic divisions into a single unit.
Macy’s shares fell 4 percent Monday to close at $8.59.
Macy’s said the job cuts, which include some unfilled positions and 1,900 being eliminated in the restructuring, will come at corporate offices, stores and other locations. The company employs about 180,000 people.
Macy’s announced last month — on the heels of the worst holiday shopping season in decades — that it would close 11 stores, affecting 960 employees. The company expects the additional actions announced Monday to lower its annual selling, general and administrative expenses about $400 million per year starting in 2010.
The company also slashed its quarterly dividend to 5 cents from 13.25 cents. The dividend will be paid on April 1 to shareholders of record March 13.
“We just believe that this is a time when nothing should be considered a sacred cow,” Macy’s Chief Executive Terry J. Lundgren said in a conference call with analysts on Monday after the announcement.
The news from Macy’s came as the government released yet another batch of bad news on consumers’ financial health: Consumer spending fell for a record sixth straight month in December as financially strapped households, worried about rising layoffs, increased their savings rates to the highest level since May, federal officials said Monday.
Department stores have been especially hard-hit by the poor economy as shoppers cut spending and turn to discount stores. Last month, Fresno, Calif.-based department store chain Gottschalks Inc. put itself up for sale and said it had filed to reorganize in a Chapter 11 bankruptcy. Dallas-based Neiman Marcus Group Inc. said this month that it was cutting about 375 jobs, or 3 percent of its work force.
Macy’s began testing the localization strategy in 20 regional markets last spring and expects the reorganization to be complete beginning in the second quarter this year.
Lundgren said the strategy has worked well so far, pointing to the fact that 13 of Macy’s 15 top-performing geographic markets in December were part of the pilot program.
The idea is to concentrate Macy’s top talent in local markets and better stay on top of trends by grouping Macy’s stores nationwide into 69 geographic districts of 10 to 12 stores each. Twenty of the districts — in the Midwest, Upper Midwest and Pacific Northwest — were created as pilots in spring 2008 and will remain in place.
In a phone interview with The Associated Press on Monday, CEO Lundgren acknowledged that he would have preferred to take more time with the national rollout. But, given the weak economy, he said, “You have to take action now.”
Lundgren said he is looking at the company as a “clean slate” and is “starting from scratch” as he spearheads the overhaul. He also said he hopes Macy’s will improve on inventory turns as a result of the restructuring.
He declined to comment on how much inventory will be down this year but said that, given the localization effort, the merchandising team will be better able to eliminate duplications in a given merchandise category in a given market.
Also as part of the restructuring, Macy’s central buying, planning and senior management and marketing functions will be located primarily in New York.
Corporate-related businesses functions such as finance, human resources, legal, property development and company purchases will be located primarily in Cincinnati.
The localization began last year as the company struggled with disappointing sales in some markets where the Macy’s name replaced a local favorite as the company absorbed May Department Stores Co. in 2005.
Also to reduce expenses, Macy’s is eliminating merit salary increases for executives in spring 2009 for performance in 2008, and it will cut its contributions to employees’ retirement accounts this year.
Assuming the economy will remain challenging for the year, the company is reducing this year’s capital budget to $450 million, or $100 million to $150 million less than the $550 million to $600 million previously announced and well below the original $1 billion budgeted.
Macy’s moves received kudos from Wall Street analysts.
“The environment is giving (Macy’s) the opportunity to streamline its infrastructure,” wrote Liz Dunn, an analyst at Thomas Weisel Partners LLC in a note released Monday. “We believe that (Macy’s) regional buying strategy has been an impediment to profitability.”
But Moody’s Investors Service said on Monday it was placing the company’s ratings on review for possible downgrade into junk bond territory amid the retailer’s downbeat earnings outlook.
“Given the company’s high debt load, we believe that this earnings level makes it unlikely that the company will be able to maintain credit metrics appropriate for an investment grade company,” Moody’s said.
Macy’s said it expects to earn between 40 cents and 55 cents, excluding one-time costs, for the year that ends next January.
Analysts surveyed by Thomson Reuters project earnings of 87 cents per share.
The company predicts its same-stores sales or sales at stores opened at least a year will fall between 6 percent and 8 percent in the year that ends in January 2010. Same-store sales are considered a key indicator of a retailer’s health.
The company reports its fourth-quarter earnings results on Feb. 24.