Top department-store chain Macy's (NYSE:M) has been struggling to attract customers to its stores for the past two years. This has undermined its earnings power. In fiscal 2017, Macy's expects to post adjusted earnings per share (EPS) of $2.90-$3.15, down from a peak of $4.40 in 2014.

Investors have dumped Macy's stock as its earnings power has eroded. Yet the actual business of running department stores is becoming less and less important for Macy's. Real estate sales and credit card income now account for the majority of the company's earnings.

The growing importance of non-department-store business lines can also be seen at Kohl's (NYSE:KSS) and Nordstrom (NYSE:JWN). However, Macy's is unique in that its "core" business represents such a small portion of its value.

Credit card income gains prominence

Credit card earnings have been a major contributor to the bottom line at Macy's bottom for many years. The company offers a variety of store-branded and co-branded credit cards through a long-standing partnership with Citigroup. Macy's gets a chunk of the profit generated by this credit card portfolio.

A Macy's store exterior

Macy's will earn about $750 million from its credit cards this year. Image source: Macy's.

With the retail business under pressure, credit card income is becoming increasingly important to Macy's. Management projects that credit card income will total $740 million-$760 million in fiscal 2017.

For comparison, the company's EPS guidance implies that total adjusted operating income will be a little less than $1.8 billion this year. Thus, credit card income now represents more than 40% of Macy's profit.

Nordstrom also has a lucrative credit card business. However, it peaked in fiscal 2014 with operating income of $184 million. Nordstrom sold off its credit card portfolio in 2015, reaping a big one-time windfall but reducing its future credit income. As a result, the company expects credit income of about $135 million in fiscal 2017, which will be dwarfed by its retail operating income of $780 million-$840 million.

Asset sales take off

If there is a silver lining to Macy's weak sales trends, it's that management has finally started to focus on maximizing the value of the company's massive real estate portfolio. During fiscal 2016, Macy's brought in cash proceeds of $673 million from asset sales, highlighted by a $250 million deal to sell its men's store in downtown San Francisco.

The asset divestiture process is continuing in 2017. In total, the company expects to book asset-sale gains of $180 million-$200 million this year, excluding the aforementioned San Francisco store. $100 million will come from the ongoing redevelopment of the Brooklyn Macy's store. The other $80 million-$100 million is expected to come from other deals. These asset-sale gains account for about 10%-11% of Macy's projected 2017 operating income.

Macy's first official real estate announcement of the fiscal year came on Wednesday. At that time, Macy's said it had completed the sale of its Minneapolis flagship store for $59 million. It will record a gain of $47 million in this year's first quarter related to this asset sale.

Real estate publications have revealed other significant deals. A month ago, Macy's sold its store at Westside Pavilion in Los Angeles to a local real estate firm for about $50 million. Macy's hasn't announced any plans to close that location, but with a new store opening less than two miles away this spring, the Westside Pavilion store may soon become superfluous.

Even more recently, Macy's sold the ground lease for several acres of property surrounding its store in Pasadena, California. This deal brought in about $15 million, and it won't impact the operations of Macy's highly profitable Pasadena store. Other deals are in the works, too, such as the sale of three stores to mall operator Pennsylvania Real Estate Investment Trust.

Indeed, just a month into the new fiscal year, Macy's may already be closing in on its full-year target for asset-sale gains, suggesting that its guidance may have been conservative.

New thinking about real estate

In addition to selling off underutilized real estate, Macy's is also looking at opportunities to lease out or redevelop space that it doesn't need. First, Macy's wants to rent out about 10,000 square feet of prime space in its San Francisco Union Square flagship store to high-end brands. This could bring in millions of dollars of annual rental income.

The Macy's Union Square flagship store in San Francisco

Macy's plans to rent out first-floor space in its San Francisco flagship store. Image source: Macy's.

Second, on Macy's Q4 earnings call, CFO Karen Hoguet emphasized the opportunities to redevelop up to 50 properties as part of a partnership with Brookfield Asset Management announced last year. In other words, Macy's isn't just going for quick payouts -- it wants to capture more of the value of its real estate by participating in the development process.

Kohl's appears to be moving in a similar direction. During the most recent earnings call, management stated that the company may downsize hundreds of locations from 85,000 square feet to 55,000 square feet, or even 35,000 square feet. It wants to bring in other retailers to fill the excess space it carves out.

These real estate initiatives at Kohl's and Macy's are both exciting. However, Macy's has far more valuable real estate than Kohl's, giving it much-bigger opportunities in this arena.

Look below the surface

In 2017, credit card income and asset-sale gains will drive more than half of Macy's operating income and earnings per share. This could continue in future years, as Macy's hasn't even begun to monetize its extremely valuable Manhattan and Chicago flagship stores.

This doesn't mean Macy's should ignore its department-store operations. If nothing else, it needs to keep sales roughly stable to ensure that people continue using their Macy's credit cards. But virtually all of the company's value comes from real estate and its credit card income stream. Right now, investors still haven't fully comprehended the value of those pieces of the Macy's story.

Adam Levine-Weinberg owns shares of Macy's and Nordstrom. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.