14th Jan 2020 11:31
(Alliance News) - Moody's Investors Service on Tuesday downgraded its outlook for Marks & Spencer Group PLC, amid the retailer's continued challenges in its troubled Clothing & Home unit.
The ratings agency revised M&S's outlook to negative, from stable but affirmed the company's Baa3 senior unsecured ratings and its long-term Baa3 senior unsecured medium-term notes programme rating.
David Beadle, Moody's senior credit officer and lead analyst for M&S, said: "The negative outlook reflects the risk that the company's profitability may continue to decline, notwithstanding the strategic efforts to reposition the business for sustainable growth."
The outlook change comes in the wake of M&S reporting a sales update for the 13 weeks to December 28, a period which included the pivotal festive trading spell.
Total sales were 0.7% lower year-on-year at GBP3.02 billion, with UK sales alone down 0.6% at GBP2.77 billion.
The troubled clothing unit saw a 3.7% sales fall to GBP1.06 billion and on a like-for-like basis, sales declined by 1.7%. In Food, sales rose by 1.5% year-on-year to GBP1.70 billion and climbed 1.4% on a like-for-like basis.
"The latest results highlight the challenges in Clothing & Home even though it is positive to note signs of progress in Food, cost control, and the decision last year to reduce dividends," Beadle continued.
The company cut its first-half dividend, for the six months to September 28, by 40% to 3.9 pence per share.
Last week, M&S also warned that full-year margins are likely to be at the lower end of guidance, something Moody's said highlights the "challenges the company faces to curb the trend of deteriorating underlying profitability".
Moody's added: "There are however several areas where there are signs of progress. For example, Food like-for-likes remain positive, in contrast to some competitors, while the company's confirmation that full year cost savings should be towards the higher end of its previous guidance range is credit positive. Moreover, Clothing & Home's 1.7% like-for-like decline in the third quarter represents an improvement compared to recent quarters."
A return to a stable outlook could occur if M&S is able to post "sustained positive like-for-likes" across both units, Moody's said.
Shares in the company were 0.3% lower at 189.18 pence each in London on Tuesday morning.
By Eric Cunha; [email protected]
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