M: Has Its Time Come?

I did not like M in 4Q, and I was dead wrong. But the thesis still holds, and we're starting to get indications on the fringes that one of the biggest consensus longs in retail could finally face some intense pressure. 



In hindsight, these Macy's management changes make sense.  Ron Klein, Macy's Chief Stores Officer, and the 4th top executive in the company, is stepping down.  This happened a day after the top management team was paid a cash dividend for a 2-year performance incentive plan. In fairness, it was not an options exercise, or flat-out stock sale. But a dividend that was put to them on a pre-determined date. The verbiage from yesterday's 8k is actually quite clear.


This is however, excellent timing for Mr. Klein. The consensus is looking for a robust 4% top line growth rate at Macy's alongside a peakish 40% gross margin for the next two years. I'll give 'em one or the other, but not both. Our particular concern is the competitive landscape, and the falling dominoes that are being set in motion by JC Penney (and perhaps Sears), as Target, Kohl's, Macy's of the world WILL have a planned response. But their planned response probably does not account for the planned response of others. Welcome to the world of retail.



From Yesterday's 8K

In accordance with the terms of the 2008-2009 stock credit plan, earned performance-based stock credits and time-based stock credits were all subject to two-year and three-year holding periods commencing on January 31, 2010 with their ultimate value to the participants dependent on Macy's stock price. The value of one-half of the stock credits, with dividend equivalents accrued during the holding period, was required to be paid in cash to the senior executives at the conclusion of the two-year holding period (with an automatic payment on or about January 30, 2012). The value of the remaining one-half of the stock credits, with dividend equivalents accrued during the three-year holding period, is required to be paid in cash to the senior executives at the end of the three-year holding period (with an automatic payment on or about February 4, 2013).



The stock credit plan provides that the value of the stock credits is determined on the basis of the average closing price of Macy's common stock as reported on the New York Stock Exchange for the 20 business days preceding a payment date. For the January 30, 2012 payment, this value was $34.25 per share.



The named executive officers received the amounts shown below with respect to the 2008-2009 stock credits for which the two-year holding period ended as of the end of fiscal year 2011. Janet Grove, a named executive officer in the March 30, 2011 proxy statement, retired during fiscal 2011 and is not listed below.



Stock Credit Dividend

Value Equivalent


T. Lundgren $6,357,879.90 $141,850.83

K. Hoguet $1,397,017.43 $31,168.52

T. Cole $1,397,017.43 $31,168.52

R. Klein $1,068,315.73 $23,834.91

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