Belfast Telegraph

Wednesday 3 June 2015

Embattled Tesco may face credit rating downgrade

Under-pressure supermarket giant Tesco has been dealt a new blow as a key ratings agency placed the retailer on negative outlook due to lower profits and a weakening hold on the UK market.

The embattled grocer, which employs 8,500 people in 51 stores in Northern Ireland, has endured one of the most challenging periods in its history after it issued its first profit warning in 20 years.

Financial ratings firm Standard -amp; Poor's (S-amp;P) said that ongoing pressure from intensifying competition, weak consumer spending and lower profits could trigger a downgrade to its risk profile and credit rating.

The agency also warned that chief executive Philip Clarke's £1bn plan to invest in improving customer service in its UK stores will negatively affect its trading margins.

A downgrade would make it more costly for the retailer to fund any expansion or turnaround plans in the future and make it harder for the supermarket to keep its prices low.

A statement from S-amp;P said: "Tesco's operating performance will likely continue to be dampened by sluggish household spending in the UK as a result of nominal wage growth, a fragile labour and housing market, and high household debt burden."

Investors held their nerve in the wake of the warning as shares were broadly flat at £3.18.

The stock has plunged 23% since the profit warning at the start of the year, as its market share has been chipped away by cheaper rivals such as Aldi and Lidl.

Tesco admitted that its £500m Big Price Drop launched last year failed to impress customers, but has revamped the initiative to focus more on giving its customers special offers and money-off coupons.

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