Moody’s: Industry real operating income to be flat or rise only 1% in 2011

New York City -- The U.S. retail industry will perform in line with sluggish U.S. GDP growth through 2012 as persistent unemployment, stock market volatility and economic gloom weigh on consumer confidence and spending, according to a new report by Moody's Investors Service.



"Our outlook is stable, and we expect real operating-income will stay flat or rise only 1% in 2011, and increase a mere 2%-3% in 2012," said Margaret Taylor, a Moody's VP and senior credit officer. "While consumers face headwinds, retailers remain challenged by increased commodity prices."



These constraints, coupled with reluctant consumers means that holiday sales and earnings growth will be tepid compared to last year, Taylor added.



"Stringent inventory management tempered defaults in the recent recession and we expect that to continue, although margin risk remains," she said.



Moody's expects drug stores, discounters, dollar stores and auto-parts retailers to show the most stable operating earnings, as supermarkets continue to feel pressure from alternative food retailers.



In addition, the report notes that home-improvement retailers will remain stable although the current divergence between competitors is expected to continue. Apparel retailers will have a tough second half but will likely improve throughout 2012, according to Moody’s.



Recent earnings misses by industry leaders Sears Holding Corp, Lowe's Cos. and Gap are a factor in Moody's downwards revision of industry-wide operating income, now expected to rise no more than 1% in 2011 before rising a still modest 2% to 3% in 2012.



For the full report "Downbeat Consumer and Fragile Economy Will Restrict Earnings Growth in 2012," go to moodys.com.