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(Alliance News) - Moody's Investors Service on Tuesday revised Marks & Spencer Group PLC's outlook higher and has affirmed its corporate family rating at Ba1.
"Today's rating action reflects the operational and financial progress M&S has made over the past year, which we expect to be sustained over the important Christmas season, and into at least the first few months of next year," the credit ratings agency's lead analyst for M&S David Beadle said.
He continued: "We expect leverage to improve to close to 3.5x by the fiscal year end, and while rising cost headwinds or a softening of demand will result in somewhat lower profits in 2023, we anticipate credit metrics will remain acceptable for the Ba1 rating category."
Last Wednesday, M&S raised its annual profit outlook for the second time in less than three months after a sales rebound, but it warned over surging costs and disruption due to supply chain issues.
In the six months to October 2, M&S reported pretax profit of GBP187.3 million, swinging from a GBP87.6 million loss in the half-year ended September 26, 2020 at the height of the pandemic, and was up 18% on two years ago before Covid-19 struck.
"These were stronger than Moody's expectations, with operating profit before adjusting items of GBP363.2 million some 35% ahead of the level recorded in the pre-Coronavirus pandemic H1 fiscal 2020," Moody's said.
It added: "Recovery in profitability and market share gains were notable for both its Food and Clothing & Home divisions. The results, however, included a total benefit of GBP47.5 million in respect of business rates relief designed to help cushion loss of trade during the pandemic."
By financial 2022 year-end, in March 2022, the rating agency forecasts the company's Moody's adjusted gross leverage, measured as debt to Ebitda, will improve to close to 3.5 times. However, beyond that timeframe, Moody's thinks that a waning of recent strong post lockdown demand in C&H is likely.
Moody's expects M&S to sustain good trading momentum in the months ahead.
By Paul McGowan; paulmcgowan@alliancenews.com
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