Fitch lowers Dillard's

Fitch Ratings said it downgraded Dillard's, Inc.'s issuer default rating to B from BB, $1.2 billion secured credit facility to BB/RR1 from BB+, senior unsecured notes to BB-/RR1 from BB and capital securities to B-/RR1 from B.

The outlook remains negative.

The rating actions reflect Fitch's expectation for considerable pressure in comparable-store sales trends in the second half of 2008 and into 2009, which will result in a material deterioration in the company's operating and credit metrics. Comparable-store sales were negative 5% in 2007 and the first half of 2008 and deteriorated to negative 10% combined for August and September.

While Dillard's is taking steps to control expenses, reduce inventory and close underperforming stores, the agency said it expects these initiatives may not be adequate to offset the strong headwinds from declining sales. As a result, operating earnings are likely to be negative this year and the company's leverage could increase significantly, Fitch predicted.

The debt-to-EBITDAR ratio for the last 12 months ended Aug. 2 was 4 times.

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