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S&P puts Dillard's debt on watch

Standard & Poor's, one of the three big corporate credit rating agencies, said it's concerned about the deteriorating performance at Dillard's Inc., the Little Rock, AR-based department store chain and may cut its ratings on the retailer.

S&P said it has placed about $2 billion worth of Dillard's debt "on CreditWatch with negative implications." Dillard corporate and senior unsecured debt are currently rated "BB+", while the preferred stock is rated "B+".

The credit agency said the action "reflects a weakening of operating performance" and an expectation "that the company's credit measures may deteriorate during 2003." The current rating, S&P added, had built in a further recovery in operating performance and credit ratios, which now seems in doubt given the protracted weak retail environment, especially for department stores.

"Dillard's operations are being affected by intense competition, lagging consumer confidence, a poor economy, a rising unemployment rate that has pared disposable personal income, and the continuing impact world events are having on consumers' appetites for spending," said Jerry Hirschberg, S&P credit analyst. That environment, he added, "is affecting sales growth for all department store operators, as all major players have seen same-store sales declines for a protracted period of time."

The analyst said, "After several years of poor performance, Dillard's managed a relatively good year in 2002," with improved operating margins, operating profits, cash flow protection and leverage. "Maintenance of the rating was predicated on a continuation of progress in 2003, but many of the same adverse macroeconomic factors that Dillard's and the rest of the retail sector faced in 2002 are unchanged."

First-quarter results were disappointing, said Hirschberg, "and the recent 7 percent drop in same-store sales for May 2003 suggests that the economy and low consumer confidence are taking a heavier-than-average toll on Dillard's business. Dillard's same-store sales have been negative since 2000, and are off 7 percent for the first four months of 2003. Moreover, they have been positive in only six of the last 28 months."

Planned job cuts fall significantly in April

In one hopeful sign that a recovery in consumer spending could lie ahead, planned job cuts and layoffs plunged to a 30-month low in April, possibly signaling an end to a job-cutting spree that has demoralized American workers since 2001.

Challenger Gray & Christmas, the international outplacement company which tracks layoffs, said the May figure of 68,623 planned job cuts was down by more than half, by 53 percent, from the 146,399 announced in April. The May figure was the lowest since November 2000, when 44,152 job cuts were announced.

The monthly report also said that May job cuts were 19 percent lower than the number announced during the same period a year ago.

Job cuts through the first five months of this year now total 570,817, down 11 percent from the 640,761 layoffs announced during the first five months of last year.

"The missing-in-action kick-start that will propel the economy out of the doldrums may be close at hand," said John Challenger, ceo. " "Small and medium-sized businesses, traditionally responsible for most new job creation in recoveries, may begin to expand investment and hiring due to the new tax cuts."

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