Woolworths credit ratings downgrade

Fresh after the release of a lower profit result for 2015, Woolworths has been handed a credit downgrade on its long term debt by S&P. The downgrade follows S&P’s change to the retailer’s credit outlook from stable to negative in June. The ratings agency said Woolworths’ supermarket earnings and margins were under pressure from intense competition, Big W was delivering a weak operating performance and the Master’s hardware division was producing “significant losses”. S&P credit analyst Paul Draffin said, “These factors, together with the company’s large and growing fixed cost base and capital investment, are likely to sustain the group’s financial risk profile outside tolerances for the previous ‘A-‘ rating in the next two years.” S&P expects new supermarket entrants such as Aldi to gain market share and thus keep Woolworth’s under pressure at the same time as losses from the Masters hardware division to an “increasingly material impact”. Slowing revenue and earnings growth, in combination with rising fixed costs will “pressure the group’s key credit ratios in the next 1-2 years”. In spite of this, S&P continues to view Woolworths’ business risk profile as “strong” and the current A-2 short term debt rating has been affirmed.