Shares of Macy's (M) - Get Report and Gap (GPS) - Get Report were falling Friday after Moody's Investors Service downgraded the clothing retailers' debt to junk due to the disruption caused by the coronavirus pandemic.
Macy's down 3.2% to $5.75 and Gap was off 4.1% to $8.10.
Moody's downgraded Macy's debt one level to Ba1 from Baa3, while Gap's debt was downgraded two levels to Ba1 from Baa2.
Moody's said that Macy's will need to "refocus its efforts toward prioritizing the preservation of liquidity and delaying its strategic plans to improve its operating performance."
Due to weaknesses in its credit profile, Macy's has been left "vulnerable to shifts in market sentiment in these unprecedented operating conditions and Macy's remains vulnerable to the outbreak continuing to spread."
Macy's recently withdrew its 2020 sales and earnings guidance issued on Feb. 5 and confirmed on Feb. 25. The company also suspended its regular quarterly cash dividend payout beginning in the second quarter
Moody pointed to Gap's "steady decline in Gap's cash flow from operations and credit metrics as well as the anticipated disruption of the Covid-19 virus in the face of unprecedented temporary store and mall closures."
Moody's expects that Gap's earnings "will materially contract in 2020 and Gap is currently pursuing a secured credit facility" even with the company's $1.7 billion in cash and short-term investments plus the ability to reduce its dividend.
Gap withdrew its full-year forecast issued two weeks ago, suspended its dividend and said it would draw down its entire $500 million credit facility.
Gap last week temporarily shut all of its North American stores.