Wahoo may be running short on cash, warns credit rating agency S&P
Cycling computer manufacturer suffering from tough post-pandemic market
Global credit ratings agency S&P has cut its debt rating for bike computer manufacturer Wahoo for the second time in just over four months as it warns of a liquidity shortfall at the company.
According to business news site SGB Media, the ratings agency has downgraded Wahoo’s debt from CCC to CCC-.
It added that the US-based fitness company is expected to pursue a debt restructuring or distressed exchange in the next six months due to a lack of cash.
S&P’s analysis said: “Wahoo’s capital structure is unsustainable given its negative EBITDA (earnings before interest, taxes, depreciation, and amortisation) [a common profit measure] 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.”
It added that the firm's performance “continues to deteriorate amid the weakening macroeconomic environment”.
The ratings agency said Wahoo sales fell 56% year-on-year in the third quarter of 2022 and S&P estimated they had fallen a further 35% in the fourth quarter.
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It said it expected the company to report an EBITDA loss in 2022.
It said: “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. Additionally, the promotional activities to manage its elevated inventory levels, including Cyber Week discounts, continue to drag on its profitability.”
Tough market
The company's products remain some of the most popular and well rated on the market.
In recent years Wahoo has expanded into pedals after it brought Speedplay in 2019 and has a virtual training app called Systm that incorporates the Sufferfest training videos it acquired in the same year.
But it joins a growing list of cycling companies that have been struggling with a return to normal after the pandemic and an economic squeeze on consumer living standards. Earlier this month UK clothing brand Velovixen went under, Specialized announced it was cutting 8% of its workforce, while Strava and Zwift have also made staff cuts in the last year.
This is the second time S&P has downgraded Wahoo’s debt ratings. In September last year SGB Media reported the company took Wahoo from B- to CCC when revenue and earnings for the second quarter of 2022 were well below S&P’s expectations.
In October fellow ratings agency Moody’s also downgraded the company’s ratings.
What this means for cyclists is somewhat unclear although any major restructuring or sale could ultimately lead to changes in its offer to customers of its hardware or apps.
Wahoo has been approached for comment.
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Having trained as a journalist at Cardiff University I spent eight years working as a business journalist covering everything from social care, to construction to the legal profession and riding my bike at the weekends and evenings. When a friend told me Cycling Weekly was looking for a news editor, I didn't give myself much chance of landing the role, but I did and joined the publication in 2016. Since then I've covered Tours de France, World Championships, hour records, spring classics and races in the Middle East. On top of that, since becoming features editor in 2017 I've also been lucky enough to get myself sent to ride my bike for magazine pieces in Portugal and across the UK. They've all been fun but I have an enduring passion for covering the national track championships. It might not be the most glamorous but it's got a real community feeling to it.
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