US retailers facing tough season-ratings agencies

NEW YORK Nov 15 (Reuters) - Two debt rating agencies added more skepticism to the outlook for U.S. retailers on Thursday with reports predicting tepid growth this holiday season and beyond as high energy costs and weak housing and credit markets take a toll.

Fitch Ratings said it expects a moderately weaker 2007 holiday season compared with last year when same-store sales rose 2.8 percent and total sales rose 4.6 percent, as calculated by the International Council of Shopping Centers and the National Retail Federation.

Fitch also said same-store sales in 2008 should be weaker than in 2007 because of slower gross domestic product growth, which it estimates at 1.7 percent for 2008, down from an expected 1.8 percent in 2007.

Consumer spending makes up about two-thirds of gross domestic product in the United States.

Moody's Investors Service released a report saying concerns about a spending slowdown and tighter credit led to a negative outlook for U.S. retailers. It said years of private-equity buyouts have left many speculative grade retailers with large debt levels and limited cash flow, curbing their ability to absorb less-than-planned operating results.

Fitch said these factors should continue to spur competition among retailers next year, but noted that sales of discretionary items, particularly home goods and apparel, should remain challenged while staples such as food and prescriptions show relative strength.

To that end, Fitch said discount chains should get decent store traffic, though they could be hurt as people become more selective and limit purchases of nonessential items. Fitch said Costco Wholesale Corp (COST.O) and Target Corp (TGT.N), which cater to higher-income consumers, could fare better than Wal-Mart Stores Inc (WMT.N), which caters to lower-income consumers.

Fitch also said supermarkets such as Kroger Co (KR.N) and Safeway Inc (SWY.N) should do well as consumers eat at home more instead of dining out, but Moody's said competition from Wal-Mart and uncertainty about the direction of the economy caused it to give supermarkets a "slightly negative" outlook.

Overall, Moody's said negative rating actions have exceeded positive rating actions for retail companies over the past year, with 19 percent of ratings having a negative outlook or being on review for possible downgrade, versus 9 percent that have positive outlooks or are on review for possible upgrade. (See here for "Shop Talk" -- Reuters' retail and consumer blog) (Reporting by Martinne Geller, editing by Steve Orlofsky)