Analysts Lost Faith in Macy’s Before It Even Started Its Turnaround Plan

Macy’s stock has been downgraded as the retailer embarks on an ambitious turnaround plan.

Both S&P Global Ratings and Fitch Ratings this month lowered the retailer’s long- and short-term issuer credit ratings. On Tuesday, S&P analysts downgraded Macy’s long-term rating to BB+ from BBB- and its short-term rating to B from A-3. The new value pushes the company’s rating out of investment grade territory.

“While we believe management’s strategic plan is a necessary step toward rightsizing the enterprise, it demonstrates to us that the company’s competitive advantage has diminished more than we expected, and to a point that we no longer believe is consistent with an investment-grade rating,” S&P wrote in its research note. “We now project operating performance will deteriorate over the next several quarters, with declines in comparable same-store sales.”

What’s more, on Feb. 6, Fitch Ratings downgraded Macy’s long-term issuer default rating to BBB- from BBB. It also lowered the short-term rating to F3 from F2. In its note, the agency wrote that it could downgrade Macy’s ratings on “reduced confidence in the company’s longer-term business profile” or its “ability to stabilize its operating trajectory.”

Both S&P and Fitch analysts noted that their outlooks for Macy’s were stable.

The Fitch rating came a day after Macy’s held its investor day, when it outlined 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 will also shutter its Cincinnati headquarters and San Francisco tech office, relocating some of these jobs to its new home base of New York City. Macy’s said it expects these moves to save the company $1.5 billion annually by the end of fiscal 2022.

“We will focus our resources on the healthy parts of our business, directly address the unhealthy parts of the business and explore new revenue streams,” Chairman and CEO Jeff Gennette said in a statement on Feb. 4. “Over the past three years, we have shown we can grow the top line; however, we have significant work to do to improve the bottom line. We are confident the strategy we are announcing today will allow us to stabilize margin in 2020 and set the foundation for sustainable, profitable growth.”

Over the past three months, Macy’s stock has lost over 5% of its value. In its third-quarter earnings report ended Nov. 2, the company logged its first same-store sales decline in two years and slashed its guidance for the full year. Macy’s execs blamed the disappointing results on the warmer fall season, coupled with slowing foot traffic, amid a broader shift from brick-and-mortar to online retail.

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