HY零售的COVID-19壓力測(cè)試：對(duì)抗病毒的方法

1、HY Retail COVID-19 Stress TestsWays to fight the virusNorth America Credit Research26 March 2020HY Retail traded off 18.8% this month, following Domestic HY (-18.8%), but underperformed over the past week (-8.3% vs Domestic HY -7.6%). We believe the Retail selloff is justified by the operating lever

2、age in the space that will stress cash flow and liquidity over the time retailers have to close their doors. This is an evolving story, and we continue to dig deeper into fixed vs variable cost structures and build new data points into our forecasts day by day, but for today, we want to lay out our

3、stress tests for the group. We will keep you updated as we learn more from companies, state and local regulations, and from experts (like our fireside chat with Gordon Brothers yesterday replay thru 3/31: 888-568-0543, code 4998).How will the virus affect retail? Without a quick rebound in the econo

4、my (or stimulus), we expect COVID-19 to be the greatest stress on the sector (and our coverage group) in our 20 years covering the space. We expect to come out of this in a weakened consumer state, where retailers will see a slower sales rebound and lower EBIDTA and FCF that may drive more retail ba

5、nkruptcies (a few potentially from our coverage group), greater mall and general retail closures, and an accelerated shift to ecommerce. Beyond the “essentials” (food, drug, convenience), we believe the best positioned in our group are Michaels Stores (MIK OW) and Sally Beauty (SBH upgraded to OW ye

6、sterday), followed by mall-based operators Gap (GPS N) and L Brands (LB N). We evaluate the group of discretionary retailers by triangulating business continuity, operating leverage, and financial leverage. The most at risk include J.C. Penney (JCP) and Neiman Marcus (NMG), both of which have maturi

7、ties within a year. Party City (PRTY) and Tailored Brands (TLRD) follow with maturities one year later.The virus will impact revenue and gross margin (sales deleverage). We have never had to consider retailers cash flow and balance sheets in a ZERO revenue scenario, which is what we are forced to co

8、nsider today. We assume store closures spread from mid-March through April, and we see gross margin impacts similar (or worse) than the drop-off we saw in 2008/2009 during the holiday-timed financial shock. We continue to hone our work on fixed costs, but for now, we assume SG&A costs are mostly fix

9、ed (advertising being more variable with enough lead time), and some rent and employee costs are variable particularly for commissioned employees).Retailers “Home Remedies” include cutting non-necessary projects or costs (capex, advertising, overhead), shifting more sales online, flexing working cap

10、ital (delaying/cancelling orders & stretching payables), and drawing revolvers. We expect most retailers will cut share buybacks and possibly dividends and expect most retailers to delay or renegotiate paying April rent.The list of stress tests grow. We published stress tests on JCP, MIK, NMG, PRTY,

11、 TLRD, and SBH. In this report we add Bed, Bath, & Beyond (BBBY), GPS, and LB, rounding out our non-necessity businesses that are prone to closures and therefore significant EBITDA declines.See page 19 for analyst certification and important disclosures.US Credit Research Carla Casella, CFA AC (1-21

12、2) 270-6798 HYPERLINK mailto:carla.casella carla.casellaSarah S Clark(1-212) 834-5488 HYPERLINK mailto:sarah.s.clark sarah.s.clarkJ.P. Morgan Securities LLCHY Retail Recs HY RetailNeutralACINRNEWALBNRSWYNRBBBYNeutralGPSNeutralJCPNeutral (OW 20)LBNeutral (OW 27-29)MIKOverweightMUSANeutralNMGNeutralPR

13、TYNeutralRADNeutralSBHOverweightTLRDNeutralNot covered:HRFITW PKICN QVCNSource: J.P. MorganJ.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity

14、of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Table of Contents HYPERLINK l _bookmark0 COVID-19 Stress Test Basics 3 HYPERLINK l _bookmark1 Stress Test Summary 6 HYPERLINK l _bookmark2 Bed, Bath & Beyond (BBBY) Neutral

