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September retail market: Retail sales up; 2 companies file for bankruptcy

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September retail market: Retail sales up; 2 companies file for bankruptcy

U.S. retail sales rose in August, pointing toward strong consumer spending ahead of new tariffs on Chinese imports. Meanwhile, two retailers filed for bankruptcy during the late August through early September period, according to an analysis by S&P Global Market Intelligence.

Retail sales

U.S. retail and food services sales increased 0.4% from the previous month to $526.06 billion in August on a seasonally adjusted basis, according to figures released Sept. 13 by the U.S. Census Bureau.

"While consumer attitudes about the economy indicate some retreating optimism, the bottom line is that consumer spending remained resilient in August and continued to be a key contributor to U.S. economic growth," Jack Kleinhenz, chief economist at National Retail Federation, said in a statement.

On Sept. 1, the Trump administration imposed 15% tariffs on a range of consumer goods from China. Kleinhenz said it is too early to assess the impact of the new tariffs, but "they do present downside risks to household spending."

The continuing momentum in retail sales shows that consumers are "still opening their wallets as low unemployment, and high consumer confidence coupled with better wages is driving increased consumer spending," Moody's Vice President Mickey Chadha said in a note.

"We continue to believe that despite the challenging and highly competitive retail environment, total retail sales will grow around 4% in 2019," Chadha added.

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Motor vehicle and parts dealers led the month-over-month increase in retail sales. The category registered a 1.8% increase in sales to $106.17 billion.

Sales at nonstore retailers grew 1.6% month over month to $67.56 billion.

Meanwhile, clothing and clothing accessories stores registered a 0.9% decline in sales to $22.53 billion during the month. Sales at furniture and home furnishing stores decreased by 0.5% to $9.71 billion.

The August declines in various categories "clearly represent a pullback after unsustainably strong growth in prior months," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a Sept. 13 research note.

The consumer price index, meanwhile, rose 0.1% in August from the previous month, according to a monthly report released Sept. 12 by the U.S. Bureau of Labor Statistics.

Prices increased 1.7% year over year.

Prices for apparel increased by 0.2% month over month in August, with men's and boys' apparel increasing by 0.5%. Prices for women's and girls' apparel increased 0.1%.

Footwear prices rose 1.1%, while prices of jewelry and watches declined 2.6% during the period.

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Bankruptcy

Two Market Intelligence-covered U.S. retail companies filed for bankruptcy in late August and early September. The filings bring the bankruptcy count in 2019 to 26.

The total includes companies with a primary industry classification of retailing, household and personal products, or consumer durables and apparel, and secondary classification of retailing. Public companies included in the list of companies with public debt must have at least $2 million in either assets or liabilities at the time of the bankruptcy filing, while private companies must include at least $10 million.

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Clothing retailer Avenue Stores LLC filed a voluntary petition for reorganization under Chapter 11 on Aug. 16.

Women's apparel chain BonWorth Inc. also filed for Chapter 11 bankruptcy protection in the U.S. on Aug. 16. The company listed its assets in the range of $1 million to $10 million and liabilities in the range of $10 million to $50 million.

Employment

The retail sector lost 11,100 jobs, a 0.07% decrease, in August to 15.7 million jobs, according to a Sept. 6 monthly report from the U.S. Bureau of Labor Statistics.

Employment at electronics and appliance stores declined 0.63% in August to 460,100 jobs. The electronics and appliance stores lost 2,900 jobs during the month.

General merchandise retailers lost 14,800 jobs, or 0.49%, from the prior month to a total of 3 million jobs.

Employment at building material and garden supply stores increased by 0.7%, or 9,100 jobs, to 1.3 million in August. Sporting goods, hobby, books and music stores added 3,300 jobs, or 0.59%, to 561,300 jobs over the same period.

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Vulnerability

A September analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 13.9% to 2.7% and corresponding implied credit scores of "ccc+" to "b+."

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

Christopher & Banks Corp. continued to top the list, but the specialty retailer's one-year probability of default rose to 13.9% from 13.4% in August. Specialty retailer RTW Retailwinds Inc., which holds the No. 4 spot now, saw its probability of default increase to 8.9%, up from 5.3% the month prior.

Centric Brands Inc. fell to the No. 8 spot as its one-year probability of default decreased to 6.9% from 9.1%.

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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.