Britain’s biggest retailer Tesco has seen its corporate credit rating downgraded by ratings agency Standard and Poor from ‘BBB+’ to ‘BBB.’
“In light of persistently high market competition in its home market, Tesco will continue to see a trend of weaker profitability and top-line pressure”, it said.
S&P said it still viewed Tesco’s competitive position as “strong” and is encouraged by management’s refocusing of its international operations strategy and said its large retail estate continues to provide financial flexibility.
The retailer is investing in high potential markets such as South Korea, Malaysia and Thailand and wants to refocus its efforts in growing business in China, India and Turkey.
S&P added: “The negative outlook on Tesco reflects our view that the lower profitability could lead to further deterioration in credit metrics, beyond the levels we consider adequate for the current ratings.”
The supermarket sacked chief executive Philip Clarke last month as declining like-for-like sales in the UK and abroad took its toll on shareholders. Lidl and Aldi have grown their sales at a dramatic rate in recent years which has put Tesco and rival Morrisons under significant pressure to adapt to changing consumer habits.
The news follows in the footsteps of Moody’s who cut Tesco’s credit rating to BAA2 in June– just two notches above junk status.