15、8 HYPERLINK l _bookmark3 Gap Inc. (GPS) Neutral 9 HYPERLINK l _bookmark4 J.C. Penny (JCP) Neutral 10 HYPERLINK l _bookmark5 L Brands (LB) Neutral (Overweight 2027-2029 bonds) 11 HYPERLINK l _bookmark6 Michaels Stores (MIK) Overweight 12 HYPERLINK l _bookmark7 Neiman Marcus (NMG) Neutral 13 HYPERLINK

16、 l _bookmark8 Party City (PRTY) Neutral 14 HYPERLINK l _bookmark9 Sally Beauty (SBH) Overweight 15 HYPERLINK l _bookmark10 Tailored Brands (TLRD) Neutral 16 HYPERLINK l _bookmark11 HY Retail Relative Value 17COVID-19 Stress Test BasicsWithout a quick rebound in the economy or stimulus, we expect COV

17、ID-19 to be the greatest stress on the retail environment (and our coverage group) in our 20 years covering the space. We never had to consider retail cash flow and balance sheet in a ZERO revenue scenario, which is what we are forced to consider today. We base our stress test on the following assum

18、ptions:Store closures infect 1H20; slow recovery clouds 2H20. Our base case assumes:Stores closed from mid-March (3/17-3/20) through the END of April. While most of our group (except essential items and craft stores, which are following state guidelines) plan for stores to reopen in April, we are ta

19、king a more conservative view.Table 1: Store closures announced through March 23rdCompanyActionLengthBBBYClosing all but 175 “essential” BABY and Harmon Face Values stores, online openApril 3rdClairesClose NA stores, Claires and Icing, online openUntil at least March 27thGPSClosing all stores, Old N

20、avy, Athleta, Banana Republic, Gap, Janie & Jack, Intermix across North America, online openFor 2 weeks, i.e. April 1JCPAll stores, online openUntil April 2ndLBAll Bath & Body Works. Victorias Secret, and PINK stores in the US and Canada. Ecommerce for VS and PINK (BBW will remain open, prioritizing

21、 soap and hand sanitizers)Until March 29thLEVIClosing all retail stores, online openUntil March 27thMIKComplying with state regulations closed in NY, NJ, CA, limitations on hours or # of guests inother states, online openNMGClosing all stores, online open (30% of sales)Through March 31PRTYClose all

22、stores, online openThrough March 31SBHClose al US and Canadian stores, curbside pickup from 300, online openUntil at least April 9thTLRDAll stores across the US and Canada & ecommerceThrough March 28thSource: Company data, J.P. Morgan.SSS fall-off beginning mid-March, and 2Q remains weak on clearanc

23、e activity, with a slight improvement (i.e. lesser decline) in the back half. We see a faster rebound for “everyday” items (health & beauty, cleaning supplies) or less- discretionary categories (kids clothing) but slower rebound for high-end or non- discretionary categories (luxury apparel).Cost str

24、uctures hit by fixed component, as 50-60% of a retailers costs are fixed, with the biggest fixed costs comprising buying and occupancy, rent, and facilities overhead (HQ and distribution infrastructure). In the current environment, we see store labor as more fixed as most retailers have committed to

25、 paying workers for two weeks (though ultimately hourly employee costs are variable). Advertising has a fixed and a variable portion (with some lead time, again, a problem for 1Q20).Gross margin pressure will weigh on 1H20; we assume:Sales deleverage impacts 1Q and clearance impacts 2Q as retailers

26、will need to clear any leftover winter or even Easter merchandise once stores reopen. We use 2008 as our best example of a sudden shock to the system that drove sales declines and increased clearance, recognizing that stores were not physically closed in 08. Retailers are offsetting the unprecedente

27、d “forced closure” risk of$0 sales for a time by cutting or slowing inflow of product (cancelling orders). Spring is a less important selling season, so there will be less seasonal inventory clearance burden than in 4Q08, but greater sales deleveraging from closed stores.Sales deleverage impacts 1Q2

