Maybe all those buybacks weren’t such a good idea after all. On a long enough time line, shareholder friendly can be very shareholder unfriendly, when cash is returned to shareholders and not reinvested in the business. From Tyler Durden at zerohedge.com:
Macy’s is down over 13% today, pushing towards a sub-$40 handle – the lowest since February 2013 – after lowering guidance and disappointing a market full of hope (and hype) that retail is back (remember, all the retail hiring last Friday). However, that is not the most prescient issue as 3 years of buying back billions of dollars of Macy’s stocks – to financially-engineer earnings to ensure executive compensation is satisfactory – have been completely wasted. And worst still, the additional debt added to fund the total failure in timing of buybacks has now sent Macy’s credit spiking to multi-year highs (as the stock tumbles).
“No Brainer” – Macy’s actually increased their buyback pace last quarter alone – spending $900 million on stock at an average price of $53.89, a loss of $230 million of that “investment”
And the flipside of shareholder-friendly releveraging… spiking default risk…
Now what? This is the clear message that executives in every credit cycle – there is a limit to the largesse with which you can abuse bondholders in the name of levitating share prices amid a dismal reality.
To continue reading: Macy’s Massacre
See also: Macy’s Blames “Tepid Spending” On Revenue Miss: Same Store Sales Tumble; Slashes Guidance, by Tyler Durden, SLL, 11/11/15
