Moody's downgrades Woolworths

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Moody’s Investors Service has downgraded Woolworths, which last week posted its first loss in more than 20 years, to Baa2 from Baa1 with a negative ratings outlook.

“The downgrade principally reflects Woolworths’ continued operational challenges across much of its portfolio,” says Ian Chitterer, a Moody’s senior analyst.

The trend in like-for-like sales growth at its core Australian food and liquor business has been negative for the past three quarters and Woolworths doesn’t expect a significant improvement in the second half of this financial year.

The negative outlook reflects the risk associated with the turnaround of the supermarket in a highly competitive market.

Moody’s says Woolworths’ exit from the Masters home improvement business is likely to require a high level of management attention and there may remain a risk that unexpected cash costs could impact the firm’s financial profile.

Woolworths last week posted a loss of $972.7 million in the first half of the financial year, its first for more than 20 years, driven by a massive $1.9 billion write down in the value of the troubled Masters hardware business.

The main business also was weaker with sales dropping 1.4% to $32 billion. And Australian food and liquor sales were flat at $22.34 billion, up just 0.7% over the six months.

Moody’s says the first half result highlights a loss of market share and margin erosion in the supermarket business.

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