28、0; for those retailers where April falls in 1Q, we assume stores closed for 1-1.5 months. We believe 30-40% of COGS are fixed (buying, occupancy, distribution).Retailers remedies to reduce the pain of the virus include:Seeking rent concessions or delayed rent. After having spoken with both retailers

29、 and real estate experts (check out our call with Gordon Brothers replay thru 3/31: 888-568-0543, code 4998), we are not sure what the exact form may look like, but landlords could add April (or April-June) rent as a make-up payment at the end of the lease life (perhaps bargaining to do so while sho

30、rtening the lease life).Delaying any non-essential projects, from store renovation, to new technology projects, to opex (SBH commented about senior management taking pay cuts).Cutting to maintenance levels of capex can mean cutting capex in half for 2020. Given that most retailers were not building

31、stores, we dont have to worry about locked-in build plans.Delaying payments to vendors (i.e. increasing payable days in line with inventory days as inventory comes in but cannot be sold). We will further fine tune this metric as we learn more about supply chains, but for our base case, we are assumi

32、ng inventory will end 1Q and 2Q close to last year (i.e. more inventory days in sales but not on a gross amount), and that payables move with inventory (so the days payable may increase because of the lower sales but relative to inventory payables stay about constant).Suspending share buybacks and d

33、ividends, which is a nice added liquidity lever for those that had been shareholder friendly (GPS, MIK, SBH). We assume all buybacks are cancelled but we do not pull dividends out of our forecasts unless companies announce plans to cut the dividend.Table 2: Shareholder friendly activityCompanyLTM bu

34、ybacksLTM dividendsCommentsBBBY$0$85GPS$200$364Suspending buybacks in 2020JCP$0$0LB$0$332MIK$108$0NMG$0$0PrivatePRTY$0$0SBH$59$0TLRD$10$28Suspended in 4Q19Source: Company data, J.P. Morgan.Prophylactically preserve liquidityWe continue to hear of companies drawing revolvers to be sure they have liqu

35、idity. While most dont need the liquidity today (particularly given that retailers are cash rich at year-end), it is prudent to have the cash on hand in case they run into working capital disruptions, or if banks reduce advance rates on expected reduced inventory valuations (revolving credit facilit

36、ies are often based off NOLV net orderly liquidation value of inventory); this will remain an evolving element to watch once stores reopen.Table 3: Revolver standingsCompanyMarch revolver drawTotal facilityCommentsBBBYNone$250mn$1.4bn of cash + uncommitted linesGPSNone$500mnUnusedJCP$1.25bn$2.35bnEs

37、t that this leaves $141mn availableLB$950mn$1bn$2bn of cash post draw downMIK$600mn$850mn$129.8mn remains available for borrowingNMG$225mn$900mnWe believe it used full availabilityPRTYNone$640mn$356mn available as of FY19SBH$395$500mnEst that this leaves $100mn availableTLRD$285mn$550mn$360mn total

38、drawn + $26.5mn LCsSource: Company data, J.P. Morgan estimates.We believe that the revolver drawings since year end have largely been precautionary and related to potential risk of prolonged store closure or longer than expected recession before the environment returns to normal. We dont think retai

39、lers (other than JCP or NMG) need it to meet a near-term maturity.Table 4: Debt maturitiesCompanyNext debt maturitySecurityAmountBBBY1-Aug-243.749% Sr Nt due 2024300Claires18-Dec-261L TL B due 2026502GPS12-Apr-215.95% Sr Nts due 20211,250JCP1-Jun-205.65% Sr Nts due 2020105LB1-Apr-216.625% (gtee) nts

40、 due 2021449MIK28-Jan-23TL B1 due 20232,189NMG15-Oct-21Sr Nts & SR PIK toggle nts due 2021137PRTY19-Aug-22TL due 2022721SBH1-Nov-235.5% Sr Nts due 2023197TLRD1-Jul-227% Sr Nts due 2022174Source: Company data, J.P. Morgan.Table 5: Stress test summary assumptionsStress Test SummaryApplying our thought

