North America Credit Research 16 October 2020 HY Weekly Register Retail Sales and BBBY asset sales as we ramp towards holiday + LB takeaways from fireside chat US Credit Research Carla Casella, CFA AC (1-212) 270-6798 carla.casella@jpmorgan.com Sarah S Clark (1-212) 834-5488 sarah.s.clark@jpmchase.com J.P. Morgan Securities LLC See page 5 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com  HY Retail outperformed the broader market this week, +0.27% vs Domestic HY +0.09%.  We added BBBY’s 4.915% Sr Notes due 2034 to the Oct HY AFL , as we see ~10pts of upside (currently mid-80s, or 6.5% YTW) as the credit migrates back to a double-B rating (4.16%).  Retail sales improved +5.3% YOY, better than expected, with most categories that we care about improving sequentially. The categories that improved but are still negative include Clothing -12% (-25% Aug), Gas Station -13.3% (-15%), Dept stores -8.2% (-16.6%), and Restaurants -13.7% (-17%), while winning categories continues to gain momentum: Grocery +10.5% (+7%), Sporting +18.3% (+6%), and Non-store +27% (+21%).  Albertson’s (ACI) reports earnings on Tuesday. We will be watching for promotional trends as we come out of the pantry-loading period and move into holiday (SSS +8%, EBITDA $621mn, +9.5%; equity research preview here ). Ahead of the print, Nielsen data showed near-term upside for ACI. The 12-week 2Q20E cut of the data (weighted toward ACI’s top regions) grew +15.3% YOY (vs consensus +11.2%). Through the first 3 weeks of 3Q20E, Nielsen grew +13.0% (vs consensus +5.8%). ACI’s subsidiary, ACME, is paying $96.4mn for 27 Kings and Balducci’s locations coming out of auction.  Bed Bath and Beyond (BBBY) announced Pre-Christmas asset sales of Christmas Tree Shop, Lines biz, and NJ DC for $250mn (pre-tax) to “increase financial strength and enhance shareholder value.” We increased back-half and ‘21 estimates owing to the asset sales, with proceeds accruing to cash. Mgmt is hosting an investor day on 10/28, and we look for further detail on the next steps as it refocuses on Home, Baby, Beauty and Wellness. We see a potential sale of Cost Plus World Market or excess real estate (it has no more owned DCs).  L Brands (LB) completed its bond tender, taking out $575.5mn (67%) of ‘22s, leaving $284.9mn outstanding, $180.3mn (36%) of ‘23s, $319.7mn outstanding, and $52.6mn (18%) accepted of the ‘37s (of $71.3mn tendered), $247.4mn outstanding. It will not take out any of the $100.9mn of ‘33s that were tendered (the lowest priority). Separately, CEO Andrew Meslow spoke with our equity counterpart, Matt Boss, in a fireside chat focused on BBW growth opportunities. BBW has ~10% market share in the $21bn Body market, 20% share in the $9-10bn Home Fragrance and ~25% in the $3bn Soap and Sanitizer market (pre-COVID). It has additional opportunity to grow digital (30% pre-COVID, ~40% during peak COVID, and holding above trend as store open). BBW is still seeing strong comps. Management believes a 2-3x range leverage is appropriate longer term. It is taking steps to strengthen the business before revisiting dividends.  Macy’s announced Adrian Mitchell as its new CFO, effective Nov 2 . He comes from BCG, where he was focused on digital/consumer businesses, and has experience with retail (automotive, drugstores, fast food, mass & specialty). He was the former CFO of Crate and Barrel and prior to that was at Arhaus & Target. HY Retail Recs HY Retail Neutral ACI Overweight NEWALB Neutral SWY Neutral ANF Overweight BBBY Overweight BURL Neutral Loans Neutral GPS Neutral LB Overweight M Neutral MIK Neutral Loans Overweight MUSA Neutral PRTY Neutral Loans Neutral QVCN Neutral RAD Neutral SBH Neutral Loans Overweight Not covered: PKICN Source: J.P. Morgan This document is being provided for the exclusive use of Michael Vaknin at CLIENT OF JPM PRIVATE BANKING. 

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JPM HY Weekly Register 2020-10-16.pdf

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