S&P drops Sears' credit rating

By Staff -- Home Textiles Today, 7/26/2004 12:00:00 AM

NEW YORK —

Citing a weaker-than-expected profit performance during the second quarter, and a worsening outlook for the second half of the year, Standard & Poor's, one of the big three corporate credit-rating agencies, has revised its outlook for Sears, Roebuck and Co. to "negative" from "stable."

Corporate credit ratings on Sears' debt remain unchanged.

S&P Analyst Gerald Hirschberg said, "Although management has ambitious aspirations for its retail business, Standard & Poor's believes that an intensely competitive retail environment will make consistent improvements difficult to achieve. For 2004, an improving economy was expected to have allowed Sears to show moderate progress at its retail operations. Yet results for the first half were disappointing, and prospects for the balance of the years are no longer favorable. Progress was stalled during the second quarter due to weak Father's Day sales, soft sales of air conditioners, and inventory levels that were not appropriate to demand. The company has had many successes in the hardlines side of its store, especially in hardware, power tools and major appliances, but it has struggled in apparel for many years."

The outlook is especially murky, the analyst said, "because the 2003 sale of the extremely profitable credit and financial products business greatly increases the reliance on retailing, which still has a very challenging future in the highly competitive department store sector."