Macy's cutting 7,000 jobs
Department store chain said the job action affects 4% of the company's total workforce.
NEW YORK (CNNMoney.com) -- Macy's Inc. said Monday that it's cutting 7,000 jobs - including 5,100 in its stores - and centralizing some of its corporate operations in an effort to reduce costs amid an increasingly difficult retail environment.
The company also projected earnings for the fiscal year just beginning that are well below analysts' estimates.
Macy's shares fell 3% in late trading.
"Reducing our workforce is an unfortunate outcome of the current economic environment, and I am frustrated that so many of our people will be unable to move forward with us as we proceed into a very exciting future for Macy's and Bloomingdale's," Macy's CEO Terry Lundgren said in a statement.
The retailer estimates the restructuring efforts will reduce previously planned expenses by about $400 million a year beginning in 2010.
Macy's (M, Fortune 500) said the job cuts include nearly 40% of executive positions in its central offices including 1,400 jobs in San Francisco, about 850 jobs positions in Atlanta and about 600 jobs in Miami.
Employees whose positions are eliminated will be able to seek other jobs within the company, the retailer said, while those that are laid off will be given severance benefits.
Stevan Buxbaum, analyst with consulting firm Buxbaum Group, said he's not surprised by Macy's announcement.
"Ten years ago, everyone was talking about department stores becoming the dinosaurs of retailing," Buxbaum said. "Reality is department stores are dinosaurs. You have to ask yourself how long can this model work as a viable business?"
Macy's Inc., which operates 840 department stores including its namesake Macy's stores and the higher-end Bloomingdale's chain, currently employs 180,000 people.
The company does not plan to close any additional Macy's or Bloomingdale's locations other than 11 Macy's stores whose shutdown was previously announced.
The retailer said it will freeze merit salary increases for executives across the company and reduce the level of its match to employee 401(k) plan contributions in 2009. Macy's also said it will cut its quarterly dividend 62%, to 5 cents a share.
In addition, Macy's management said it is recommending to its board a reduction in perquisites for executives, including merchandise discounts, company cars, company-paid life insurance and financial counseling.
Regarding its new "centralized" structure, Lundgren said Macy's Inc. will now have central offices overseeing buying, merchandise planning, marketing and stores operations.
It will also unify operations for logistics, information technology and human resources.
"In the current challenging economy, we must operate in a responsible manner that allows us to maximize the value we offer to our customers and enhance our profitability," Lundgren said.
Lundgren will also head a new executive team which will now include a chief private brand officer, chief administrative officer and a chief stores officer.
Macy's announced a cash tender offer to buy all of its outstanding $950 million in debt that is maturing in 2009. The retailer said it will use the cash to buy back debt.
Buxbaum said Macy's second restructuring in two years is indicative of "the long process of the unwinding of the department store empire.
"The new retail model is direct retailing. It's stores like Abercrombie & Fitch and Aeropostale," he said. "These retailers control all of their merchandise, sell their brands directly to the consumer, cut out the middlemen and have higher margins."
Looking at the rest of the year, the department store operator expects to see "a very challenging environment" through 2009. As such, the retailer forecast same-store sales, or sales at its stores open at least a year, to fall between 6% to 8% for the year.
The company said it further reduced its 2009 capital expenditures budget to about $450 million from the previously announced estimate of between $550 million to $600 million.
For its new fiscal year, Macy's expects to earn between 40 to 55 cents a share, excluding one-time items. However, the retailer said its sales and earnings "could exceed" those forecasts "should the economic environment improve."