Macy's and Kohl's Bonds Outperform, Defying U.S. Retail Malaise

(Bloomberg) -- If traditional mall stores are doomed by events like Amazon.com Inc.’s Prime Day, nobody told Macy’s Inc. and Kohl’s Corp. bondholders.

The companies’ debt strengthened on Monday, as the stores offered their own sales to compete with the online giant’s discounting frenzy. Amazon’s server glitches may have also given a fillip to the traditional retailers’ bonds.

"Conventional retailers realize it’s an opportunity,” said Noel Hebert in reference to Amazon’s Prime Day. “Maybe you get a little bit of an uptick, but you’re more concerned about preserving mind-share."

The strength in debt from traditional retailers this week extends the securities’ gains over the last 12 months. Macy’s 3.625 percent notes maturing in June 2024 have gained 7.9 percent including price appreciation and interest, while the Bloomberg Barclays investment grade retailer index has fallen 0.7 percent. Kohl’s 4.25 percent notes due 2025 have gained 5.6 percent, compared with about a 1.9 percent gain for the high-yield retail index. The two companies’ shares have also risen over that time, with Macy’s up 61 percent and Kohl’s jumping 76 percent.

The retailers have been buoyed by rising consumer spending and record-high consumer credit card debt. Each have also laid out plans to combat challenges within the retail landscape: both companies have bought back debt and have made changes to their leadership teams, announcing new chief executive officers within the last year and a half.

On Monday, the extra yield compared with Treasuries on Macy’s 3.625 percent bonds due June 2024 narrowed by 0.01 percentage point to 1.47 percentage points. Kohl’s 4.25 percent notes due July 2025 rose 0.12 cent on the dollar to 99.87 cents, according to Trace data.

--With assistance from Jason Feinstein and Molly Smith.

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Dan Wilchins

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