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Struggling retailers Macy’s and Gap downgraded to junk bond status

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It’s to no-one’s surprise that retailers have been one of the most hard-hit industries over the past couple of months. With the exception of airlines and tourism-related sectors, companies selling products at brick-and-mortar locations have taken a financial pounding. While eCommerce giants like Amazon have enjoyed significant surges in online traffic as people stay at home instead of venturing out for necessities, retailers selling non-essential products (essentials being food, water, prescriptions) have seen their traffic grind to a virtual halt. On Thursday, Macy’s (NYSE: M) and Gap (NYSE:GPS) were downgraded to junk status by Moody’s.

The credit agency announced on Thursday that the two companies would need to undergo dramatic changes in order to change things around. In regards to Macy’s, Moody’s said that the retailer would have to “refocus its efforts toward prioritizing the preservation of liquidity and delaying its strategic plans to improve its operating performance.” It added that the company’s credit weaknesses have “left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Macy’s remains vulnerable to the outbreak continuing to spread.”

Moody’s made similar comments about Gap, warning that the company’s declining cash flow as well as debt made it especially at risk of further coronavirus-related disruptions as malls across the country continue to close. Although Gap still has around $1.7 billion in cash on its balance sheet, Moody’s still felt that the company was too much of a risk not to issue a downgrade. Even before the coronavirus, however, both retailers had been struggling with declining revenue figures. This pandemic has only made their situations worse.

Gap had previously announced it would be suspending its dividend in light of the coronavirus. A similar announcement has been made by many other major retailers over the past week or two. Macy’s also announced it would be halting its dividend as well while withdrawing its 2020 guidance. Nor is it just retailers doing this. Boeing stated that it would be halting all dividend payments, and so did the well-known automaker Ford.

Shares of Macy’s tumbled by as much as 10% on Thursday, while Gap dropped by approximately 6%. Both companies have seen their share prices tumble over the past month as Americans isolate themselves and work at home due to the coronavirus. Although the markets as a whole have witnessed an impressive recovery over the past couple of days, time will tell whether or not stocks will stay at this level of continue to decline in the future. Until then, staying clear of companies in the aerospace, retail, or tourism industries seems like a safe bet to protect your wealth.

 

Macy’s Company Profile

Founded in 1858, Macy’s operates about 613 stores under the Macy’s brand, 55 stores under the Bloomingdale’s brand, and about 172 Bluemercury specialty beauty stores. Macy’s also operates e-commerce sites, owns 65% of a Chinese e-commerce joint venture, and licenses two Bloomingdale’s stores in the United Arab Emirates and Kuwait. Women’s apparel, accessories, shoes, cosmetics, and fragrances constitute approximately 61% of Macy’s sales. The retailer recently consolidated its headquarters in New York City. – Warrior Trading News

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