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Research Announcement:

Moody's - Outlook for US retail sector revised to negative on expanding COVID-19 pandemic

25 March 2020


New York, March 25, 2020 --

  • Department stores and apparel & footwear retailers will be the worst hit by the outbreak, while sellers of non-discretionary items will benefit
  • Brick and-mortar operations will not be able to offset steep losses from store sales via their online platforms

The outlook for the US retail sector has been revised to negative from stable, Moody's Investors Service says in a new report. As fallout from the spread of the coronavirus batters the global economy, US retailers are facing an unprecedented mix of woes. Many were fighting to shore up market share and margins even before the outbreak, while the one bright spot for the industry – strong consumer spending backed by a healthy economy and low unemployment – has evaporated overnight.

"The negative outlook for the US retail sector reflects our revised forecast on the back of the coronavirus outbreak, with operating income declining 2% to 5% and sales flat to falling by about 3% in 2020," said Mickey Chadha, a Moody's Vice President-Senior Credit Officer. "Our downside case, meanwhile, would see operating income fall 5%-10% and sales drop by as much as 5%."

Department stores and apparel & footwear retailers will be the worst hit by the outbreak of COVID-19, with 2020 operating income declining by up to 40%, Chadha said. Department stores facing steep losses include Macy's, Inc., Kohl's Corp. and Nordstrom, Inc, and among the hardest hit apparel and footwear retailers will be Gap, Inc., Michael Kors USA, Tapestry, Inc. and J. Crew Group, Inc.

Off-price stores, which historically have outperformed other retailers, will now see a 10%-15% drop in operating income as companies including TJX Companies and Burlington Coat Factory Warehouse Corp. share in the mounting pain of mandatory store closures. Specialty retailers such as Bed, Bath & Beyond, Inc., and Michaels Stores, Inc. will see operating income fall by 8%-10%, while for auto retailers including AutoNation, Inc. and Penske Automotive Group, Inc., operating income will drop by 3%-4% this year.

Meanwhile, retailers such as supermarkets, drug stores, discounters and warehouses, and dollar stores will all benefit as consumers stock up on food and other essentials. Companies including Kroger, Co., Walmart, Inc., Costco Wholesale Corp., Target Corp., Dollar General Corp. and CVS Health are among those deemed 'essential' by local and state governments, so they don't have to must they contend with temporary store closures.

Online retailers will absorb only a fraction of lost sales from store closures, Moody's says. Online orders for groceries and other consumables have surged due to the spread of COVID-19. Operating income and curbside pickup at stores like Whole Foods, Walmart and Kroger have risen significantly as consumers avoid visiting stores. Online-only companies such as Amazon.com, Inc. and Chewy are also benefiting as consumers shop from the confines of their homes. Nevertheless, even brick and-mortar operations that have invested heavily in their e-commerce capabilities won't be able to offset steep losses from store sales via their online platforms.

For more research and insight on the coronavirus (COVID-19) outbreak, please see http://moodys.com/coronavirus .

Subscribers can access the report, "Retail – US: Going negative as coronavirus-related disruptions set to batter earnings", at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1219823

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.

Margaret Taylor
Associate Managing Director
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Manoj Chadha
VP-Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
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JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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