February 21, 2020
Standard & Poor’s Global Ratings cut the debt rating for Macy’s Inc. to junk status, saying the iconic retailer “faces unique challenges,” The Street.com reported.
The credit-rating company lowered its long- and short-term issuer credit ratings on Macy’s to BB+ and “B” from BBB- and A-3, respectively. S&P also lowered its rating on the company’s senior unsecured debt to BB+ from BBB-.
“Macy’s faces unique challenges among the large national department stores,” S&P said in a ratings note. “A long history of acquisitions and expansion has saddled it with excess stores as shoppers’ shifting preferences move away from mall-based locations and toward more value- oriented offerings.”
Earlier this month, Macy’s unveiled its Polaris turnaround strategy, which among other aspects will see the company shutter 125 of its least productive stores over the next three years. The company will be headquartered in New York, where its venerable flagship location has been based in Herald Square since 1902, while the downtown Cincinnati offices will close.
The downgrade, S&P said, “reflects our view that Macy’s improvement trajectory is weaker than our prior expectations, and execution risks are elevated as the company pursues its Polaris strategic plan against an ongoing difficult industry backdrop.”
Although the Polaris initiative 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,” said S&P.
The ratings agency said it now projects that the retailer’s operating performance will deteriorate over the next several quarters, with declines in comparable same-store sales.
“However, we recognize the company’s ability to manage credit metrics by reducing debt with still-good free-cash-flow generation, supplemented by asset-sale proceeds,” S&P said.
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