In a recent assessment of indoor training & accessories specialist, Wahoo Fitness, ratings agency S&P Global Ratings has downgraded the company. Its rating for Wahoo overall shifted from ‘CCC’ to ‘CCC-’. Meanwhile, S&P lowered its rating for Wahoo’s senior secured credit facilities from ‘CCC+’ to ‘CCC’.
According to media reports, in its analysis, S&P stated… ‘Wahoo’s capital structure is unsustainable given its negative EBITDA and cash flow. We assess the company’s liquidity as weak because its liquidity sources are insufficient to cover its cash needs over the next 12 months.
‘Wahoo had minimal cash on hand and no availability under its revolver as of the end of 2022 after funding its quarterly interest and mandatory debt amortization payments. Further, we expect its operating conditions will remain pressured over the next few months as it laps the COVID-related demand tailwinds it benefitted from last year.’
Back in September 2022, S&P stated that Wahoo was expected to post a cash flow deficit of around US$40 million by the end of 2022.
In its latest rating statement, S&P adds that, as consumer spending shifts away from discretionary purchase items amidst a cost of living crisis, Wahoo may be at risk of defaulting on its debt payments in the first half of 2023.
S&P noted…. ‘The demand for Wahoo’s products deteriorated because consumers shifted their purchasing behaviour, which led to a sharp drop in its retailers’ inventory replenishment orders. The company continues to be affected by high costs related to commodities, freight and warehousing, which it cannot offset with higher prices given the aggressive promotional activity by its competitors.’
During the autumn-fall and winter season in the northern hemisphere, Wahoo (alongside competitor smart trainer & smart bike firms) usually witnesses a revenue boost. This occurs when customers seek more indoor fitness equipment in the cold and wet months across Northern Europe and North America in particular.
Economic headwinds, flagged by S&P, do present a concern for Wahoo and other indoor training specialists. This is particularly with companies no longer able to benefit from a ‘Covid-bounce’, where significant revenues were generated during lockdowns in 2020-21.