When it emerges from the coronavirus pandemic, Macy’s Inc. might no longer be the massive department store chain that Americans have known for 160 years.
During a virtual fireside chat with Gordon Haskett Research Advisors, CEO Jeff Gennette told analysts that the retailer will come out of the crisis a “smaller company,” as the business continues to struggle with a stalled turnaround plan and imminent debt deadlines.
“We are going to emerge out of this as a smaller company,” he said. “We don’t really know what the ramp back [up] looks like.”
The discussion came on the same day that Macy’s announced plans to reopen stores in phases: Just short of 70 units will unlock their doors on Monday in states that are easing lockdown restrictions. (The outposts will operate under reduced hours, from 11 a.m. to 7 p.m.)
A second batch of about 50 stores is expected to reopen on May 11, and within the next six weeks, the retailer plans to open all of its locations, assuming that COVID-19 infection rates slide and local governments allow stores to reopen.
While it has continued to operate its e-commerce platforms, Macy’s said last month that it had “lost the majority” of its sales with its brick-and-mortar business shuttered. To improve its financial flexibility, the retailer additionally suspended its quarterly dividend, deferred capital spend and tapped its $1.5 billion revolving credit line.
During the conversation with Gordon Haskett analysts, CFO Paula Price noted that Macy’s was in the process of raising debt to shore up more money. She shared that the retailer could use its inventory and real estate — two of its strongest assets — as collateral, adding that it still had close to the full $1.5 billion facility it pulled down last month.
“We have been engaged in this process for a while,” Price explained. “We have identified lead banks… [and we’re] confident we will have a deal closed and funded well in advance of when we need additional liquidity.”
In 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 predicted that its top 250 stores would account for 78% of sales by 2021.
However, the plan has hit a standstill amid the COVID-19 outbreak — and the company has also faced mounting pressure to address its debt load. 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.