We have recently initiated coverage on Macy’s, Inc. (M), one of the leading department store retailers in the United States , with a Neutral recommendation and a target price of $18, as we anticipate it to perform in line with the industry.
 
Based in Cincinnati, Ohio with another office in New York, Macy’s through its retail stores and websites (macys.com and bloomingdales.com) trades in a wide range of merchandise, including men’s, women’s and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods.
 
The company is taking steps to increase sales, profitability and cash flow, which will put it on the growth trajectory once the economy rebounds. These include integration of operations, consolidation of divisions and customer centric localization initiatives.
 
Macy’s sustained focus on price optimization, inventory management, merchandise planning and private label offering, positions it to drive traffic, meet customer-oriented demand and improve in-store shopping experience.
 
However, the intense competition and with consumers economizing their budgets, comparable-store sales are sagging. Moreover, Macy’s debt-to-capitalization ratio (66%) is also substantially higher, which could adversely affect its creditworthiness making it more susceptible to the economic downturn and competition.
 
To combat the recession, and to increase profitability and preserve cash flow, Macy’s trimmed its headcount, slashed its quarterly dividend (to 5 cents from 13 cents per share) and lowered its capital expenditure.
 
The company currently operates more than 850 department stores in 45 states, the District of Columbia, Guam and Puerto Rico.
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