What was that? It was Macy's ( M) . Usually when covering a firm's quarterly financial results, I lead off with the numbers. That said, the information around the numbers just blew my mind this time, so I'm going to do this one differently.
What shocked me came in the press release, just below the forward guidance: "The company is evaluating the details of these tariffs and is actively working with its vendors and suppliers in China to help mitigate potential impact."
Yes, I know that the Trump administration just delayed more than half of the next tranche of tariffs to be levied on Chinese imports to protect U.S. consumers.
But what is this?
Remember the piece I wrote on Funko Inc. ( FNKO) last week? Remember the part where the firm explains that they are well into moving supply lines out of China, and already do most of that work in Vietnam? That's called reading the market, and preparing to best handle risk.
The time to evaluate ways to mitigate trade-related risk was months, no make that over a year ago -- especially when running a business already under intense pressure due to changing U.S. consumer behavior.
The Census Bureau will report July Retail Sales on Wednesday morning. Remember the June report? Department store sales were down 1.1% month-over-month, and down 5.2% year-over-year.
This is in addition to the roughly 20% decline from 2017 to 2018. Why? Not just consumers shopping from home, but that competition also comes from the brands they sell who now market directly to the already mentioned consumer.
What does it take to plan ahead? That's not lousy enough? Now, instead of spending the rest of this piece discussing how the firm is transitioning the business, we will instead be focused upon missed earnings, lowered guidance, mismanaged inventories, and the sustainability of the now gargantuan dividend yield. Nice job, slick.
Misses and More
For the firm's second fiscal quarter, Macy's ( M) reported earnings per share of 28 cents, missing by a mile. Revenue hit the tape at $5.55 billion, down -0.4% year-over-year, and in line with expectations.
Same store (including the website) grew 0.3% vs. an expected 0.4% rise. The firm did not blame the weather for the poor performance. CEO Jeff Gennette did, however, blame a fashion miss in the firm's key women's sportswear private brands, a slow sell-through of warm weather apparel, and a decline in international tourism for what were challenging inventory conditions that forced Macy's to take markdowns on spring merchandise to clear the way for the fall season.
Macy's thinks that they have inventory now at correct levels in order to meet anticipated customer demand. I imagine that they often feel this way.
The firm lowered guidance for full-year earnings per share to $2.85-$3.05 from $3.05-$3.25. Industry consensus had been at $3.07.
To make matters even less certain, the firm also allows that the guidance does not reflect any impact from a next tranche of tariffs on goods imported from China. The firm did, however warn back in May that additional tariffs would impact several business lines. Macy's also guides net to be approximately flat from last year, while gross margin sank to 38.8% from 40.4%. Long-term debt plus long-term lease liabilities add up to $7.516 billion. That is down, but so is cash on hand ... to $674 million. Goodwill remains steady at $3.908 billion.
Not judging, but that's a lot of goodwill.
Net cash provided from operating activities printed at $340 million, down from $544 million for the same period one year ago.
The Chart: It's Not Pretty
As one can plainly see, the shares are not just trading 15% lower on Wednesday, they are trading 23.9% below their own 50-day simple moving average. There may be trade here, but only speculative and only short-term.
There is still that annual dividend (paid quarterly) of $1.51 to contend with. If they still pay it, that's a 9.3% yield. They would do better to pay down debt with that money. The again, if they do that, the market will take yet another pond of flesh. I will not invest in Macy's at this point. Your decision should you go there is yours and yours alone. There are better companies to throw money at, even in retail.
