Moody’s gives M&S negative outlook amid profitability concerns

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Moody's gives M&S negative outlook amid profitability concerns
M&S's outlook to "negative" was revised from "on review to downgrade".
// Moody’s revises M&S outlook to negative, reflecting issues around profitability & credit metrics
// Moody’s confirms Ba1 senior unsecured long-term ratings of M&S & a (P)Ba1 long term medium-term note program rating
// Moody’s also confirms M&S’s Ba1-PD probability of default rating

Influential credit ratings firm Moody’s has revised M&S’s outlook to negative to reflect what it views as issues around the retailer’s profitability and credit metrics.

Moody’s said that in line with its expectations, M&S’s outlook to “negative” was revised from “on review to downgrade” because its profitability and credit metrics during or beyond fiscal 2022 were at risk of not recovering.

Moody’s also confirmed the the Ba1 senior unsecured long-term ratings of M&S and the retailer’s (P)Ba1 long term medium-term note program rating.


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Concurrently, Moody’s confirmed M&S’s Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR).

The firm said the late March downgrade of M&S’s long term rating to Ba1 from Baa3 reflected the compounding impact of the coronavirus pandemic on the existing pressure on its credit quality, driven by a multi-year trend of weak underlying sales trends and declining
profitability.

“The company is exposed to the very competitive UK retail market and in the months ahead will face uncertain demand levels, most notably in its clothing and home business, as weak consumer sentiment and a muted macroeconomic environment will persist,” Moody’s stated.

However, Moody’s said M&S’s CFR reflects the retailer’s enduring strong market positions, the range of initiatives underway pre-Covid to turn around the negative trends in sales and profitability, continued solid demand within M&S’s food business, and the additional diversification of risks the retailer’s international division provides.

“We expect a gradual recovery in credit quality in the remainder of the company’s fiscal 2021, ending March 2021, and in fiscal 2022,” Moody’s said.

“In the meantime, liquidity will remain good in the months ahead, supported by a raft of cost savings, including lower capital spending, focus on working capital management, cancellation of dividends, and tax savings.

“As we expected in March, the company has retained full access to its revolving credit facility after its banks agreed amendments to the facility’s financial covenant.”

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