Dive Brief:

• S&P Global Friday downgraded two more retailers amid ongoing disruption from the COVID-19 pandemic. Both off-pricer TJX and home goods company Bed Bath & Beyond garnered negative outlooks as analysts anticipate a weak economy and spending declines after the pandemic subsides.

• S&P lowered all of Bed Bath & Beyond’s ratings, including its issuer credit rating, to “B+”  from “BB,” according to an emailed press release.

• The ratings agency lowered all of its long-term ratings on TJX as well, to “A” from “A+,” including its issuer credit rating, predicting weaker-than-projected operating results, “with leverage exceeding 2x in fiscal 2021 ending January 2021,” according to another release.
   

Dive Insight:

The world is taking steps to blunt the spread of COVID-19, a disease caused by a coronavirus that has swept the globe. But a weak economy and declines in consumer spending await most retailers in the aftermath.

However, while S&P analysts lowered their expectations for both TJX and Bed Bath & Beyond on Friday, the two retailers will likely face vastly differing prospects in the post-COVID-19 environment, whenever it arrives. Bed Bath & Beyond, before the disease struck, was already struggling, its billion-dollar turnaround plans now in doubt. TJX, by contrast, has consistently thrived in an apparel market that favors its lower-priced, treasure-hunt shopping.

S&P analysts Helena Song, Andy Sookram and Lori Shapiro do see trouble for the off-pricer, though. They cited “the heightened uncertainty regarding the impact of the coronavirus and impending recession on TJX’s financial condition,” and warned that a “prolonged store closure coupled with a slowdown in consumer spending could affect the company’s ability to recover operationally and maintain leverage below 2x in the next one to two years.”

Yet a Credit Suisse team led by Michael Binetti, in a note Monday, said they are taking a “grey skies” approach to their analysis, despite off-price retailers’ “very acute [near-term cash pressures]” and a dearth of e-commerce to offset lost brick-and-mortar sales. While Credit Suisse similarly anticipates “a sudden drop off in consumer demand due to Coronavirus” with U.S. retail stores closed another estimated six weeks, they see TJX and its rivals in the medium to long term continuing to gain share, with TJX in particular faring well.

“We think TJX will be one of the biggest beneficiaries of the sudden drop-off in demand caused by Coronavirus,” they wrote. Moreover, off-price retailers will gain from what they view as “the best inventory buying environment for Off-price in a decade,” thanks in part to the troubles at the source of that inventory, department stores. Full-price stores are now canceling orders, which are destined to show up on off-price racks, according to Binetti’s team.

More broadly, the new pressures brought on by the pandemic simply favor the fittest. “Stronger companies will deliver 2021 revs ahead of 2019 levels, while companies exiting with incremental competitive pressures will fall short of returning to 2019 levels,” according to the emailed comments.