Moody's Sees Credit Conditions Improving

Moody's Investor Service said Friday it believes overall credit conditions in the U.S. retail industry will “materially improve” over the next 12-18 months, with operating income growing and sales moderating — an overview that prompted the agency to change its outlook for the retail sector to “positive” from “stable.”

NEW YORK — Moody's Investor Service here said Friday it believes overall credit conditions in the U.S. retail industry will “materially improve” over the next 12-18 months, with operating income growing and sales moderating — an overview that prompted the agency to change its outlook for the retail sector to “positive” from “stable.”

Moody's also said it believes the supermarket sector has reached “a point of stability” as the negative impact of deflation and competitive discounting “has likely reached its peak.”

According to Maggie Taylor, vice president and senior credit officer for the corporate finance group, “We expect overall retail operating income to grow in the mid-single digits, driven by increases in consumer spending and retail sales, not just from aggressive cost-saving programs.”

However, with consumers still facing high unemployment and personal debt levels along with low asset values and tight consumer credit, Moody's said the level of comparable store sales growth is likely to moderate, while sales growth will occur at a lower yet positive and more sustainable level “as consumers feel more comfortable spending in the current lukewarm economic environment.”

That environment will continue to keep most consumers focused on value, Moody's addded. The agency also said it expects earnings will be higher in the first half of the year than in the second due to easier first-half comparisons with a period during which retailers were still grappling with clearing excess inventory and were locked into higher-than-needed purchases.

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