S&P Global Ratings upgraded its issuer credit rating on Great Outdoors, the corporate name of Bass Pro Group, to ‘BB-‘ from ‘B+’ as the retailer’s performance “has been resilient with sales and EBITDA growth continuing through the second quarter this year, ahead of our expectations.”
The rating agency also noted that Great Outdoors, which also owns Cabela’s, is expected to close the nearly $800 million Sportsman’s Wearhouse acquisition later this year, which will bolster its scale in a cash-funded transaction.
S&P said its strong performance supports “better-than-expected expected credit protection measures.” The positive outlook reflects the potential for an upgrade over the next 12 months if Great Outdoors sustains less aggressive credit metrics, including leverage below 4x on a sustained basis, and the Sportsman’s acquisition integration is on track.
S&P said in its analysis, “We believe that Great Outdoor performance has benefitted from consumers exploring outdoor and sports-related hobbies during the pandemic and its solid execution under both the Cabela’s and Bass Pro banners, which were combined in 2017 in a leveraged transaction. Performance trends at Great Outdoors will likely benefit from an ongoing economic recovery, noting S&P Global economists recently revised the U.S. GDP growth forecast to nearly 7 percent in 2021 and 4 percent in 2022, from 6.5 percent and 3.1 percent, respectively, and sustained demand for outdoor and sports merchandise. Additionally, the company is redeploying about $800 million of cash to acquire Sportsman’s Warehouse, a chain of about 120 stores. This use of cash bolsters the business but comes with execution risks. Pro forma for the acquisition and given our expectation for continued significant free operating cash flow (FOCF), we now believe Great Outdoors could sustain less aggressive credit measures than seen at the time of the initial Cabela acquisition.