Macy's cut to junk as turnaround plan sparks concerns

Macy’s credit score was cut to junk by debt-ratings firm S&P Global, which said the department-store chain has too many stores amid a shift in consumer preferences away from mall-based locations. Shares fell on the news.

The firm lowered its long-term credit rating on Macy’s by one notch to BB+, the highest level of junk.

“The downgrade reflects our view that Macy's improvement trajectory is weaker than our prior expectations,” New York-based S&P analysts said in a report. They believe Macy’s is facing elevated risks and that its operating performance will “deteriorate over the next several quarters, with declines in same-store sales."

Macy’s announced a cost-reduction strategy dubbed “Polaris,” on Feb. 4, which aims to stabilize profitability and position the department-store chain for the years ahead.

The plan, which targets $1.5 billion of annual gross savings to be achieved by year-end 2022, includes closing 125 stores over the next three years, cutting about 2,000 corporate jobs and closing several offices, including its corporate headquarters in Cincinnati, Ohio. Macy’s headquarters in New York City will remain open.

The S&P analysts added that “profitability under the plan is weaker” than they previously expected, making the company’s competitive position less favorable.

Macy’s is set to report its fourth-quarter and full-year results on Feb. 25. The retailer forecast fourth-quarter net sales of $8.3 billion, and said it sees comparable sales at stores it owns falling 0.6 percent.

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Macy’s shares were down 1.9 percent year-to-date through Tuesday, underperforming the S&P 500’s 3.4 percent gain. They lost 43 percent last year.