Gimbels is long gone. J.C. Penney (OTCMKTS:JCPNQ) is bankrupt. Can Macy’s (NYSE:M) survive? It should, but it needs a little Christmas right now. In fact, M stock needs a lot of Christmas.
For the first two quarters of its current fiscal year, Macy’s did close to $7 billion in business. That’s barely half its usual take. It delivers “earnings” for its third quarter on Nov. 19, with $3.84 billion of revenue expected.
But really, the company can’t talk about earnings. There aren’t any. Even before the novel coronavirus pandemic, the numbers had been going down. Earnings were $1.5 billion in fiscal 2018, $1.1 billion in fiscal 2019, and just $564 million so far in 2020.
But if it could earn some money and achieve stability, M stock would be a tremendous bargain here.
M Stock Today
Macy’s isn’t really Macy’s. It’s not the New York-based chain of department stores it was in the last century. Macy’s today is what is left of the old Federated Department Stores of Cincinnati. Federated bought regional chains, like Rich’s in Atlanta and Foley’s in Houston, during its heyday in the 1970s and 1980s. Federated got Macy’s itself in 1994, gradually rebranding the regional stores to either Macy’s or Bloomingdale’s.
Before the pandemic, Macy’s was one of the world’s largest fashion goods retailers, with revenue topping $25 billion. Yet on Nov. 10, Macy’s stock opened at $7.68 per share. That’s a market capitalization of just $2.4 billion, less than one-tenth of those sales. Most retailers sell at about half sales.
But, there is the pandemic. Most Macy’s stores anchor shopping malls. Many shopping malls have died, while others are on life support. Macy’s doesn’t sell food, unless you consider high-end chocolate and packaged ground coffee to be food. The stores shut when the pandemic hit and have only gradually reopened. Even those that have more fully reopened aren’t doing much business. Macy’s lost $11.53 per share during the first quarter of the pandemic and another $1.38 in the second quarter. It’s expected to lose another 81 cents per share this quarter.
What’s Next for M Stock?
Macy’s isn’t all dead. It’s just mostly dead. That’s why the shares rose more than 20% on Nov. 9. They had been at around $6.50.
At the end of July, Macy’s had long-term debts of $8.1 billion, with $3.2 billion of that being capitalized leases. It listed assets of $17.6 billion, with $5.6 billion of that being current assets like inventory, and $1.4 billion of cash after it drew down its revolving credit line.
The company had finally laid out a plan for its iconic New York store last year, an 800-foot office tower on top of the flagship store. Meanwhile, it was closing 125 of its mall stores and laying off thousands of workers. Before the pandemic, it also had a supply-chain overhaul and merchandising plan in place. The executive behind that plan, Paula Price, left in May.
Macy’s will still air its iconic parade on Thanksgiving. It’s still going to do Black Friday. But there will be no Santas because of the virus.
The Bottom Line
Macy’s hired Adrian Mitchell, a consultant whose resume includes stints at privately held Arhaus, Crate and Barrel and Target (NYSE:TGT), as its chief financial officer in October.
Mitchell will be hoping to get through the holiday season and conserve assets, then launch a new strategy. Right now, Macy’s stores are doing curbside pickup as well as DoorDash delivery. The company also invested in Klarna, a Swedish fintech that enables installment purchases through an app.
If Macy’s can get to Christmas of 2021, those who buy the stock today will likely see spectacular gains. But you’ll be taking a risk of bankruptcy, so if you’re betting on a Christmas miracle, don’t use any money you can’t afford to lose.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
