Fitch Ratings expects that comparable store sales performance in the U.S. retail industry will remain weak for the remainder of 2008, particularly in the discretionary apparel and home products segments. Retail operators continue to face a challenging consumer environment characterized by higher energy and commodity costs, increased unemployment rates, falling real estate and stock prices, and declines in credit availability.

"Economic pressures have not abated, forcing many retailers to be more cautious in their outlooks for 2008," said Karen Ghaffari, Managing Director, Fitch Ratings U.S. Retail Team. "Companies are taking more defensive actions to preserve market share and cash flow."

Many retailers in Fitch's U.S. retail coverage have curbed capital spending and share repurchases from highs seen in 2007 to preserve liquidity. Nonetheless, the combination of pressured revenue, intensified promotional activity and high costs related to energy and commodities is expected to further stress retail operating profit margins in 2008.

From a credit perspective, Fitch views the ratings across its U.S. retail coverage as generally stable in 2008 given issuer efforts to manage through the macroeconomic weakness to preserve revenues, profits, and cash flow. However, there is more downside rating risk than upside rating potential, particularly in the more discretionary department store and specialty retail sectors, and for high yield credits. Fitch also expects a rise in the number of retailer bankruptcies, as already evidenced by the recent filing of Chapter 11 by Linens 'n Things and among home furnishing retailers.