Macy’s Foot Traffic Free Fall Triggers Citi “Sell” Rating

Retailer Macy’s has been handed a sell rating by Citi Research, which said Monday (Oct. 30) that the company’s efforts to increase cash flow and boost foot traffic to its stores are failing.

In a research report covered by CNBC, Citi Research analyst Paul Lejuez said Macy’s hasn’t been able to find “the right tools” to avoid declines in the number of consumers visiting its brick and mortar stores.

“The core business is weak and [we believe it] is getting weaker,” Lejuez wrote in the research report. He also noted Macy’s “has seen significant pressure on sales/margins for several years, [and] they no longer make much money as a retailer.”

Lejuez warned a decline in free cash flow puts Macy’s dividend at risk, further explaining that the company’s desire to keep a healthy balance sheet in the face of declining cash flows could result in the dividend cut, according to the CNBC report.

“With business risks mounting, we believe management may be proactive and opt to pay down debt rather than pay the full amount of the current dividend,” the analyst wrote.

Additionally, Lejuez didn’t just chastise Macy’s but also pointed to J.C. Penney’s as an example of another struggling physical retailer. In the research note, the analyst said the brick and mortar market, in general, is “structurally disadvantaged” and Macy’s “just can’t move the dial.”

Macy’s has been testing new solutions to draw more customers into its stores. In late September, the company announced it was reinventing its Star Rewards loyalty program through which any customer who uses his or her Macy’s card will see an improved shopping experience both in-store and online. The revamped Star Rewards program will enroll Macy’s card customers into one of three levels — Silver, Gold or Platinum — based on annual spend. Rewards are tiered by these levels and customers will be upgraded as they reach the appropriate spend level.