Dive Brief:

• After revising its outlook of the economy based on the "prolonged effects of social distancing and a weak environment for discretionary spending," S&P Global last week posted a negative outlook on Macy's, saying those factors "will intensify pressure at [the] mall-based department store operator." S&P economists say they now expect real GDP to contract 5.2% this year, according to a press release emailed to Retail Dive.

• "The negative outlook reflects the risk of a lower rating if the impact of the coronavirus pandemic lasts longer than we anticipate so that Macy's is unable to reopen stores, resulting in liquidity or credit metrics that are worse than our current forecast," wrote analysts Andy Sookram and Helena Song.

• They also lowered all their ratings on Macy's, including the issuer credit rating to 'B+' from 'BB,' citing the retailer's "sizable upcoming debt maturities over the next several years and potential covenant compliance issues under its revolving credit facility."

Dive Insight:

Macy's was already struggling to capture discretionary dollars before the COVID-19 pandemic forced nonessential retailers to temporarily lock their doors, including, as of March 18, the department store's 775 or so. Grabbing back share of apparel and home goods spending was the point of its "Polaris" turnaround, unveiled in February.

Polaris wasn't given much of a chance, as the disease outbreak forced stores to close their doors and began to take its toll on the economy more broadly. The department store hit the brakes on the plans barely a month after releasing them in order to shore up financial fundamentals by cutting pay, drawing down its credit facility and furloughing most of its workforce. This month, the department store's CFO announced she would exit, after less than two years in the post. 

The retailer was already shrinking operations as part of Polaris. Several stores are slated to close permanently, and about 2,000 workers were already laid off in plans to reduce Macy's "corporate and support function headcount" by 9%. The company previously announced the closure of 125 underperforming stores over the next three years, 29 of which had already been announced for this year.​

Now, though, that could go further, in light of the worsening outlook for the economy and how that will hurt Macy's in particular.

The S&P analysts said they now anticipate Macy's debt leverage to deteriorate "even after further economic recovery as lingering impacts of the weak economy, ongoing secular pressure for department stores, and anticipated acceleration of Macy's banner closures reduce nominal EBITDA from historic levels. As a result we are revising our financial risk profile assessment to aggressive from significant."