By  on January 29, 2002

NEW YORK -- The credit watchers are turning their attention to Arkansas, and rest assured it's not Bentonville they're keeping an eye on.

Whether it's simply a computer glitch, a markdown-related tug-of-war with its suppliers or perhaps something more ominous that couldn't immediately be ascertained, shares of Little Rock, Ark.-based Dillard's Inc. slipped for the second trading day in a row on concerns regarding the retailer's ability to pay for goods shipped.

The stock closed on Monday at $13.90, down 40 cents, or 2.8 percent, in trading on the New York Stock Exchange. The trading volume was 2.5 million shares, more than five times the average daily volume of 471,590 shares. On Friday, the stock dropped 7.3 percent, or $1.05, to close at $14.35 on volume of 2 million shares.

"Factors were told Monday that they weren't paid because of a [computer] system crash, resulting in the accounts payable system not matching up with the accounts receivable [counterpart]," noted one credit source. "Every factor held their approval of orders by the end of Friday night, but at least one has started approving orders again."

Executives at Dillard's declined comment.

The ratings of Dillard's debt were put on review on Jan. 14 for possible downgrade by ratings agency Moody's Investors Service. Moody's said the placement was based on "continuing softness in the company's profitability and comparable-store sales, as well as the challenges Dillard's management faces in significantly improving operating performance."

David Lamer, analyst at Ferris Baker Watts, observed: "From what I've heard from vendors and the market community, someone had [apparently] exaggerated the efforts that Dillard's is making in the process of collecting markdown money from vendors."

According to the analyst, the markdown amount negotiated between the vendor and retailer is usually deducted from a current invoice. "What happens is that someone can easily misconstrue an invoice that the person thinks is not fully paid, not realizing that a deduction was in order for the negotiated markdown money. What we're talking here is a game of cat and mouse."

Lamer pointed out that what Dillard's has been dealing with on the markdown front is no different from what other retailers are doing. "This process is what all the retailers have been doing for many, many years. What is different is that someone blew it out of proportion for Dillard's. I would caution investors to be careful and not to misinterpret these negotiations or some of the maneuvers that the various parties are partaking in as unusual or a sign that the company is in peril," he said.

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