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Macy's (NYSE: M) wrapped up its 2018 fiscal year last week. The iconic department store giant won't report its full results until later this month, but it already reduced its full-year earnings per share guidance to a range of $3.95 to $4.00 in an early January investor update. (On the bright side, that's still higher than Macy's initial EPS forecast for fiscal 2018.)
However, despite this earnings miss -- which was driven by a revenue slowdown in December -- Macy's likely ended the fiscal year with quite a bit of cash on its balance sheet. That could give the company the flexibility to restart a meaningful share buyback program this year.
The fourth quarter is the time for cash flow
Like most of its peers, Macy's generates the vast majority of its annual cash flow in the holiday quarter. In recent years, the company has typically generated operating cash flow of at least $1.5 billion in the fourth quarter.
Macy's Cash from Operations (Quarterly), data by YCharts.
While the holiday season didn't quite live up to Macy's expectations, $1.5 billion still seems like a reasonable estimate of its operating cash flow for last quarter. Based on management's full-year guidance and Macy's capital expenditures for the first three quarters of fiscal 2018, the company probably spent between $300 million and $400 million on capex during the period. That would put its quarterly free cash flow between $1.1 billion and $1.2 billion.
Macy's used most of this cash flow for a massive debt tender offer last quarter. The company repurchased $750 million of its debt in December, strengthening its balance sheet. Macy's also used approximately $116 million to pay its regular quarterly dividend.
While the debt repayments and dividends represented a significant use of cash, Macy's still should have had at least $200 million to $300 million left over to add to its cash reserves.
Asset sales will add to the haul
Macy's also completed several asset sales during the fourth quarter, representing an additional source of cash. Most notably, the company completed the sale of the I. Magnin building -- part of its San Francisco flagship store -- just before the end of the fiscal year, reaping proceeds of $250 million.
Macy's recently sold the I. Magnin building (left) in San Francisco. Image source: Macy's.
Macy's also sold two stand-alone furniture stores in the Chicago suburbs for $26 million and a full-line store in Nanuet, New York, for $11.5 million during the fourth quarter, according to various news reports. There also may have been some smaller asset sales that did not make the headlines.