Britain's biggest retailer Tesco has been dealt a fresh blow today after a second ratings agency warned of a possible cut to its credit rating in the wake of its recent poor run.
Credit rating agency Standard & Poor's has changed its outlook on Tesco debt from stable to negative, increasing the pressure on boss Philip Clarke.
Tesco blamed "challenges in UK and Europe" for a year-on-year drop in profit, which fell by 6% to £3.3 billion in 2013.
Like-for-like sales, excluding fuel, were down 3% in the three months to February 2014, despite hundreds of millions of pounds pumped into store refurbishments, a brand refresh and heavy discounting.
"The outlook revision reflects a greater decline in Tesco's like-for-like sales in the UK than we anticipated, and lower profitability across its retail operations," said S&P. Moody's, another credit rating agency, also warned that it is considering cutting the credit rating of the the world's second largest retailer.
Moody's move was prompted by a second year of falling profits at Tesco, and senior analyst Sven Reinke said that "We are putting Tesco's rating on review for downgrade following a 6% drop in the group's fiscal 2013-14 trading profit."
"Moody's anticipates that a highly competitive retail environment in the UK – in which Tesco has been losing market share recently – coupled with continuing difficult economic conditions in Ireland and Thailand and a slow economic recovery in some of its other markets, will constrain Tesco's operational improvements over the next 12-18 months," added the Moody's analyst, who said "a downgrade, if any, would be limited to one notch".
© 2014 - European Supermarket Magazine by Enda Dowling
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