NEW YORK — Fitch Ratings cut its outlook on J.C. Penney Co.’s debt to “negative” from “stable.”

However, the rating agency on Tuesday also affirmed its “BB-plus” label on the firm’s $1.5 billion secured bank facility, the “BB” mark on its senior unsecured notes and the “B-plus” grade on Penney’s convertible subordinated notes.

While the affirmations reflect progress made in Penney’s turnaround efforts and a strong liquidity position, Fitch said the negative outlook reflects current operating weakness in both the firm’s department store and Eckerd businesses.

Through the first four months of 2003, Penney’s department store comparable-store sales slid 3.2 percent while the drugstores were off 1.1 percent, noted Fitch.

“Sales weakness, which is expected to persist over the balance of 2003, is slowing the pace of margin improvement,” said Fitch analyst Philip Zahn in a statement.

Fitch also affirmed its rating on Saks Inc.’s $700 million secured bank facility at “BB-plus” and its $1.2 billion worth of senior notes at “BB-minus. The outlook remains “negative.”

While the overall retailing environment and lost income from the recent sale of its credit business will pressure Saks, Zahn said he expected a gradual recovery in cash flow in 2004 and debt reduction to lead to modest improvement in the firm’s credit profile over the medium term.

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