Macy’s reported net sales in their first quarter that were $5.0 billion, a 7% decline over last years $5.3 Billion.

Macy’s reported net sales in their first quarter of 2023 that were $5.0 billion, a 7% decline over last years $5.3 Billion. Diluted earnings per share were $0.56 compared to last year’s $0.98 a drop of 45%. Blaming lack of consumer spending in March and April when they should have bought Spring fashions, management promised $200 million cost saving in the current fiscal year and $300 million in fiscal 2024.

Initially the stock dropped as investors saw all the red figures. However, when speaking to Larry Haverty, a distinguished former analyst with Putnam and Gabelli. sent me the following commentary:

“The former technical analyst at Morgan Stanley
MS
once noted that “There is no such thing as an intellectual bottom. Here is only an emotional bottom.” If that is the case than Macy’s may have made a classic emotional bottom when it reported a decent 1^st quarter but slashed its full year outlook.

50 years of watching retailers has taught me that the only thing you can really know is where you are now. Forecast are not terribly reliable. If one closes their eyes and forget that this was MACY’S (which everyone hates), one might see an appealing morsel, especially if one were a credit analyst.

1. Interest in the quarter was down 21% even though rates were higher.

2. Cash flow coverage of interest rates is over 10x

3. The current yield is over 4.8% with the dividend having been declared with the earnings release.

4. Trailing ENT VALUE/Trailing EBITD is under 3x. This indicated a cash return on MACY’s (if the cash flow stays put) of over 30%

With borrowing rates around 5%, there is a massive spread. ” We ‘re a predator to cut the dividend, the financing cost would be near zero. Predators will surely drool over it. It only seems to be a matter of time before one of them acts. Insider ownership is extremely low. Surely an asset like Bloomingdale’s would be attractive to LVMH. Similarly, Estee Lauder maybe attractive to Blue Mercury. Perhaps Target
TGT
may like to get back in the department store business that originally got it started as Dayton Hudson. Macy’s could be a great sum of the parts story.

I would be a buyer of the stock. (signed Larry Haverty)”

The transition from CEO Jeff Gennette to Tony Spring at the end of the fiscal year was also discussed in the analyst call. In addition, Adrian Mitchel’s CFO
CFO
, who has added COO to his title and who will sheppard supply lines and store operation as this added assignment. The management of the company is in good, competent, passionate hands. Management now expects net sales to be between $22.8 billion and $23.2 billion. Last year the company’s sales were $24.4 billion. Diluted earnings are expected to be $2,70 to 3.20 per adjusted diluted shares. In 2022 diluted shares were $2.45 per adjusted diluted shares.

Tony Spring spoke about his emphasis of the Macys Marketplace, developing more small stores, private brands, luxury brands and the many opportunities Macy’s, Bloomingdale’s and Blue Mercury have in the future.

POSTSCRIPT: The transition to a new management team is three quarters away, but Jeff Gennette is graciously making room for his successor. I reproduced Larry Haverty’s commentary on the company’s first quarter, since it highlights very positive thinking.