S&P follows Moody's to cut Tesco's debt to junk

LONDON, UK - Tesco received a fresh blow on Wednesday when Standard & Poor's downgraded the British retailer's credit rating to non-investment grade, or "junk" status, due to the challenges building in the sector.

S&P said Tesco, which was downgraded to junk by Moody's last week, was not going far enough in its plans to counter the rapid rise of the discount supermarkets, which have taken market share from market leader Tesco and other established retailers.

Last week, Tesco's new boss Dave Lewis set out his early plans to respond to the heightened competition, including the sale of assets and a cut in spending and its dividend, which sent its shares up as much as 15 percent.

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Lewis has the tough task of restoring faith in Tesco, once the dominant force in the British retail landscape, after a 263 million pound ($400 million) accounting scandal and four profit warnings last year.

"We anticipate that increased competitive and price pressures in the U.K. from both traditional and discount retailers could suppress any benefits from various management strategies oriented toward improving trading performance," S&P said.

"Accordingly, we anticipate that Tesco's profitability will continue to remain under pressure as market competition in the UK remains high."