Credit ratings agency Moody’s has changed House of Fraser’s outlook from “stable” to “negative” in light of the external pressures it faces this year from currency fluctuations and falling consumer spend.
Moody’s pointed out that, despite its positive Christmas 2016 trading update, HoF reported weakening profitability in the first three quarters of its fiscal year, ending January 2017.
Meanwhile, consumer sentiment in the UK is uncertain and sterling’s ongoing weakness is going to drive higher costs of imported products, as well as rising inflation.
“The resultant squeeze on disposable incomes would weigh on discretionary spending,” said David Beadle, vice president – senior credit officer at Moody’s and lead analyst for HoF.
“In these circumstances, we believe HoF would find it difficult to recover to previous levels of profitability and therefore its credit metrics would remain weak for the rating category.
“HoF has debt maturities commencing in mid-2019 and as we typically expect companies to look at refinancing at least a year before major maturities, there is only a limited window for the company to return to historic levels of profitability in order to maximize the cost efficiency of a refinancing.”