Sustained economic recovery and rising consumer confidence will drive steady overall revenue and earnings growth for European retailers into 2018, said the 'Retail - Europe: Moderate Overall Sales and Continued Earnings Growth Support Stable Outlook' report by Moody's investors service.
“Following the Brexit vote, UK clothes retailers could find it tough to fully pass on cost increases incurred as a result of sterling's weakness. This is because we expect the market to remain highly promotional, with plenty of discounting, as volumes so far this year have been hit by unseasonal weather, shifting consumer spending and weak consumer sentiment around the time of the vote,” said David Beadle, vice president - senior credit officer, Moody's and the report's author.
The report noted that earnings growth rates will differ across individual countries and segments in Europe, with UK retailers facing a less confident overall outlook than some of their peers due to the added pressure by the Brexit vote.
Moody's also predicted higher average annual EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) growth of approximately 4.3 per cent for rated issuers as some firms may benefit from store roll-out plans or mergers and acquisitions (M&A) cost savings.
On a country-by-country basis, large Russian retailers will continue to report double-digit revenue growth, added the report. Spanish revenues will grow 3 per cent as the country continues to recover from recession. Annual revenue growth in Germany, France and the Netherlands will be 1.5 per cent to 2 per cent as their economies recover. Italian annual revenue growth will remain subdued at around 1 per cent.
Customers' growing demand for convenience and value will result in the growth of online sales penetration, while both discounters and specialists across segments will continue to win market share from mid-market generalists.
“European retailers perceived as offering superior value at various points across the price spectrum, for example affordable luxury players, will outperform those perceived to offer mediocre products at less attractive prices,” added Beadle. (KD)
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