Five Key Quotes from Macy's on Retailing and Debt

Retailing giant Macy’s Inc. (M) cut capital spending and held margins together in Q3 by avoiding serious markdowns and price wars. More successful in that respect than peers like Kohl's (KSS) and JCPenney (JCP), shares have still been under pressure. Macy's debt balance, particularly payments due in 2009, weighs heavily on investors minds.

The retailer could use already-drawn revolver funds to pay down debt, but plans to use its year-end cash for that. The company will likely have to draw on its revolver for debts due in 2009, but are hoping the credit markets will soon free up and it will be able to borrow and refinance by then. Macy's is optimistic that banks and retailers will help each other out in this climate.

The company will have to contribute $175 m to its pension fund between now and next September, but it is not currently underfunded.

Five key points from Macy’s Q308 conference call:

For the first time this year, we borrowed $120.0 million under our bank credit facility on October 31. We currently have $150.0 million outstanding and expect to need more than this for just a few days over the next month. These borrowings will all be repaid in early December… We have more than enough cash and borrowing capacity to handle debt maturities in 2009 should we decide not to refinance… We are going to do what we need to do to maintain [our bonds at] investment-grade rating.

[If we were to trip one of our debt covenants,] my guess is that... we would be able to renegotiate. Possibly a smaller facility than $2.0 billion, and for sure more expensive than what we’re paying today, but I don’t think it would be likely that the bank group would walk away from it.

More credit card usage, but more trouble as well:

Penetration or usage on the [credit] card continues to rise... However, things like bad debt, bankruptcy, write-offs, all of those continue to trend down. And in fact, the payment rate also came down in the third quarter.

We have tweaked a little bit the [credit] approval rates… We tweaked it a little more on the Visa side than the proprietary card. But not in any significant way.

e-Commerce:

the dot-com business continues to grow faster than the comp store sales and do well. We are... moving towards more of a multi-channel strategy. Remember, when you buy on the Internet you can return to our stores. So that negative gets deducted from stores sales, not from the Internet sales…

We are testing now, in Florida, the ability of being in the store and having the sales associate say, “We don’t have that in stock. Let me get it for you on Macys.com,” which so far seems to be working very well.

Outlook:

While we are hopeful for the fourth quarter, I have to caution that we are less confident about spring 2009.

NYC Tourism:

This is anecdotal as opposed to anything statistical, but New York did slow down in the second half of the third quarter so I suspect it has to do with tourism.

 

Comments

[Tom Sullivan:]

Stores need to eagerly adopt a strategy that allows the customer to purchase out of stock items via the website without leaving the store. It's just a logical step and I'm happy to see Macy's testing that.

2008 Nov 13 01:17 PM