US retail sales power ahead in September; Rite Aid among 3 bankruptcies

Concerns over a potential collapse in spending habits were brushed aside in September as US consumers flexed their muscle during the month.

Retail and food services sales far outpaced expectations, growing by 0.7% from the previous month, according to US Census Bureau data published Oct. 17. Sales outperformed forecasts for a third consecutive month, as economists have continued to expect the Federal Reserve's interest rate hikes to slow sales growth. For September, retail and food services sales had been expected to increase more modestly, with the consensus at 0.3%, according to data compiled by Econoday.

National drugstore chain Rite Aid Corp. was one of three retailers to file for bankruptcy from mid-September through Oct. 17, according to S&P Global Market Intelligence data. Meanwhile, median default risk for retailers increased during the period.

Retail sales

The advance estimate for US retail and food services sales totaled $704.88 billion in September, up from a revised $699.88 billion in August, according to Census Bureau data. September sales were up 3.8% on an annual basis, while total sales for the third quarter were up 3.1% compared to last year's third quarter.

Miscellaneous store retailers — a category that includes florists, used merchandise stores and pet supply stores — recorded the most significant monthly growth in sales among the major retail categories, with a 3% increase in September.

Sales at nonstore retailers rose by 1.1% in September and were up 8.4% on an annual basis. Only food services and drinking places registered a greater year-on-year increase, at 9.2%.

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Furniture and home furnishing stores recorded the most significant sales slump on an annual basis, falling by 5.9%, followed by a 4% decline for building material and garden equipment dealers.

Bankruptcies

Rite Aid, bridal wear retailer JLM Couture Inc. and DirectBuy Home Improvement Inc. filed for bankruptcy during the month ending Oct. 17.

Rite Aid plans to close underperforming stores and has entered into an agreement to sell its pharmacy benefits and services company Elixir Rx Solutions LLC to MedImpact Healthcare Systems Inc.

As of Oct. 17, 25 retailers sought bankruptcy protection in 2023, more than the previous two years' totals but only half the bankruptcy filings seen over the same time frame in 2020.

Default risk

Median default risk measured across all retail categories amounted to 2.5% as of Oct. 17, up from 2.2% in mid-September, according to Market Intelligence's Market Signal Probability of Default model.

Footwear and home furnishing retailers both recorded the greatest default risk increases, rising from 1.5% to 2.7% and from 2.1% to 3.3%, respectively. Default risk remained the highest for drug retail, which only registered a slight decline to 11%.

Broadline retail's default risk dropped from 3.8% in mid-September to 2.3% in mid-October, while apparel retail's risk declined from 3.5 to 3%.

Scores produced by the model represent the odds of default within a year and are based primarily on the volatility of share prices for public companies in the sector, accounting for country- and industry-related risks.