41、s on COVID-19 impacts and potential remedies, we stress tested each of our companies to varying degrees. On average, we assume:Average 1Q SSS decline 35%, with the greatest impact for the companies with bigger-ticket items (or if the quarter encompasses both March and April). Those retailers that ha

42、ve a strong online presence, or even some stores open should be less impacted (NMG, MIK).Average 2Q SSS decline 10%, as we assume stores open in May and are open for all of 2Q for most retailers (except those whose 2Q runs from April to June). We assume that once stores reopen, we should continue to

43、 see weakness from social distancing (less interest in shopping), or in the case of Party City or Tailored Brands, fewer events on the calendar. We also assume that more discretionary items like big-ticket furniture or home decor (BBBY) and luxury apparel (NMG) underperform.QuarterBBBYGPSJCPLBMIKNMG

44、PRTYSBHTLRDAverage1Q End Date2Q End Date6-Jun-205-Sep-202-May-201-Aug-202-May-201-Aug-203-May-202-Aug-201-May-2030-Jul-2026-Apr-202-Aug-2031-Mar-2030-Jun-2030-Mar-2029-Jun-202-May-201-Aug-20STRESS POINTSRevenueVS / BBWStores/.com1mo-75.0%-5.0%-7%-2% / 10%-2.0%-2% / 3%-5.0%0%1%-8%1Q SSS2mo-75.0%-50.0

45、%-50%-50% / -30%-45.0%-50% / 3%-5.0%-1%-50%-37%3mo-5.0%-85.0%-95.0%-80% / -70%-45.0%-75% / 3%-50.0%-30%-95%-57%1mo-5.0%-4.0%-10.0%-5% / 2%-3.5%-10% / 3%-95.0%-75%-10%-19%2Q SSS2mo-5.0%-1.0%-2.0%-5% / 2%-3.5%-5% / 3%-75.0%-5%-5%-9%3mo-5.0%1.0%-3.0%-5% / 2%-3.5%0% / 3%-5.0%-1%-5%-2%GM stress & 4Q08com

46、pare4Q08 bps change(150)bps(80)bps(187)bps(500)bps(170)bps(960)bps(88)bps33 bps(180)bps(75)bps1Q GM32.8%35.2%35.1%30.5%35.5%32.8%29.4%48.5%38.6%35.4%bps change YOY(490)bps(107)bps(106)bps(500)bps(269)bps(256)bps(415)bps(105)bps(355)bps(168)bps2Q GM33.3%36.2%35.8%29.9%31.8%25.3%33.3%48.4%40.9%35.0%bp

47、s change YOY(160)bps(165)bps(364)bps(400)bps(370)bps(302)bps(366)bps(104)bps(245)bps(161)bpsFY20 GM bps change18 bps(61)bps(63)bps(151)bps(131)bps(160)bps(106)bps(51)bps(158)bps(50)bpsOFFSETSSG&A cuts1Q SGA cut YOY(20)(61)(15)(40)(10)(42)(12)8(5)(10)2Q SGA cut YOY(20)(61)(13)(30)(10)(40)(12)(10)(5)(

48、12)FY20 SGA cut YOY(160)(182)(55)(90)(72)(81)(68)8(20)(50)Capex cutsFY20 Capex redux(38)(249)(125)(200)(25)(70)(8)(16)(18)(44)Source: J.P. Morgan estimates.We expect 1Q GM to decline by 168bps on average for the group with the biggest impact on a few retailers that already have inventory reduction (

49、or clearance) programs in addition to virus-driven sales deleverage (BBBY, LB, PRTY), and the least impact at SBH (lowest store overhead).2Q should be similarly impacted (161bps in our forecast), with the greatest impact from clearance of seasonal apparel (LB, JCP, PRTY, MIK, NMG, TLRD), and the lea

50、st impact at SBH (lowest store overhead).We expect all retailers to offset sales and margin deleverage with overhead cost cuts and lower capex.Overall we expect 1Q sales to decline 36% on average, and that EBITDA falls into the red for the group.Table 6: 1Q20 estimate revisionsPriorRevenueEBITDAREVI

