Growth Gives Dillard's a Credit Ratings Boost

by Mark Friedman  on Monday, May. 6, 2013 12:00 am  

Credit rating services dished out praise to Dillard’s for its continued financial success.  

And same-stores sales were up 4 percent in 2012 over the previous year. Same-store sales reflect sales at stores open at least a year and exclude gains from simply opening new stores.

The only metric that wasn’t higher in the most recent year was net earnings. The $336 million bottom line suffered by comparison with the $464 million earned in the fiscal year that ended in early 2012, which was buoyed a tax benefit of $201.6 million in connection with Dillard’s transferring its real estate into its properties to its real estate investment trust.

“The upgrade reflects performance that was ahead of our expectations over the past year, a moderate improvement in operating metrics, and our view that the company will make further operational gains over the next 12 months while maintaining conservative financial policies,” S&P credit analyst David Kuntz said in a news release.

He also said Dillard’s “has demonstrated meaningful improvement in its productivity measures over the past year and has narrowed the gap between it and higher-rated peers such as Macy’s, Kohl’s and Nordstrom.”

Moody’s also said that Dillard’s improvements in merchandising are driving its sales growth.

“The improvements in merchandising along with continued inventory management by Dillard’s have also resulted in a significant improvement in operating margin,” Moody’s said.

Dillard’s credit rating could be upgraded “should Dillard’s demonstrate continued track record of consistent performance,” Moody’s said.

The S&P said it would move Dillard’s into investment grade if it could demonstrate continued operational gains, such as sales per SF.

“Furthermore, an investment-grade rating would also be predicated on a stable cash flow generation, conservative financial policies, and maintenance of credit protection measures in-line with current levels,” the S&P said.

Moody’s said that a downgrade was unlikely at this time.

“Dillard’s is a healthy, strong company financially,” said Davidowitz, the retail consultant.



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