Both the US retail and restaurant industry will see improved operating income growth in 2016, while apparel will face slower growth, says Moody’s Investors Service. The rating agency’s outlook is positive for retail, and stable for apparel and restaurants. “We expect operating efficiencies and the leveraging of fixed costs in the US retail industry will lead to improved operating income growth,” said Mickey Chadha, a Moody’s Vice President and lead retail analyst. “Furthermore, large mergers, such as Home Depot’s purchase of Interline and Albertson’s purchase of Safeway, are generating significant synergies.” “Retail sales growth will be toward the lower end of our 3 per cent to 4 per cent forecast range in 2015, which reflects much lower first-half gasoline prices at the pump relative to 2014 and severe weather in the first quarter that forced consumers to stay at home. We expect that 2016 retail sales growth will improve to between 4 per cent to 5 per cent,” Chadha added. Eight out of 13 retail sub-sectors will see operating income growth exceed 5 per cent, led by home improvement, auto parts, specialty, and supermarkets, according to “2016 Outlook – US Retail, Apparel, Restaurants.” Convenience stores and discounters/warehouses, however, will continue to be a drag on broader industry performance as oil prices stabilize and Walmart’s significant investments mute broader momentum. E-commerce sales will continue to outpace overall retail sales growth. In the apparel industry, operating income growth will slow to 3 to 5 per from the high single digit constant-currency range in 2015. The strong US dollar will hurt margins as favorable foreign exchange hedges executed for fiscal 2015 roll off. On a positive note, many apparel companies will still benefit from organic growth opportunities overseas, particularly given the rising middle class in emerging markets. In addition, rising direct-to-consumer businesses strengthen brand positioning with the consumer, the outlook said.
