Tesco’s sales slump will continue, predicts Standard & Poor’s

Tesco boss Dave Lewis came under further pressure on Wednesday night when credit rating agency Standard & Poor’s predicted its sales would decline for the next two years.

Putting the supermarket’s credit rating under review, S&P said its total sales would fall by more than 5% next year and profit margins would be squeezed by heavy competition in the UK where it makes the bulk of its profits.

“Increased competitive and price pressures in the UK from traditional and discount retailers could suppress any benefits from various management strategies oriented toward improving trading performance,” S&P said.

It said it was possible that management would be unable to make the right moves to reduce debt “within a reasonable time” and it would be closely watching Tesco’s next update to the City on 8 January.

The company is under pressure to sell key assets including its Asian or European stores and its Dunnhumby data arm to prop up a weakened balance sheet. The S&P review comes after Tesco warned the City it expected to slash annual profits by £500m to cover the cost of cleaning up its financial dealings with suppliers and improving service in stores by sending in more shopfloor staff. It said it had already cut prices on 1,000 items.

Tesco said it would make annual profits of £1.4bn, compared with the already lowered £1.9bn figure expected by City analysts at the end of the summer. It partly blames an escalating supermarket price war with discounters Aldi and Lidl. Last year, Tesco banked profits of £3.3bn.

S&P’s review follows a similar move by rating’s agency Moody’s on Tuesday.