Retail CFOs expect 3% increase in total 2011 sales, M&A activity rises

Amid economic uncertainty and low consumer confidence levels, retail CFOs are expecting a 3% increase in total 2011 sales, according to a recent survey by BDO USA. While the number reflects the study’s most optimistic sales forecast since 2007, it is down from the 4.7% sales increase reported by the Commerce Department in 2010.



The report, the fifth-annual BDO Retail Compass Survey of CFOs, also reveals that appetite for M&A deals is on the rise. Nearly all (96%) of the CFOs expect such activity to increase or remain steady in the next year. Most CFOs (66%) expect M&A activity to take place primarily in the United States, followed by the Asia-Pacific region (18%) and Europe (16%). However, the CFOs in the top 100 largest retailers who were included in the sample have greater expectations for the international market. Seventy-five percent of CFOs in the Top 100 expect Europe to see the majority of M&A activity.



Only 11% of the CFOs expect to see an economic turnaround in the next year, up slightly from 2010 (9%). Thirty-eight percent say improved consumer confidence will be most important factor for economic recovery, and another 36% cite lower unemployment as the linchpin.



“Retailers may not anticipate a full recovery in the near future, but we’re not seeing gloom and doom in sales expectations,” said Doug Hart, partner in the retail and consumer product practice at BDO USA. “Despite low confidence levels, macroeconomic conditions are not weighing on the consumer’s wallet as much as expected, and CFOs anticipate moderate spending levels to continue through the holiday season.”



In other survey findings:

• Retailers are moderately optimistic for sales in the second half of 2011. A majority (51%) expect sales to increase during this period, up from 44% in 2010. Overall, retailers project a 3.5t% increase in comparable store sales for the second half of 2011. For all of 2011, retail CFOs forecast a 2.3% increase in comparable store sales.


• Although private equity deals have dominated acquisition activity, CFOs are predicting an increase in strategic buyouts this year. The CFOs are split on whether upcoming M&A activity will be primarily driven by strategic buyers (52%) or financial buyers (48%). On average, CFOs say they would expect to see an EBITDA (earnings before income and tax, depreciation and amortization) multiple of 6.5 for an acquisition in the retail and consumer product space.

The BDO survey examined the opinions of 100 CFOs at leading retailers located throughout the country. The retailers were among the largest in the country, including 10% of the top 100 based on annual sales revenue. The survey was conducted in August and September 2011.

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