S&P downgrades Woolworths

S&P said it lowered the long-term rating on Woolworths Ltd. to BBB from BBB+.

The agency also said it affirmed the short-term rating at A-2.

The outlook is stable.

The downgrades reflect a view that Woolworths’ continuing weak revenue, earnings and market-share performance in its core Australian supermarket business will cause the group’s financial risk profile to sustain at levels outside tolerances for the previous BBB+ rating, S&P said.

Moreover, the company’s discount department store subsidiary Big W recorded a material decline in revenues and the company will incur significant additional investment in prices and service levels at its Australian supermarket business, the agency said.

Woolworths’ recent operating performance highlights the challenges it faces in stabilizing market share and returning to meaningful earnings growth in the core Australian supermarket business, S&P added.

Notwithstanding these challenges, the agency said it believes the company can accommodate the anticipated investments needed and sustain the BBB ratings.

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