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Retailers' Credit Outlook Improves

Fitch Ratings' retail report found the pace of negative ratings activity for retailers has slowed as 2009 has progressed.

By Michelle Napoli | Updated on September 17, 2009

NEW YORK CITY—The pace of negative ratings activity for retailers has slowed as 2009 has progressed, Fitch Ratings notes in a special report: The Retail Register, released last week. Among the retailers whose debt is rated by Fitch, there were no ratings changes during the second quarter; three outlooks were changed in a negative direction and two were changed in a positive direction. During the first quarter, Fitch downgraded two retailers, changed the outlook for one to negative and had no positive actions.

“Despite the challenging sales environment, many companies across Fitch’s US retail coverage have been managing inventory positions well. Gross margins have rebounded for those companies in the discretionary categories that were hit particularly hard during the 2008 holiday period,” according to Fitch’s report. “This, combined with strong cash flow management and the resolution of liquidity issues for several companies, has resulted in an improved overall credit outlook as evidenced by the lower level of negative rating movement in recent months.”

For the discount retailers such as Wal-Mart, Costco and Target, food “continues to be a major driver of store traffic,” Fitch notes, and these retailers “are expected to continue to focus on capturing market share through broader food offerings, an attractive value message and further store base expansion, albeit at a slower rate than historically.”

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