As recently as 2015, Macy’s traded at a price of $76 per share while having trailing annual profits of $1.6 billion. It had almost $2 billion in cash, a fully funded pension, online sales growing at a clip of 15% annualized, and appeared to have recovered from the worst of the Great Recession when the price of the stock was punished down to $7 per share.
However, Macy’s management observed that nearly all of its peers were repurchasing large chunks of stock with its cash flows, even borrowing money at low-interest rates to do so. As Warren Buffett said during his 1992 speech at Notre Dame’s business school, the dumbest reason to undertake an action is because your peers are doing so.
And Macy’s decisions, particularly in relation to its liquidity reserves, bears that out. Macy’s took on a total $4.6 billion in debt, with over $1 billion if it … Read the rest of this article!