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The nation's #1 department store chain has adopted the name of its most famous brand and cash

cow: Macy's. Macy's, Inc., operates about 850 stores in 45 states, the District of Columbia, Guam, and Puerto Rico under the Macy's and Bloomingdale's banners that ring up some $25 billion in annual sales. The stores sell men's, women's, and children's apparel and accessories, cosmetics, and home furnishings, among other things. It also operates and Macy's flagship store in Manhattan's Herald Square is the world's largest. The Macy's Thanksgiving Day Parade, started in 1924, is an annual rite. Macy's (formerly Federated Department Stores) began as a dry goods store more than 150 years ago. The road to success has been a bumpy one for Macy's since its 2005 purchase of May Department Stores. Indeed, sales have been on the decline since 2006, with the deep recession and retail slump in the US making matters worse. Most recently, sales were down 5.6% in 2009 vs. 2008, after falling 5.4% in the year earlier period. After a precipitous $4.8 billion drop in net income in 2008 -exacerbated by a difficult holiday selling season Macy's in 2009 began closing underperforming stores and reorganized, yet again. Macy's has way too many stores. In 2005, Macys Department Stores reaches at $11 billion. It now has a total of 856. With a total of 155 million square feet of space, Macy's is almost a third the size of Manhattan. Unlike the compressed packed Big Apple, Macy's is not so populated with shoppers. The problems are credit strapped shoppers in a floor space you could house three million. The consumer can`t afford shopping. Christmas is traditionally Macy's big season. Spending pulse, MasterCards research arm, reports holiday season sales for luxury down 34%, women's apparel down 23%, and men's down 14%. Macy's has predicted its same store sales will be down 1 to 6%. That prediction is unrealistic given the terrible way the shopping season is turning out. Expect a 14 to 15% decrease in comparable same store sales at best. Macy's profit

margins have become disastrous, falling from 3.99% to a negative 0.8%. I think those terrible margins are here to stay.

Macy's' hope currently rests on its EBITDA. That hope is quickly becoming dashed. EBITDA was $3.5 billion 2006, $3.4 billion 2007, $2.8 billion TTM. Q4 2007 wasn't a bad quarter for EBITDA. That number will be replaced by what is working out to be a far weaker Q4 to be reported February 2009. For the last three quarters, EBITDA was $1.3 billion. Q4 2007 EBITDA was about $1.4 billion. Q4 2008 will be far lower, probably $0.9 billion. That makes for a 2008 year EBITDA a dismal $2.2 billion. Next year looks far worse. The company hoped to use its coming year operating cash to pay down its burgeoning $9.8 billion debt load. $950 million of debt comes due in 2009. It looks like Macy's will have to dig into its short term credit facility to cover that shortfall. That's a temporary fix. The company will need to find longer term financing (bonds for Macy's are trading at 14 to 15%) and Macy's will need to refinance more debt coming due in 2010 and 2011.

Macy's 20 new covenants to maintain its credit facility lifeline may be breached if their EBITDA keeps falling. The company was forced to rework their previous covenants that depended on eroding equity positions. Macy's Inc. said it will close 11 underperforming Macy's stores and that sales for the five weeks ended Jan. 3 totaled $4.397 billion, a decrease of 4.7%. "These closings are part of our normal-course process to prune underperforming locations each year in order to maintain a healthy portfolio of stores," said Terry J. Lundgren, chairman, president and CEO of Macy's Inc., in a statement. "While new store growth has slowed in the current economy, our long-term strategy is to continue to selectively add new stores while closing those that are underperforming." Final clearance sales at most the stores will begin within the next week.

On a same-store basis, Macy's Inc. sales were down 4% in December. Same-store sales for the combined November-December period were down 7.5%. Online sales ( and combined) presented a different story and were up by 39.1% in December, by 26% in the November-December period and by 30.1% for the year to date. Of the retailer's top 15 best-performing geographic markets in December, 13 were My Macy's pilot districts. My Macy's is a program in which Macy's is trying to tailor store assortments, service levels and the shopping environment to local customer needs and preferences

Wescarmeline Estil BUSN105 Introduction to Business Common Assessment Assignment Macys Sunday March 6, 2010