Moody’s Ratings lowered Academy Sports & Outdoors’ debt ratings outlook to “stable” from “positive” on its belief that the retailer’s credit metrics “will take longer than originally anticipated to reach levels in line with a higher rating” due to the challenged economy.
Moody’s wrote, ” This delay reflects a challenging consumer environment as shoppers reduce spending on discretionary merchandise in the sporting goods category due to ongoing uncertainty from tariffs, persistently high-cost essentials and high interest rates.”
Moody’s affirmed Academy’s corporate family rating (CFR) at Ba2, probability of default rating (PDR) at Ba2-PD, and the Ba2 ratings on the senior secured first lien term loan and senior secured notes. The speculative grade liquidity rating (SGL) remains unchanged at SGL-1.
Moody’s said in its analysis, “Academy’s Ba2 CFR reflects the company’s scale and solid market position in the regions within which it operates. It also reflects Academy’s actions to preserve profitability despite experiencing declining comparable store sales since 2022, as it focused on productivity improvements, inventory management and cost controls. Further, continued operational improvements in merchandising and omnichannel investment will improve operating performance over time. Additional earnings growth will also come from the company’s store expansion program, which was initiated in 2022 and will add 160-180 stores through 2029. The new store openings will be financed through free cash flow.
“Nonetheless, we now expect Academy’s credit metrics to remain outside its upgrade thresholds for longer than previously anticipated. Specifically, we expect leverage to remain above its 1.5x upgrade threshold, rising to about 2.2x over the next 12 months, up from 1.6x in 2024. Concurrently, we estimate that EBIT to interest will remain below the 6.0x interest coverage threshold, declining to 4.0x from 5.3x for the same period. Academy continues to face a difficult consumer spending environment as consumers continue to face high inflation in key categories such as food, housing and insurance. We also recognize the competitive nature of sporting goods retail, including the increased focus of major apparel and footwear brands on direct-to-consumer distribution and the consumer shift to online shopping. Sporting goods demand can also fluctuate, in part because of demand cycles in the firearms and ammunition category, which we estimate represents roughly 10 percent of Academy’s sales.
“Academy’s SGL-1 reflects its very good liquidity over the next 12 months. The company has a largely available $1.0 billion asset-based revolving credit facility expiring in March 2029. In addition, we estimate that the company will generate roughly $150-$200 million of free cash flow over the next 12 months.”
Image courtesy Academy Sports & Outdoors