51、SEDRevenueEBITDAChange $RevenueEBITDAChangeRevenueEBITDABBBY2,4851181,174(361)(1,311)(479)-52.7%-405.1%GPS JCP3,7242,555245692,0531,234(291)(407)(1,671)(1,321)(535)(476)-44.9%-51.7%-218.8%-690.6%LB2,5862861,610(104)(976)(390)-37.7%-136.4%MIK1,1291297839(346)(120)-30.7%-92.9%NMG1,09012977343(317)(86)

52、-29.1%-66.9%PRTY48033397(12)(82)(46)-17.1%-137.0%SBH98012784669(134)(58)-13.7%-45.3%TLRD70954387(84)(322)(138)-45.4%-256.2%Average(720)(259)-35.9%-227.7%Source: J.P. Morgan estimates.For FY20, we assume retailers can offset the pressure by cutting more costs (2Q-4Q), and as we should see modest sale

53、s rebound in 2H20 to varying degrees. See each detailed forecast, including capital structure and liquidity on pages that follow.Table 7: 2020 estimate revisionsFY20 EstimatesPriorRevenueEBITDAREVISEDRevenueEBITDAChange $RevenueEBITDAChange %RevenueEBITDABBBY GPSJCP10,58716,15911,1175481,4574758,971

54、15,0289,427(223)1,150(81)(1,616)(1,131)(1,690)(771)(307)(556)-15.3%-7.0%-15.2%-140.7%-21.1%-117.0%LB12,8261,81211,8291,329(997)(483)-7.8%-26.6%MIK5,2457104,843615(402)(95)-7.7%-13.4%NMG4,6143984,127305(487)(93)-10.5%-23.3%PRTY2,2432771,80162(442)(216)-19.7%-77.7%SBH3,8925503,517369(375)(181)-9.6%-32

55、.9%TLRD2,8212371,85854(963)(183)-34.1%-77.1%Average(900)(320)-14.1%-58.9%Source: J.P. Morgan estimates.Bed, Bath & Beyond (BBBY) NeutralBBBY closed all but 175 of its stores (those considered “essential” with household cleaning items). We believe the companys furniture business to be the most impact

56、ed by disruption. We have it underperforming the group in 1Q and 2Q because, on top of COVID-19 sales deleverage, the company had been working on a program to reduce inventory by $1.5bn over 18 months (i.e. aggressive clearance). On the other hand the companys baby products, cleaning and household i

57、tems, and even Christmas products should be more resilient (if we are back to normal by then).We believe BBBY is going into 2020 with $1.3bn of cash, after completing a$250mn sale-leaseback in 4Q19.Bed Bath & Beyond (BBBY)Coupon/SpreadMaturity30-Nov-19Rent Adj.Gross LevNet Lev$250m Senior Unsecured

58、RevolverL+88bps11/14/20220.03.749% Senior Notes due 20243.749%8/1/2024300.04.915% Senior Notes due 20344.915%8/1/2034300.05.165% Senior Notes due 20445.165%8/1/2044900.0Unamort disc/OID(11.7)Total Debt1,488.35.4 x4.7 xLiquidityCash & ST Investments923.4Revolver & Sec Facility Avail450.0Total liquidi

59、ty1,373.4Table 8: BBBY capitalization & liquidityTable 9: BBBY summary forecastSource: Company data, J.P. Morgan.StoresFY183-Mar-191Q191-Jun-192Q1931-Aug-193Q1930-Nov-194Q19E29-Feb-20FY19E29-Feb-201Q20E30-May-202Q20E29-Aug-203Q20E28-Nov-204Q20E27-Feb-21FY20E27-Feb-21Bed Bath & Beyond9949959939819719

60、71961951941940940World Market / Cost Plus277277277278280280280280280280280buybuy BABY124126126126127127127127127127127Christmas Tree Shops8181818172727272727272Harmon5555555550505050505050Total Stores1,5331,5361,5341,5241,5031,5031,4931,4831,4731,4721,472SSS-1.1%-6.6%-6.7%-8.3%-5.7%-6.8%-51.7%-5.0%-