S&P downgrades department stores

New York City Standard & Poor's Ratings Service has reduced the debt ratings of many of the nation's major department stores amid deepening worries about the U.S. recession's impact on the category.

In a report released Friday, Diane Shand, an analyst at S&P said that the department store group has "felt the full brunt of the declining U.S. economy and weakening consumer confidence."

"We believe lower consumer spending and declining mall traffic will affect the sales and profits of the department store operators this year, and that recovery will be slow and dependent on an improvement in the macroenvironment," she added.

S&P expects moderate-priced department store operators such as Dillard's, Macy's and J.C. Penney Co. to suffer high single-digit declines in same-store sales in 2009 while more upscale rivals such as Neiman Marcus and Nordstrom will incur low double-digit declines.

Macy's and J.C. Penney's ratings were cut to "BB" from "BBB-," two notches into non-investment grade or "junk" territory. Dillard's rating was cut further into speculative grade to "B-" from "B+."

Neiman Marcus Group was cut further into junk terrain to "B-" from "B+." Nordstrom's rating was reduced to "BBB+" from "A-."

S&P reaffirmed Sears Holdings Corp.'s rating of "BB-."

Shand added that liquidity isn't a concern. Macy's and J.C. Penney's recently amended their credit facilities. Dillard's, Neiman Marcus and Sears have "covenant-like" credit facilities and she said she believes that Nordstrom has "ample cushion" within its covenants.