Macy’s Is Junk
Department store Macy’s is struggling to make inroads into e-commerce and can’t stem the flow of red ink. A credit ratings agency just labeled it ‘junk,’ but if the company does go under, who gets what from the wreckage?
Macy’s must pay off as much of its borrowed money as possible, no matter what. That puts bondholders at the front of the queue to get paid in a bust scenario, but they might not get everything back. Assuming they do, the rest of the investing community, both ‘preferred’ shareholders and ‘common’ shareholders, will fight over the leftovers.
Preferred shareholders pay a little extra for their shares so that they can jump the line. It’s first-come, first-served, anyway. There are usually very few market players in this group if any, but it’s only after they’re paid that the final remains can be divided up equally between the rest of us. We gotta wait our turn!
Even though Macy’s has some life in it yet, those everyday investors care about the doomsday pecking order. Investors are clamoring to see what’s going on with bondholders at the front of the queue, because if Macy’s creditors aren’t getting paid, then what hope do the common folk have?
News broke yesterday that S&P Global, a prominent US credit ratings agency, had downgraded Macy’s bonds from B+ to BBB-. That’s only one notch, but it gives the bonds official ‘junk’ status, implying a 5% chance that someone lending money to Macy’s could be left out of pocket over the next ten years. This has been taken as a surefire sign of trouble ahead by the market, shares tumbling!
S&P Global did offer some suggestions. Accelerate ‘Polaris,’ for example, a restructuring program. More private label products. More e-commerce. Better loyalty programs. Close excess stores in malls. It’s all what investors have heard before, brick-and-mortar’s turnaround to-do list. Only Walmart has successfully pulled it off. The rest of the sector is dying a slow, painful death, and is heavily short-sold by the Invstr community.
Only sixty-six Invstr’s are playing the odds game with Macy’s for a massive payout if a turnaround takes place. 4,054 trades have been made for the stock, though, the community finding a way to print gains 61% of the time. That’s impressive for a stock in terminal decline with such low performance and predictability scores, 30% and 40%, respectively, so plaudits! How long can Macy’s keep going?