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Announcement:

Moody's Analysis of Canadian Retailers Shows Near-Term Modest Growth and Manageable Risks Ahead

Global Credit Research - 29 Sep 2017

Toronto, September 29, 2017 -- Canadian retailers are well positioned for near-term growth as they work through a variety of challenges, including increases in minimum wages and ongoing headwinds due to e-commerce competition, Moody's Investors Service says in a new report.

Operating incomes for the retailers analyzed in this report are poised to grow 6.0-6.5% in 2017. That growth is likely to slow to 5.0-5.5% in 2018 as new minimum wage increases and new drug reforms take effect in certain provinces. Retail sales, excluding autos and gasoline, should grow 4.0%-4.5% in 2017, supported by gains in household wealth from home price appreciation. Risks, including e-commerce and the expansion of US retailers into Canada, should be manageable.

"We expect Canadian retailers to continue to streamline their operations to match consumer demands and tightly manage their cost structures," says Moody's analyst Peter Adu. "All of the retailers in this report are devoting attention to their e-commerce capabilities, and some are trying new initiatives, such as `click-and-collect' and home delivery strategies."

While online sales will represent high single digits percentage of retail sales by 2018, Moody's expects retailers to maintain their physical presence in general, and in some cases continue to add new stores. Dollarama, for example, is set to open up to 70 new stores in 2018. Store networks provide retailers with ship-from-store capabilities and provide customers with physical pickup locations for their online purchases.

Among the retailers in this report, HBC Canada and Canadian Tire are the most exposed to the e-commerce threat. Their offerings are non-perishable, longer shelf life products, which can easily be moved online. Many of their products can be directly purchased from established online retailers, as well as from their competitors' websites.

The report goes on to provide Moody's forward view of the various subsectors of retail's contribution to consolidated operating income, including general merchandisers, grocers, dollar stores and department stores.

Moody's research subscribers can access the report, "Cost-cutting helps drives profit growth despite cautious consumers," at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1088949

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NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Peter Adu, CFA
Asst Vice President - Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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