Moody’s Investors Service Inc. upgraded all the debt ratings of BJ’s Wholesale Club Inc, including the corporate family rating, which was upgraded to Ba2 from Ba3. The outlook is stable.
“Today’s upgrade recognizes the continuing improvement in BJ’S quantitative profile resulting from continued strong operating results as well as the recent reductions in debt of over $300 million. As a result, key metrics such as debt/EBITDA and EBIT/interest are benefitting with debt/EBITDA now below 4 times and EBIT/interest of around 2.4 times,” stated Moody’s Vice President Charlie O’Shea.
“Given the present environment, BJ’S has certainly been a prime beneficiary of the flight to consumables which was evidenced by its Q1 operating performance and with a surge in memberships as a result of the pandemic. Moody’s feels that a reasonable level of this recent upswing in operating performance can be maintained under a ‘normalized’ scenario,” continued O’Shea. “Moody’s also noted that despite a heavy consumables mix and an explosion of online sales during Q1, BJ’S EBIT margin improved by around 100 bps year-over-year, indicating that the company was able to effectively manage through the higher-cost environment.”
- Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD
- Corporate Family Rating, Upgraded to Ba2 from Ba3
- Senior Secured Bank Credit Facility, Upgraded to Ba3 (LGD4) from B1 (LGD4)
- Outlook, Changed To Stable From Positive
Moodys said, “BJ’s Ba2 rating recognizes its formidable competitive position in its chosen markets with limited competition from Costco and Sam’s Club. The rating also considers the company’s measured expansion, strong execution ability, sound strategy with a heavy-reliance on grocery items, and relatively benign online sales environment. In addition, the company’s aggressive repositioning of several product categories and enhanced private label are driving improved margins. Financial policy is expected to be balanced, and BJ’s maintains excellent liquidity as evidenced by its SGL-1 speculative grade liquidity rating. The stable outlook reflects our expectation that BJ’s operating performance will continue to result in free cash flow generation and requisite debt reductions.”
Photo courtesy BJ’s Wholesale Club