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Moody’s Lifts Dillard’s Rating

Moody's Investors Service upgraded the department store's corporate family rating one notch to “Ba1,” the highest level below investment grade, from “Ba2.”

Moody’s Investors Service Wednesday upgraded Dillard’s Inc.’s corporate family rating one notch to “Ba1,” the highest level below investment grade, from “Ba2.”

This story first appeared in the March 13, 2014 issue of WWD.  Subscribe Today.

Moody’s also raised the Little Rock, Ark.-based department store retailer’s probably of default rating one notch to “Ba1” and its senior unsecured notes a tick to “Ba2” from “Ba3.”

In assigning the ratings, Margaret Taylor, vice president and senior credit officer at Moody’s, noted the retailer’s “ability to maintain its operating margin above 5.5 percent [of sales] despite gross margin erosion in the fourth quarter.

“It also reflects Moody’s belief that Dillard’s ongoing disciplined inventory management, which supports quickly clearing out excess inventory, will support it maintaining operating margins around its current levels going forward,” she wrote.

In the fourth quarter ended Feb. 1, Dillard’s same-store sales rose 2 percent, but nearly all other metrics were down. Net income fell 26.2 percent, to $119.1 million, while revenues, including those for non-retail operations, were off 3.5 percent to $2.08 billion and gross margin fell 180 basis points to 32.8 percent of sales. The gross margin result was the poorest since 2008, according to J.P. Morgan analyst Matthew Boss.

But the department store mitigated the damage by reducing cost of goods sold 0.8 percent, to $1.37 billion, and selling, general and administrative costs 7.5 percent, to $439.2 billion. Year-end inventories were up 3.9 percent to $1.35 billion.

Shares of Dillard’s Wednesday closed at $92.84, up 0.3 percent, in New York Stock Exchange trading.