Some facts:
1. At this moment, Macy’s has an 11-year streak investment-grade credit rating. Translation: It’s been considered a safe, solid company for investors to invest it.
2. Macy’s debt - which, at $9.8 billion is double than that of any of its direct competitors, like Nordstrom and Kohl’s - combined with the bleak upcoming holiday season, is making it trade like a junk bond. Translation: This could make their investment-grade credit rating, which is decided by ratings agencies like S&P and Moody’s, go down (in fact, both agencies have already announced they have a “negative” outlook on Macy’s rating, which is already at the lowest rung of the investment-grade credit ratings). Further translation: This makes them an unattractive company in which to invest, meaning they’ll have to promise a higher return to investors in order to keep them, meaning it’s going to cost Macy’s a whole lot more money just to keep their investors’ money in their veins. It also means that companies that simply aren’t allowed to invest in companies without investment-grade ratings - some funds simply will not invest in companies that are considered “speculative” - will pull their money out of Macy’s entirely, making it extremely hard for Macy’s to pay off its debt at all.
3. Ratings agencies give these credit grades based on how a company is doing, how much debt it has, etc. Macy’s is about to enter what was typically its most profitable time of year - four-fifths of their profits last year were made just during the holiday selling season - which we all know is expected to be the bleakest holiday selling season seen in some time.
The big picture? Right now, the future of Macy’s seems to be at the mercy of two factors - The credit rating they get, which determines the interest they’ll have to pay investors in order to fund operations, and the upcoming holiday selling season, which will play a huge part in ratings agencies’ decision of whether or not to downgrade Macy’s (they usually wait until after the holiday season to change grades for retail companies) from their current investment-grade rating to a lower rating of non-investment grade speculative.
So? Since the holiday selling season already looks awful (check out Macys.com for some already amazing deals pre-Thanksgiving), and since the main ratings agencies have already said they have a “negative” outlook on Macy’s credit rating, which can only cross the line into non-investment-grade speculative since it’s already at the lowest point of the good end, Macy’s, right at this moment, seems screwed.
But we promise we’ll be more upbeat from here. Ho ho ho.
posted by guest
Nov 21, 2008 10:09AM
i like macy's and hope they pull it together. they probably got caught with the pie in the sky approach many US companies found themselves in in the mid 00's with aggressive overexpansion and the feeling that nothing could go wrong. there are way too many large retailers out there and some will be forced into bankruptcy.