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Tesco Cut to BBB+ at S&P on Concerns Over Growth, Profitability

Tesco Plc, the U.K.’s largest grocer, was downgraded by Standard & Poor’s on concerns the company will suffer weaker profitability and slower sales growth.

S&P cut Tesco’s long-term corporate credit rating to BBB+ from A-, with a stable outlook, it said today. The action follows an announcement yesterday by Fitch Ratings, which also cut the Cheshunt, England-based company to BBB+.

“Tesco’s lower profitability, persistently high market competition in the U.K., and difficulty in its international operations have durably impaired the group’s business position,” S&P said in the statement today. “Structural trends will continue to weaken Tesco’s profitability and competitive position.”

Tesco said April 17 it would exit its U.S. business and scale back domestic expansion at a cost of about 2 billion pounds ($3 billion) and reported the first annual drop in profit in almost 20 years. The grocer is struggling to shore up its market share as customers polarize towards discounters including Aldi and more expensive chains like Waitrose Ltd.

“Turning around the negative operating trends will take longer than we previously anticipated because we foresee that macroeconomic conditions will remain challenging in the U.K. and Europe for the rest of 2013,” said S&P.

Tesco’s shares declined, trading down 0.6 percent at 363.3 pence at 1:16 p.m. in London, giving the company a market value of about 29.3 billion pounds.

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