Bankruptcy Scores: 18 Riskiest Retail Stocks

NEW YORK (TheStreet) -- Retail risks are still a major concern, as consumer spending remains skittish and the job market continues to worry shoppers. The economic downturn has, of course, already eliminated several retail powerhouses, including Circuit City and Linens 'N Things. But while the fear of bankruptcy filings has, for the most part, subsided, some companies remain in danger of insolvency. continue to flirt with the danger zone. One way to test if a company poses any threat of filing for bankruptcy is through the Altman Z-Score, a formula developed by New York University professor Edward Altman in 1968. The Altman Z-Score measures several aspects of a company's financial health to forecast the probability of it going bankrupt within two years. Since its inception, the formula has been 72% accurate in predicting corporate bankruptcies two years prior from the filing. On a general basis, companies with a Z-Score higher than 3 are considered safe, while those with a score of 1.8 or lower are considered distressed. Anything in between is a grey area. "I think [Altman's Z-Score is] a very interesting concept. It drills right into the heart of the company: sales, debt, retained earnings," Wall Street Strategies analyst Brian Sozzi says. "Obviously all of these things are intertwined, but the measure is in depth enough to at least pay attention to it." While the formula, of course, isn't the only indicator of the financial health -- and is by no means a guaranteed barometer of a company's bankruptcy risk -- it is a metric worth considering for those retailers who fall below the safety zone. Those whose Z-Score is declining year-over-year may also raise a red flag. Taking this into account, we offer here the retailers with a Z-Score below 3 for the trailing twelve months, from the least risky to the most risky. Altman Z-Score, Current: 2.95 Altman Z-Score, 2009: 2.76 18. Dillard's Dillard's DDS is closest to the safety zone, with a Z-Score of 2.95, but it's easy to see why the department store remains on shaky ground. The department store sector was among the hardest hit amid the recession, and it has been difficult for these companies to regain their footing as shoppers continue to flock to discounters and online retailers. Dillard's, in particular, has reported annual revenue declines in seven of the last 10 years and has lost money in four of the last nine quarters. Still, it seems the company is in the midst of a turnaround. Dillard's stock return is among the highest out of its peer group, up 30% to $21.10 for the year-to-date period. In its first quarter, Dillard's saw its profit surge nearly seven-fold to $48.8 million, or 68 cents a share, as gross margins improved by 300 basis points and the company cut costs by $20.7 million. Dillard's has also issued a quarterly dividend of 4 cents a share. To read the rest, head over to TheStreet.com