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Unusual Options Activity In Macy's

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Several weeks ago, J.C Penney filed for bankruptcy. Part of the restructuring involves closing 30% of the over 800 stores. Reports began to circulate that Amazon was reportedly in talks with JCPenney to buying some of their stores to use as distribution outlets.

Instead of waving the “white flag,” Kohl’s partnered with Amazon. A year ago, Kohl's started accepting Amazon returns and has Amazon shops in their stores where they sell Amazon products such as the Echo smart speakers. The partnership simplifying the returns process for Amazon and showcasing Echo devices and other Alexa-compatible hardware and in return brings in addition foot traffic into the Kohl’s stores. Reports of Amazon buying Kohl’s goes back to 2017, Kohl's would get access to more exclusive brands that are now only part of Amazon's private label operation and Amazon would have access to more than 1100 sizable retail stores.

If the idea rings a bell, it may be because the prospect of e-commerce behemoth Amazon.com (NASDAQ:AMZN) acquiring brick-and-mortar outfit Kohl's (NYSE:KSS) first surfaced in 2017.

Yes, Amazon would instantaneously own the physical footprint that it seems to want. Assuming its current market capitalization represents its value to a suitor, Amazon would have access to more than 1100 sizable retail locales. Kohl's would enjoy a much stronger marketing effort too, with its parent able to direct more than 100 million U.S. customers toward the stores.

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But what about Amazon buying Macy’s? Macy’s business model and livelihood is pending the success of their Growth50 Initiative. Their Growth50 Initiative is to boost traffic and sales in their 50 best stores with a focus on: Upgraded technology (including improved rewards membership program that incentivizes higher per customer spending)

  • Improved lighting
  • Enlarged furniture and mattress showrooms
  • Food and beverage offerings
  • Potentially including a Backstage store that sells excess inventory at a discount and reduces the need for inventory write-offs

But Growth50 Initiative didn’t factor in a Black Swan event.

It could be lights out for Macy’s (M) if America goes through a second wave of the coronavirus.

“I think that the majority of retail is going to have a tough time surviving another major shutdown. I don’t know we’ll get one nationwide. If the consumer becomes fearful again of going into a mall or being in an enclosed space, you’re going to see the reaction that we saw in Texas, with the sales moderating. Again, even if we don’t there are a limited amount of bodies we’re allowed to have in stores going forward. It changes the dynamic of the holidays.

The company has launched curbside pickup. It has raised close to $4.5 billion in new high interest rate debt to shore up its balance sheet. It’s in the process of closing more than 100 lagging stores. And more recently, Macy’s said it would fire 3,900 corporate workers in a bid to save $365 million in costs this year and more than $630 million annualized. But, investors remain gravely concerned about the outlook for Macy’s. Shares of the department store have crashed more than 61% year-to-date.

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Amazon has had their challenges trying to sell apparel on their website. Buying Macy’s would also give Amazon access to the second biggest market for consumer: apparel and footwear according to Dominic Rispoli, a managing director with Lincoln International’s consumer group.

Today, there was news circulating that Amazon might be targeting Macy’s. And the Smart Money was all over this news as they bought over 90,000 call option at the $7.50 strike price that expire on July 24.

With that amount of volume, I’m tempted to dive in with the Smart Money, but I think I’m going to past on this one.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

Posted Using LeoFinance