R. H. Macy Junk Bonds Stage Strong Rebound : Retailing: Lots of big chains are hurting, but analysts say the parent of I. Magnin and Bullock’s will probably make it.
The junk bonds of R. H. Macy & Co. bounced back Friday afternoon after tumbling earlier, but bankruptcy-wary analysts and suppliers still expressed concern about the reduced flow of credit to the big retailer.
Worries mounted during the week amid word that many of the nation’s biggest factoring companies--lenders that finance apparel firms and other key retail suppliers--tightened credit on merchandise bound for Macy’s.
Industry observers noted that other debt-heavy retailers such as Campeau Corp.’s department store divisions and Ames Department Stores sought refuge in bankruptcy court this year after losing the confidence of suppliers and the financial community.
Still, they said that Macy--the owner of Bullock’s and I. Magnin stores in Southern California--does not appear to be on the brink of a crisis.
“There’s always concern in this climate with anyone that’s highly leveraged, but are we greatly concerned? No,” said Michael Gould, president of the Giorgio Beverly Hills fragrance firm, a supplier to Macy’s.
Barbara Wedelstaedt, an analyst with Duff & Phelps, said there is at most a 30% chance that Macy’s will join the parade of retailers that have marched into bankruptcy court this year. She said the tighter credit policy toward Macy’s appears to stem more from lenders’ concerns about retailing in general than about the performance of the company itself.
Unlike some of its competitors, Wedelstaedt said, Macy’s has maintained good relationships with its banks and suppliers.
Analysts also noted that big payments on Macy’s $5.6 billion in debt are not due for another two years, providing time to work out problems. On the other hand, Wedelstaedt said, if “suppliers get nervous and the factors get nervous, they could cut it off tomorrow.”
A spokesman for New York-based Macy’s said the company is doing business as usual. “Nothing’s happened that is changing the business,” the spokesman said.
Macy’s confirmed preliminary financial data disclosed in Women’s Wear Daily that the company’s net loss narrowed slightly in its third quarter ended April 28 to $63.1 million, from $64.1 million a year earlier. The company’s cash flow--earnings before interest, taxes and depreciation, a key gauge for heavily indebted businesses--climbed to $160.2 million from $154 million.
Sales inched up to $1.486 billion from $1.482 billion.
Although the preliminary report was in line with what Macy’s told investors to expect earlier this month, the news was given credit for calming the junk bond market.
Two of Macy’s three main junk bond issues closed unchanged for the day after giving ground on Thursday and in early trading Friday. The company’s 14.5% bonds maturing in the year 2001 finished at 59 cents on the dollar, after trading as low as 55. Its 14.5% bonds maturing in 1998 closed at 69, up from a low for the day of 66.
Macy’s 16.5% bonds maturing in the year 2006 closed around 25.5, up from 24 on Thursday.
Many suppliers, meanwhile, were taking a wait-and-see approach. At Piccone Apparel in Los Angeles, makers of Body Glove swimwear, a big order from Macy’s just arrived. But Richard Battaglia, Piccone’s vice president for U.S. sales, said the firm won’t make the shipment until it is cleared by its factor.
“I’m not going to jeopardize my business to finance someone else’s business,” he said.
Kenneth L. Goldman, a partner in the Los Angeles accounting firm Goldfarb, Whitman & Cohen, said “most of the factors in Los Angeles are cutting back on Macy’s. . . . I don’t think shipments are being withheld, but certainly they are being scrutinized more thoroughly.
“No one,” he added, “wants to be left on the hook when everybody else is pulling back.”
There are 24 Macy’s department stores in California, concentrated in the San Francisco area. The company also owns 22 I. Magnin and 20 Bullock’s stores in the state.
