Fitch sees brighter 2010 outlook for US retail, consumer products sectors
Fitch has a slightly more positive view than Standard & Poor’s of the prospects for US retailers and consumer products companies. We featured S&P’s outlook earlier this week, in which S&P said that industries that depend on discretionary consumer spending may not rebound anytime soon.
Fitch says it expects increased stability among retailers as cash flow improves and sees 2010 as a turning point for consumer products companies.
Key points from Increased Stability Expected in 2010 for U.S. Retail due to Improved Cash Flow & Liquidity
- Some Negative Rating Outlooks may migrate to Stable if sales trends stabilize, margins improve on better inventory positions and cash flow generation and liquidity remain adequate.
- Fitch expects that 2009 holiday same store sales could be mildly positive as weak same store sales in the prior year are anniversaried and retailers needed to clear excess inventories at deeply discounted prices.
- In 2010, overall retail sales are anticipated to be flat to up modestly from 2009 levels
- Fitch expects well-capitalized operators such as Kohl’s, (KSS) Macy’s, Inc. (M) and J.C. Penney (JCP) to increasingly consolidate share and post same store sales in the plus 1% to minus 2% range, given investment in stores even during the economic downturn, improved assortments via exclusive and private brands, and continued focus on providing compelling value.
- Fitch expects operating profit for Limited Brands Inc. (LTD) to improve in 2010 as its focus on operating efficiencies and conservative inventory management help offset negative same-store sales expectations.
- CVS Caremark (CVS) is well-positioned with leading market shares in all prescription distribution channels – retail and in-store clinics, mail, and specialty. Fitch expects the company to continue to drive share gains given its industry leading retail same store sales growth but recent contract losses on the PBM side will temper sales and earnings growth in 2010.
Excerpts from 2010 Should be a Turning Point for U.S. Consumer Products Sector
Fitch Ratings expects U.S. consumer products companies to see modestly rising demand as global economies revive.
However, revenue growth rates will be well below historical levels and price increases are not expected to be as important as they were during 2009.
Fitch says large acquisitions did not play a meaningful part in top-line growth for the sector in 2009 nor are they projected to do so in 2010 except for The Stanley Works (SWK) merger agreement with Black & Decker (BDK). Niche purchases for growth, to support ongoing businesses or to enhance operations may happen. However, divestment of non-core assets and brands could also occur in the Household and Personal Care space given retailer focus on shelf-space rationalization.
“Ratings are not anticipated to change meaningfully for the Household Products, Personal Care and Toy sectors” said Grace Barnett,” Director at Fitch. “For the Appliances, Home and Hardware, and Tools sector there is still reason to be cautious but these companies may have reached a turning point and positive revisions to the currently negative outlooks could occur,” said Tom Razukas, Managing Director at Fitch.
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