Moody's ups Saks ratings

Moody's Investors Service said it raised the ratings of Saks Inc. to Ba3 from B1 reflecting what Moody's believes is a stabilization of market share relative to other department stores and sustainable margin improvement.

The company's senior unsecured public debt ratings (guaranteed by operating subsidiaries) were raised to Ba3 from B1, while the senior unsecured long-term issuer rating was raised to B1 from B2. Moody's does not rate Saks' current secured credit facility.

The outlook is stable.

Moody's said Saks' ratings are supported by reduction in both on-balance sheet and off-balance sheet leverage from sustained improvements in store operating profitability; debt reduction from operating cash flow, and the sale of the company's receivables portfolio; the company's ability to fund its growth and working capital needs from internally generated cash flow and cash balances; fixed charge coverage levels which are strong for the rating category; highly satisfactory liquidity; modest upcoming debt maturities; and the company's unencumbered real estate.

The agency said ratings also reflect uneven top line and operating performance relative to its peers; competition from alternative formats for moderate customers; relatively low return on assets, which is caused in part by the value of owned real estate and thin margins relative to other department store chains; and the expectation that a large portion of cash balances will be used to return value to shareholders.

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