How Michael Kors Is Responsible Macy's Downgrade? Deutsche Bank Analyst Explains

Deutsche Bank AG (USA)DB analysts published a report earlier on Monday in which they Downgraded Macy's, Inc.M to Sell from Buy and also lowered their price target on the stock to $63 from $71. Interestingly one of the reasons given by the analysts for downgrading the stock was 'decline at Michael Kors Holdings Ltd KORS'.

Paul Trussell, Deutsche Bank analyst, was on CNBC recently to explain why Macy's was downgraded and what Kors has to do with that.

Good Time To Sell Shares

"We think that market share losses are accelerating and that's leading to EBITDA contraction, which takes their leverage ratio higher , which means they will be probably be buying back less stock than we initially anticipated," Trussell said. "We think that they could miss their full-year guidance altogether."

He continued, "And also we think the market is applying probably too high of a probability towards them doing a material real-estate transaction. So, with the current levels recall this stock has moved from $62 to $70 mostly on real estate speculation. We think, this is a good time to sell shares.

The Kors Effect

Trussell was asked why he has mentioned decline at Kors as a reason for downgrading Macy's. He replied, "Kors has been a very meaningful driver for Macy's same store sales over the past few years. Obviously they have a key relationship, 14 percent of all of Kors global sales take place inside of Macy's doors. So, as Kors has decelerated as we have clearly seen that also has a clear impact to Macy's ability to grow"