Reports Q2 2020 earnings before the bell on Wednesday, September 2
Consensus Earnings Per Share: – $ 1.8
Expected Revenue: $ 3.46 billion
When Macy & # 39; s (NYSE 🙂 reports its second quarter earnings tomorrow, the department store chain must demonstrate a plan to avoid bankruptcy in an environment where consumers are avoiding store visits and sales are down as a result of the pandemic.
That will not be an easy task for the 162-year-old New York City-based retail giant. Even before COVID-19 forced the closing of shopping centers during the first quarter, Macy & # 39; s struggled to change its business.
In that quarter 45%, which led the company to lay off about 3,900 employees or 3% of the workforce in an effort to cut costs. While sales are starting to recover in the second quarter, the road to full recovery is still daunting as consumers are unlikely to feel comfortable visiting brick-and-mortar stores as long as the pandemic continues.
Liquidity Backed by Real Estate
As sales prospects remain uncertain, Macy & # 39; s had little choice but to seek funding to survive this downturn. In June, the retailer provided some much-needed liquidity and avoided possible bankruptcy by raising $ 4.5 billion in credit facilities, most of which was backed by his real estate holdings – his brick-and-mortar stores – in major cities.
The Wall Street Journal quoted the chief financial officer as saying that Macy & # 39; s still has enough left in his real estate portfolio to do another similar round of financing in the future if necessary. Nevertheless, hurt by these uncertainties, Macy & # 39; s stock has lost about 60% of its value this year.
It closed at $ 6.97 on Monday, up 0.29% for the day.
The only sustainable way this department store chain can move forward is by strengthening its online channels and reducing its physical footprint. On that front, Macy & # 39; s is showing some progress.
The company is closing 125 of its least productive stores – nearly a quarter of its total assets – in the next three years as part of a major restructuring. Macy & # 39; s has also spent heavily to improve its digital presence, adding more local merchandise and freshening up its store décor.
That strategy boosted online sales, but it was not enough to put the retailer on a sustained growth trajectory. In the longer term, the retailer must demonstrate that cost savings, new spending and store remodeling will revive actual sales once the pandemic delay is over.
Bottom Line
We don't see Macy's stock recovering lost ground in 2020. The pandemic has accelerated the shift to online shopping, and many analysts believe this will remain a thing even after the pandemic ends.
In our opinion, investors would do better to stay on the sidelines while waiting to see how the company emerges from this downturn.
