Woolworths has suffered a credit rating downgrade due to its falling market share and commitment to continue to slash prices.
Ratings agency Standard & Poor's downgraded its issuer rating on Woolworths by one notch from BBB+ to BBB after the supermarket giant released a disappointing quarterly sales update.
"The downgrade reflects our view that Woolworths' continuing weak revenue, earnings, and market share performance in its core Australian supermarket business will cause the group's financial risk profile to sustain at levels outside tolerances for the previous 'BBB+' rating in the medium term," S&P Global Ratings credit analyst Paul Draffin said.
The news hit Woolworths shares, which dropped $1.56, or seven per cent, to $20.71, just above the near 10-year low reached in mid-April.
The retailer's comparable food and liquor sales, a key growth indicator, fell 0.9 per cent in the 13 weeks to April, with total sales amounting to $10.7 billion.
It was a fourth consecutive quarter of declining like-for-like sales for Woolworths, while rival Coles continues to grow.
Coles last month reported an impressive 4.9 per cent jump in comparable food and liquor sales for the third quarter, gaining market share at the expense of Woolworths.
"Woolworths remains committed to a solid investment grade rating and credit profile and is confident the execution of its strategy will deliver the best outcome for its customers and investors," the company said in response to S&P's downgrade.
Share
