Wednesday, September 23, 2009

Is Macy's Headed Towards Bankruptcy?

Is Macy's headed towards bankruptcy? The folks at Audit Integrity think so.

In a recent report, the independent financial research and risk modeling firm listed 20 large-cap companies ($1B or more in market capitalization) "that have the highest probability of declaring bankruptcy among publicly traded firms" in the next 12 months, with Macy's making the list. The Business Insider went a step further, whittling the list to the 10 worst of the worst using the following formula:
"Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt."
Macy's comes in at #4:
4. Macy's

Does anyone even shop at department stores anymore?
Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend.

Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's.

I'm not ready to write off Macy's just yet. Their My Macy's initiative has made significant gains , with same-store sales of the program's 20 test market regions outperforming the rest of the company. These gains prompted Citigroup analyst, Deborah Weinswig to upgrade the stock to "Buy" from "Hold" on Tuesday, and double the price target to $30 from $15.
"We are encouraged by the consistent, positive early results that Macy's has reported from its 20 pilot My Macy's markets since spring 2008," the analyst wrote in her note to clients. "My Macy's initiative will be a key driver of same-store sales upside for the company ahead."

The program allows the company to reduce discounts. It also shows signs of improving relationships with vendors, leading to the development of more exclusive lines and unique sizes, Weinswig says. (SOURCE:

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