Macy’s stock rises 17% after cutting dividends, cutting $ 1.5 billion debt to deal with pandemic
Macy’s (NYSE: M) suspended its dividend and used its entire $ 1.5 billion credit facility to increase cash flow, as the chain of departments strengthens against the economic downturn caused by the coronavirus.
The New York-based company, which operates more than 775 stores, said it had “increased its borrowing under the revolving credit facility as a proactive measure to increase its cash position and preserve its financial flexibility in the future. in light of the current uncertainty in global markets resulting from the COVID-19 outbreak, ”in a Securities and Exchange Commission filing earlier this week.
Macy’s stock is up 17% to $ 6.61 in morning trade Thursday, but its stock price has fallen more than 70% in the past twelve months and has plunged nearly 90% in the past five years.
Using debt to counter challenges is only the viable solution from a management perspective, despite the fact that it was already among the most indebted retailers in the specialty services category.
The company had reduced its debt by $ 3.5 billion over the past four years and all debt repayments were mostly voluntary, but the S&P credit agency reacted negatively to the debt reduction strategy and has lowered his debt to junk status last month. The new debt as well as the consumption of cash due to the shutdown and slowing demand could hurt its strategy of reducing the debt / EBITDA ratio from 2.5 to 2.8 times.
Macy’s share price is hit harder by the coronavirus-backed sell-off as investors believe the temporary closure of all stores will further accelerate its downward trend in earnings. The company has generated negative or stable revenue growth over the past four years, while operating profit fell from $ 2 billion in 2016 to $ 1.19 billion last year.
“We will continue to take the necessary steps to ensure that Macy’s and our brands – Macy’s, Bloomingdale’s and Bluemercury – emerge on the other side of this crisis ready to serve our customers and welcome our colleagues again,” said the president. -General Director Jeff. Gennette.
The retailer is also working on measures such as cutting costs and cutting expenses to improve financial flexibility. The chief executive said he was not receiving any compensation from the company due to the coronavirus pandemic. The latest dividend cut would help him save $ 450 million a year. Jeff Gennette said “we have frozen hiring and deferred capital spending and extended payment terms, among other measures.”