S&P puts GOME on watch

S&P said it placed its B+ rating for GOME Retail Holdings Ltd. and its B rating for its senior unsecured notes on CreditWatch with negative implications.

The CreditWatch placement reflects S&P’s view GOME’s key credit measures could weaken beyond the threshold for the rating if the coronavirus outbreak lowers the company’s profitability or lasts into the third quarter of 2020.

“We expect a decline in offline retail sales in China in the first quarter of 2020, given weak sentiment and the increasing popularity of online retailers amid contagion fears. Our base case assumption is that the coronavirus infection rate will peak by March 2020. However, the negative impact on consumer sales and sentiment will likely last into the third quarter,” S&P said in a press release.

GOME’s financial cushion may not be sufficient under the negative effect of the coronavirus outbreak. The company’s revenue growth could turn negative in 2020 if consumers hold on to purchases of big-ticket electronic appliances. “We believe GOME’s sales could decline severely in February 2020. We expect another significant decline in March and a moderate decline in the second quarter,” the agency said.

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