Tesco shares fall as its credit rating is downgraded again

The supermarket's shares fell 0.7% this morning after Standard & Poor's said it had cut the supermarket's credit rating to BBB.

by Emma Haslett
Last Updated: 22 Sep 2014

Now its chief executive, Philip Clarke, has announced his departure, investors are presumably holding on to see what will happen when new boss, Dave Lewis, takes the helm in October.

Not so much for credit ratings agencies: yesterday Standard & Poor's announced it had cut the supermarket's rating from BBB+ to BBB, saying the supermarket had a 'negative outlook' on its business. This is only a month and a bit after Moody's cut its rating to two notches above junk.

'In our view, Tesco's efforts to improve its operating performance in its home market and in its international operations have not been successful at combating the structural and enduring changes to the competitive landscape and consumer behaviour,' said S&P.

Clearly, it's not convinced by Lewis' appointment: 'We anticipate that increased competitive and price pressures in the UK from both traditional and discount retailers should suppress any benefits from various management strategies orientated toward improving trading performance,' it said.

To be fair, shares in Tesco have dropped 27% this year (and another 0.7% in early trading this morning), while its market share has slipped to 28.9%, down from 30.3% last year.

To make things worse, S&P warned it will cut Tesco's rating even more if 'management is unable to turn around operations or execute financial policy measures to reduce leverage'. In other words, if Lewis can't correct Clarke's mistakes and turn around the supertanker, Tesco's future looks very expensive.

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