Woolworths Group Ltd.

The stable outlook on Woolworths reflects our expectation that the group's investment in price, service, and systems will support a stabilization of market share and a return to satisfactory earnings growth over the next 12 months at least, despite earnings and margin pressure. We consider the company to be committed to protecting credit quality at the 'BBB' rating level, and that Woolworths will actively manage its capital base to support credit quality if further earnings pressure occurs. We could lower the rating if there is continuing market share losses and margin erosion at Woolworths' core supermarket business, and an absence of credit-supportive capital management actions, sustaining the group's debt to EBITDA above 3.6x and funds from operations (FFO)-to-debt ratio below

...Despite improvements in food price inflation, long-term earnings and margin pressures on Woolworths Group Ltd. will remain. Food price deflation has been a major characteristic of the Australian supermarket landscape. However, drought conditions affecting the price of fresh produce and flowing through to consumer manufactured-food products will likely slow the price deflation trend. Nevertheless, we also anticipate near-term downside pressure on group margins in the year ending June 30, 2020, largely driven by higher wages and salaries, and Woolworths absorbing part of the price inflation in order to defend its market share. The proposed divestment of the high-margin liquor and hotel business will reduce the group's scale and diversity. The current Endeavour Group and ALH business have been merged into Woolworths' consolidated accounts. However, Woolworths intends to divest this liquor, hotels, and gaming business through either a demerger or a trade sale, with completion likely to be during...

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