Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
6Activity
0 of .
Results for:
No results containing your search query
P. 1
Fitch CMBS Outlook 2010.12

Fitch CMBS Outlook 2010.12

Ratings: (0)|Views: 48 |Likes:
Published by mopgcw
Corporates
Retailing U.S. and Canada Outlook Report
Rating Outlook

2011 Outlook: U.S. Retailers to See Continued Slow Growth
Rating Outlook
Stability in Ratings: Fitch expects stability in ratings for U.S. retailers in 2011. This reflects mid-single-digit sales growth for the 26 companies in Fitch’s coverage projected for 2011, driven by modest growth in same-store sales and an increase in new store expansion. Overall, operating profits are expected to grow in line with sales, although cost pre
Corporates
Retailing U.S. and Canada Outlook Report
Rating Outlook

2011 Outlook: U.S. Retailers to See Continued Slow Growth
Rating Outlook
Stability in Ratings: Fitch expects stability in ratings for U.S. retailers in 2011. This reflects mid-single-digit sales growth for the 26 companies in Fitch’s coverage projected for 2011, driven by modest growth in same-store sales and an increase in new store expansion. Overall, operating profits are expected to grow in line with sales, although cost pre

More info:

Categories:Business/Law, Finance
Published by: mopgcw on Dec 06, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

12/14/2010

pdf

text

original

 
Corporates
 www.fitchratings.com November 17, 2010
RetailingU.S. and CanadaOutlook Report
2011 Outlook: U.S. Retailers toSee Continued Slow Growth
Rating Outlook 
 
Stability in Ratings:
Fitch expects stability in ratings for U.S. retailers in 2011. Thisreflects mid-single-digit sales growth for the 26 companies in Fitch’s coverageprojected for 2011, driven by modest growth in same-store sales and an increase in newstore expansion. Overall, operating profits are expected to grow in line with sales,although cost pressures, ranging from higher commodity prices to shipping rates andwage pressures in China, could limit improvement in profitability and even put pressureon some retailers.
Strong Liquidity Position:
The stable outlook also reflects the strong liquidity positionfor many retailers as companies have continued to constrain capital spending and focuson cost reduction in response to weak growth in consumer spending. Improved liquidityhas provided many companies with some flexibility to resume or increase sharerepurchases and boost capital expenditures in 2011 without affecting rating levels.Credit metrics are expected to remain stable or improve in 2011 based on expectationsthat most companies retain steady financial policies.
Sector Trends:
Looking across the sectors, supermarket chains are expected to seesome top line benefit in 2011 from higher food inflation, although growing competitionfrom nontraditional retailers will limit their margin improvement. The departmentstores and apparel retailers will likely experience some margin pressure from sharplyhigher cotton prices, insofar as they are unable to pass these costs through to theircustomers. Discount retailers, on the other hand, should continue to perform well andtake market share from the other retail sectors. A full discussion of the sector-specificoutlooks begins on page 3.
 What Could Change the Outlook 
Of biggest concern to ratings in 2011 is increasing event risk stemming from activistinvestors and financial buyers. There have already been several high-profile events inthe sector, including the $4.0 billion leveraged buyout of NBTY, Inc. (NBTY); theproposed $1.8 billion leveraged buyout of The Gymboree Corp. (Gymboree); and theannouncements by activist investor Pershing Square Capital Management LP (PershingSquare) and Vornado Realty Trust (Vornado) of a combined 26% equity stake in J.C.Penney Company Inc. (J.C. Penney).In addition, there is some risk that companies, particularly those with higher ratings,will adopt more aggressive financial policies, as was recently the case with Lowe’sCompanies, Inc. (Lowe’s), which raised its leverage target, leading to a one-notchdowngrade to ‘A’ from ‘A+’.
Rating Outlook 
SSTTAABBLLEE 
 Analysts
Karen Ghaffari, CFA, CPA+1 212 908-0708
karen.ghaffari@fitchratings.com
Monica Aggarwal, CFA+1 212 908-0282
monica.aggarwal@fitchratings.com
 
