Macy's Store Closures Could Mark Beginning of 2020 Retail Restructuring

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Macy's store closures could be just the beginning of a small trend to be seen in several retail segments for the near future.

Macy’s s closing 125 stores, roughly 17% of its store count, as the department store has lost market share to digitally savvy players like Amazon and even Target and Walmart. Macy’s is also looking at cost savings of over $1 billion through 2022, starting with $600 million in 2020. Revenue is expected to fall to $24.539 billion in 2020.

The company said it wants to reposition its sales focus on digital distribution, including buy-online-pick-up-in-store options for customers. Recently, the company has been buying back its debt in order to deleverage. Now, its capital structure is leaner, with net debt at less than 2 times its expected 2020 earnings before interest, tax and non-cash expenses, a healthy ratio. It has roughly $1 billion in cash on hand.

But this is just the beginning of restructuring and potentially some asset sales in retail, Brien Rowe, managing director and head of retail and consumer investment banking at D.A. Davidson & Co. told TheStreet.

"Overall we’re going to continue to see store closures and continued restructurings,” Rowe said. “A fair amount of volume in M&A will be restructuring.” He said department stores could be at the heart of those initiatives. He also said some fashion brands that have struggled in the face of e-commerce may reorganize.

As for asset sales — whether or not those are part of a broader restructuring plan — Rowe said, "We’re very active with healthy M&A, but also working on restructurings.”

He said one brand — a public company that sells outdoor goods -- is exploring the sale of one of its businesses in order to focus on its “core pursuit,” or core business.

Buyers, he said, will include a mix of private equity firms, but also corporate buyers who are looking to turn business around, cut unproductive costs and focus on e-commerce. Rowe said those buyers will be intrigued by low valuations.

As for restructurings, which department stores are a clear candidate for, Rowe said to expect more store closures.

Recently, L Brands, which has seen its stock fall 75% in the past five years, was reported to be exploring a sale of the struggling Victoria’s Secret to a private equity firm. L Brands, like Macys, wants to deleverage and refocus.

Pier 1 said in early January it’s looking to close 450 stores, half of its current store base. Pier 1 has recently been posting net losses and the stock has lost almost all of its value since 2013, when it was trading at $463 a share.

Pier 1 said it wants to reorganize and run at roughly $900 million in sales per year. But bankruptcy may be imminent.

In order for the new — non-bankruptcy — plan to work, Pier 1 needs to move quickly. The company has $350 million of total debt, a large portion of which comes due soon.

Some of the bonds mature in 2021 and some in 2022. With just $50 million in cash and equivalents and a chunk of debt owed soon, Pier 1 needs not only to launch the new plan and earn profits soon, but it must quickly exemplify to investors that the plan is viable for the long-term, in order to have access to the capital it needs for ongoing operations.

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