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Why Department-Store Stocks Are Falling Today

By John Rosevear - Apr 21, 2020 at 2:16PM

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The list of potential bankruptcies is growing.

What happened

Shares of several big-name department-store companies were trading lower on Tuesday afternoon after Reuters reported that upscale chain Lord & Taylor has joined the list of those considering a bankruptcy filing.

Here's where things stood for the stocks of these four companies as of 1:45 p.m. EDT, relative to their closing prices on Monday.

  • Gap (GPS 0.56%) was down 3.8%.
  • Kohl's (KSS -0.36%) was down 3.3%.
  • Macy's (M 0.00%) was down 4.7%.
  • Nordstrom (JWN 2.26%) was down 4.4%.

So what

According to the Reuters report, which was published on Monday night, privately held Lord & Taylor is exploring several options, including trying to find additional financing and negotiating relief from creditors, as well as the possibility of a bankruptcy filing.

The company's 38 stores have been closed since mid-March, following the outbreak of the COVID-19 virus in North America.

Lord & Taylor now joins Neiman Marcus and J.C. Penney (JCPN.Q) in the ranks of household-name department-store chains that have been pushed to the brink of bankruptcy amid the coronavirus pandemic.

A Nordstrom sign on the outside of a store.

Nordstrom is probably the healthiest of the major department-store chains, but health is relative right now. Image source: Nordstrom.

The implications for the companies we're following here should be obvious: Simply put, who's next?

It's possible that all four of these companies will make it through the shutdown period and recover along with the rest of the U.S. economy later this year. All four have recently taken steps to raise cash, according to reports.

  • Gap is in discussions to issue new bonds backed by some of its assets, Bloomberg reported on Monday. The assets could include inventory as well as some of the company's real estate, including its distribution centers.
  • Kohl's secured a new $1.5 billion revolving credit facility and suspended its dividend payments last week. About $1 billion of that $1.5 billion, which it immediately drew down, will be used to refinance existing debt, it said.
  • Macy's is currently exploring several possible ways to raise money, Bloomberg reported on Friday. One possibility: bonds backed by some of its real estate and other assets, such as inventory.
  • Nordstrom, generally regarded as the healthiest of the major department-store chains, raised $600 million via the sale of secured notes last week. It now has more than $2 billion in cash and appears to be cutting its spending further: The New York Times reported on Tuesday that the company began cancelling orders from vendors last week, some at the last minute.

Now what

Retail-focused investors are probably eager to hear updates from these companies' management teams, but they will have to wait a few more weeks. All four companies typically report quarterly earnings in the second half of May.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
KSS
$33.06 (-0.36%) $0.12
The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$10.70 (0.56%) $0.06
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$19.96 (0.00%) $0.00
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$24.92 (2.26%) $0.55
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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