NEW YORK — Dillard’s Inc.’s debt ratings were downgraded by Moody’s Investors Services last week as the rating agency cited concerns over “the value of the company’s franchise over the longer term, and the uncertainty that Dillard’s financial performance will recover to levels that will be consistent with peers.”
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Concluding a review it initiated in August, Moody’s lowered Dillard’s senior implied rating to “B1” from “Ba3”; its senior unsecured ratings to “B2” from “Ba3”; and the firm’s subordinate debt ratings to “B3” from “B2.” The revised ratings, like their predecessors, are all considered “not prime,” or “speculative grade” by Moody’s. The rating outlook, however, is stable.
Additionally, Moody’s lowered shelf ratings for Dillard’s debt and preferred stock to “(P)B2,” “(P)B3,” and “(P)Caa1” from “(P)Ba3,” “(P)B2,” and “(P)B3.”
Moody’s said Dillard’s is being squeezed by competition at either end of the price-point spectrum, as Target Corp. and Kohl’s Corp. have aggressively pursued its customers while more traditional department stores have been more aggressive with promotions and markdowns.
“The downgrade reflects Moody’s expectation that Dillard’s will not be able to quickly turn around its disappointing operating performance, and that the company will continue to face strong challenges from a broad range of competitors,” said Moody’s in a statement. “Dillard’s key competitive strategy is to excel with compelling private label product, which produces higher margins for the retailer and drives customer loyalty. Moody’s is concerned that Dillard’s will find it challenging to deliver this message to consumers given the drop-off in store traffic and the promotional pricing strategies used by competing department stores.”
As reported, the Little Rock, Ark.-based regional department store chain last month increased its senior secured credit facility to $1 billion from $400 million. The facility also has been extended an additional five years, pushing its expiration to 2008. Moody’s said the new credit revolver “is sufficient to finance working capital and any operating losses, if necessary.”
In its most recent earnings report, Dillard’s said its net loss for the third quarter ended Nov. 1 more than tripled to $15.8 million, or 19 cents a diluted share, from $5.1 million, or 6 cents, in the year-ago period. Although the loss was 14 cents less than analysts had projected, sales slipped 1.7 percent to $1.76 billion and comparable-store sales declined 2 percent. Its November same-store sales slid 6 percent.