March retail market: Sales chill below expectations; 3 new bankruptcies

Warmer weather, government stimulus and faster recovery from the COVID-19 pandemic could help U.S. retail sales bloom in the spring months after falling below expectations in February, economists say.

Retail and food services sales declined 3% in February from a month earlier, according to U.S. Census Bureau data. The figure missed the consensus estimate of economists polled by Econoday of a 0.5% decline as cold weather kept many shoppers indoors.

"With healthier and warmer days nearing, and generous stimulus checks on their way, consumers are poised to shake off the winter chills," Lydia Boussour, senior U.S. economist at Oxford Economics, said in a March 16 note.

Three retailers, including department store chain Belk Inc., declared bankruptcy during late February and early March, according to an S&P Global Market Intelligence analysis. Meanwhile, pleasure and leisure company PLBY Group Inc. and specialty retailer Chico's FAS Inc. joined Market Intelligence's vulnerability list in March.

Retail sales

U.S. retail and food services sales declined to $561.69 billion in February, according to data released March 16 by the Census Bureau. That followed a revised 7.6% sales gain in January as consumers spent more following a disappointing holiday season.

Economists generally expect sales to rebound in the coming months following the dip in February.

"February's retail sales numbers are a minor speed bump on the road to post-pandemic recovery and are not a reflection of consumers’ willingness and ability to spend and drive the economy," National Retail Federation President and CEO Matthew Shay said in a statement. The NRF expects retail to facilitate an increase in spending, job growth and capital investment in the back half of the year as more Americans are vaccinated and local economies reopen in the U.S.

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Lindsey Piegza, chief economist at Stifel, said the sales decline in February was mainly due to poor weather conditions, a factor expected to reverse in March.

In February, most major categories registered a decline in sales with sporting goods and hobby stores, general merchandise stores and nonstore retailers posting sharp declines.

Sales at food services and drinking places fell 2.5% month over month in February to $54.2 billion. Winter weather during the month meant conditions in many states were not suitable for outdoor dining while restrictions on eating inside restaurants remain in place, Marwan Forzley, CEO of global payments firm Veem, said in an email.

"Restaurateurs weren't too surprised when they didn't have people lining up around the block," Forzley said.

Consumer prices

Consumer prices jumped 0.4% month over month in February after increasing 0.3% in January, according to data by the U.S. Bureau of Labor Statistics. The consumer price index rose 1.7% year on year before seasonal adjustment.

The CPI excluding food and energy increased 0.1% for the month. Food prices rose 0.2% in February, while energy prices jumped 3.9%.

Apparel prices, meanwhile, declined 0.7% during the month as prices for men's and boys' apparel dropped 2.2% month over month.

Bankruptcy

Three Market Intelligence-covered U.S. retail companies declared bankruptcy in late February and early March, bringing the 2021 count so far to nine.

Sycamore Partners Management LP-owned Belk filed a voluntary Chapter 11 petition Feb. 23. The company was upgraded Feb. 25 by S&P Global Ratings to CCC+ from D, a day after the company received confirmation for its reorganization plan.

CrimsonBikes LLC, which owns and operates a bicycle store in the Greater Boston area, had an involuntary petition filed against it March 3. Textile importer and distributor Matrix International Textile Inc. filed a voluntary petition for reorganization under Chapter 11 on March 10.

The difficult winter may have hurt retailers who were struggling and who may now be forced to seek investors or resort to bankruptcy, Quincy Krosby, chief market strategist at Prudential Financial, said in an email.

"With the vaccination campaign gaining momentum, more hospitable weather, checks being sent out to families and Covid-related restrictions being lifted across the country, retailers are positioned to see business conditions improve materially," Krosby said. "Still, expectations are that bankruptcy filings may tick up for the weakest mall owners along with retailers that have been struggling."

Employment

The retail sector gained 41,100 jobs last month, reaching 15.2 million. That represents a monthly gain of 0.27%, according to Bureau of Labor Statistics data.

Electronics and appliance stores gained jobs at a greater rate — 1.39% — than other retail industries. The sector added 5,700 jobs during February to 414,500 jobs. Jobs at health and personal care stores rose 1.22%, or 11,900, to a total of 989,400.

Clothing and clothing accessories lost 20,000 jobs, down 2.01% from January, to 976,200 jobs.

Vulnerability

A March analysis of the one-year probability of default scores identified 15 public retailers with scores ranging from 31.2% to 11.5% and corresponding implied credit scores of "ccc-" to "ccc+." Probability of default scores represent the odds that each company will default on its debt with a year, based on financial reports and accounting for different macroeconomic factors.

Health supplements retailer Merion Inc. continued to sit on top of the list as its one-year probability of default was unchanged from February's iteration.

PLBY Group, which is the result of a merger between Playboy Enterprises Inc. and a special purpose acquisition corporation Mountain Crest Acquisition Corp., is among the new entrants on the list. The company holds the 11th spot with a probability of default score of 13.3%.

Merion and PLBY Group did not respond to requests for comment.