Retailers have really been struggling, yet this past quarter has shown that there appears to be a bit of a recovery in progress. A look at the consumer confidence index shows it is at its highest level since 2000. And Americans are continuing to draw down credit. That means there is both money and demand out there. That, plus some intriguing ideas by a new CEO may mean that Macy’s Inc (NYSE:M) is on the comeback trail.
Macy’s fourth-quarter sales came to $8.67 billion, an increase of 18%, compared to sales of $8.52 billion last year. Macy’s stock comparable stores sales were up 1.4%. For the year, M stock sales were $24.84 billion, down 3.7% from sales of $25.78 billion. Comparable sales fell 1.9% in fiscal 2017.
So the bad news is that Macy stock comps fell during the year. However, I like this turnaround to positive comps in the quarter. After almost three years of struggling on sales, this is optimistic. We’ll see if Macy’s can keep it up.
Macy stock operating income for the quarter came in at $1.03 billion, compared to only $942 million last year, backing out real estate sales, impairments and settlement charges. Mind you, this year had 14 weeks instead of 13 weeks.
Macy’s Stock Shows Promising News
So that’s all pretty good news. When we trudge down to the cash flow statements, we find some pretty good news as well. Net cash provided by operating activities was $1.94 billion for the year, compared to $1.8 billion.
One of the difficult issues with Macy’s has been its debt, which stood at $6.56 billion. The company very wisely plowed $950 million into paying down that debt, to $5.86 billion. That’s a great way to increase cash flow — by not spending it on interest.
Macy’s is way ahead of the curve here, as far as disposing of assets to raise cash, compared to its peers, and then paying down debt with that cash. Macy’s stock benefited from $411 million in asset sales this year alone. That brings its total to $1.3 billion over the past three years.
Macy’s also said it “continues to opportunistically evaluate its real estate portfolio to identify opportunities where the redevelopment value of its real estate exceeds that of non-strategic operating locations. The company also continues to focus on creating additional value from its flagship stores while adding vitality to the retail experience.”
Translation: we better sell now before we get into deeper trouble and get fire sale prices for our good real estate. There’s a huge space in Union Square in San Francisco that it is looking to possibly sell that could fetch a huge price. Macy’s sees $300 to $325 million of sales this year.
Streamlined Approach for Macy’s Stock
The CEO is taking a pro-active approach to rejiggering how business is done. So far, it looks like it is having an effect. Macy’s seems to be focusing on fashion and simplifying how it prices products. It launched a loyalty program as well. Mobile/online sales were geared to encourage customers to order online and pick up in the store.
It’s a little early to say things are roaring ahead, but so far, Macy’s appears to be on a new track.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
