By Andria Cheng

U.S. retail stocks headed lower Tuesday, weighed by concerns about the economic and financial sector outlook as Barack Obama was sworn in as the 44th U.S. president.

Department stores led decliners, with J.C. Penney Co. (JCP) shares down 8.5% at $17.63. In a statement released Tuesday afternoon, the company said there's no basis for any concern about its credit line and said it expects to have more than $2 billion of cash on its balance sheet in the year ending Jan. 31. J.C. Penney also said it expects its cash flow metric to improve further and be positive in the new year.

J.C. Penney said it has no debt maturities coming due in 2009 and that it expects to fund its next maturity of about $500 million due in March 2010 from its cash balances. It also said it won't be required to make a contribution to its primary pension plan in 2009 and doesn't expect to be required to contribute in 2010.

The company's remarks came after J.P. Morgan analyst Charles Grom cut his profit estimates on the department store retailer.

Grom said deep discounts taken during the holiday season and after Christmas are likely to hurt the company's profit margins. Moreover, the stock market's decline in the past year is likely to lead to "sizable pension expense" this year. He said the company also may breach terms of its revolver expiring in April 2010 by the second half of 2009 based on his estimate that profit before items may drop 44.5% this year. He said in a research note Tuesday morning while Penney will likely seek some amendment to its credit line some time over the next six months, which will likely come at a cost.

Macy's Inc. (M) shares fell 9.6% in mid-afternoon trading while Nordstrom Inc. (JWN) shares declined 6.8%.

The S&P Retail Index (RLX) fell 5% to 265.55, pacing a broader market decline. Major indexes were dragged down by financial stocks and also tracked losses in Europe, amid renewed worries about the health the financial sector, while oil prices continued their decline on a gloomy outlook for global energy demand.

Best Buy Co. (BBY) shares fell 6.3%. J.P. Morgan analyst Christopher Horvers said that the liquidation of bankrupt retailer Circuit City Stores Inc. (CCTYQ) is likely to give a 57-cent per-share profit lift to Best Buy in fiscal 2010 as it takes share from Circuit City. The analyst, however, said investor concerns regarding liquidation pressures will weigh on the stock in the near term.

Discounters and wholesale clubs including Costco Wholesale Corp. (COST) would also benefit from Circuit City's downfall, the analyst said.

-Andria Cheng; 415-439-6400; AskNewswires@dowjones.com

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