By  on April 8, 2010

Retail stocks and equity markets in general declined Wednesday as consumers used less credit and Federal Reserve chairman Ben Bernanke said the economy was not “out of the woods.”

Standard & Poor’s raised its corporate credit rating on J.C. Penney Co. Inc. to “BB-plus” from “BB,” and predicted the company’s performance would “improve modestly over the near term and that credit metrics will benefit as it pays down its balance sheet.” The debt watchdog also put its “BB” rating on Macy’s Inc. on CreditWatch with positive implications, reflecting stronger sales trends and debt repayments.

On the other side of the ledger, S&P lowered its corporate credit rating on Phillips-Van Heusen Corp. in light of its $3 billion deal to acquire Tommy Hilfiger. The firm’s rating was cut to “BB-plus” from “BBB-minus,” a fall to speculative or “junk” territory from investment grade. The outlook on the rating is negative.

“The lowering of the corporate credit rating to speculative grade reflects PVH’s more aggressive financial policy, the execution challenges of acquiring a company of the same size with international operations and the deterioration of its credit metrics,” said S&P analyst Linda Phelps.

PVH’s proposed $2.45 billion credit facility to fund the deal was given a rating of “BBB,” higher than the general corporate rating because the banks lending the money would be among the first to get paid in the event of a default.

Shares of Penney’s declined 1.3 percent to $32.79 in trading Wednesday while Macy’s shares were off 0.7 percent to $22.46. PVH’s stock fell 0.3 percent to $59.93 after hitting a 52-week high of $60.48 in intraday trading.

The S&P Retail Index slipped 0.1 percent, or 0.30 points, to 460.15. The Dow Jones Industrial Average fell 0.7 percent, or 72.47 points, to 10,897.52. Of the 172 stocks tracked by WWD, Zale Corp. led the pack with a 22.9 percent rise to $3.60 on speculation that the jeweler was nearing a deal to sell a stake to a private equity player.

In February, Zale said it would review a range of financing alternatives with the help of investment bank Peter J. Solomon Co. Matt Appel, executive vice president and chief financial officer of Zale, said that review, which was to take about three months, was on track. “The process is going well and it’s not complete,” he said.

Appel also said the company was keeping up with its bills after running into trouble with vendors last year.

“There are no suppliers that I know of who we’re overdue with or who we don’t enjoy a great relationship with,” Appel said. “All that stuff from last year, that’s a thing of the past.”

Bernanke tried to strike a similar tone during a speech in Dallas.

“The financial crisis looks to be mostly behind us, and the economy seems to have stabilized and is beginning to grow again,” the Fed chairman said.

But he was clear about the challenges facing the economy — from one in 10 workers being unemployed to weak bank lending. “We are far from being out of the woods,” he said.

Bernanke is pushing for financial reform that would curb excessive risk taking on Wall Street and prevent firms from becoming “too big to fail.”

In a monthly report, the Fed said consumer credit fell at an annual rate of 5.6 percent from January to February as shoppers took a more cautious tack.

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