NEW YORK (Reuters) – Macy’s Inc (M.N.) the investment bank Lazard Ltd (LAZ.N) Reviewing ways to strengthen its finances after the department store operator lost most of its earnings as it closed all of its businesses due to the outbreak of the coronavirus, said those familiar with the matter.
FILE PHOTO: People are waiting to enter Macy’s Herald Square before opening Black Friday sale in Manhattan, New York City, USA on November 28, 2019. REUTERS / Andrew Kelly
The move by Macy’s, the largest US department store operator after sales, is a sign of the severity of the crisis facing brick-and-mortar retailers who have already struggled with the switch to online shopping. The pandemic has resulted in the closure of businesses and widespread vacation leave as state-by-state protection orders have been issued to curb the spread of the coronavirus that causes COVID-19 respiratory disease.
Macy’s has brought in lazard bankers who specialize in finding ways to recapitalize financially troubled companies and revise debt. Macy’s has also hired debt restructuring attorneys at Kirkland & Ellis LLP, two of the sources said.
Macy’s asked his advisors to help manage his debt and consider options that could include new funding. The sources said no debt restructuring was imminent.
The sources asked not to be identified because the consultations are confidential.
A Macy’s spokeswoman said in a statement that the company “explores numerous options to strengthen our capital structure” and that it has relationships with a number of advisors.
The company, which runs the Macy’s and Bloomingdale department stores, declined to comment further than referring to previous steps it had taken in response to the pandemic. This included suspending his quarterly dividend, drawing on his credit line, postponing spending and at most cutting wages at management levels and vacationing the majority of his approximately 123,000 employees.
A Kirkland spokeswoman did not immediately respond to a request for comment. A Lazard spokeswoman declined to comment.
The company, which also operates the Bluemercury beauty products and spa chain, has long-term debt of $ 3.6 billion and leasing commitments of approximately $ 7 billion. At the end of last fiscal year, the company had $ 685 million in cash and recently pulled an additional $ 1.5 billion from a line of credit while its businesses remained closed.
Macy’s decision to consider new funding opportunities, among other things, makes Macy’s the youngest US retailer to do so. On Thursday rival Nordstrom Inc (JWN.N) $ 600 million raised by placing real estate assets, which included five stores, six distribution centers, and headquarters in Seattle, in a separate company and borrowed by issuing bonds.
Macy’s was in the midst of cutting costs before the corona virus broke out, and planned to close 125 stores permanently and cut more than 2,000 jobs over the next three years. This was in addition to the more than 100 store closings and thousands of job cuts that have been introduced since 2015.
The 161-year-old department store operator closed all 775 department stores in response to the pandemic last month. This made e-commerce the only source of income. E-commerce accounted for approximately 25% of its $ 25 billion in sales in the twelve months to February 1st.
It is unclear when Macy and other department store chains can reopen. Rating company Fitch Ratings Inc announced earlier this month that Macy’s revenue will decrease nearly 25% this year. The shares of the New York-based company have fallen more than 60% since the beginning of this year, giving the retailer a market cap of around $ 2 billion.
Like many companies that have been hit hard by the pandemic, Macy’s has announced that its CEO Jeff Gennette will forego payment during the crisis. Last week Macy’s announced that its CFO had decided to step down in late May and was looking for a replacement.
Macy’s has become a household name in the United States over the decades, known for its Thanksgiving Day Parade in New York City and its flagship store Herald Square, which spans an entire block in the heart of Manhattan.
Macy’s has $ 530 million in debt due in January 2021 and another $ 450 million in early 2022 and is likely to have enough cash to make these payments, Fitch said.
The company’s credit rating has been downgraded to junk by two rating companies in the past few weeks, making borrowing more expensive for retailers. However, Macy’s junk-rated bonds recovered last week after the Federal Reserve announced that it would extend its asset purchase program to bonds of companies that were investment-grade, but then downgraded to junk status were.
(This story was rewritten to correct New York headquarters, not Cincinnati in the 5th to last paragraph.)
Reporting by Jessica DiNapoli and Mike Spector; Arrangement by Leslie Adler