Moody’s has downgraded the UK’s largest department store chain Debenhams less than 24 hours after it issued a similar credit ratings warning on rival House of Fraser.
The influential ratings firm said the downgrade of Debenham’s probability of default rating from B1 to B2 was due to a “deterioration in Debenhams’ profitability”, and declining “in-store sales in the UK” that haven’t been offset by international sales.
“Downgrading Debenhams to B2 reflects its weaker-than-expected profitability and resultant deterioration in credit metrics to levels inconsistent with the B1 rating,” Moody’s vice president David Beadle said.
“The negative outlook factors in the possibility of a further drop in profits or weaker liquidity.”
It added that the department store retailer’s need to remain price competitive with rivals which are also facing financial straits would further dent margins, and that any positive pressure on ratings was not expected in the “short term”.
This comes as Debenhams seeks to sell its Danish subsidiary Magasin du Nord for £250 million in order to sure up its finances.
Debenhams also posted three profits warnings this year.
These have caused its share price to drop nearly 70 per cent over the last year, continuing a gradual downward trend that over the past five years.