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In This List

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June retail market: Retail sales rise, 4 companies file for bankruptcy

Retail industry watchers were upbeat about a rise in retail sales in May as four S&P Global Market Intelligence-covered companies filed for bankruptcy in the late May to early June period.

Retail sales

U.S. retail and food services sales increased 0.5% on a seasonally adjusted basis to $519.02 billion in May from the previous month, according to a report released June 14 by the U.S. Census Bureau.

The bureau revised its retail and food services sales estimate for April to $516.19 billion from $513.36 billion.

"The healthy increase in May retail sales of 0.5% over a revised 0.3% gain in April demonstrates that consumer spending is still on the uptick and the fear of a slowdown in consumer confidence is premature," Moody's Vice President Mickey Chadha said in a statement.

Citing low unemployment figures in the United States, David Deull, principal economist at IHS Markit, also voiced a positive view on the sales figures.

"Consumers have been a real backbone of this recovery and they continue to be in a pretty good position right now," Deull told S&P Global Market Intelligence in an interview.

National Retail Federation Chief Economist Jack Kleinhenz said the figures reinforce the ongoing strength of the consumer but also warned that the escalation in trade tariffs will "undoubtedly" create a significant downdraft to confidence and spending.

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Nonstore retailers, a category that includes e-commerce companies, registered a month-over-month sales increase of 1.4%. Sales in the subsector were $62.04 billion for the month.

Sales at electronics and appliance stores increased by 1.1% to $8.05 billion during May.

General merchandise stores registered a 0.7% increase in sales to $61.38 billion. Sales at health and personal care stores grew 0.6% month over month in May to $29.88 billion.

Meanwhile, food and beverage stores registered a sales decline of 0.1%. Sales in the subsector were $62.9 billion for May.

Consumer prices edged up 0.1% in May from April, according to a monthly report released June 12 by the U.S. Bureau of Labor Statistics. Prices jumped 1.8% year over year.

Apparel prices were unchanged in May, with apparel for men and boys declining 0.8%.

Footwear prices increased by 0.1%, while prices of jewelry and watches rose 0.3% during the period.

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Bankruptcy

Four Market Intelligence-covered U.S. retail companies filed for bankruptcy in late May and early June. The filings bring the bankruptcy count in 2019 to 19.

The bankruptcy count includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and secondary classification of retailing.

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A group of creditors, including Water Tower Development LLC, Lohr Distributing Co. Inc. and Edge Imports Inc. filed an involuntary petition for liquidation under Chapter 7 against Missouri-based Here Today LLC, which owns and operates department stores.

Bedding manufacturer Hollander Sleep Products LLC filed for Chapter 11 bankruptcy protection May 19.

FTD Companies Inc., a floral and gifting company, filed for Chapter 11 bankruptcy protection June 3 to restructure its business. The company listed both its assets and liabilities in the range of $100 million to $500 million.

SportCo Holdings Inc., which distributes firearms, shooting accessories, hunting supplies, and marine accessories, filed a voluntary petition for reorganization under Chapter 11 on June 10.

Employment

The retail sector lost 7,600 jobs in May, down to 15.78 million jobs. That is a decrease of 0.05% from April, according to a June 7 monthly report from the U.S. Bureau of Labor Statistics.

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Clothing and clothing accessories stores lost 12,700 jobs, or 0.95%, to a total of 1.3 million jobs in May. Health and personal care stores lost 3,200 jobs, or 0.31%, to a total of 1 million jobs during the month.

Meanwhile, employment at miscellaneous store retailers rose by 3,100 jobs, a 0.37% increase to 839,200 jobs.

Nonstore retailers added 1,000 jobs, or 0.17%, in May to 583,300 jobs.

Commenting on the employment in the retail sector, Deull said it is "suffering certainly."

"In the last 12 months retail jobs gave up something like 75,000 jobs and that's compared to 2.3 million jobs that were totally added to the economy in the last 12 months, so retail employment is definitely sliding," the economist said.

Deull said that the job opening rate for retail trade "jumped a lot" in 2018 and it is still higher than the overall economy's job openings. "But it does sound like retailers are getting better at minimizing their hiring and in particular streamlining their operations."

Vulnerability

A May analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 13.3% to 2.2% and corresponding implied credit scores of "ccc+" to "b+."

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Christopher & Banks Corp. continued to top the list, but the company's one-year probability of default increased to 13.3% from 11.1% in May.

Destination XL Group Inc., which holds the No. 3 spot, also saw its probability of default rise to 8.2%.

Several retailers shifted position as calculated one-year probability of default changed for most of the companies on the list.

Stein Mart Inc., which holds the No. 7 spot now, saw its probability of default rise to 6%. The company traded places with Francesca's Holdings Corp., which fell to the No. 9 spot with a probability of default of 5.4%.

Centric Brands Inc., which previously held the No. 10 spot, rose to the No. 8 spot with a probability of default of 5.6%.

Meanwhile, Vince Holding Corp. saw its probability of default decrease to 4.6%. The company is now at the No. 11 spot on the list.

New to the list is apparel retailer J.Jill Inc., which took the No. 14 spot on the list. Delta Apparel Inc., an apparel design, marketing, manufacturing and sourcing company, fell off the list.

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S&P Global's Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, see the PD Model Fundamentals - Public Corporates whitepaper.