Standard & Poor’s has downgraded Tesco’s outlook to negative as it warns that profits may continue to weaken.
The credit ratings agency has suggested the grocer sell off businesses as its performance in several key markets continues to be under pressure.
Standard & Poor’s move makes a downgrade of the retailer’s debt rating more likely in the near future, The Telegraph reported.
Market conditions in the UK remain difficult with depressed consumer spending and highly competitive conditions. Changes to the law around store opening hours in South Korea are also likely to hit performance.
Standard & Poor’s said: “A fragile labour and housing market, and high household debt burden.”
The agency is also concerned that Tesco’s £1bn ‘Building a better Tesco’ plan to improve the store experience could negatively affect the grocer.
It said: “We believe that the commitment by Tesco management to invest in improving customer service and experience levels in its UK stores will also negatively affect its trading margins
“We would likely lower the ratings if Tesco’s current ‘excellent’ business risk profile were to weaken due to a sustained fall in its UK market share, declining sales growth in its international operations, or a failure to turn around currently visible trends of declining profitability.”
Tesco revealed like-for-like sales excluding VAT and petrol fell 1.5% during its first quarter to May 26.