S&P Global Ratings Outlook on U.S. Retail Sector Credit Quality. June 15, 2017

Transcription

1 S&P Global Ratings Outlook on U.S. Retail Sector Credit Quality June 15, 2017

2 Our view of the U.S. Retail landscape Macro Consumer remains very value focused since the financial crisis Wage growth has been limited Share Of Wallet Battle: Retail competing with autos, rent, healthcare, tech, experiences Industry Risks and opportunities of shifting preferences. E-Commerce; Millennials; Activists/Financial policies; International competitors with far better supply chains Apparel severe pressure continues. Many other sectors merely challenged. Discounters good to go! Ratings Distress trading levels continue to be high. Outlooks: 35% Negative / 6% Positive Over 15% of ratings are CCC+ or lower. Three defaults in 2015; Six in 2016; More in 2017? Three as of June 12. 2

3 Ecommerce Most and least disrupted so far Highly Disrupted Already Electronics Office Supplies Department Stores Pet Stores Specialty Apparel Trend Evident Big Box Discounter Conventional Grocery Home Furnishing Specialty Grocery Home Improvement Drug Stores Little Hint of Shift Dollar Store Segment Off-Price Retailers Everyday Low Price/Discounter Full Price/Full Service 3

4 Retail & coverage overview Rating Distribution Subsector Distribution B 41% BB 18% CCC 13% CC 1% BBB 16% A 5% D 2% AA 4% Apparel/ Department Stores/ Discounters 37% Non-Apparel 29% 17% Supermarket 17% Outlook Distribution Weighting by Total Debt ($425.9 B) Negative 34% Positive 4% Supermarkets 26% Stable 59% Watch Pos 2% Watch Neg 1% 12% Apparel 40% Non-Apparel 22% 136 Retail and Restaurant issuers Ratings as of 6/14/2017 Debt as of 12/7/2016 4

5 Most non-stable outlooks are negative Watch Pos. Negative BB CST Brands BB- Kate Spade & Co. B Rite Aid Positive B+ Albertsons Cos. Penney (J.C.) Co. Inc Floor & Décor B At Home Group HT Intermediate Corp Jill Watch Neg. B- Rent-A-Center BBB+ Bed Bath & Beyond Nordstrom BBB Walgreens Boots Alliance BBB- Dillard s Kohl s Macy's Staples, Whole Foods Market BB Liberty Interactive BB- Abercrombie & Fitch Co. Ascena Retail Group GNC B+ PetSmart B Big Jack LP Bluestem Brands CNT III Conn's Jo-Ann Stores Inc Maxum Enterprises Tailored Brands B- Lands End New Academy Holding Co. P.F. Chang's China Bistro PHD Group Fresh Market (The) SSH, CCC+ 99 Cent Only Stores BI-LO BKH Acquisition Bon-Ton Stores Charlotte Russe Charming Charlie, David s Bridal Everest Evergreen AcqCo1 FullBeauty Brands Guitar Center Neiman Marcus Group Ruby Tuesday Sears Tops Holding CCC True Religion Apparel, CCC- J. Crew Group CC Claire s Stores As of 6/14/2017 5

6 Retail and Restaurant downgrades: 30 YTD 2017 Month Company Sub-Sector To From January BI-LO Grocery B-/Stable B/Stable January The Gymboree Apparel CC/Negative CCC+/Negative January BKH Acquisition CCC+/Negative B-/Negative January Kohl's Dept. Store BBB-/Negative BBB/Negative January GameStop Non-Apparel BB/Stable BB+/Negative January Rue21 Apparel CCC-/Negative CCC/Negative February Payless Apparel CCC/Negative B-/Negative February Charlotte Russe Apparel CCC+/Negative B-/Negative February TGI Fridays B/Stable B+/Stable February The Neiman Marcus Group Dept. Store CCC+/Negative B-/Negative February Charming Charlie Apparel CCC+/Negative B-/Negative February Evergreen AcqCo1 LP d/b/a Savers Discounter CCC+/Negative B-/Negative February Bluestem Brands Non-Apparel B/Negative B+/Stable February Rent-A-Center Non-Apparel B-/CW Negative BB-/CW Negative February Macy's Dept. Store BBB-/Negative BBB/CW Negative March GNC Non-Apparel BB-/Negative BB/CW Negative March Everest Apparel CCC+/Negative B-/Negative March BI-LO Grocery CCC+/Negative B-/Stable March David's Bridal Apparel CCC+/Negative B-/Stable April Payless Apparel D CCC/Negative April Smart & Final Stores Grocery B/Stable B+/Negative April Rue 21 Apparel CC/Negative CCC-/Negative April Ruby Tuesday CCC+/Negative B-/Negative May Guitar Center, Non-Apparel CCC+/Negative B-/Stable May Rue 21 Apparel D CC/Negative May Tops Holding Grocery CCC+/Negative B-/Stable May FullBeauty Brands Corp Non-Apparel CCC+/Negative B-/Negative May The Fresh Market Grocery B-/Negative B/Negative May SSH d/b/a Spencer Spirit Non-Apparel B-/Negative B/Stable June The Gymboree Apparel D CC/Negative As of 6/14/2017 CW = Credit Watch

