Pedestrians pass a JC Penney store in New York.
Scott Mlyn | CNBC
America’s department store chains have seen their odds of defaulting escalate more than any other consumer-facing companies over the past month, according to a new analysis by S&P Global Market Intelligence.
“Coronavirus-related challenges are mounting for an already struggling group of retailers,” the firm said in a note to clients Thursday morning.
S&P Global Market Intelligence’s median, one-year probability of default represents the odds that a company will default on its debt within the next year, based on fluctuations in a company’s share price and other risk factors. That jumped to higher than 40% for some industries earlier this month. That’s compared with being under 10% at the end of February, according to the firm’s analysis of publicly traded consumer companies in the U.S.
Department store operators, including Macy’s and J.C. Penney, had the highest median, one-year probability of default, of 42.1%, as of April 7.
Second to department store chains are hotels, resorts and cruise lines.
Industries with the lowest rate of default include businesses that sell consumer staples and household products, the analysis said.
A separate report by Cowen & Co. late last month said America’s department stores can make it as much as eight months with their stores closed before liquidity troubles mount. Many retailers, including Macy’s and Kohl’s, have been drawing down their credit revolvers to come up with cash.
Nordstrom on Wednesday said its financial situation could become distressed if its stores stay dark for much longer because of COVID-19. The Seattle-based department store chain said the pandemic, so far, has had a “substantial impact” on its business.
Macy’s, meantime, was dropped from the S&P 500 earlier this month and replaced by Carrier Global. Macy’s market cap has fallen from roughly $6 billion in mid-February to about $2.1 billion today.
The whole department store industry has taken a brutal beating on Wall Street of late.
Macy’s shares have fallen more than 64% this year. Penney’s stock is down nearly 70%, bringing its market cap to $110.7 million. Nordstrom, with a market cap of about $3.3 billion, has watched its stock tank nearly 50% this year. Kohl’s, with a market cap of $3.1 billion, has seen shares fall roughly 62% year to date.
Department stores today are “a bunch of fossils,” former Rue21 CEO Bob Fisch told CNBC in an interview. “They belong in the Museum of Natural History.”