August 12, 2015 / 12:44 PM / 2 years ago

UPDATE 4-Macy's cuts full-year sales forecast, forms China venture

* Q2 sales down 2.6 pct, fourth drop in 6 quarters

* Same-store sales take surprise 1.5 pct fall

* Macy's expects $50 mln in sales from China in 2016 (Adds comments from CEO, analyst; updates shares)

By Sruthi Ramakrishnan and Nandita Bose

Aug 12 (Reuters) - Macy's Inc lowered its full-year sales forecast and said it formed an ecommerce joint venture in China to sell products on Alibaba Group Holdings Ltd's Tmall marketplace as the department store operator looks to grow beyond the sluggish U.S. market.

The company's shares closed down 5 percent at $64.11 on Wednesday after it also reported weaker-than-expected quarterly results, hurt by heavy discounts and a strong dollar that curbed spending by foreign tourists.

Macy's said it now expected fiscal-year sales to fall about 1 percent, with sales at stores open at least a year, including licensed departments, remaining flat.

The joint venture between Macy's and Hong Kong-based Fung Retailing, in the works for over a year, would invest $25 million in the next 18 months.

"We both, the Fung family and Macy's, believe that betting on China as the future of consumer is a very good idea," Macy's Chief Executive Terry Lundgren told Reuters.

Macy's will own 65 percent of the venture and expects sales of about $50 million from China in 2016.

The online store on Tmall would offer a limited assortment of goods to begin with, Lundgren said, and would include Macy's private brands and some other luxury brands.

The Macy's deal comes as a win for Alibaba, which has been facing growing competition from rival JD.com Inc to win deals with owners of popular U.S. brands in China.

"Alibaba has gotten a lot more press in the United States than JD...They are much more known to the American investors as well as the consumers here," Lundgren said, adding that JD.com did not approach it.

Macy's will not be materially impacted by the devaluation of the yuan, Lundgren said.

Research firm Retail Metrics' president, Ken Perkins, said the joint venture was a move in the right direction. "Growth in the U.S. has been very slow, sluggish at best. They are looking at any avenue of growth that they can possibly get," he said.

Macy's is also selling part of its nine-storey Fulton Street store in Brooklyn to real estate company Tishman Speyer for $170 million. It will own and operate four floors.

Pressured by investor Starboard Value to consider spinning off its real estate, Macy's said it had hired advisers to study the portfolio.

Same-store sales fell 1.5 percent in the second quarter ended Aug. 1.

Net income fell 26 percent to $217 million, or 64 cents per share, while net sales fell 2.6 percent to $6.10 billion. (Reporting by Sruthi Ramakrishnana in Bengaluru and Nandita Bose in Chicago, Editing by Kirti Pandey and Lisa Von Ahn)

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