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Coronavirus: Moody's downgrades Marks & Spencer

Credit ratings agency Moody’s has downgraded Marks & Spencer’s outlook as the impact of coronavirus is expected to significantly dent the retailer’s clothing and home business in the weeks ahead, and delay initiatives planned to reposition the business. 

Moody’s has downgraded and placed on review for further downgrade M&S’s senior unsecured long-term ratings to Ba1 from Baa3 and the company’s long term MTN Program rating to (P)Ba1 from (P)Baa3. 

It has also placed on review for downgrade its corporate family rating of Ba1 and a probability of default rating of Ba1-PD. 

The outlook has been revised to ratings under review from negative.

Moody’s said: “Moody’s expects the company’s clothing and home business will endure a significant fall in sales in the weeks ahead and that its profitability will be dented further by discounting of surplus stock later in the year. Government support by way of the announced business rates holiday and partial payment of the salaries of employees that would otherwise have been laid off will mitigate partially. But, ultimately, Moody’s expects the company’s profitability to fall significantly in its next fiscal year, to the end of March 2021.” 

It added: ”In addition, the need to focus on minimising the impact of coronavirus on the company’s operations in the short term will necessarily delay many of the initiatives that had been planned to reposition the business for growth. As such, even with a return to more normal operating conditions in due course, Moody’s expects the company’s profit before tax in fiscal 2022 to be at best no more than in fiscal year 2020, which the company now expects to be at or below the bottom end of the £440m-460m range it previously guided.”

The ratings agency said although the retailer’s food business will remain solid throughout the crisis, “its heavy bias towards chilled and fresh means they have not benefited from stockpiling as much as other grocers”. 

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