• Kumar

Will Macy's Cutting Corporate Jobs and Talks of "Amazon Should Buy Macy’s" affect earnings?

Macy’s (NYSE: M)

Macy’s is set to post its quarterly earnings results before the market opens on Wednesday, July 1st. Analysts expect Macy’s to post earnings of ($1.02) per share for the quarter. Macy’s has set its Q1 2020 Pre-Market guidance at -2.03–2.03 EPS and its Q1 guidance at ($2.03) EPS.

Macy's Cuts 3,900 Corporate Jobs In COVID-19 Restructuring

Macy's is reducing its headcounts in supply chain operations, customer support functions, and in-store staff. The announcement didn't say how deeply these cuts will go, but the company still expects to bring back most of its furloughed employees for additional store openings in the first week of July.

"We know that we will be a smaller company for the foreseeable future, and our cost base will continue to reflect that moving forward," Macy's CEO Jeff Gennette said in a prepared statement. "Our lower cost base combined with the approximately $4.5 billion in new financing will also make us a more stable, flexible company."

The financial impact

The restructuring effort is expected to lower Macy's operating costs by $365 million in 2020. Most of the cost savings should fall in the second quarter, which ends on June 30. That's on top of a larger cost-cutting effort announced in February, which should lower the company's annual expenses by approximately $1.5 billion. Macy's operating costs added up to $9.0 billion in 2019.

The company is also closing many stores and selling off some real estate assets in an effort to shore up its debt-heavy and cash-poor balance sheet.

Many observers have been expecting Macy's to file for bankruptcy protection soon.

Why Amazon Should Buy Macy’s

Dominic Rispoli, a managing director with Lincoln International’s consumer group and head of its retail effort, thinks that Amazon, which acquired Whole Foods Market in 2017, should consider buying the 116-year-old retailer with some of its $27 billion in cash.

Two PandemicsAmazon stock has soared in a shelter-at-home world, while Macy’s has floundered.

It’s a provocative argument. Rispoli notes that 80% of retail’s $3.7 trillion in sales goes through brick-and-mortar stores. Amazon has a 38% share of e-commerce, but only 5.6% of all retail. Macy’s, he says, “could be transformative for Amazon.” Why? Macy’s has a $5 billion online business. “This would plug in nicely with the Amazon platform from day one,” he adds. And Macy’s would give Amazon access to the second-biggest consumer market: apparel and footwear.

Macy’s market cap is down to $2.15 billion. It trades for 0.4 times an estimated 2021 sales and had $5.7 billion in debt in May. It refinanced $4.5 billion in loans earlier, which it will use to pay off some debt. Leverage, however, is relative. Amazon threw off some $20 billion in free cash flow over the past 12 months. Macy’s hasn’t made noises about selling. But at prices like this, Amazon might stop by and check out the goods.

We strongly believe that Macy's will have a similar fate to JCPenny. It's risky to hold it long term.