If there is one legacy retailing stock and company that almost everybody recognizes it is the venerable Macy’s Inc. (NYSE: M), one of the first and oldest department stores in America’s retailing history. Macy’s was first established in 1858. Its flagship store in New York City at Herald Square was originally built in 1902, covering over 1.25 million square feet of shopping space, and remains an iconic landmark for the company.

With over 700 stores in the United States the company sells a range of merchandise, such as apparel and accessories for men, women, and kids; cosmetics; home furnishings; and other consumer goods under the Macy’s, Bloomingdale’s, and Bluemercury brands. It also operates in Dubai, the United Arab Emirates, and Al Zahra, Kuwait under the license agreements. The company was formerly known as Federated Department Stores, Inc. and changed its name to Macy’s, Inc. in June 2007.

While a legend in retailing and an American favorite known for the yearly Thanksgiving parade watched by millions, there are 7 serious reasons why investors should avoid the stock.

The stock looks cheap but could become more so

Trading at 4.4 price to earnings and paying a fat 5.66% dividend many would think of snapping up shares that currently trade at $12. The reality is that while Wall Street hasn’t bailed on the company, the consensus price target is a very modest $14.73. That tells investors that while the stock has been cut in half from the $25 level, analysts don’t see much upside.

The economy is very shaky, and consumers are pulling back spending

While the holidays are right around the corner, (and that is always prime time for retailers), sticky inflation, mounting credit card debt at high interest rates, and a general malaise by shoppers for higher-priced items are starting to be felt by Macy’s and other higher-end retailers.

Millennials are not shopping at Macy’s

Millennials as a whole don’t like Macy’s or really any other department stores as they view the entire experience as a chore and boring according to reports. This is a thorn for retailers as the purchasing power of millennials is growing, and as Generation X and the Boomers grow older, their desire for spending is declining, especially as inflation persists.

Big discounting to lure shoppers takes a toll

While second-quarter results surpassed expectations (the company will report the current quarter on November 16) it took some big discounting on merchandise to hit the numbers. CEO Jeff Gennette said back in the summer that over the past several quarters, he has seen Macy’s customers more aggressively pull back on discretionary items and become more intentional in their purchases. That could be a big problem in 2024.

The student loan moratorium is over and that could hurt spending

With former college students getting a three-year plus moratorium on college loans their discretionary spending dollars jumped. That bonus is all but over as debt payments resumed this month and will continue going forward. Despite efforts by the President to cancel student debt, most Americans are against it and the Supreme Court has also ruled against the issue.

The dividend could be in trouble

While executives push back against the possibility, the reality is the company’s dividend history has been sketchy at times, and has been cut at least once over the last 10 years. With over 20% of revenue going to shareholders, any major decline in revenue going forward could force the company to lower the payout to shareholders.

If large shareholders start to sell the stock could be in trouble

With Vanguard, Blackrock, State Street, and other huge institutions holding major positions in the company, if a big earnings decline or a recession crushes spending, they may decide to move away from the company. Those investment dollars could likely shift to the popular discount retailers that more consumers are moving to as they tighten their spending belts.

While the glitter and incredible brand behind the company is a huge positive, especially going forward, the reality is that younger consumers just really don’t care, and that situation could manifest even more as they grow older and companies like Macy’s fall out of favor. For now, it makes sense for investors looking at the shares to wait for the third-quarter earnings results before making any stock purchases.

 

 

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