Sluggish Holiday Sales May Be Grinch That Steals Macy's Dividend

We are in the thick of 2019 holiday shopping, with just over two weeks to go until Christmas. Across the spectrum of holiday shopping forecasts, consumers are expected to boost their spending 3% to 5%, depending on the forecast. So far, the two biggest revelations have been that digital shopping is continuing to take an even bigger bite out of overall holiday spending this year and Disney is reaping toy-related benefits associated with its runaway hit Frozen II. What particularly jumped out to me was store traffic for the 2019 Black Friday weekend that fell 4% compared to 2018, according to data from ShopperTrak. Add in comments from Movado and others for a holiday shopping season filled with heavy sales and discounts, something my own mall walks have confirmed, and it looks to once again be a painful season for department stores. Scratch that, more like a continued, painful time for department stores such as Macy's , JC Penney and others given that through the first 20 months of 2019 their retail sales have fallen 4.9%. Alarming still is the year-over-year decline has accelerated of late with greater drops in the August-October period. If you're thinking this looks like a pretty big headwind for department stores, I'm inclined to agree, but I'm also looking at the potential other shoe to drop. And by that, I mean potential dividend cuts or suspensions, which as we've seen in the past and more recently with CBL & Associated Properties . For those that missed it, last week CBL shared it was suspending all dividends and that revelation sent its shares falling. In terms of department stores, while JC Penney stopped paying a dividend in 2012, Macy's has been paying a quarterly dividend of 36 cents to 38 cents per share over the last four and half years. Given the concerns over the holiday shopping season and Monday's rating cut by Goldman Sachs to Sell from Neutral that hinges on a lack of value creation to be had from more real estate transactions, the recent fall in Macy's share price has popped the current dividend yield to nearly 10%. As I've often pointed out, while that is an enticing yield, more often than not it's really a warning flag. Even though Macy's will pay its next 38 cents-per-share dividend Jan. 2, the question is whether it can continue to fork over a dividend of that size. While we tend to think of it as 38-cents-per-share four times a year, the aggregate amount to be paid equates to roughly $470 million. In the company's most recent earnings report for the three months ending Nov. 2, it had $301 million in cash on its balance, down dramatically from $1.16 billion exiting January. The hope is Macy's would generate meaningful operating cash flow this holiday season to re-arm its cash position, but based on the holiday shopping data thus far, that degree of hope is questionable. Later this week, we'll get the November Retail Sales report and as much as investors will be looking to see how big digital shopping sales were during the month, I'll be looking to see how hard-hit department stores were. If the trend of accelerating year-over-year declines continues, we could very well see Macy's management looking to preserve cash, a move that might lead to a dividend cut. Monday's resignation of Hal Lawton, president of the Macy's brand business, doesn't do much to soothe that concern. Nor did CFO Paula Price's earnings conference call comment that, We remain committed to paying an appropriate cash dividend to our investors. Appropriate can mean different things to different people, especially those whose business models are challenged and bleeding cash. (DIS is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells it? Learn more now.)

Sluggish Holiday Sales May Be Grinch That Steals Macy's Dividend

The question is whether M can continue to fork over a dividend of its current size.

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