Is Macy’s dying?

It appears Macy’s (NYSE: M) is dying before our eyes. The department store legend is closing an iconic store in Downtown Seattle that’s over 90 years old.

Ironically, Macy’s leasing is the top six floors of the building to Amazon (NASDAQ: AMZN), The Seattle Times reports. Amazon now leases 11.5 million square feet of space in 47 office buildings in Seattle.

Macy’s plans to close the Downtown Seattle store in February 2020, The Seattle Times claims. The company will sell the Downtown Seattle Macy’s Building after the store closes. Notably, a hotel and offices fill most of the space in the Downtown Seattle Macy’s building.

Macy’s will Stop Selling Fur

In a related move, Macy’s will stop selling fur by the end of 2020, a press release reveals.

“Fur will no longer be sold in Macy’s, Inc. off-price stores, including Macy’s Backstage and Bloomingdale’s The Outlet,” the Press release states. “As part of this commitment, the company will be closing its Fur Vaults and salons.”

I think the exit from fur sounds like a cost-cutting move. Notably, fur is a luxury product with a little market that is controversial. In addition, fur sales can be costly and labor intensive.

Hence, Macy’s cuts costs and downsizes its business but gets applause from the media and the Humane Society of the United States. I wonder how long Macy’s can keep up the scam of passing off cost-cutting measures as “progress.”

In addition, America’s most populous state; California, has banned new fur sales, CBS news notes. Hence, Macy’s can avoid legal expenses and bad publicity while getting rid of employees.

Is Macy’s Making Money?

Macy’s (NYSE: M) still operates 680 department stores and 190 specialty stores in 43 states, the District of Columbia, Guam, and Puerto Rico. Hence, Macy’s still has a heavy exposure to Amazon and the retail apocalypse.

However, Macy’s is still making some money from those stores. For instance, Macy’s reported a gross profit of $2.151 billion on revenues of $5.546 billion on 3 August 2019.

Yet Macy’s reported an operating loss of -$21.09 million and an operating income of $86 million on 3 August 2019. Thus, Macy’s is losing money on its operations but drawing income from other sources.

Macy’s is generating some cash. The department store chain reported a free cash flow of $176 million and an operating cash flow of $388 million on 3 August 2019. Those numbers are up from a negative operating cash flow of -$38 million and a negative free cash flow of -$268 million on 4 May 2019.

Thus, Macy’s has a hard time keeping the money it makes. In particular, Macy’s reported a negative investing cash flow of -$217 million and a negative financing cash flow of -$239 million on 3 August 2019.

Why Macy’s cannot compete with Amazon

The low cash flow gives Macy’s limited resources despite its vast foot print. Notably, Macy’s had just $674 million in cash and equivalents and $20.741 billion in total assets on 3 August 2019.

In contrast, I estimate Amazon (NASDAQ: AMZN) had $42.381 billion in cash and short-term investments on 30 September 2019. In addition, Amazon had $199.099 billion in total assets on 30 September 2019.

I cannot see how Macy’s can compete against a company with Amazon’s resources. In particular, The Verge estimates Amazon increased its spending on shipping and fulfillment by 50% between 3rd Quarter 2018 and 3rd Quarter 2019.

Therefore, Amazon could spend twice as much on delivery this holiday season. Jeff Bezos himself confirms such suspicions by bragging, “We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” in a press release.

Importantly, Amazon is testing a shift from Prime two-day shipping to Prime one-day shipping, The Verge notes. Consequently, many Prime customers could have their merchandise on the day they order.

Hence, Amazon eliminates the last advantage brick and mortar-retail has same day fulfillment of orders. Nobody will need to rush out to buy items at the last minute.

Macy’s is not Dead Yet

I think the retail apocalypse and Amazon doom Macy’s, but Macy’s is far from dead. In fact, Macy’s (NYSE: M) paid a 37.75₵ quarterly dividend on September 12, 2019.

However, Macy’s dividend has not increased since 2016, reports. Thus, Macy’s is a good dividend and income stock given its $15.16 share price on 31 October 2019.

In fact, estimates Macy’s investors received a dividend yield of 9.89%, a $1.51 annualized payout, and a payout ratio of 53.93% on October 31, 2019. Macy’s Dividend yield is so high because of the share price.

I think Macy’s need to stay away from Macy’s; despite the dividend, because I believe big losses are coming at this retailer. I think Macy’s is just one bad Christmas season away from the retail death spiral. The death spiral occurs when a retailer cannot over its operating costs or pay its debts with its revenues.

Macy’s Faces a critical holiday season

That bad holiday season come this year because of Amazon’s aggressive expansion and Macy’s low cash flows. Expect to see major cutbacks and problems at Macy’s if the department store giant has a bad 2019 holiday season.

Macy’s had a good holiday season last year with a 52.59% revenue growth rate in the quarter ending on 2 February 2019. However, Macy reported negative revenue growth rates of -1.22% and -0.77% for the quarters ending on 4 May 2019 and 3 August 2019.

Macy’s faces a critical holiday season that could be the end of the line for this retail legend. Thus, investors need to stay away from Macy’s until the February 2020 earnings report.