Tesco has been downgraded by ratings agency Standard & Poor’s in the wake of its recent sluggish performance.
S&P revised its outlook from ‘stable’ to ‘negative’, citing “sustained pressures from intensifying competition in Tesco’s home market, against a backdrop of weak consumer spending and lower profitability”.
It also pointed to Philip Clarke’s £1bn plan to improve stores as a drag on short-term performance.
“We believe that in light of currently difficult industry conditions, a trend of weakening profitability and low top-line growth will continue,” the agency said yesterday.
“The decline in Tesco’s profitability and difficulties in protecting its UK market share, in particular, could in our view lead to a deterioration in its business risk profile.”
The agency went on: “Notwithstanding the contribution from its international markets, we believe 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.
“Furthermore, we believe that the commitment by Tesco management to invest in improving customer service and experience levels in its U.K. stores will also negatively affect its trading margins.”