Moody's lifts Harry & David outlook to stable

Moody's Investors Service said it revised the outlook of Harry & David Holdings, Inc. to stable from negative and affirmed the company's corporate family and probability-of-default ratings at B2 and its $70 million floating-rate senior notes due 2012 and $175 million 9% senior notes due 2013 at B3 (LGD4, 68%). Moody's does not rate the $125 million secured revolving credit facility.

The agency said the outlook change was prompted by the substantial rebound in the company's sales and cash flow in the December quarter compared to the same quarter of 2005 and Moody's belief that the improvements will continue. Moody's said it focuses on performance in the December quarter because in calendar 2006, this quarter generated about 62% of sales and 190% of operating income, which is a typical pattern.

Harry & David's corporate family rating continues to reflect the highly seasonal nature of the company's sales and cash flow, its complete reliance on the revolving credit facility for a few weeks each year and its exposure to shipping costs set by parcel delivery services, Moody's said, adding that the often discretionary product offering, weak results from the Jackson & Perkins' horticultural segment and the wide variety of competitors for premium foods and horticultural products also constrain the ratings.

Partially offsetting these risks are the potential value of the company's agricultural land holdings, the history of repeat annual purchases from a loyal customer base and the potential revenue diversity from sales across the United States and through several channels, the agency said.

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