Moody's has noted that European retail sales are set to rise by around 3% next year, on average, with earnings growth of around 3% in 2019 for the retailers that it rates.
For some retailers, growth will be driven by store openings, cost-cutting and post-M&A synergies, it noted, while other retailers will find it challenging to adapt to changing consumer behaviours.
“Sales and earnings growth underpin the overall European retail sector’s stable 2019 outlook, but performance will be uneven across the region, with some retailers struggling to adapt to changing consumer behaviour while others thrive by focusing on value and convenience," commented David Beadle, vice-president – senior credit officer at Moody’s.
Country By Country
In Germany, it noted, economic conditions are 'generally good', however, competition remains intense, while in France, declining unemployment will 'support consumer demand'.
In the Netherlands, retail sales are poised to remain 'robust', while economic growth is 'strong' in Spain, with declining unemployment. Italy, meanwhile, is set to lag behind other European markets, 'constraining credit quality improvement for retailers operating in this market.'
In Russia, the market looks set to remain challenging, due to 'somewhat fragile' consumer demand and intensifying competition.
In the UK, Brexit uncertainty is likely to curb earnings growth at UK retailers, with weak consumer confidence and 'intense competition' in the market.
The base case in the UK is for a 'slight improvement in economic conditions for 2018, but a disorderly Brexit would be negative for retailers,' Moody's wrote in a note. 'Trading conditions to remain difficult for mid-market retailers and department stores.'
EBITDA Growth Outlook
Moody's issued EBITDA growth forecasts for the retailers that it rates, with growth expected for most, at varying levels: less than 2%; 2% to 5%; 5% to 10%; and more than 10%.
In the 'less than 2%' growth bracket are retailers including DIA, Iceland and Marks & Spencer, Moody's noted, while the '2% to 5%' bracket includes Carrefour, Casino, El Corte Inglés, Esselunga, Metro AG and Picard.
Retailers in the '5% to 10%' growth bracket include Ahold Delhaize, Lenta and Tesco, while the 'more than 10%' growth bracket includes Ocado, X5 Retail Group, and discount operator Action.
Moody's Investors Service forecasts and estimates the 2017-2019 compound annual growth rate based on underlying growth rates in adjusted EBITDA as defined by Moody's, pro-forma divestments, acquisitions and cost synergies, where appropriate.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
