2011 Outlook: U.S. Retailers to See Continued Slow Growth November 17, 2010
2010 Holiday Sales
Fitch expects same-store sales willgrow by low single digits in the 2010holiday season, slightly better thanin 2009. While Fitch expectsmodestly positive growth in U.S.consumer spending through thefourth quarter, year-over-year same-store sales comparisons becomemore challenging. Composite same-store sales were up 2.2% in October2010, below levels seen in theprevious months as the easycomparisons from the prior year havebeen anniversaried.These expectations recognize theweak recovery in consumer spendingand an ongoing focus on value. Fitchexpects a significant amount ofholiday buying to be concentratedaround promotional activity. Thisactivity has started well before BlackFriday this year and is expected topeak again close to the Christmasholiday. Fitch expects promotionswill be measured, and with onlylimited negative impact to grossmargins as inventory levels havebeen well planned, reducing theneed for excessive clearance activity. The luxury segment is also expected to showreasonable gains with continued recovery in 2011.
2011 Sales and Operating Performance
In 2011, Fitch expects total retail sales growth in the mid-single-digit range for the 26companies under coverage. This reflects modest growth in same-store sales and newstores.Same-store sales will be driven by modest growth in consumer spending, which Fitchprojects will increase 1.9% in 2011. This reflects continued high unemployment,ongoing U.S. household deleveraging, and weak confidence levels. Other factors thatcould affect sales include the availability of consumer credit, an improving wealthposition, and inflation across several categories, including food and apparel.While store growth will be constrained due to ongoing developer issues, it is expectedto be greater than in 2010. Capital expenditures across the companies under coverageare projected to be about $34.5 billion in 2011, up from about $32.5 billion in 2010, butwell below the $44.3 billion spent in 2007 before the recession began. The increase willbe most significant for discounters and certain specialty retailers.Operating profitability is expected to be relatively steady despite expected costpressures in 2011. While consumers will remain focused on value, a gradual recovery insales will reduce the need for unplanned promotional activity that erodes gross margins.
(As of Nov. 17, 2010)
Costco Wholesale CorporationAA
StableTarget Corporation A StableWal-Mart Stores, Inc. AA Stable
The Kroger Co. BBB StableSafeway Inc. BBB StableSUPERVALU Inc.BB
CVS Caremark Corporation BBB+ StableRite Aid CorporationB
The Bon-Ton Stores, Inc.B
StableDillard’s, Inc. BB- StableJ. C. Penney Company, Inc.BBB
StableKohl’s Corporation BBB+ StableMacy’s, Inc.BBB
StableNeiman Marcus, Inc. B StableNordstrom, Inc.A
StableSaks Incorporated B StableSears Holdings CorporationBB
AutoZone, Inc. BBB StableBest Buy Co., Inc. BBB+ StableBurlington Coat FactoryInvestment Holdings, Inc. B
StableThe Home Depot, Inc. BBB+ StableLimited Brands, Inc. BB+ StableLowe’s Companies, Inc. A StableRadioShack Corporation BB StableStaples, Inc. BBB StableToys “R” Us, Inc. B PostiveIDR
Issuer default rating.Source: Fitch.