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Working Capital: Macy’s, Burlington, Nordstrom, Asos Move to Drum Up New Funds

With cash flow cut off as physical stores stay shuttered indefinitely, retailers are looking for ways to build working capital so they can purchase inventory for when brick-and-mortar is expected to be back in business for the second half of the year.

E-commerce revenues drive a fraction of the sales that happen in stores, making prolonged shutdowns a continual source of anxiety for struggling “non-essential” merchants like those in the fashion, off-price and department-store sectors.

Nordstrom Inc. has warned that it’s impossible to estimate the duration or negative financial impact from COVID-19 on its business, but that it does “expect our results for the quarter ending May 2, 2020 and beyond will be adversely impacted in a significant manner,” according to a Wednesday regulatory filing with the Securities and Exchange Commission. The retailer, cognizant of potential changes in consumer behavior when stores reopen, warned of deterioration in economic conditions in North America, which in turn could affect consumer discretionary spending.

Last week, the department store company priced an offering of $600 million aggregate principal amount of 8.75 percent senior secured notes due 2025, with an offering price of 100 percent of the principal amount and a closing expected on April 16.

Nordstrom’s pricing of its $600 million notes “raises its ability to withstand store closures to 12 months,” Oliver Chen, luxury retail analyst at Cowen & Co., said, leveraging his proprietary analysis to forecast retailers’ monthly cash burns. Currently, his numbers  indicate that Macy’s has about four months of liquidity, six months at Kohl’s and seven months at J.C. Penney.

Across the pond, British online fashion e-tailer Asos last week successfully raised $304 million (247 million pounds) through a public placement in London. The incremental equity raise will “ensure we have sufficient resources to capitalize on the future, whatever it may hold,” CEO Nick Neighton said.

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Other retailers are looking at similar moves.

Burlington Stores Inc., which on Monday said it is furloughing employees as stores and distribution centers remain closed, is doing two raises to secure some much-need cash. The off-pricer has commenced a public offering of $300 million aggregate principal amount of senior secured notes due 2025. The company has also commenced a private offering of $700 million aggregate principal amount of convertible senior notes, also due 2025. Burlington also intends to grant initial purchasers of the convertible notes the option to purchase up to an additional $105 million of the convertible securities. The proceeds from both will be used for general corporate purposes, Burlington said.

Macy’s Inc. is talking with advisors to explore what its options are to build up working capital. Reuters said the department store hired Lazard as its investment banking advisor and debt restructuring lawyers at Kirkland & Ellis.

“As we have previously communicated, the coronavirus pandemic continues to take a toll on Macy’s Inc.’s business…. Macy’s Inc has taken multiple actions to improve our financial flexibility…[and the] company is also exploring numerous options to strengthen our capital structure. We have relationships with a range of advisors,” a Macy’s spokeswoman said.

Macy’s has already worked to shore up its balance sheet, furloughing nearly 130,000 of its store associates due to the store closures, drawing down $1.5 billion of its credit facility, deferring capital spend and reducing pay at most levels of management.