Fitch Ratings expects the U.S. retail sector to remain stable in 2011, with credit profiles supported by strong liquidity and steady operating performance with mid single digit sales growth for the 26 companies under Fitch’s coverage. Low single digit same-store sales (SSS) growth during the 2010 holiday season is expected to be followed by modest growth in SSS and an increase in new store expansion in 2011.
"Credit implications for the retail sector are stable through next year," said Karen Ghaffari, managing director at Fitch.
However, cost pressures, including higher commodity prices, shipping rates and wage pressures in China will likely limit improved bottom lines.
Companies have been able to maintain significant cash balances," she continued, "and improved liquidity has allowed stores to resume or increase share repurchases and boost capital expenditures without straining credit strength. Nonetheless, renewed interest by activist investors and private equity buyers could lead to increased event risk.
For the 2010 holiday season, Fitch forecasts a significant amount of holiday buying to be concentrated around promotional activity, which has already started and should peak close to the Christmas holiday. Fitch notes that inventory levels have been well planned, which should reduce the need for excessive clearance activity. The luxury market is expected to show reasonable gains.
Fitch's complete "2011 Outlook: U.S. Retailers to See Continued Slow Growth" can be found here.