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Moody's has lowered its 2017 forecast for US retail operating income growth to 1.5-2.5 per cent from 4-5 per cent, and maintains its sales growth forecast for the year at 3-4 per cent. The lower forecast was driven mainly by weakness in the subsectors such as specialty retailers, discounters and warehouse clubs and department stores among others.
"Consumer spending remains subdued, with gains in household wealth due to improved housing and equity markets a positive, although lower-income households are benefiting less than those with greater discretionary income," said Mickey Chadha, a Moody's vice president and senior credit officer.
Among subsectors, department stores will see the single biggest drop in operating profits this year, Chadha said in 'Lowering Operating Profit Growth Forecast as Some Key Sub-Sectors Weaken'. On the back of a 1 per cent decline in sales, Moody's forecasts a 7-8 per cent decrease in operating profits for the subsector, excluding Sears. Department store sales have been hard hit by changing shopping trends, lower mall traffic and competition from online and off-price retailers.
The largest subsector of the Moody's rated retail universe, discounters and warehouse clubs, will also see operating profits fall this year, in the range of 4-5 per cent. Walmart, which accounts for about 75 per cent of the subsector's earnings, continues to see lower operating profits due to its heavy investment in employees and online growth. The subsector's 2017 operating profit will be flat as a result. Specialty retailers will likewise report flat operating profit this year. (KD)
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