Macy’s Q1 Was Bad, But The Company Has The Cash To Survive The Current Pandemic
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.
Hope we see more by you.
Interesting that you would hold retail stores in such high regard during this time. I would think tech companies like Amazon would be the more obvious choice during the pandemic.
That's true, but everyone is going to be having the same thought. You need to find the stocks that will be overlooked.
Sadly, too many companies do NOT have the money to survive the pandemic.
I agree, some already went bankrupt and more will sadly follow.
Welcome Jonathan. Nice to see you here. So while I agree that Macy's is in good shape, or at least 'decent enough' shape to survive COVID-19, how likely do you think the company will be to do actually increase sales and do well?
Thank you Susan! I think it is quite hard to forecast what sales could look like in 2021, it also depends on their strategy re shutting down underperforming stores, and what their e-commerce business will look like
I agree. I feel there is so much uncertainty right now with the pandemic and with no end in site. And even when/if things settle down, how long it will be before sales recover to pre-COVID-19 levels.
Thanks Jonathan, what other stocks have your eye?
Glad you liked it Sheryl! Right now I think a range of REITs and healthcare stocks are attractive from a risk-reward standpoint, including $ABBV, $BMY, $O, $SLG, $SPG, etc.
I'm bullish on $M. I had almost written them off years ago, when I started clearing out my portfolio of all retail stores. But while countless companies like Sears showed they couldn't change with the changing times, I've been impressed at how Macy's has still managed to hold its own when so many others have failed. If any company can weather the storm and come out the other side stronger, it's #Macys.
Thanks for your comment Andrew! I agree that their approach has been better than that of JCP, Sears, etc. although it is not yet known whether they will be able to ultimately turn around the business and be successful with their omnichannel approach
What did #Macy's do right that #Sears and so many other stores did wrong?
Less indebted, better locations, more valuable owned real estate, shrinking in time, etc are factors that likely have played a role
I still think retail is not the place to be. Not before the pandemic and CERTAINLY not now. It will take a long time to recover and more people than ever will be turning to online stores as the solution, including some who have never shopped online before. The future belongs to the Amazons of the world, not the Macys and Sears.
We can agree to disagree.
So do you and Jonathan Weber think that Macy's is actually worth holding on to? It would takes more than weathering the storm to get me to want to own $M. Do you both expect Macy's to do well after the pandemic? I don't see how it would be possible to do better than it did before.
Hi Carol, I don't think Macy's is a buy right here, at least for me it is a little risky still. But they are in a position to weather the current crisis, even though it is not yet clear how they will eventually perform versus online competitors such as AMZN
Trust me, once the fear of COVID-19 is gone, there will be a boon in retails store sales. People will have a visceral need to get out and actually experience things like shopping first hand.
While I agree with you for the most part, there will always be a need for retail stores, which by the way, have online sales as well. And some online only stores like #Amazon, have begun to open retail locations. So when it comes to #Macys, yes, we can agree to disagree. By the way, I'm not just bullish on $M but on $AMZN as well.