By  on April 13, 2017
J.C. Penney

J.C. Penney Co. Inc. and Dillard’s, like most of their department store peers, are suffering from sluggish sales and fickle customers, but some on Wall Street think a comeback might be in the works.Analysts with Fitch Ratings gave both department stores a “stable” rating despite expectations of flat to “modestly negative” comparable store sales over the next year to two years, citing turnaround efforts like store closings and cost cutting, as well as a relatively stable debt situation.Things look best for Penney's, which is going full throttle with business changes to improve profitability, including plans to close 140 stores, accelerating its focus on home goods and services and even re-branding hundreds of in-store salons to attract and retain customers.Fitch also noted that the retailer’s earnings before interest, taxes, depreciation and amortization in 2016 hit $1 billion, compared to $275 million in 2014, and said it expects EBITDA to stay in the $1 billion range for the next 12 to 24 months.“Weaker than expected comps…have been offset by continued cost reductions,” the agency added.The department store could even find itself with an upgraded rating should comps come in better than anticipated and about $1 billion in upcoming debt maturities be paid down. Fitch said positive comps only in the low-single digits could cue a “positive rating action.”Another positive sign for Penney's emerged Thursday when the retailer said it has delayed the previously-announced closing of 140 stores by six weeks to July 31, and that the liquidation sales will start on May 22 instead of the originally planned April 17 start date.Last February, Penney's announced the store closures and last March the company identified which ones. Since then, traffic at the stores set to close has picked up, with consumers eager for some last shopping visits to their local Penney's.Dillard’s, however, may be facing a tougher go of things.The Arkansas-based department store has seen EBITDA fall by 30 percent and during 2016, sales dropped to $6.2 billion from $6.6 billion a year earlier, while net income fell by $100 million.Although Dillard’s saw positive comp growth between 2010 and 2014 through a shift toward “more upscale brands” and tight inventory control, Fitch said the challenges facing traditional retail have “derailed business.”“Competition from the off-price, fast-fashion and online channels has proven to be unrelenting in the midmarket apparel space, with the retailers' own online growth unable to mitigate accelerating in-store traffic declines,” the agency said in reference to Dillard’s decline in sales. However, Fitch said Dillard’s “reasonable credit metrics and strong liquidity” should help it weather further industry changes and store closures, even though EBITDA is expected to trend around $500 million over the next year or two, compared to $572 million in 2016.The agency added that Dillard’s will use about $20 million in costs saved mainly through a slow-but-steady closure of 10 stores over the last five years for remodeling efforts in busier stores and departments. Dillard’s is also expected to continue closing 1 to 2 stores annually for the foreseeable future. For More Financial News, See:Payless Brings On Liquidators to Begin Store Closing SalesRoberto Cavalli Restructuring Dents 2016 ProfitabilityFast Retailing’s Profit More Than Doubles in First Half

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