Thanks to a healthy economy and broad consumer confidence, total retail sales growth this year will likely land at the higher end of Moody’s Investors Service’s overall 3.5% to 4.5% expectations, Moody's lead retail analyst Mickey Chadha said in a report emailed to Retail Dive.
But tariffs — even "tough tariff talk" — could "rattle" the industry, Moody's analysts also warned. Tariffs would be a credit negative for furniture and home goods, auto dealers and apparel and footwear retailers, according to Moody’s Retail Analyst Mike Zuccaro. Apparel and footwear retailers "could experience gross margin pressures for 12 to 24 months if tariffs are imposed," he said.
U.S. department stores, meanwhile, a segment that in previous reports has garnered some dire warnings from Moody's, generally continued to post top-line momentum in the first quarter," according to Moody's analysts, who called out Macy's specifically for its healthy Q1 comp sales.
The timing of tariffs and rhetoric from the Trump Administration about even tougher tariffs threatens to undermine retail's recent winning streak.
Making up for or avoiding tariffs would take time and depend on several factors, Zuccaro said, including how swiftly they could shift manufacturing away from China and how much of the cost they’re able to pass on to consumers. Consumers may also be absorbing costs passed on to them by other industries affected by the tariffs and may face other rising costs that could hit their spending, he said.
But even without the problem of tariffs, the benefits of a healthy economy aren't reaching all retailers. While department stores are generally improving their lot, home shopping company Qurate is poised for growth, and Authentic Brands Group is growing thanks to its acquisitions, Moody's took note of Ascena's ongoing struggles. "Ascena, in contrast, has underperformed many of its peers in a very challenging environment," Zuccaro wrote. "[T]hey have largely been reliant on cost savings for key earnings support."
The report noted some winners in segments beyond apparel. Moody's looked favorably upon CVS Health's acquisition of health insurer Aetna, saying that, although leverage "will initially rise significantly before easing ..." both companies' strength plus CVS's "past strengths in extracting synergies from acquisitions [are] an encouraging sign." Among arts and crafts retailers, Michaels Stores has been investing in growth, and its "large, integrated platform gives it a defensible position relative to competitors and will enable it to maintain its leadership position," according to the report.