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U.S. retail sector on track for healthy growth

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Moody's report also predicts solid holiday sales gains

U.S. retail sector on track for healthy growth

NEW YORK — For 2017, the U.S. retail industry stands to turn in solid sales growth, including healthy holiday retail sales, despite continued pressure on operating results, according to Moody’s Investors Service.

Moody’s pegs 2017 U.S. retail sales growth at 3% to 4%, upholding its previous outlook. However, the rating agency has lowered its forecast for U.S. retail operating income growth to 2% or less from its earlier projection of 1.5% to 2.5%, which also had been scaled back from 4% to 5%.

Moody’s 2017 U.S. retail outlook, which gauges business conditions over the coming 12 to 18 months, also noted that certain subsectors of retail remain under pressure from structural shifts in the industry.

“Specialty retailers, discounters and warehouse clubs, department stores, and apparel and footwear retailers are exerting the greatest pressure on the U.S. retail industry, and although still a small part of our rated universe, the list of distressed names is growing,” according to Moody’s vice president Mickey Chadha. “As a result, we have lowered our forecast for industry operating income growth this year to 1% to 2% from 1.5% to 2.5% but are keeping our full-year sales growth forecast at 3% to 4%.”

In line with the stable full-year retail forecast, Moody’s said sturdy economic fundamentals bode well for the holiday selling season. The ratings firm projects 2017 holiday retail sales growth at 3% to 4%.

During the holiday, retailers will need to closely manage their promotions to uphold margins, Moody’s reported. Meanwhile, improving macroeconomic benchmarks — including lower unemployment and increased wage growth — will lift consumer spending.

Chadha added that U.S. retail will see a slightly better performance next year. Moody’s estimates 2018 U.S. retail sales and operating income growth at between 3.5% and 4.5%.

Large retailers like Walmart and Target should begin to see their investments in future growth bear fruit, he said. Online retailers, home improvement stores, off-price retailers and dollar stores will see continued growth, and declines at department stores will dissipate. Specialty retail, apparel and footwear, and auto parts should also improve and help lift overall retail performance.

Though accounting for only 10% to 12% of total U.S. retail sales, online sales will continue to grow faster than in-store sales, to the benefit of multiple subsectors as more companies leverage the expanding digital channel, according to Moody’s. The rating agency said its expects 2018 operating profit growth for its rated U.S. online retail subsector, dominated by Amazon, to exceed results in 2017.


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