Moody’s has downgraded Debenhams and given the retailer a negative outlook on the back of weaker than expected trading.
The ratings agency has placed the department chain onto a B2 negative outlook, down from B1, because of the recent profit warnings as well as acknowledgement of wider woes on the UK high street.
In a statement David Beadle,Moody’s vice-president, credit officer and lead analyst for Debenhams said: “Downgrading Debenhams to B2 reflects its weaker-than-expected profitability and resultant deterioration in credit metrics to levels inconsistent with the B1 rating.
“The negative outlook factors in the possibility of a further drop in profits or weaker liquidity,”
Moody’s said Debenhams’ gross transaction value had fallen by 1.6% in the first half of its 2018 financial year. Declining in-store sales in the UK had not been fully offset by international and online revenue growth, despite Debenhams continuing to record double-digit annual percentage gains in the digital channel.
Moody’s also noted that evolving challenging UK market dynamics had placed additional burden on the company, as well as other retailers.
The downgrade comes as it emerged that Debenhams had placed a price tag on its Danish department chain Magasin du Nord, looking for around £250m to offload the asset.
News of the potential sale comes weeks after Debenhams chief executive Sergio Bucher said that the company would look to sell off non-core assets in the trading update in June.
Moody’s noted that a sale of Magasin du Nord would not have a positive impact on the wider Debenhams business.
It stated: “Disposals could also result in a meaningful reduction in net reported debt. However, the impact on Moody’s-adjusted credit metrics would not be significant as adjustments in respect of leases make up nearly 90% of adjusted debt.
“Moreover, Moody’s notes that the sale of a growing business such as the company’s Danish chain Magasin du Nord would have negative implications for Debenhams diversification and quality of earnings.”