In April, Moody’s Investors Service lowered its outlook at Academy Ltd., the parent of Academy Sports + Outdoors, to negative from stable due to recent deteriorating results. This week, the rating agency downgraded the retailer’s ratings due to the “highly promotional environment” for athletic apparel and weak demand for firearms and ammunition.
Ratings impacted included the company’s Corporate Family Rating (CFR) to B3 from B2, Probability of Default Rating (PDR) to B3-PD from B2-PD and senior secured term loan rating to B3 from B2. The ratings outlook is stable.
“The downgrades reflect our view that financial risk for Academy will remain elevated, exacerbated by difficult market conditions, including a highly promotional environment for athletic apparel and weak demand for firearms and ammunition,” according to Raya Sokolyanska, VP and Moody’s lead analyst.
Moody’s anticipates that ongoing industry challenges will offset Academy’s cost saving initiatives and the correction of its private label assortment in the second half of 2017, resulting in only a modest improvement in earnings, which remain depressed going back to the prior year.
In lowering its outlook in April, Moody’s report noted that Academy’s same-store sales slid in the low-single-digit range and management-adjusted EBITDA dropped 23 percent in 2016. Sales last year reached $4.7 billion, up from $4.6 billion in 2015.
In its updated report, Moody’s said it expects leverage to decline mainly due to seasonal repayment of the company’s asset-based revolver but remain elevated at 7 times on a Moody’s-adjusted debt/EBITDA basis by year-end, compared to 7.4 times as of mid-year 2017. These metrics are equivalent to 5.3 times and 5.6 times, respectively, based on gross funded debt and management-adjusted EBITDA.
“The company’s liquidity profile is good, with ample revolver availability and an extended maturity profile serving as a buffer to an otherwise rising level of risk if operating performance does not improve over time,” added Sokolyanska.
Moody’s report didn’t note any impact Academy may have faced due to Hurricane Harvey. At the height of the storm, most of Academy’s 37 store locations in the greater Houston area and along the Texas coast were closed, along with the corporate office and local distribution center. Academy has about 230 locations.
Photo courtesy Academy
