Dive Brief:

• S&P Global on Friday downgraded Lands' End's credit rating to CCC, down from B-, on possible difficulties refinancing a $385 million term loan due next April.
• Analysts with the ratings agency put Lands' End on CreditWatch, which could lead to further ratings depending on the outcome of the clothing seller's efforts to refinance its debt. A Lands' End spokesperson did not immediately respond to request for comment. 
• "It is our view Lands' End depends on favorable economic conditions to refinance its term loan at par, and sufficient market volatility remains to complicate efforts," S&P analysts said in an emailed release.

Dive Insight:

As the S&P analysts put it, Lands' End "faces a sizable maturity within the next 12 months and that its ability to address the maturity at par depends upon favorable market and economic conditions." And so far, the clothing brand retailer "has not yet announced a clear path," to paying back or refinancing the loan, the analysts said. They added, "We believe as time to maturity evaporates, the likelihood increases of a refinancing that does not provide lenders with the original promise of the security."

Lands' End's sales and profits have fluctuated in recent years, in part because of its breakup with former owner Sears. The clothing brand spun off from the department store in 2014 and more recently exited more than 100 store-within-a-store locations. (Lands' End is majority owned by the hedge fund Sears Chairman Eddie Lampert runs, ESL Investments, giving him substantial influence over the clothing seller.)

Prior to the spread of COVID-19, Lands' End was expanding its sales. In a press release earlier this month, the company said net revenue grew 11.1% in February and comparable sales at its stores were up 14.2% before they closed in mid-March because of the pandemic. But for the full first quarter, revenue fell 17.3% to $217 million, which Lands' End attributed to the pandemic. 

Its Outfitters unit, which makes professional clothing and school uniforms, also took a hit, with net revenue down 26.2%, because of the pandemic. The company said 60% of its large national accounts have "exposure" to the travel industry, which like retail all but stopped during the worst of the pandemic.

Lands' End, however, has the advantage of being oriented online already, with 80% of its business being direct-to-consumer e-commerce. Lands' End also sells on Amazon. In a company presentation, Lands' End said that 75% of its sales on Amazon were to new or lapsed customers, meaning that by and large it's not cannibalizing its own business by selling on the e-commerce giant's platform, according to a copy of the presentation posted to Seeking Alpha. Lands' End is also partnering with Kohl's to sell its clothes on the department store retailer's website and in physical locations. 

CEO Jerome Griffith said in its Q1 release that its e-commerce sales rebounded in April and went to double digit growth in May. "With our resilient e-commerce business and casual and value-oriented product assortment, combined with our lean operating structure and liquidity, we are positioned to capitalize on the opportunities ahead," he added.

The S&P analysts said Lands' End's "position as a largely e-commerce retailer has moderated the hit to operating performance from the COVID-19 pandemic relative to brick-and-mortar apparel peers." Still, the analysts expect its leverage to grow this year because of the hit to sales from the crisis.