It said the downgrade had been “primarily driven” by the reported 35% year-on-year decline in Morrisons’ underlying profit before tax during the first half of FY2015/16.
Also, the recent decline reflects a further decrease in like-for-like sales as well as competitive pressure from discounters and other supermarkets.
“Today’s rating action primarily reflects the impact of structural changes in the UK grocery sector, particularly the ongoing shift of consumers to discounters, convenience stores and online retailers, which has caused Morrisons’ earnings to contract beyond our previous expectations,” said Sven Reinke, a vice-president - senior credit officer at Moody’s and lead analyst on Morrisons.
He said that Morrisons had made “substantial progress” in reducing debt, but had still not registered positive like-for-like growth for the past three years.
Moody‘s also said that Morrisons’ decision to dispose of the loss-making convenience store network was likely to help stabilise operating profitability. However, it added this also cemented Morrisons’ reliance on supermarket sales which it called “the most challenged channel in the UK grocery market, which is structurally declining”.