Standard & Poor’s Corp. said Tuesday it has raised its corporate credit ratings for major department store operators Isetan Co. and Mitsukoshi Ltd.

The credit rating agency also said further upgrades were possible if the earnings environment improves further.

S&P raised its corporate credit rating on Isetan to BBB-minus-pi from BB-plus-pi “based on the company’s improving profitability and cash flow protection stemming from its enhanced merchandising capabilities and steady debt reduction.”

“Isetan has successfully maintained the strong market position of its flagship store in Tokyo’s highly competitive district of Shinjuku, which accounts for 55 percent of its total department store revenue on an unconsolidated basis,” S&P added.

The agency said it has upgraded its corporate rating on Mitsukoshi to B-plus-pi from B-pi, “reflecting the improving operating efficiency of Mitsukoshi’s department store business and its steady debt reduction.”

“Mitsukoshi’s return on operating assets has been gradually recovering following the implementation of drastic restructuring over the past three years, including the closure of unprofitable stores, wage cuts, and changes to its employee pension fund,” S&P added.

S&P credit analyst Machiko Amano said the rating on Isetan could be raised further if the company is able to sustain its strong operating performance amid sluggish consumer spending in Japan.

On Mitsukoshi, Amano said the rating could be raised further if it “is able to improve its credit measures, such as its capital structure . . . in particular the negative impact of falling stock prices on spending among wealthy customers, a major customer segment for the company.”

Mitsukoshi’s total debts have fallen by around 25 percent from its peak four years ago, while its total debt to capital fell to 82 percent in fiscal 2001 from 94 percent in fiscal 1998, S&P said.

The company’s debt burden remains high in comparison with its peers, leaving it more exposed to interest rate fluctuations, it added.

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