Woolworths credit rating cut by Moody's

Patrick Commins
March 2, 2016
The Age
Results season for Woolworths is a time to reflect on the obstacles it faces in trying to catch up with its main supermarket competitor, Coles.
Moody’s has downgraded Woolworths’ credit rating to Baa2 from Baa1, citing the supermarket owner’s “continued operational challenges across much of its portfolio”.
With Woolies’ rating now only two notches above “junk” rating, Moody’s also maintained its negative outlook, meaning it could face further downgrades if its sales deteriorate further.
“The trend in comparable-store sales growth at its core Australian food and liquor business has been negative for the past three quarters and Woolworths does not expect a significant improvement in the [second half of this financial year],” a Moody’s analysts said in a statement.
“The [first half] result highlights the loss in market share and margin erosion in the supermarket business, only partially offset by the continued strong performance in liquor.”
The ratings agency recognised Woolies’ “strong market position”, but also noted that the company’s impending exit from its failed home improvement business Masters, while a “long-term positive from a credit perspective, is likely to require a high level of management attention and Moody’s believes that there may remain a risk that unexpected cash costs could [affect] the firm’s financial profile”.
Woolworths shares have lost a fifth of their value over the past 12 months. They dropped 1.3 per cent to $22.60 yesterday, and are down 7.8 per cent since the start of the year.