On Wednesday morning, Macy’s (M) reported its first quarter earnings results. Originally, the earnings date had been scheduled earlier, but due to the impact of the current pandemic the earnings release and management’s discussion had been pushed out to July 1.
Macy’s reported that its sales totaled $3.0 billion, which was, not surprisingly, down more than 45% year over year. Store closures during the period, coupled with weak consumer sentiment, impacted the department store’s sales massively during the quarter. Due to the same reasons, Macy’s also was not profitable during Q1. Instead, the company reported a net loss of $2.03 per share (non-GAAP), which was slightly better compared to what the analyst community had forecasted.
The focus was not so much on Macy’s first quarter results, however, as it was quite clear that those would be very weak. Macy’s management emphasized that the company was well-positioned for the current crisis, thanks to a large cash position of more than $1.5 billion that the company held at the end of Q1. This is more than twice as much as Macy’s regular, pre-crisis cash balance, and should help the company in weathering the current crisis. Net cash flow from operations was a negative $160 million during Q1, so Macy’s has enough cash to remain afloat for nine quarters at the cash burn rate from Q1. Since many of its stores have reopened following the end of its fiscal first quarter, and since consumer spending has picked up again, it seems reasonable to assume that Q2 and following will not be as bad as Q1.
Macy’s is thus looking like it should be able to weather the current pandemic, and liquidity should not be a near-term concern. On the other hand, the road back to profitability is not yet very clear, so Macy’s may not be a strong investment for now. Macy’s Q1 was bad, but that was not a surprise, and unlike peers such as J.C. Penney (JCP), Macy’s is not in any immediate danger right now thanks to a huge cash balance.
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