Credit ratings agency Moody’s has downgraded Debenhams to reflect its concerns that “volatile” trading conditions in the UK have increased the risks surrounding the retailer’s turnaround strategy.
Ernesto Bisagno, vice president at Moody’s and its lead analyst for Debenhams, said the downgrade to B1 from Ba3 “reflects the increased execution risk behind the new strategy”, which was unveiled by chief executive Sergio Bucher last April.
Moody’s pointed to highly competitive market conditions, operating costs from long leases and “weakened” cash flow generation, among other factors. It predicted falling demand for some product categories, and more promotional activity.
It also pointed out that Debenhams is exposed to the same general risks facing other fashion retailers, such as not having ranges in the right places or missing a key trend.
The downgrade comes after Debenhams last week issued a profit warning, cautioning that profits for the full year will be between £55m and £65m – down on the City consensus of £78m to £95m. Like-for-like sales fell by 1.3% in the 17 weeks to 30 December.
Following the disappointing Christmas trading period, it outlined plans to accelerate the restructuring of its head office, store and call centre teams.
However, Moody’s said Debenhams’ outlook remains largely “stable”, reflecting its market position in the UK, its “well-invested” retail portfolio, diverse product offering and growth in its online and overseas sales.
It also expects “some” earnings stabilisation at the retailer in 2019.
Moody’s downgraded its ratings for House of Fraser and New Look last month.