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Moody's – Outlook for US retail and apparel sector changed to positive as uncertainty abates and business conditions improve

·11 min read
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Research Announcement:

Moody's – Outlook for US retail and apparel

sector changed to positive as uncertainty abates and business

conditions improve

New York, April 29, 2021 --

» Retail operating income to grow 10%-12% in 2021
» Hardest-hit sectors such as apparel, department stores, and off-price will see the most

pronounced operating profit growth and will lead this year’s recovery

Moody’s has changed its outlook for the US retail and apparel industry to positive from stable, as the

US recovery gains traction on the back of a strong macroeconomic environment. Moody's outlook

reflects its expectations for fundamental business conditions to improve over the next 12-18 months.
“As pandemic pressures ease and the cadence of vaccinations accelerates, we expect the retail

sector to experience broad-based improvement. Operating profit will grow a robust 10%-12% in

2021, and hard-hit sectors such as apparel, department stores, and off-price will see the most

pronounced operating profit growth over the next 12 to 18 months,” said Mickey Chadha, a Moody’s

Vice-President and Senior Credit Officer.
“That said, our positive outlook could be short-lived given the lapping of weak performance in the

first half of last year. As conditions continue to normalize, spending will shift to nonretail categories.

Therefore, there remains a likelihood that our outlook could revert to stable as we head into 2022,”

added Chadha.
2020 turned out better than expected for the US retail sector, which ended on a surprisingly strong

note despite the fallout from the pandemic. Although Moody’s had earlier forecasted a 15% decline

for 2020, operating profit turned out to be flat for the year. Sales grew 8%, also well surpassing our

call for 3%-5% growth, proving the resilience of the consumer.
Moody’s expects that stronger macroeconomic environment and pent up demand will provide fuel

for further growth. Sales growth will be led by the most hard-hit sectors like apparel, department

stores and off-price retailers. While department stores will increase operating profit by around 200%

in 2021, off-price retailers will lead the comeback and will see operating profit grow by over 350% in

2021.
The exceptional profit growth generated by the home improvement, discounters, dollar stores,

warehouse clubs, supermarkets and big box retailers in 2020 won’t be sustainable in 2021 as the

economy reopens and consumers once again shift spending back to travel, entertainment and

restaurants. Online shopping continues to gain new ground, as a greater number of consumers

pivoted to e-commerce during the pandemic.
At the same time, there remain uncertainties about the recovery’s stability. Moody’s outlook could

change to stable if economic growth falters, unemployment trends turn negative and COVID-19

cases do not decline as expected, leading to slower operating profit growth of below 4%. The

rating agency’s outlook could change to negative if operating profit declines and if COVID-19 cases

escalate sharply again resulting in widespread lockdowns or if the economy remains depressed.

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Subscribers can access the report, “Retail and Apparel - US: Going positive as

pandemic risks subside and growth gains traction,” at:

http://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1279435

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global

press information hotlines: New York +1-212-553-0376 , London +44-20-7772-5456 , Tokyo

+813-5408-4110 , Hong Kong +852-3758-1350 , Sydney +61-2-9270-8141 , Mexico City

001-888-779-5833 , São Paulo 0800-891-2518 , or Buenos Aires 0800-666-3506 . You can also email

us at mediarelations@moodys.com or visit our web site at www.moodys.com.
This publication does not announce a credit rating action. For any credit ratings referenced in this

publication, please see the ratings tab on the issuer/entity page on

www.moodys.com

for the most

updated credit rating action information and rating history.
Manoj Chadha

VP-Sr Credit Officer

Corporate Finance Group

Moody's Investors Service, Inc.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653
Releasing Office:

Moody's Investors Service, Inc.

250 Greenwich Street

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U.S.A.

JOURNALISTS: 1 212 553 0376

Client Service: 1 212 553 1653

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