Moody’s revises Academy to negative

Moody's Investors Service said it changed Academy Ltd.'s outlook to negative from stable and affirmed all of the company's ratings, including the B2 corporate family rating, B2-PD probability of default rating and B2 senior secured term loan rating.

Moody’s said the negative outlook reflects the risk that Academy may not be able to reverse its 2016 earnings declines in the near-term, resulting in continued high leverage and diminished free cash flow generation.

Declines in management adjusted EBITDA over the past five quarters accelerated in the fourth quarter of 2016, mainly reflecting execution missteps with the private label assortment resulting in clearance activities, as well as weak consumer demand in oil and gas markets, lower firearms sales following the election, and liquidation sales at bankrupt competitors.

“However, Moody's believes that ongoing general weakness in bricks-and-mortar retail particularly within apparel has also been a factor in the company's weak recent performance. Moody's anticipates that earnings should improve in 2017 as Academy corrects its private label assortment, leading to leverage reduction from 7 times to mid-6 times (Moody's-adjusted),” the agency said in a news release.

“Moody's expects the company to have good near-term liquidity including a return to positive free cash flow as a result of EBITDA growth and lower CapEx.”

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