Asda hit by Fitch ratings downgrade as turnaround stutters

Asda has suffered a new setback as its stuttering turnaround led to a ratings downgrade for the retailer’s debt pile.

Ratings agency Fitch pushed the long-term default rating on Asda parent company Bellis Finco’s borrowings further into junk territory, downgrading it from ‘B+’ to ‘B’.

The move reflected an expectation by Fitch that profitability at the supermarket would shrink by more than initially forecast as Asda invested to bring prices down and improve availability under chairman Allan Leighton’s turnaround plan.

The fallout from the botched £1bn IT transition as Asda uncoupled systems from Walmart – known as Project Future – had hampered Asda in the summer. Positive momentum in arresting like-for-like sales declines was disrupted by the lack of stock availability as the retailer moved to a new IT system.

Back in August, Leighton declared “real positive progress” as Asda officially completed the Project Future rollout and delivered its best quarterly performance since early 2024.

Fitch also warned the latest property deals to sell and leaseback 24 of its stores, raising £568m to pay down debt, would lead to further rent burdens and reduce free cashflow.

Asda is lumped with a ‘negative’ outlook overall by the ratings agency, meaning further downgrades are possible in the future.

Fitch said the outlook reflected “the heightened execution risk and potential further costs needed to sustain the strategy to deliver EBITDA and market share recovery”.

The downgrade piles further pressure on Asda as a hoped-for recovery under Leighton has failed to materialise, with rivals Tesco and Sainsbury’s continuing to benefit from the turbulence and the discounters eat away at its market share.

Asda’s market share sat at 11.6% in the 12 weeks to 2 November as sales fell 3.9%, according to the latest data from Worldpanel (formerly Kantar). Its share of the market is down from 12.6% a year ago, with Aldi close to taking its position as the UK’s third-biggest supermarket.

Fitch forecast a sharper decline in EBITDA for 2025 to about £860m – compared with £1.5bn in 2024 – as Asda attempts to reverse its tumbling market share with more investment.

The ratings agency said pricing competition from supermarket rivals in 2026 could prove more costly and lead to further margin contraction. It added it could take Asda “several years” before improvements in like-for-like sales compensated for lower margins, resulting in leverage remaining “materially above” 6x until 2027.

Fitch assumed a gradual rebound in EBITDA back towards 2024 levels by 2028, which is longer than previously forecast.

Asda has liabilities of £900m due by 2028, including a £162m loan and £741m owed to former owner Walmart.

The group completed a £3.2bn refinancing last year, moving near-term maturities into the next decade, but its debt pile still sits at £5.7bn, according to Fitch.

Asda is scheduled to release financial results for Q3 on Friday.

The Grocer has approached Asda for comment on the Fitch downgrade.