Macy's News (NYSE: M) - Sales & Stores Decline
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By The Greek - Economy & Markets:
Macy's news today was not so hot. The department store retailer posted lower monthly same-store sales, and at the same time announced it would be closing more stores, similar to an action taken last year. Still, our inspection of the company's solvency turns up solid footing... for now.
(Article interests: NYSE: JCP, NYSE: KSS, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)
Today Macy's (NYSE: M) announced another 11 stores would be closed this year. Macy's claims this is part of its yearly pruning, but as far as I can remember, this pruning is something unique to the last couple of tough years. A total of 960 jobs look to be shaved by this particular cost consolidation effort. In a separate release, Macy's announced its December same-store sales fell 4%, while total sales dipped 4.7%. The rate is likely to deteriorate in early '09, absent the guilt catalyst aid of holiday shopping. We've come to that view based on our inspection of the greater sales decline of 7.5% in the broader November through December period.
Macy's managed to reduce inventory levels by 7.5%, as compared to last December-end. The company, like others, hopes to operate with lighter inventory through these hard times. The problem here is a sort of reverse leverage effect, as fixed costs stick. Also, less than optimal sales pricing will compound upon those stable costs and eat into margin comparisons. Retailers are likely working on offsetting that by managing inventory costs through various means. An example of one might be supplanting top brands offered for sale with lower cost names.
Macy's also noted strong online sales, and we're guessing this is due to a nascent online initiative (thus easy comps) and effective web marketing effort. Needless to say, the store cut its earnings guidance substantially anyway, and stocks never react well to that. M fell 3.4% today.
Macy's attempted to appease concern by noting it has $1 billion in cash and an open bank line for another $2 billion. It fails, however, to mention that it is already steeply indebted. Its EBITDA-to-interest expense ratio seems to adequately cover for now though, at about 5.2X. We generated that ratio by rough estimate, extrapolating last quarter's interest expense through four quarters and applying the trailing 12 months' EBITDA (all from Yahoo Finance). We should note that the ratio wouldn't be much different if we used the trailing 12 months' interest expense as well, but that would not best reflect most recent debt levels and costs. Now, keep in mind that Macy's EBITDA going forward will very likely decrease while its interest expense might rise, but there's some leeway implied in the 5.2X figure. Analysts use this measure because if you can't pay your debts, you go bankrupt plain and simple. I don't see Macy's going bankrupt just yet, and it has better positioned itself for harder times.
Please see our disclosures at the Wall Street Greek website and author bio pages found there.
By The Greek - Economy & Markets:Macy's news today was not so hot. The department store retailer posted lower monthly same-store sales, and at the same time announced it would be closing more stores, similar to an action taken last year. Still, our inspection of the company's solvency turns up solid footing... for now.
(Article interests: NYSE: JCP, NYSE: KSS, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)
Today Macy's (NYSE: M) announced another 11 stores would be closed this year. Macy's claims this is part of its yearly pruning, but as far as I can remember, this pruning is something unique to the last couple of tough years. A total of 960 jobs look to be shaved by this particular cost consolidation effort. In a separate release, Macy's announced its December same-store sales fell 4%, while total sales dipped 4.7%. The rate is likely to deteriorate in early '09, absent the guilt catalyst aid of holiday shopping. We've come to that view based on our inspection of the greater sales decline of 7.5% in the broader November through December period.
Macy's managed to reduce inventory levels by 7.5%, as compared to last December-end. The company, like others, hopes to operate with lighter inventory through these hard times. The problem here is a sort of reverse leverage effect, as fixed costs stick. Also, less than optimal sales pricing will compound upon those stable costs and eat into margin comparisons. Retailers are likely working on offsetting that by managing inventory costs through various means. An example of one might be supplanting top brands offered for sale with lower cost names.
Macy's also noted strong online sales, and we're guessing this is due to a nascent online initiative (thus easy comps) and effective web marketing effort. Needless to say, the store cut its earnings guidance substantially anyway, and stocks never react well to that. M fell 3.4% today.
Macy's attempted to appease concern by noting it has $1 billion in cash and an open bank line for another $2 billion. It fails, however, to mention that it is already steeply indebted. Its EBITDA-to-interest expense ratio seems to adequately cover for now though, at about 5.2X. We generated that ratio by rough estimate, extrapolating last quarter's interest expense through four quarters and applying the trailing 12 months' EBITDA (all from Yahoo Finance). We should note that the ratio wouldn't be much different if we used the trailing 12 months' interest expense as well, but that would not best reflect most recent debt levels and costs. Now, keep in mind that Macy's EBITDA going forward will very likely decrease while its interest expense might rise, but there's some leeway implied in the 5.2X figure. Analysts use this measure because if you can't pay your debts, you go bankrupt plain and simple. I don't see Macy's going bankrupt just yet, and it has better positioned itself for harder times.
Please see our disclosures at the Wall Street Greek website and author bio pages found there.
Labels: Retail Industry, stock news
posted by The Greek | 7:40 PM
2 Comments:
I like Macy's. I hope the stores near my home and work aren't closing. Also, don't discount the bad weather over much of the country the past month and a half for the improved internet numbers. This keeps folks indoors to do their shopping in places like Seattle, Chicago, and Detroit, where the weather has been abnormally worse than usual. Remember, we had super-rare snow accumulation in Vegas and New Orleans this year during the peak of shopping season.
I work for Macy's and they eliminated my position after working for them for 10...almost 11years. I guess there struggleling bussines wise.
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