For retailers, holiday season is mixed bag Macy's regaining strength, but slowly

November 24, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- As dozens of huge helium balloons prepare to take flight tomorrow for Macy's 69th annual Thanksgiving Day Parade, the retailing giant itself is still straining to rise out of bankruptcy.

Nearly two years after filing for Chapter 11 bankruptcy, R. H. Macy and Co. has devised a five-year plan to regain market share, turn a profit and leave bankruptcy. But that plan has been recently revised downward, with forecasts for fattened profit margins slimmed down.

Still, industry observers say the 136-year-old retailer has made huge strides toward financial stability. Its national reputation remains intact thanks to events like the televised parade, and analysts say the company is in no danger of going out of business in the near future.

"There's a long, long way to go, but they are working their way out of bankruptcy," said Kurt Barnard of Barnard's Retail Consulting Group. "Debt and costs are still their biggest problems, but they are advancing."

Macy's has responded by closing a dozen stores, including Macy's store at Hunt Valley Mall and the company's I. Magnin store in White Flint Mall in Kensington.

It operates 110 stores under the Macy's and Bullock's names, including three Macy's stores in Maryland.

These closings have helped stanch losses at $544 million this fiscal year, which ended July 31. That compares with losses of $1.3 billion in 1992.

At the same time, however, revenues have continued to slip. After hitting a high of $7.3 billion in 1990, revenues fell this year, to $6.3 billion. Half of this year's decrease was due to the store closings, but the other half was caused by slipping sales.

More importantly, the company turned a profit in the one line item that analysts pay attention to when they look at bankrupt companies. The retailer's earnings before interest, taxes, depreciation and amortization, was $210.1 million for 1993 compared with a loss of $38.9 million the year before.

"They've stopped the worst bleeding -- they're not about to die. But they're not out of the hospital yet," said Jack Hersch, an analyst with M. J. Whitman, a company that trades junk bonds. Because Macy's is in bankruptcy, its debt is not investment grade.

The cause of the company's bankruptcy -- overwhelming debt -- still burdens the company. Former Chief Executive Edward Finkelstein took Macy's private in a 1986 buyout that cost $3.58 billion.

Two years later, he fought Campeau Corp. of Canada for Federated Department Stores Inc., which cost $1.1 billion. A month after a bad 1991 Christmas season, Macy's filed for Chapter 11 bankruptcy and three months after that, Mr. Finkelstein left his job.

Although under new management and with most interest payments suspended because of the bankruptcy, Macy's still has $4.4 billion in outstanding debt. Some of that debt, however, will be written off when it reaches agreement with its creditors and leaves bankruptcy, which could happen in 1995, analysts said.

Macy's is counting on two main developments to pull it out of bankruptcy: an economic upturn and modernizing its sometimes-archaic business practices.

So far, the economy has cooperated. Retail analysts have predicted that Thanksgiving will kick off a lively Christmas season for Macy's, and Wall Street has taken this to heart, bidding up the price of some of Macy's junk bonds over the past month.

The restructuring is also under way. The company has started an internal satellite network to connect suppliers with salespeople -- a key if Macy's is to upgrade its customer service.

Another innovation for the venerable department store is its foray into television sales. It is due to launch a 24-hour Macy's shopping channel next fall that will take $50 million in start-up expenses.

Despite these changes, analysts warn that Macy's faces intense competition from specialized retailers, such as Home Depot, Lechter's, Circuit City and Wal-Mart -- all of which serve customers who in another age might have done all their shopping at a department store.

"They've got a great name and a great history, but nowadays, that isn't enough anymore to get by," Mr. Barnard said. "They've got to push on with their modernization, or we won't be having a Thanksgiving Day parade anymore."

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