Fitch affirms Macy's long-term IDR at 'BBB'

21 Apr '14

4 min read

Stable Credit Metrics: Macy's generates above-average operating margins, with EBITDA margin expansion of over 100 bps over the last three years to 13.8% on strong top-line growth. Adjusted debt/EBITDAR was at 2.3x at the end of 2013 and Fitch expects adjusted debt/EBITDAR to remain in the mid-2.0x over the next two-three years, assuming low single-digit growth in comps and EBITDA.

Liquidity remains strong, supported by a cash balance of $2.3 billion as of Feb. 2, 2014. Macy's liquidity position is also supported by its $1.5 billion unsecured credit facility due in May 2018.

Macy's annual FCF has averaged more than $1 billion over the past four years and Fitch expects the company to generate annual FCF in the range of $1 billion to $1.2 billion over the next three years. Capex is expected to be in the range of $1.1 billion in the next two to three years as the company invests more in its store base and continues to fund growth-related initiatives. Macy's currently no longer needs to funds its pension plan due to its fully funded status at the end of 2013.

Fitch expects the company to refinance upcoming debt maturities and manage share buybacks within the context of maintaining its targeted adjusted leverage of 2.4x-2.7x.

RATING SENSITIVITIES

A positive rating action could result if Macy's comps outperformance and share gains against the increasing pricing competition and promotional pressure in the middle market continue and it maintains leverage in the low 2.0x range.

A negative rating action could result in case of a return to negative same-store sales trends and/or an aggressive financial strategy leading to leverage metrics increasing to above 3.0x.

Fitch Ratings

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