7 Issuers CCC+ and below 3.8% 7.3% 7.3% 5.6% 4.7% 2.9% 4.4% 2.6% 5.6% 6.8% 15.4% % of Total Buffets Uno Restaurant Duane Reade Duane Reade El Pollo Loco Finlay Enterprises Loehmann's Oriental Trading Co. Perkins & Marie Callender's Real Mex Barneys New York Brookstone Harry & David Operations Loehmann's Mastro's Oriental Trading Co. Perkins & Marie Callender's Barneys New York El Pollo Loco Harry & David Operations Keystone Automotive Operations Mastro's Barneys New York Buffets Caribbean DirectBuy BCBG Max Azria Group Jill BCBG Max Azria Group Guitar Center New Albertson's Sbarro Gymboree Penney (J.C.) Co. Bon-Ton Stores Claire's Stores Fairway Group Gymboree Logan's Roadhouse Penney (J.C.) Co. 99 Cents Only Stores Bon-Ton Stores Claire's Stores Gymboree J. Crew Group Logan's Roadhouse Rue Cents Only Stores BI-LO BKH Acquisition Charlotte Russe Charming Charlie, Claire's Stores David's Bridal Neiman Marcus Ruby Tuesday J. Crew Group Payless Rue 21 Sears Bon-Ton Stores FullBeauty Brands Perkins & Marie Callender's Sbarro Sagittarius Perkins & Marie Callender's Jill Orchard Supply Hardware Sears Corp RadioShack Sears Sears Everest d/b/a Eddie Bauer Gymboree Tops VICORP Uno Restaurant Sbarro Sbarro Mastro's Sears The Great Atlantic & Pacific Tea Co. Sears True Religion Apparel, True Religion Apparel, Evergreen AcqCo1 LP d/b/a Savers True Religion Apparel, Guitar Center, YTD 5 Issuers 9 Issuers 9 Issuers 7 Issuers 6 Issuers 4 Issuers 6 Issuers 4 Issuers 8 Issuers 9 Issuers 21 Issuers As of year end 7

8 Retail and Restaurant default history BI-LO Loehmann s Co. Fairway Group BCBG Max Azria Blockbuster Claire s Stores Finlay Fine Jewelry Eddie Bauer Oriental Trading Co. Claire s Stores Buffets Finlay Fine Jewelry The Great Atlantic and Pacific Tea Co. Harry & David Operations The Great Atlantic & Pacific Tea Co. The Gymboree The Gymboree Mrs. Fields Famous Brands Pier 1 Imports Sagittarius Perkins & Marie Callender's Barneys New York Orchard Supply Hardware Guitar Center RadioShack Sports Authority Rue 21 Musicland Movie Gallery Vicorp Restaurant's Duane Reade Uno Restaurant Co. Sbarro Buffets Mastro s Sbarro Logan s Roadhouse Logan s Roadhouse Payless Apparel Non-Apparel Supermarkets 2017 YTD As of year end 8

9 Recent publications De-Globalization Threatens Supply Chains and Credit Ratings Across Corporate Sectors May 30, 2017 Credit FAQ: U.S. Tax Reform Proposals Pose Mixed Consequences For Nonfinancial U.S. Corporate Issuers May 30, 2017 CLO Spotlight: Is Retail Stress In Store For U.S. CLOs? May 22, 2017 April U.S. Retail Sales Increase Below Expectations Despite Broad Category Growth May 12, 2017 Credit FAQ: How Many Retailers Around The Globe Will Survive The Sector s Structural Changes? May 5, 2017 Distressed U.S. Retailers: 2017 Is Shaping Up To Be A Tipping Point February 27, 2017 Industry Top Trends 2017 Consumer Sectors February 15,

10 Ratings Outlook Company Current Rating / Outlook Debt/ EBITDA* FFO/ Debt* Macy s, BBB-/Neg/A-3 3.0x 22.7% Kohl s Corporation BBB-/Neg/N/A 2.6x 25.8% Nordstrom, BBB+/Neg/A-2 2.0x 32.4% *As of FYE Jan 28,

11 Rating Action 11

12 SSS Growth Annually 5.0% 4.0% SSS Growth Annually 3.0% 2.0% 1.0% 0.0% Macy's, Kohl's Nordstrom -1.0% -2.0% -3.0% -4.0%

13 SSS Growth Quarterly 6.0% SSS Growth Quarterly 4.0% 2.0% 0.0% -2.0% Macy's, Kohl's Nordstrom -4.0% -6.0% -8.0% 2015 Q Q Q Q Q Q Q Q Q1 13

14 Margins 41.0% Gross Margins 16.0% Adj. EBITDA Margins 40.0% 15.0% 39.0% 38.0% 14.0% 37.0% Macy's, Kohl's 13.0% Macy's, Kohl's 36.0% Nordstrom 12.0% Nordstrom 35.0% 34.0% 11.0% 33.0% %

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