Macy’s Inc. was cut to junk by S&P Global Ratings, which said the department-store chain falls on the wrong side of changing consumer preferences.
The company’s credit rating was lowered one notch to BB+ from BBB-, S&P said in a statement, citing its “excess stores.” The outlook is stable. Macy’s shares extended losses after the announcement.
“Pressure is mounting on Macy’s to adapt to the rapidly changing retail environment,” S&P said. “Its Polaris strategy, which includes meaningful restructuring and renewed focus on loyalty programs, private labels, and e-commerce, will be a challenge to implement successfully amid increasing competition from retailers that are ahead in many of these areas.”
The credit-rating company was referring to a new three-year strategy that includes eliminating 2,000 jobs and closing 125 stores — or almost a quarter of its total locations. Macy’s said those stores account for about $1.4 billion in annual sales. The department store chain also said with its plan, it expects its annual gross cost savings to be $1.5 billion by the end of 2022.
While department stores have struggled in the era of online shopping, S&P said that Macy’s has “unique challenges” among its large national department store peers.
“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,” S&P said. “Profitability under the plan is weaker than our prior expectation,” S&P said in a statement Tuesday. “This leads us to view Macy’s competitive position as less favorable.”
Macy’s shares fell as much as 4% to $15.95 at 12:43 p.m. in New York. They had declined about 2% this year through Friday’s close.
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