Brexit-weary pound adds to UK clothing retailers' woes

British clothing retailers are facing "a less sanguine overall outlook" than some of their peers, as the Brexit vote and its impact on the pound adds to their existing pressures, according to Moody's.

In a note to clients, the ratings agency said sustained economic recovery and rising consumer confidence will drive steady overall revenue and earnings growth for European clothing retailers into 2018, underpinning the sector's stable outlook.

"However, following the Brexit vote, UK clothing retailers could find it tough to fully pass on cost increases incurred as a result of pound sterling's weakness. This is because we expect the market to remain highly promotional, with plenty of discounting, as volumes so far this year have been hit by unseasonal weather, shifting consumer spending and weak consumer sentiment around the time of the vote," David Beadle, senior credit officer at Moody's, said.

The agency forecasts that overall annual European revenue growth will remain within a range of 2.0% to 3.0% during the next 12-18 months.

Moody's also forecasts higher average annual EBITDA [earnings before interest, taxes, depreciation, and amortisation] growth for rated issuers of approximately 4.3% as some firms benefit from store roll-out plans or merger and acquisition cost savings. Customers' growing demand for convenience and value means online sales penetration will continue to grow at a pan-European level, the agency concluded.