Distressed retail names mostly gain as earnings eyed; Qurate, QVC, Michaels, Staples up

By Cristal Cody

Tupelo, Miss., Feb. 20 – Junk and distressed retail paper mostly gained on Tuesday on a wave of earnings reports expected after the long Presidents Day weekend.

Qurate Retail Inc. and subsidiary home shopping network operator QVC Inc. rode the wave higher.

Qurate Retail's 8¼% senior notes due 2030 (Caa2/CCC-) traded over ¼ point better with a yield of more than 22%.

QVC’s 5.95% senior secured notes due 2043 (B2/B-) rose 1½ points and were edging away from the distressed space with a yield under 11%.

Junk retail overall was higher on Tuesday with Macy’s Inc.’s notes improved but liquidity thin, a market source said.

Distressed arts and crafts retailer Michaels Cos., Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC-) improved over ½ point by the close.

Office supplies retailer Staples Inc.’s 10¾% senior notes due 2027 (Caa2/CCC) have gained so far in 2024 and were trading on Tuesday over 10 points higher since early December.

“This week we get a better read on the U.S. consumer when retail reports start to trickle in, starting with Walmart and Home Depot on Tuesday,” Christine Short of Wall Street Horizon said in a note on Tuesday.

“Retail sales for January were also released last week, showing a dip of 0.8% MoM, the largest drop in nearly a year,” Short said. “Sales at home improvement and garden stores saw the sharpest decline of 4.1% which doesn’t bode well for Home Depot’s earnings report next week, or Lowe’s the week after that. This is just another recent data point that suggests consumers are taking a breather after remaining resilient in the face of higher inflation and interest rates last year.”

The S&P Retail Select Industry index, comprised of stocks spread across retail sectors including apparel, automotive, computer, drugs and food, finished Friday down 0.61% but up 7.18% month to date. Year to date, the index was 1.52% higher.

Earnings season is expected to peak this week with 1,584 companies scheduled to report, Short said. The flow of reports is expected to be the heaviest on Thursday with 524 companies set to release results.

Of the 396 companies that have reported so far, “78.7% have exceeded expectations, while 15.7% have fallen short of expectations,” according to a Confluence Investment Management note on Tuesday.

The first session back after the holiday weekend ended softer with stock indices all lower. The S&P 500 index declined 0.6%.

Volatility climbed higher. The CBOE Volatility index rose 4.83% to 15.42.

The junk space was stronger with the iShares iBoxx High Yield Corporate Bond ETF up 0.21% at $77.07.

Qurate, QVC improve

Qurate Retail's 8¼% senior notes due 2030 traded over ¼ point better at around 55 bid and a 22.23% yield, a source said.

Subsidiary QVC’s 5.95% senior secured notes due 2043 rose 1½ points to 62½ bid by the close. The bonds were edging away from the distressed space with a yield of 10.55%.

Qurate Retail’s stock (Nasdaq: QRTEA) jumped 15.38% to close at $1.20 on Tuesday.

The company announced in the prior week an interest payment and regular additional distribution to holders of its 3¾% senior exchangeable debentures due 2030 that are held by subsidiary Liberty Interactive LLC.

Qurate Retail on Thursday made a regular additional distribution to holders of the debentures that was attributable to the regular quarterly cash dividend paid by T-Mobile US, Inc. Following T-Mobile’s merger with Sprint in 2020, the shares attributable to each $1,000 of Qurate Retail’s debentures consist of 0.2419 shares of common stock of T-Mobile and 0.5746 shares of common stock of Lumen Technologies, Inc.

Quarte Retail also reported last week a $2 regular quarterly cash dividend to holders of its 8% series A cumulative redeemable preferred stock.

The preferreds have 12.7 million shares outstanding and traded Tuesday down 50 cents, or 1.14%, at $43.35 and a yield of 18.24%.

Qurate Retail will announce fourth-quarter earnings results on Feb. 28. In the third quarter, the West Chester, Pa.-based home shopping network owner reported weaker third-quarter revenue but improved operating income following heavy losses a year earlier.

Michaels edges higher

Michaels’ 7 7/8% senior notes due 2029 traded over ½ point higher on Tuesday on a 60 bid handle and a yield of over 20%, but overall action was thin, a source said.

The notes have softened around 2 points since the start of the month.

The Irving, Tex.-based arts and crafts retailer was taken private in 2021 by funds managed by Apollo Global Management, Inc. affiliates.

Staples stronger

Staples’ 10¾% senior notes due 2027 were quoted at 78½ bid and a 20.3% yield on Tuesday, a source said.

The bonds were last quoted in the secondary market back on Dec. 5 at 67 bid and a yield of 26.06%.

Staples’ credit default swap spreads improved in the prior week, according to a report from Moody’s Investors Service.

Staples’ CDS spreads firmed 66 bps to 1,445 bps over the period ended Wednesday.

The Framingham, Mass.-based office products retail company is owned by private equity firm Sycamore Partners.

Distressed index soft

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns ended Friday at 0.01%, compared to 0.57% on Thursday, 0.02% on Wednesday, negative 0.94% on Tuesday and 0.37% at the start of the prior week.

Month-to-date total returns rose to 1.1% ahead of the long holiday weekend from 1.09% on Thursday, 0.52% on Wednesday, 0.5% on Tuesday and 1.45% at the week’s start.

Year-to-date total return losses were unchanged on Friday at negative 1.08%, wider than minus 0.73% in the first session of the week.

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