By and  on September 23, 2010

This might be about as good as it gets until 2012.

Moody’s Investors Service Wednesday cut its credit outlook on the retail sector to “stable” from “positive.” The debt watchdog said growth in U.S. retail earnings, before interest and taxes, would “slow to a modest low-single-digit pace over current levels for the next 12 to 18 months.”

“Consumers continue to face high unemployment and personal debt levels along with low asset values and tight credit availability which will continue to make them focused on value,” Moody’s said, noting holiday sales and margins would increase only marginally.

Retailers are coming up against tougher comparisons on both the sales and the margin fronts and executives are running out of ways to boost growth. “Retailers have generally exhausted the ability to increase earnings from expense reductions and inventory efficiencies,” Moody’s said.

Margaret Taylor, vice president and senior credit officer at Moody’s, said department stores would be particularly pressed to keep up with tough comparisons from a year earlier. Kohl’s Corp., for instance, posted a 22.5 percent leap in March comparable-store sales.

“There’s just not the support from the economy to drive healthy growth on top of healthy growth,” she said, noting the last three quarters were helped by pent-up consumer demand.

“We don’t see any fundamental competitive change in the department store sector,” Taylor said. “Luxury will continue to grow, but it will not regain what was lost from the peak.”

Retail stocks perked up modestly Wednesday, rising 0.3 percent, as investors continued to parse the Federal Reserve’s stance on the economy. The Fed said Tuesday it would keep interest rates low and step in if it needed to and support the recovery.

The S&P Retail Index gained 1.25 points to close at 446.52. The sector’s been on a tear since midsummer, rising 17.5 percent since July 6 on increasing confidence that the economy would not dip back down into another recession.

Among the retail gainers were Sears Holdings Corp., up 5.3 percent to $71.77; Ross Stores Inc., 1.8 percent to $54.86; The TJX Cos. Inc., 1.4 percent to $43.51, and Wal-Mart Stores Inc., 0.5 percent to $53.82.

• Nike’s Open-and-Shut Case: Bedbugs continue to nip at Nike Inc.’s cushioned heels. The active apparel and footwear giant reopened its 90,000-square-foot Niketown store at 57th Street in Manhattan after a four-day closure because of infestation, but reported that it had closed its 1,200-square-foot store downtown on Mercer Street after bugs were discovered there. Of the Niketown unit, the company said, “After several days of treatment by an industry-leading company deploying an environmentally friendly treatment program, we are confident we have successfully dealt with the issue at that location.”

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