Moody's lowers Restoration Hardware

Moody's Investors Service said it downgraded Restoration Hardware, Inc.'s ratings including its corporate family rating to B1 from Ba3 and probability of default rating to B1-PD from Ba3-PD. The agency also lowered the senior secured first-lien term loan B and senior secured first-lien term loan B2 ratings to B1 from Ba3. The speculative grade liquidity rating was downgraded to SGL-2 from SGL-1. The outlook was changed to stable from negative.

“The downgrade reflects governance considerations, including its aggressive financial strategy evidenced by its repurchase of approximately 17% its common stock for approximately $1.2 billion during Q2 2023 despite its weaker operating performance as RH continues to face a challenging luxury furnishings market in 2023,” the agency said in a press release.

The substantial reduction of excess cash tightens the company's financial flexibility to repay debt and lower leverage as it manages through challenging market conditions for luxury home furnishings. The last 12-month debt/EBITDA is about 4.5x. “However, given continued soft demand Moody's expects RH's leverage to approach 5.4x at the end of fiscal 2023,” Moody’s added.

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