Another Winter Of Discontent

On Jan. 27, retailer R.H. Macy & Co. will mark its second anniversary under bankruptcy protection. It's a disheartening milestone: The company probably won't emerge from Chapter 11 until 1995 or later, and now, a merger bid by Federated Department Stores Inc. makes Macy's future even more unclear. Most vexing for Macy's investors: Christmas sales gave no strong indication that a major turnaround is at hand.

In the crucial month of December, sales at Macy's stores open a year or more inched up just 1.7%. By comparison, same-store sales rose 4.8% at Federated, 4.9% at May Department Stores, and 5% at Dillard Department Stores. "The Macy's numbers we see are not good numbers," says Roz Kafri, a debt analyst at Grantchester Securities. "O.K., you have to credit management for doing better than last year--but last year was a disaster." Still, Macy's Chairman Myron E. Ullman III is optimistic: "Even though we didn't get the sales we anticipated, we improved our margins."

"REALISM." Macy's cash flow did jump 30%, to $266 million in December, thanks to cost-cutting and fewer promotions. But in a business plan distributed last May, Macy's projected 5.5% same-store sales increases in fiscal 1994. Now, Ullman says he expects just 1.5% growth.

Ullman notes that Macy's operates on the East and West Coasts, which are only slowly shaking off the recession. "Would I like to have explosive top-line growth? Absolutely. But it's not going to happen quickly," he says. Ullman insists Macy's will meet the $358 million in cash flow projected for the year ending July, 1994, up from $209 million in 1993. That's an improvement, but nowhere near Macy's peak results (chart).

Ullman will be getting some crucial help come July. That's when Roger N. Farah, a well-regarded merchant and former chairman of Federated's Merchandising Services unit, joins Macy's as president and chief operating officer. Meanwhile, Ullman vows that he doesn't need Federated to achieve Macy's turnaround. "We believe that in the long run, we can grow this franchise," he says. It's an assertion many are still waiting for him to prove.

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