Fitch upgrades Macy’s to BBB+

Fitch Ratings said it upgraded the long-term issuer default rating on Macy's, Inc. and Macy's Retail Holdings, Inc. to BBB+ from BBB and affirmed the short-term issuer default rating at F2.

The outlook is stable.

Fitch said the upgrades reflect Macy's:

• Growing market share of the department store sector and stable to modestly higher share of the overall domestic apparel, accessories, footwear and home categories;

• Strong 14% EBITDA margins, which are in line with its BBB+ rated peers, Nordstrom, Inc. and Kohl's Corp.;

• Strong free cash flow, which Fitch expects will be sustained at $1 billion annually; and

• Stable credit metrics, with adjusted debt/EBITDAR at 2.3 times over the last three years. The agency expects leverage to remain below 2.5 times over the next 24 to 36 months, which provides Macy's flexibility to increase dividends in the 10% to 15% range annually and do a healthy level of share buybacks in the range of 2014 levels.

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