US CREDITNo relief in sight for retailer debt
By Karen Brettell
NEW YORK, March 12 (Reuters) - The debt of U.S. retailers
is likely to remain under pressure as a slowing economy and
falling home values crimp consumer spending, and luxury
retailers are likely to be among the worst performers.
U.S. retail sales fell at the fastest pace in at least five
years and could tip an already fragile economy into recession,
SpendingPulse, the retail data service of MasterCard Advisors,
an arm of MasterCard Worldwide (MA.N: Quote, Profile, Research), said on Wednesday. The
report excludes auto sales. For details see [ID:nN12607618].
Upscale U.S. retailer Nordstrom Inc (JWN.N: Quote, Profile, Research), which has
reported declines in sales at stores open at least a year for
four of the past five months, also said on Wednesday that
weakness in California and in women’s apparel has hurt its
results. [ID:nN12630360].
“Although the most widely used adjective we’ve seen
describing February sales was “mixed,” sales exhibited the most
marked pattern we’ve observed in some time,” Gimme Credit
analyst Carol Levenson said in a report on Wednesday.
“All the discounters posted positive sales, while nearly
all the department stores (Saks being the exception) posted
negative sales,” Levenson said.
Last week, discount stores Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) and
Target Corp (TGT.N: Quote, Profile, Research) posted better-than-expected February sales
as cash-strapped consumers looked for bargains on everyday
items like food, medicine and laundry detergent.
[ID:nN06349083].
“We maintain our negative stance on the retail space
overall since we expect operating results to deteriorate
further this year as a result of the weak macroeconomic
environment,” analysts at Barclays Capital said in a recent
report.
“We believe the luxury retail space will underperform the
discount sector this year,” they added.
The cost to insure the debt of Target with credit default
swaps jumped to a new high on Wednesday of 138.5 basis points,
or $138,500 per year for five years to insure $10 million in
debt, according to Markit Intraday. Its debt protection costs
have risen from 60 basis points at the beginning of the year.
Wal-Mart’s credit default swap spreads have weakened to 55
basis points from 26 basis points in the same time period.
Of the luxury retailers, Nordstrom’s default swap spreads
have widened to 144.5 basis points from 58 basis points at the
beginning of the year and swaps on the debt of Saks Inc
(SKS.N: Quote, Profile, Research), which is rated high yield, have weakened to 595 basis
points, from 500 basis points at the beginning of the year.
“Recent results from Nordstrom, Neiman Marcus, and Saks
have all shown signs of a consumer holdback — particularly
among the aspirational customer base,” CreditSights analysts
said. “2008 is likely to bring a flattening of margin growth at
the luxury names, and the era of double-digit comp gains is
likely to take a breather while the consumer regains his
feet.”
Of the discount retailers, Wal-Mart’s debt is better
positioned than Target’s, given Target’s focus on rewarding
shareholders, likely at the expense of its debt holders, they
added.
Target announced a new $10 billion share repurchase plan in
November. The company also said on Wednesday it is in
negotiations with an investment partner to sell an interest in
around half of its credit card receivable business for about $4
billion.
To see a table for select U.S. retail company sales in
February click on [ID:nBNG127279].
(Editing by James Dalgleish)
