Struggling Asda’s credit rating is under threat if the supermarket fails to turn around its poor performance, agency Moody’s warned today.
It said retail veteran Allan Leighton, who was brought back to run the “big four” grocer again in November, nearly a quarter of a century after he left, must urgently sort out the company’s operational problems.
Asda was given a ratings upgrade in April last year from B2 by Moody’s, but the agency warned “since then its credit quality has weakened, with the prospect it could decline further if it does not address its operational difficulties in the coming months. “
The shot across the bows came as latest figures from market researchers Kantar showed its sales slumped by 5.2% in the 12 months to 28 January. The huge fall compared with growth of 5.6% from, Tesco, 4.2% from Sainsbury’s and Aldi and 7.4% from Lidl. Morrison’s revenues were flat. Asda’s market share fell from 13.6% to 12.6%.
The Moody’s note compared the balance sheet strength and performance of Morrison, which is rated a weaker B1, and Asda. Moody’s said Morrison was putting its house in order since its £7 billion leveraged buyout in 2021.
But the agency added: “In tandem with battling for market share in a highly competitive market, Asda has faced substantial operational hurdles, related to customer service, store experience and product availability.”
Leighton replaced Stuart Rose as chairman last year, vowing to “restore Asda’s DNA”. Last week, he introduced price cuts under a Rollback campaign fronted by TV fitness instructor Joe Wicks. The trademark “Asda pocket tap” campaign and “that’s Asda price” strapline have also been restored.
The group carries debt or around £4.7 billion, up slightly on the £4.4 billion after the leveraged buyout by the Issa brothers in 2021.
Moody’s added. “The Asda team still needs to demonstrate a strong execution track record in addressing all operational issues effectively.”
Asda’s turnaround programme, Project Future had “consumed considerable management attention” and as of September 2024 had cost more than £800 million in operational and capital expenditure, Moody’s said, with a further £150 million estimate for 2025..
“The wrap-up of Project Future, combined with management’s efforts to refine its customer rewards programme, boost product availability and upgrade the overall customer experience while keeping prices low could support stabilising its market share,” the ratings agency added. “However, significant execution risks remain at this stage.”
