Macy's Cuts Dividend: Other Retailers Down on the News

The week started on a negative note on Monday as broader indexes such as Dow Industrials closed below 8000. Investor’s sentiment wasn’t helped by dividend cuts in the retail sector.

Macy’s (M) board of directors announced a steep cut in its quarterly dividends from 13.25 cents to 5 cents/share. Furthermore the company decided to eliminate 4% of its workforce by laying off 7000 employees. The retailer expects much lower EPS numbers for 2009 at 0.40-0.55/share, versus $1.21 that Wallstreet analysts had expected previously. The news that really showed that management expects worse things ahead, other than the dividend cut, is the reduction in capital spending by 100-150 million dollars in 2009.

Other retailers such as Wal-Mart (WMT) , Target (TGT) and Family Dollar (FDO), all of which are dividend aristocrats, fell slightly on the news. Check out my analysis of Wal-Mart (WMT), Target (TGT) and Family Dollar (FDO). Despite the fact that both retailers are expected to perform well in the current economic turbulence, I do not like the low dividend yields at the moment. I am seeing slowing dividend growth both at Wal-Mart and Family Dollar as well. Wal-Mart will be announcing its annual results and hopefully a dividend increase on its Earning Release on February 17. FDO already increased its dividends by 8% in 2009.I would be adding to my retail holdings in Family Dollar and Wal-Mart on dips below $18 and $32 respectively. I will be looking at initiating a position at Target (TGT) on dips below $21.40. The major competitor to Wal-Mart is known to be increasing its dividends at a slower pace in the single digits during tough periods such as the 2000-2002 slowdown.

If the January Barometer is correct, we will be seeing lower prices by the end of the year, so seeing lower prices in the retail stocks mentioned above won't be surprising at all.

Disclosure: Author is long WMT and FDO.

Comments

[HLKNYC:]

Macy's needs to do more than just cutting 7000 jobs and consolidating the 4 regional buying offices into one. Over the years of consolidation of the Federated and May divisions, Macy's is saddled with numerous "Senior" executives in Middle management jobs. They protected certain former principals of the divisions by moving them to new divisions, saving their old title and salary. However, they are now doing jobs that were once filled by VPs. Take a look at their Home Store division, which went through the National consolidation almost 5 years ago. There is one chairman and two presidents. Is it me or did they change the definition of president. Another case of title inflation runs amok.
They need to review all the executives jobs at vice president or above, and adjust the titles and salaries accordingly. If an individual used to be a Senior Vice President, and the new position is a division head (ie, Juniors), the title and renumeration should change as well.

Cut the dead weight on top first!

Feb 03 11:32 AM

[One of many:]

Macy's has caused part of its own problems. The upper management seems to live in its own world of what it wants, and if they just cut this or consolidate that then the whole operation will work. The business of maintaining customer goodwill by providing a quality product the public is eager to buy seems to have gone from the picture. What is needed is upper management with a focus in the right place--service to the customer.

Feb 04 10:17 AM

[mr. w:]

Macy's spiral down just continues. When are shareholders and the board going to boot Lundgren??? Their stores continue to be ill-managed, unkept and filled with K-mart quality private label lines that are priced like Neiman Marcus but offering 70% off sales. Consumers are not fooled.
The only hope is to differentiate themselves by taking advantage of key names Lundgren trashed such as Marshall Field's, Jordan Marsh, etc.. they had so much more branding power than the lower middle market that Macy's is fighting for with Kohl's, Sears, Target and Wal-mart.

Feb 04 03:57 PM