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March 31, 2020, 11:52 a.m. EDT

Coronavirus pandemic raises concerns that some retailers will run out of cash

E-commerce will help, but it can’t save the day, according to Moody’s

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By Tonya Garcia, MarketWatch


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Customers aren’t shopping for clothes and shoes, raising liquidity concerns among investors and analysts

Retailers are at risk of running out of cash if the coronavirus pandemic keeps stores shuttered for longer than expected and consumers, spooked by carnage in the stock market, cut back on purchases, analysts said Wednesday.

Retailers have had to temporarily close many of their stores as countries around the world work to curb the spread of the illness. Even shops that remain open have seen traffic fall sharply.

“Ultimately, we find many retailers are at risk of exhausting sources of cash should store closures or severe sales declines endure,” Goldman Sachs wrote in a Wednesday note. “We believe companies with strong balance sheets and flexible business models will outperform through this disruption.”

Discount retailers are better positioned than their full-price rivals due to their flexibility, said the note. Off-price retailers can purchase inventory very near to the time when it will be sold.

Goldman upgraded off-price chain Ross Stores Inc. /zigman2/quotes/202639496/composite ROST +2.44% to buy from sell, but lowered its price target to $93 from $110.

“Off-price is particularly well positioned to weather headwinds,” analysts wrote. “[O]ur analysis suggests Ross Stores will continue to have sufficient cash on hand to operate into the second half even if revenue losses during the March 15-to-June 30 time period approach 90%.”

Ross Stores has drawn down $800 million from its credit facility, which provides further cushion. “Investors are increasingly asking about the degree of cost structure flexibility in an environment of falling revenues,” Goldman said.

Goldman changed stock ratings on a number of brands and retailers as the pandemic eats into revenue, putting pressure on margins and stress on cash flow and liquidity.

Read: Costco’s coronavirus-related surge won’t end anytime soon, analysts say

Department stores and specialty retailers are most vulnerable in the current crisis, in part because recovering from the pandemic will first require working through extra inventory.

“We believe Macy’s liquidity begins to look challenged if sales losses persist,” analysts said.

Macy’s Inc. /zigman2/quotes/201854387/composite M +2.11%   said in a Tuesday filing that it had drawn down the entirety of its $1.5 billion credit facility. The department store previously announced that it has suspended its dividend and withdrawn its guidance. Macy’s stores closed on March 18.

“The retail environment has deteriorated rapidly since we last provided guidance,” said Jeff Gennette, chief executive of Macy’s, in a statement. “And while February results met our expectations, we are now operating in an environment with a high degree of uncertainty.”

Goldman rates Macy’s stock a sell and slashed its price target to $4 from $12.

The department store announced on Monday that it will furlough most of its 130,000 workers.

/zigman2/quotes/202639496/composite
US : U.S.: Nasdaq
$ 86.79
+2.07 +2.44%
Volume: 2.77M
July 10, 2020 4:00p
P/E Ratio
33.61
Dividend Yield
0.00%
Market Cap
$30.89 billion
Rev. per Employee
$181,179
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/zigman2/quotes/201854387/composite
US : U.S.: NYSE
$ 6.77
+0.14 +2.11%
Volume: 20.52M
July 10, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$2.10 billion
Rev. per Employee
$197,992
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