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Macy’s Stock lifts 17% After Cutting Dividend and Drawing Down $1.5bn Debt to Weather Pandemic

Macy’s (NYSE: M) has suspended its dividend and drawn down all of its $1.5bn credit facility to boost the cash position, as the department chain bolsters itself against a slowing economy brought about by the coronavirus.

The New York-based business, that runs over 775 stores, said it had “increased its borrowings under the revolving credit facility as a proactive measure to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak,” in a Securities and Exchange Commission filing earlier this week.

Macy’s stock is up 17% at $6.61 in morning trading on Thursday, but its stock price is down more than 70% in the last twelve months and it plunged almost 90% in the last five years.

Using debt to counter challenges is only the viable solution in management’s view despite the fact that it was already standing among the most high-debt leveraged retailers in the specialty softlines category.

The company had reduced its debt by $3.5bn over the past four years and all of the debt repayment was predominantly voluntary, but credit agency S&P responded negatively to debt declining strategy and lowered its debt to junk status last month. The new debt along with cash burn due to shut down and slow demand could hurt its strategy of lowering debt to EBITDA ratio to 2.5 times to 2.8 times.

Macy’s stock price is hit harder by the coronavirus backed selloff because investors believe the temporary closure of all stores will further accelerate its revenue downtrend. The company has generated negative or flat revenue growth in the past four years while operating income shirked from $2bn in 2016 to $1.19bn last year.

“We will continue to take the necessary actions to ensure that Macy’s and our brands – Macy’s, Bloomingdale’s and Bluemercury – emerge from the other side of this crisis ready to serve our customers and welcome back our colleagues,” said chairman and chief executive officer Jeff Gennette.

Macy’s Stock lifts %...

The retailer is also working on measures like cost cuttings and lower spending to improve financial flexibility.  The chief executive officer said he is not receiving any compensation from the company due to the coronavirus pandemic. The latest dividend cut would help it in saving $450m annually. Jeff Gennette said “we frozen hiring and deferred capital spend along with extending its payment terms among other measures.”

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    Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.

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