Analysts noted that the downgraded rating indicates the company’s risk of defaulting on its debt or pursuing restructuring if its turnaround plans do not come to fruition within the next 12 months.
In its Q4 earnings report, the company saw its net sales decline by 22% year-over-year to $2.1 billion. It lost $175 million in sales due to inventory issues arising from global supply chain issues. Later in Q1, the company’s losses widened, with net sales declining by 25% year-over-year. At the same time, the company also announced that its CEO Mark Tritton was stepping down from his role just two and half years after his appointment. Tritton’s exit raised questions about the company’s ability to execute its turnaround plans successfully.
According to Bloomberg, the company continues struggling with liquidity issues and has fallen behind on vendor payments.
S&P’s move to downgrade the company’s rating will only add more problems as it will raise borrowing costs for the struggling retailer.
“In our view, the company must make rapid, substantial spending cuts to quell its rate of cash burn from the first quarter, and the prospects for doing so have deteriorated,” S&P analysts said in the release. “We believe worsening macro conditions could amplify the risks of a restructuring if the company were unable to quickly return to meaningful profitability.”