Fitch Downgrades Macy's Rating To BBB, Palcing It Two Notches Above Junk

By Markets MarketWatch Pulse

Fitch Ratings on Friday downgraded Macy's Inc.'s long-term issuer default rating to BBB from BBB-plus on concerns the department store chain will struggle with a plan to boost sales. The rating is now two notches above speculative-grade, or "junk" status. The outlook is stable, Fitch said in a statement. The action "reflects the lack of visibility into a sales acceleration that would meaningfully improve profitability after a 14% EBITDA decline in 2015," the agency said. Fitch projects a 5% decline in 2016. Fitch is expecting the weakness in the mid-market clothing sector to continue as sales continue to shift online, weighing on growth. As a result, it expects leverage to remain elevated in the high 2 times range, which compares with the 2.2 times to 2.3 times range maintained between 2012 and 2014. It expects the company to use cash to buy back shares instead of repaying debt to keep its shareholders happy. Macy's is currently looking into real-estate opportunities, but Fitch expects any change in its capital structure would be credit neutral at best. Shares were last up 1.7% and are up 15% in the year so far, while the S&P 500 has gained 1.8%.

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