Balance Sheet & Buybacks: When Retailers Get Too Aggressive (LOW, SWY, GPS, KR)

The world of public companies in retail may need to reconsider some actions.  Fitch is warning that retailers are in many cases getting too aggressive and are leveraging the books too much.  That is not too aggressive on sales of their goods by the way, it is too aggressive on taking on debt and even on share buybacks.

Some of the companies named by Fitch were Lowe’s Companies, Inc. (NYSE: LOW) and Safeway, Inc. (NYSE: SWY), as well as Gap Inc. (NYSE: GPS) and Kroger Co. (NYSE: KR).  The first two were noted as having  an aggressive share repurchase posture, and Fitch worries that there is a “heightened risk that other U.S. retailers may follow a similarly aggressive path.”

Companies have incredibly low interest rates to contend with right now and many established companies have very low capital spending needs to their businesses being well established.  Still, Fitch said that 11 of its 28 (39%) public ratings of U.S. retailers are in the ‘BBB’ category.

Fitch Ratings downgraded of Lowe’s and Safeway already in November and the firm noted that investment-grade retailers are becoming more shareholder-friendly. More importantly, Fitch believes this will continue into 2012 even as some may choose to accept lower ratings.

This goes on to show how the leverage has increased at some retailers.  Fitch’s full report is here.