Macy’s Downgraded Again as Turnaround Plan Is Stalled and Debt Pressures Intensify

Macy’s Inc. has been downgraded once again as the retailer’s turnaround plan has hit a standstill and its debt pressures intensify amid the coronavirus pandemic.

In a release on Friday, S&P Global Ratings announced that it had lowered the department store chain’s issuer credit rating to B+ from BB. The agency attributed the downgrade to a revised macroeconomic outlook that could weaken discretionary spending, as well as Macy’s debt maturities in the coming years and potential compliance issues under its revolving credit facility.

“The negative outlook reflects the risk of a lower rating if the impact of the coronavirus pandemic lasts longer than we anticipate so that Macy’s is unable to reopen stores, resulting in liquidity or credit metrics that are worse than our current forecast,” the analysts wrote in the note.

At its investor day in early February, Macy’s unveiled a three-year turnaround plan that included trimming 125 stores from its total footprint, cutting 2,000 jobs — or about 9% of its corporate workforce — and ramping up investments in both higher-margin private labels and off-price through Macy’s Backstage. It shared expectations for these moves to save the company $1.5 billion annually by the end of fiscal 2022 and said it expected its top 250 stores to account for 78% of sales by 2021.

However, the COVID-19 outbreak has thrown a wrench in its efforts: The company, whose stores across the country remain closed, has resorted to furloughing the majority of its employees, while CEO Jeff Gennette waived his salary and senior members of the management team took pay reductions. On top of these cost-cutting measures, the retailer added that it had frozen both hiring and spending, and had suspended its quarterly dividend, deferred capital spend and tapped its $1.5 billion revolving credit facility.

According to S&P Global Ratings, Macy’s debt maturities over the next three years amounted to roughly $1.8 billion, with $533 million due in January 2021 and another $450 million in January 2022. Its financial challenges come not only during a period of uncertainty, but also as its EVP and CFO Paula Price prepares to depart the company. (The exec had served in the role since July 2018 and will exit on May 31.)

What’s more, reports emerged two weeks ago that Macy’s had hired investment bank Lazard Ltd. to help it weigh its financial options as it manages liabilities. It was also reportedly mulling alternatives that included new financing.

Over the past couple months, S&P researchers already downgraded the company twice, pushing its rating out of investment grade territory. Macy’s was also removed from the S&P 500 early this month, joining the S&P 600 Small Cap index as its market capitalization now reaches about $1.5 billion — roughly a quarter of what it was last year.

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