Macy's Just Isn't Good At Retail Anymore; Citi Downgrades To Sell

Shares of Macy's Inc M lost more than 2 percent Monday and hit a new 52-week low of $19.00 after analysts at Citi turned bearish on the company.

The firm's Paul Lejuez downgraded Macy's stock rating from Neural to Sell with a price target lowered from $21 to $16 (see his track record here).

Simply put, Macy's is no longer a strong performing retailer after years of "significant" sales and margins, Lejuez said in the downgrade note. In fact, the core retail business is not only weak but is getting weaker, as credit income and asset sales won't support profits in the future as has been the case in the past. Various initiatives put in place to offset negative store traffic and margin pressures, such as Last Act and Blue Mercury, has seen some success but not enough to "move the dial."

In the near term, the retailer will likely be forced to become increasingly promotional during the Holiday season, Lejuez wrote. Accordingly, the analyst is slashing his fourth-quarter earnings per share estimate from $2.38 to $2.33 and the full-year fiscal 2017 estimate has also been lowered from $3.22 to $3.17, mostly due to expectations for a challenging holiday season.

Finally, dividend investors looking at Macy's 7.88 percent yield should be cautioned that this payout may not be sustainable over the long term. While the company should have a strong enough free cash flow to pay the dividend in the near term, management may want to decide to pay down debt instead of paying the full amount of the current dividend.

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