4 billion goodwill writedown in 2009. The long-term debt ratio is 39.7%, compared with 32.7% in 2008 and 26.7% in 2006, again indicating that while the level of long-term debt has remained roughly unchanged, the company has become much smaller. Overall, Macy's is solvent, but still has long-term debt issues. The company's leverage climbs higher because the company is shrinking, but cannot find a way to reduce its overall debt. The gross margin in 2010 was 40.5%, compared with 40.4% in 2008 and 40.7% in 2006. The operating margin is 4.5%, compared with 7.1% in 2008 and 10.8% in 2006. The net margin is 1.5%, compared with 3.4% in 2008 and 6.3% in 2006. The lack of significant change in the gross margin indicates that Macy's has maintained its pricing power both with respect to its suppliers and its customers over the past five years. However, it has allowed its own cost structure to increase at a time when revenues were decreasing. The result of this is a decline in the operating margin and consequently the net margin. The company can restore its margins by bringing its costs in line with its revenues -- the expansion of 2007 must be undone and the company simply has not moved strongly enough in that direction since then.

The inventory turnover in 2010 was 3.02 times, compared with 3.09 in 2008 and 2.43 in 2006. This indicates that the company has been able to successfully manage inventory levels despite the slowdown in business. Accounts receivable turnover is 65 times in 2010, compared with 56 times in 2008 and 8.9 times in 2006. Since 2007, Macy's has carried a very low level of receivables on its balance sheet, perhaps indicating a change in credit policy. The result of this is that receivables turn is very high, which may explain some of the change in the current ratio as well. The asset turnover is 1.1 times, compared with 0.94 times in 2008 and 0.67 times in 2006. This indicates that the company is doing a better job of generating revenues from its assets -- the decline in revenues is not as great as the decline in the size of the company...

However, the main sticking point at present is the SGA expense, which is too high. Faced with a challenging operating environment characterized by both economic stagnation and intensifying competition, Macy's has failed to enact a core strategy that appeals to consumers. As a result, the company has seen its sales decline steadily. This has caused the company to shrink its size. Overall, the main point of concern with respect to doing this is that Macy's expanded its cost structure in 2007 and has yet to contract it significantly in response to the market conditions. The company clearly believes that the causes for its decline are external and temporary, but the decline began at least as far back as 2007. That the company's cost structure has grown out of line with its revenues has had a number of impacts. Profitability is down, and if the trend continues Macy's could find itself losing money. This has made it difficult for the company to reduce its debt levels as it reduces assets, a situation that has cause the equity of the company to diminish quickly.
The decline in sales is not a short-term phenomenon. Macy's has a fairly uninspiring online presence, and traditional department stores are losing money to both online retailers and to discount stores. Macy's has not differentiated itself enough to maintain its business. The company therefore needs to adjust to the new business reality in order to maintain profitability. While there is little indication of immediate trouble at Macy's, the trends are almost entirely negative. In a few years, if these trends continue, the company's debt load will become too great such that liquidity and solvency are compromised. In addition, the company will be forced to shrink rapidly and painfully. Macy's needs to find ways to attract more customers or it needs to start cutting costs and addressing its debt levels while the company is still healthy enough…