Tiffany Co+1 312 368-3185
tiffany.co@fitchratings.com
Philip Zahn, CFA+1 312 606-2336
philip.zahn@fitchratings.com
Related Research
Applicable Criteria
Other Research
Other Outlooks
 
 
www.fitchratings.com/outlooks
020406080100PositiveStableNegativeSource: Fitch.(% of Issuers)
U.S. Retail Rating Outlooks/Watches
 
Corporates
2
2011 Outlook: U.S. Retailers to See Continued Slow Growth November 17, 2010
Key Issues
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.
Retail Ratings
(As of Nov. 17, 2010)
FitchLong-TermIDRRatingOutlook/WatchDiscounters
Costco Wholesale CorporationAA
StableTarget Corporation A StableWal-Mart Stores, Inc. AA Stable
Supermarkets
The Kroger Co. BBB StableSafeway Inc. BBB StableSUPERVALU Inc.BB
Stable
Drugstores
CVS Caremark Corporation BBB+ StableRite Aid CorporationB
Stable
Department Stores
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
Stable
Specialty Retail
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.
 
Corporates
2011 Outlook: U.S. Retailers to See Continued Slow Growth November 17, 2010
 
3
 
In addition, as many companies have already invested significantly in pricing, a furtherstep down in pricing is not expected. However, operating margins could come underpressure if inflation increases more than expected, as in 2008 when prices for food athome increased 6.4%.
Liquidity
Liquidity is expected to remain strong for U.S. retailers. Many companies havemaintained significant cash balances with cash reaching $34.6 billion across the 26companies under coverage in the LTM period, and FCF is expected to remain strong atmore than $20 billion in both 2010 and 2011. There has also been a substantial level ofrefinancing activity given market availability and favorable rates, with more than$21 billion of new notes issued to date during calendar 2010, including almost $4 billionof high yield debt issuance in Fitch’s coverage.In 2011, debt maturities remain moderate with about $12 billion coming due for thecompanies under Fitch’s coverage, while four companies have bank facilities expiring in2011 (RadioShack Corp. [Radioshack]; Kohl’s Corp. [Kohl’s]; CVS Caremark Corp. [CVSCaremark]; and Wal-Mart Stores, Inc. [Walmart]). Fitch expects limited growth inworking capital and capital expenditures as companies take a measured approach toinventory, and as low levels of new mall development limit store growth opportunities.Share repurchase activity is expected to increase as liquidity positions allow and asshareholder pressures escalate, which could be a risk to ratings. Pension funding willcontinue to be a drag on liquidity.
Event Risk
Given the significant liquidity amassed by retailers, Fitch expects leveraged buyout andactivist investor related activity will continue to make headlines in 2011, highlightingevent risk as a rating concern. In addition, increased pressure to return value toshareholders, or the perception of it by management, could cause management teamsto become increasingly shareholder-friendly and revisit stated financial policies, as wasthe case with Lowe’s, which led to its November 2010 one-notch downgrade.Recent activity has included the $4.0 billion leveraged buyout of NBTY by The CarlyleGroup, and the proposed $1.8 billion leveraged buyout of Gymboree by Bain CapitalPartners, LLC, which is expected to close before the end of 2010. Also in October 2010,activist investor Pershing Square announced that it had amassed a 16.5% stake in J.C.Penney and that Vornado had amassed an additional 9.9% stake, with the two investorsintending to consult with each other. Other investors’ large stakes in companies maypreface capital structure changes. BJ’s Wholesale Club, Inc., is rumored to be solicitingoffers following an offer and disclosure of a 9.5% stake by Leonard Green Partnersearlier this year. In addition, Fitch expects private equity investors to harvest returnson their investments that were completed between 2005 and 2007, which are likely tohave an effect on capital structures.
Sector-Specific Outlooks
Department Stores
Department store industry sales are expected to be plus/minus 1% in 2011. Fitch-rateddepartment stores, which account for about 57% of industry volume, are expected tosee above industry average growth of 2% in 2011 on top of an expected 3.5% in 2010.These expectations reflect sales weighted comparable store sales growth of 1% in 2011and 2.4% for 2010 (with 2.8% for the first three quarters of 2010 and an expectation of1.5% for the fourth quarter).

Activity (6)

You've already reviewed this. Edit your review.
1 hundred reads
maxwelton9938 liked this
rryan123123 liked this
rryan123123 liked this
maxwelton9938 liked this
maxwelton9938 liked this

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->