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(Alliance News) - Moody's Investors Service late Thursday has downgraded the senior unsecured long-term ratings of Marks & Spencer PLC to Ba1 from Baa3.
The ratings were placed on review for further downgrade.
Concurrently, Moody's assigned, and placed on review for downgrade, M&S corporate family rating of Ba1. The outlook has been revised to under review from negative.
Moody's said, in the immediate future, it expects M&S's apparel sales to be severely constrained by government requirements for retailers of non-essential products to close their stores amid significant restrictions on people leaving their homes.
Beyond this uncertain timeframe demand is also likely to be hurt by consumer concerns about how the economic downturn will affect their income.
Moody's expects the company's Clothing & Home business will endure a significant fall in sales in the weeks ahead and that its profitability will be dented further by discounting of surplus stock
later in the year.
Meanwhile, Moody's said it anticipates demand within M&S's Food business will be solid through the crisis, even though, as stated by the company, its heavy bias towards chilled and fresh means
they have not benefited from stockpiling as much as other grocers.
In addition, the need to focus on minimising the impact of coronavirus on the company's operations in the short term will necessarily delay many of the initiatives that had been planned to reposition the business for growth, the ratings agency noted.
"As such, even with a return to more normal operating conditions in due course, Moody's expects the company's profit before tax in financial 2022 to be at best no more than in financial year 2020, which the company now expects to be at or below the bottom end of the GBP440 million to GBP460 million range it previously guided," Moody's said in its statement Thursday.
Looking forward, Moody's said positive rating pressure is unlikely for at least the next 18 months. Conversely, negative rating pressure would build in the event of a continued slide in profitability or a deterioration in credit metrics, the ratings agency concluded.
FTSE 250-listed M&S shares were trading 9.5% lower in London on Friday at 98.19 pence each.
By Evelina Grecenko; evelinagrecenko@alliancenews.com
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