CHICAGO — Fitch Ratings here said Wednesday it expects operations at Safeway to continue to be pressured following the closing of the sale of the chain's Canadian assets earlier this week to Empire Co., operator of Sobeys.
Fitch said it considers the sale of the profitable Canadian business as a net negative to Safeway's credit profile and would consider a downgrade of the chain's debt ratings if identical store sales growth "is not sufficient to increase market share across all food retail channels or support an expansion of the EBIT margin to over 2%."
According to Fitch, an investment-grade-rated retailer would usually be expected to have the ability to gain market share over time. "However, Safeway has lost some market share over the last five years," the ratings agency pointed out. "While Safeway has seen some stabilization in its market share over the past two to three quarters ... the company's overall competitive positioning remains weak."
Read more: Sobeys Completes Safeway Canada Acquisition
While Safeway is committed to debt reduction and to using a portion of the proceeds from the Canadian sale to reduce its leverage back to pre-2011 levels, Fitch said it remains concerned about the long-term growth prospects for the business and the sustainability of its already low operating margins.
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