S&P Global Ratings lowered the debt ratings outlook of Great Outdoors Group, LLC, the corporate parent of Bass Pro and Cabela’s, due to the recent report of a negative sales performance for the third quarter and nine months ended September 30.

The rating agency noted that S&P Global Ratings-adjusted leverage for Great Outdoors Group has remained more than 4x. S&P said, “We believe the recent negative sales performance (albeit still greater than in 2019) suggests revenue will fall short of our previous expectations, increasing the risk that leverage could remain above 4x over the next 12 months.”

S&P revised its outlook on Great Outdoors Group to negative from stable and affirmed all of its ratings, including the ‘BB’ issuer-credit rating and all issue-level ratings. The negative outlook reflects S&P’s expectation for S&P Global Ratings-adjusted leverage to be around 4x through the end of 2024, with persistent risks related to U.S. economic growth and consumer spending.

S&P said in its analysis, “The company reported a revenue decline in the mid-single-digit percent range for the third quarter (ended Sept. 30, 2023) due to a decline in comparable sales and a decrease in average ticket in the mid-single digits, offset by modest traffic improvements. Great Outdoor finished last quarter with S&P Global Ratings-adjusted leverage around 4.3x, compared to our expectation of leverage remaining around 4x, due to lower sales and modestly lower-than-expected EBITDA margin. We now project S&P Global Ratings-adjusted leverage to be 4.3x at the end of this year and improve modestly by the end of 2024 to 3.9x. This compares to our previous forecast for leverage in the low-4x range in 2023 and high-3x range in 2024. The negative outlook incorporates the potential for leverage to stay higher for longer if current trends are sustained.

“Great Outdoors’ recent performance shortfall could portend continued lower comparable store sales if consumer strain persists. We view Great Outdoors’ recent underperformance as reflecting, in part, the slowing U.S. economy and tighter discretionary spending. We also see potential near-term underlying volatility in some of Great Outdoors’ verticals, including hunting and outdoor equipment. The company is significantly exposed to discretionary consumer spending and remains vulnerable to shifts in market sentiment. Although meaningful customer engagement and good merchandising strategies will help the company drive sales, we expect moderating consumer demand for sporting apparel and outdoor goods such as hunting, fishing, outdoor recreational, and boating gear. As a result, we forecast a low-single-digit percent decline in the company’s comparable and overall sales, despite two new store openings this year. We also expect Great Outdoors will open more than five more new stores in 2024, which along with low-single-digit percent growth in same-store sales, will lead to 3% sales growth. We also assume the company’s S&P Global Ratings-adjusted EBITDA margins decline modestly in 2023 but improve over 2024 as sales rebound.

“We believe the company’s leading position in outdoor retailing and strong merchandising management will help mitigate current performance challenges. Great Outdoors generates a sizable proportion of its revenue from products and services that are not easily sold online, including a broad product portfolio of national and well-positioned proprietary brands. This positioning provides Great Outdoors some insulation against physical and online competitors that cannot replicate the same experience without material investments. 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 or owned brands. We also think the company’s strong owned brands, along with expertise across multiple verticals—including hunting, 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, we view Great Outdoors’ addressable market as more limited and potentially volatile relative to other retailers in the category. As a result, we continue to apply a negative comparable ratings adjustment to the rating.

“The negative rating outlook reflects our expectation that S&P Global Ratings-adjusted leverage will remain around 4x through the end of 2024. The outlook also reflects the uncertain economic environment and risks in consumer spending on outdoor apparel, equipment, and associated products.”

Photo courtesy Bass Pro