Fitch: Latin America Non-Food Retail Benefits from Strengthening Credit Profiles
"Latin American non-food retailers benefit from higher operating margins and greater long-term growth prospects than peers in developed markets, but are exposed to weak consumer spending in the short term," said Maria Pia Medrano, Associate Director. "As markets mature and competition intensifies, scale, efficient supply chain management and diversification of price points and store formats will become increasingly important in maintaining a strong business profile."
Maintaining a conservative leverage profile combined with strong financial flexibility and liquidity are critical to ratings considering that current strategies are based on expansion, redesign of stores, and efficiency gains.
Fitch forecasts single-digit revenue growth and slightly lower EBITDA margins for Latin American non-food retailers during 2016 and 2017. Pressure on profitability margins during 2017 is expected from possible price increases due to local currency depreciation and expectations of lower economic growth paired with consolidation processes derived from recent mergers.
Fitch expects the pace of deleveraging to be slow in 2017 for non-food retailers relying on operating improvements and successful synergies.
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