Fourth Quarter 2023 Retail Overview Provided by SOLIC Capital Advisors

Significant increase in Retail Bankruptcies Year over Year

Retail M&A activity in Q4 2023 rose by 27% to 52 transactions.  The Specialty Retailer subsector, comprised 40% (21) of all Retail Sector M&A deals during Q4.  Public company valuation multiples increased during Q4 but remained down a year over year basis – the average EV/EBITDA multiple at the end of Q4 was 12.6x, up 4.8% from 12.0x in Q3.  On a year over year basis, retail EV/EBITDA multiples decreased by 7.5%.  US Retail inventories growth rates slowed in the fourth quarter, signaling signs of recovery for retailers and discretionary spending.  Retail inventories rose 2.3% in Q4 to $795B, and 5.2% on a year over year basis.  Retail sales indicated accelerated recovery in year over year consumer spending habits.  US Retail sales rose 2.2% on a quarter over quarter basis, and 3.2% on a year over year basis, though the year over year increase was significantly below the average year over year increase since Q1 2022 (13.5%).

The substantial increase in Buy Now Pay Later (“BNPL”) loans pose potential future concerns for consumer stability.  On a year over year basis, BNPL usage increase 42% from the holiday season of 2022 to $2B.  BNPL usage may cause serious consumer debt issues as many BNPL providers do not require credit checks and the loans often carry 30%+ interest rates.

133 companies filed bankruptcy in Q4 (down from 182 in Q3), bringing the annual total for 2023 to 654.  FY 2023 bankruptcy filings represented a 73% increase from the prior year and exceeded the total number of bankruptcies during 2020 (639 bankruptcies).  The extended period of high interest rates and rapid growth in inflation pushed many companies into liquidity and solvency issues in 2023, leading to a busy year for bankruptcy.  The Consumer Discretionary category experienced the most bankruptcies with 82 retailers filing for bankruptcy in 2023.  

The Consumer Price Index (CPI) rose again in Q4, growing 3.4% on a year over year basis and still above the Fed’s 2% inflation target.  The food component of the CPI rose 2.7% on a year over year basis, while shelter rose 5.3% 

Q4 2023 Equity Capital Market Returns: The SOLIC Retail Sector Index (“SRSI”) increased in Q4 (15.5%) as compared to the broader S&P (11.2%) and NASDAQ (13.6%) indices over the same period. All nine subsectors increased in Q4. 

  • SRSI Department Store subsector performance: 16.6% 

  • SRSI Apparel & Footwear subsector performance: 40.8% 

  • SRSI Discount Store subsector performance: 18.2% 

  • SRSI Drugstore Chains subsector performance: 13.7% 

  • SRSI Food Retail subsector performance: 2.2% 

  • SRSI Electronics & Appliances subsector performance: 10.3% 

  • SRSI Internet Retail subsector performance: 19.3% 

  • SRSI Home Improvement subsector performance: 12.3% 

  • SRSI Specialty Retail subsector performance: 7.0%

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Fourth Quarter 2023 Industrial Growth Overview Provided by SOLIC Capital Advisors