S&P Global Ratings raised its debt ratings on Great Outdoors Group, LLC due to the parent of Bass Pro and Cabela’s “consistent improvements in its sales and profitability” and improving debt leverage.
S&P noted that Great Outdoors Group LLC has maintained S&P Global Ratings-adjusted leverage of 4x or below. While it expects the company’s S&P Global Ratings-adjusted leverage will peak in 2023 due to management’s initiatives and other costs, S&P projects it will sustain leverage in the mid-3x area in 2024.
S&P raised all its ratings on Great Outdoors to ‘BB’ from ‘BB-‘, including its issuer credit rating and issue-level rating on its term loan.
S&P’s stable outlook reflects its expectation that the company will maintain its good performance over the next 12 months and improve its S&P Global Ratings-adjusted leverage to the 3x range.
S&P said in its analysis, “We expect the company’s recently elevated leverage will likely improve to the mid-3x area in 2024. Great Outdoors has demonstrated the ability and willingness to operate with lower leverage, which is a trend we expect will continue over the long term. As of the end of the last two fiscal years, the company’s S&P Global Ratings-adjusted leverage has remained below 4x. Great Outdoors’ leverage was in the mid-3x area before it redeemed $1 billion of minority equity in early 2022, though we expect it will return its leverage to this level in 2024 from an estimated level of approximately 4x as of the end of 2023 due to elevated incentive compensation payments and other expenses. We forecast the company will sustain the expansion in its sales and good profitability, which will support significant free cash flow generation in 2023 and 2024. We also expect it will exhibit a relatively conservative financial policy. We believe management will fund Great Outdoors’ growth using its cash flow generation and do not expect it will take on any significant incremental balance sheet debt.
“Management’s operating initiatives, as well as its strong loyalty program, will support Great Outdoors’ competitive position. The company maintains a solid position as a significant player in the outdoor leisure and sporting goods industry. Great Outdoors’ large destination store format provides a compelling in-store experience and its enhanced e-commerce platform helps support its market position by providing consumers access to its broad national and priority/owned brands. We also think the company’s strong owned brands along with expertise across multiple verticals, including firearms, boats, fishing, and outdoor apparel enhance its product positioning. This includes its loyalty card business, which enhances customer engagement and provides it with a profitable, stable cash flow stream. Management’s good merchandise strategies and product mix also help reduce the need for promotional activity and discounting. Still, relative to other retailers with satisfactory business risk profiles, we view Great Outdoors’ addressable market as more limited and potentially volatile; therefore, we maintain our negative comparable ratings adjustment.
“Great Outdoors will likely increase its sales over the next two years while sustaining elevated profitability relative to its pre-pandemic levels. Increased consumer interest in outdoor activities and healthy living will likely support a rise in the company’s sales over the next 12 months. In addition, we expect Great Outdoors will accelerate its new store openings over the next two years. In total, we forecast a flat-to-low single-digit percent improvement in the company’s comparable sales, with the opening of two new stores boosting its total revenue by about 3 percent in 2023. We also expect Great Outdoors to open more new stores in 2024, which–along with increasing same-store sales, will lead to about a 4 percent expansion in its sales. We also assume the company’s S&P Global Ratings-adjusted EBITDA margins decline in 2023 but remain elevated compared with pre-pandemic levels. Despite our expectation that elevated incentive compensation and other expenses will weigh on its profitability in 2023, we project Great Outdoors’ S&P Global Ratings-adjusted margins will approach 17 percent as of the end of 2023. This compares with its S&P Global Ratings-adjusted EBITDA margins of 15.5 percent in 2019 and 19 percent as of year-end 2022. Moreover, we expect the company’s S&P Global Ratings-adjusted margins will remain elevated (in the mid-17 percent range or above)in 2024 and thereafter due to its improving sales leverage and good cost management.
“The stable outlook reflects our expectation for a good performance over the next 12 months, including a low single-digit percent rise in its sales growth, S&P Global Ratings-adjusted margins in the mid- to high-teens percent area, and peaking S&P Global Ratings-adjusted leverage in 2023 that improves thereafter.”
Photo courtesy Bass Pro
