You are here: Home - Investing -

S&P cuts Tesco outlook to negative on profit fears

0
Written by:
01/08/2012
Standard & Poor's has cut its outlook on Tesco to negative in the belief declining profitability may force it to cut the UK retailer's credit rating in future.

Tesco’s performance will “continue to be dampened” by weak consumer spending in the UK, S&P said, adding that competition pressures in the UK may more than offset the benefits of the retailer’s global diversification.

The ratings agency suggested Tesco’s efforts to improve its standing among customers could hit margins in future.

“We believe that the commitment by Tesco management to invest in improving customer service and experience levels in its UK stores will also negatively affect its trading margins,” S&P said in a statement.

Last month, Tesco revealed that like-for-like sales, excluding both VAT and petrol, dropped 1.5% during its first quarter to May 26.

S&P said the outlook could be moved back up to stable if Tesco reduces its debt through selling businesses or “succeeds in turning the currently negative operating trends around and establishes reasonable headroom under its key financial metrics”.

But the ratings agency warned Tesco’s credit rating, which it has affirmed at A-/A-2, could be cut if the retailer did not act to stem its current problems.

“We would likely lower the ratings if Tesco’s current ‘excellent’ business risk profile were to weaken due to a sustained fall in its UK market share, declining sales growth in its international operations, or a failure to turn around currently visible trends of declining profitability,” S&P said.

The agency said a downgrade was likely if debt to EBITDA (earnings before interest, taxes, depreciation and amortization) rose higher than 3.5x, up from a current level of 1.3x.

The shares were not affected by the downgrade, standing at 320p, up 0.5% in late afternoon trading.

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2195855-investments
UK investors going ‘in it for the long term’

UK investors are increasingly looking at the markets with a long term view, according to Barclays stockbrokers.

Close