Tesco is in good shape to cope with a supermarket price war, according to S&P, leading to an upgrade from the credit ratings agency.
The upgrade comes after the retailer’s strong first quarter results, posted on Thursday (12 June). Like-for-like sales at Tesco rose 5.1% to £12.3bn in the first quarter as the supermarket grabbed 28% of market share, sending shares to their highest level in a decade.
The retailer’s performance in the financial year to 22 February 2025 exceeded S&P’s expectations, with the credit rating agency praising Tesco’s strong cashflow generation.
S&P pushed Tesco’s rating upwards from ‘BBB/A-3’ to ‘BBB/A-2’, and its issue rating on senior unsecured debt is up to ‘BBB’, which is all classed as investment grade.
The stable outlook indicated the agency expected the retailer to report a “resilient” trading performance despite some pressure on margins caused by intensifying competition in the market and increased labour costs from the rise in National Insurance contributions and living wage.
Prices across the supermarker sector would likely be constrained by heavy investment by large players, S&P said, with Moody’s issuing similar warnings earlier in June. It follows a survey for The Grocer earlier this month that revealed supermarkets were snubbing suppliers’ requests for price increases, with less than a quarter of suppliers managing to pass on costs from inflation.
“We consider that Tesco’s size and financial flexibility is sufficient to enable it to absorb the competitive pressures, as it demonstrated during the first quarter of fiscal 2026,” S&P added.
Tesco boss Ken Murphy acknowledged last week that rivals had “upped their game” as he revealed the supermarket was encountering “intense competition” in the price war.
S&P’s uprating of Tesco follows shortly after fellow credit agency Moody’s upgraded the chain’s outlook to positive from stable in late May, affirming its Baa3 long-term issuer rating that marks Tesco plc in the lowest rung of its ‘investment grade’ ratings.
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