U.S. retail sales got off to a strong start in January, industry watchers said, as gains in restaurants and building equipment suppliers offset declines at apparel shops and gas stations, according to an analysis by S&P Global Market Intelligence.

Meanwhile, bankruptcies across the sector picked up steam as four retailers went bankrupt during the late January through mid-February period, including the high-profile filing by Pier 1 Imports Inc. as the home furnishings chain closed hundreds of stores across the country.

Retail sales

U.S. retail and food services sales increased by 0.3% over the previous month to $529.77 billion in January, according to seasonally adjusted data released Feb. 14 by the U.S. Census Bureau.

January's sales reflect a "confident consumer supported by solid wage growth and job gains," Jack Kleinhenz, chief economist at the National Retail Federation, said in a statement.

The strength of consumer spending continues to support the current economic expansion, Kleinhenz said. "We are starting the year on a strong footing," he added.

Consumer confidence, wage gains, low unemployment and U.S. GDP growth should help drive retail sales growth in 2020, Moody's Vice President Mickey Chadha said in a research note.

"Despite some pockets of weakness, sales continue to be good, led by e-commerce, grocery stores and motor vehicles and parts sales growth," Chadha said.

"We continue to expect that consumer confidence, wage growth, low unemployment and the continued GDP growth in the US will result in 2020 retail sales growth," Chadha said.

Miscellaneous store retailers logged a month-over-month sales increase of 2.3%. Sales in the subsector were $11.79 billion for the month. Building material and garden equipment and supplies dealers registered a 2.1% increase in sales to $32.81 billion.

Spending at food services and drinking places rose 1.2% to $66.54 billion.

Clothing and clothing accessories stores saw the sharpest decline in sales in January at 3.1% to $22.27 billion. Gasoline stations saw a 0.5% decline in sales to $44.16 billion.

Meanwhile, the consumer price index rose 0.1% in January from the previous month, according to a monthly report released Feb. 13 by the U.S. Bureau of Labor Statistics.

Prices advanced 2.5% on a year-over-year basis.

Prices for apparel increased by 0.7% month over month in January, with men's and boys' apparel rising 0.6%. Prices for women's and girls' apparel increased by 0.2%.

Footwear prices increased by 1.3%, while the prices of jewelry and watches rose 2% during the month.

Bankruptcy

Four Market Intelligence-covered U.S. retail companies went bankrupt in late January and early February, bringing the total bankruptcy count for 2020 to five.

The bankruptcy count 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.

Pier 1 filed for Chapter 11 bankruptcy on Feb. 17 as it pursues a sale of the company. The retailer also entered into an agreement with a majority of its term loan lenders. The company has already closed or initiated going-out-of-business sales at more than 400 locations.

Slate Studios LLC, North East Courier Inc. and Newell Fashion Center Inc. on Feb. 14 filed an involuntary petition for liquidation under Chapter 7 against apparel retailer The Worth Collection LTD.

Must Cure Obesity Co. filed a voluntary petition for reorganization under Chapter 11 on Jan. 31, while SFP Franchise Corp., which retails gift cards and fancy paper products, filed for Chapter 11 bankruptcy protection in the U.S. on Jan. 23.

Employment

The retail sector lost 8,300 jobs in January, down to 15.7 million jobs. That is a decrease of 0.05% from December 2019, according to a Feb. 7 monthly report from the U.S. Bureau of Labor Statistics.

General merchandise stores shed 14,400 jobs during the month, down 0.47% to 3 million jobs in total. Jobs at clothing and clothing accessories stores declined by 4,600, or 0.36%, to 1.3 million for the month.

Meanwhile, sporting goods, hobby, book and music stores added 5,500 jobs, or 1.01%, in January to 550,400 jobs. Employment at motor vehicle and parts dealers rose by 4,000 jobs, a 0.19% increase to 2.1 million jobs.

Food and beverage stores registered an increase of 0.05%, or 1,500 jobs during the month to 3.1 million total.

Vulnerability

A February analysis of the one-year probability of default scores identified 15 U.S. department stores and apparel companies with scores ranging from 13.1% to 2.0% and corresponding implied credit scores of "ccc+" to "b+."

The calculated one-year probability of default was unchanged for most of the retailers on the list.

Specialty retailer Christopher & Banks Corp. continued to lead the list as its one-year probability of default remained unchanged from January's iteration.

RTW Retailwinds Inc., which held on to the No. 2 spot, saw its probability of default decrease to 9.9%, up from 10.0% in January.

L Brands Inc., which is on the No. 4 spot on the list, is reportedly in talks to sell its flagship lingerie brand Victoria's Secret to private equity firm Sycamore Partners Management LP. Meanwhile, L Brands Chairman and CEO Leslie Wexner is planning to step down as CEO, according to The Wall Street Journal.

Specialty retailer Stage Stores Inc. could file for chapter 11 bankruptcy as it prepares for financial restructuring, the Journal reported, citing anonymous sources. The company holds the No. 7 position on the list, with a one-year probability of default rate of 7.3%.

Envela Corp., which previously held the No. 13 spot, was recently re-classified in the Market Intelligence database as a specialty store and as a result is no longer included in the list of most vulnerable apparel retailers and department stores. This bumped up Nordstrom Inc. to the 15th spot.

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.