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Macy’s no longer makes much money as a retailer, Citi says, downgrades to sell

Key Points
  • Citi Research downgrades its outlook for Macy's stock performance to sell from neutral.
  • The retailer's core business "is getting weaker," Citi said in note.
  • Citi also believes Macy's declining free cash flow puts the retailer's dividend on the chopping block.
Macy's no longer makes much money as a retailer, Citi says, downgrades to sell
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Macy's no longer makes much money as a retailer, Citi says, downgrades to sell

Macy's retail business continues to slip this year, causing Citi Research to downgrade its outlook for the stock's performance to sell from neutral.

Macy's "has seen significant pressure on sales/margins for several years, they no longer make much money as a retailer," Citi analyst Paul Lejuez wrote in a note Monday morning.

Macy's stock declined more than 2 percent in premarket trading following the Citi call.

Citi does not believe Macy's "has found the right tools" to avoid a steady decline, saying decreasing foot traffic in stores continues despite efforts by the company's management to turn things around.

"The core business is weak and (we believe) is getting weaker," Lejuez said.

The firm says Macy's is not alone, citing J.C. Penney's recent performance "as a reminder of just how challenging the department store space is." The brick-and-mortar market is "structurally disadvantaged" in retail, Citi says, adding that Macy's "just can't move the dial."

Citi also believes Macy's falling free cash flow puts the retailer's dividend on the chopping block. The retailer currently has a dividend yield of 7.7 percent.

"With declining cash flows and management's desire to maintain a healthy balance sheet, we believe there is risk they will cut the dividend in the future,' Lejuez said.

Shares of Macy's have fallen more than 42 percent this year as of Friday's close, according to FactSet. The company did not immediately return a call for comment.