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Wahoo on course to struggle in 2023 – has debt rating downgraded again

Wahoo on course to struggle in 2023 – has debt rating downgraded again

Wahoo has had its debt rating downgraded for the 2nd time in 6 months, this time from CCC to CCC- as rating agencies being to express concerns about the company. Wahoo, known for its GPS cycling devices and a wealth of indoor turbo training gear has suffered, like many cycling brands, in the slump after the unexpected peak cycling experienced during Covid.

Global credit ratings agency S&P downgraded Wahoo for the 2nd time after taking them from a B- to CCC in September 2022. This was down to concerns about Wahoo’s revenues and earnings in the preceding period. S&P expects Wahoo to have to undergo a debt restructuring or a distressed exchange of its debt within the next 6 months. Another credit ratings agency, Moody’s, downgrade Wahoo in October 2022 as well.

“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 amortisation 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.”

S&P published analysis of Wahoo’s situation
Le Col Wahoo
Le Col Wahoo in 2022

The Covid bubble saw a return to some of the peak sales last seen in the UK around the time of the 2012 cycling boom with Bradley Wiggins winning a first British Tour de France and the success at the Olympics playing a part too. Since then, various companies have found going hard. Many have huge overstocks as a result of trying to fulfil orders at a time when global supply chains were slowing and struggling to perform. Many others are struggling under the high costs of inflation at each step of the manufacturing and logistics process. Higher costs for materials and transport have to ultimately be passed onto consumers. Companies are finding that consumers have reduced disposable income whilst in the middle of a cost-of-living crisis and that sales are hurting as a result.

Wahoo saw year-on-year sales reductions of 56% in Q3 of 2022 and a further 35% in Q4 last year. S&P is expecting Wahoo to report an EBITDA loss for the 2022 year as a result. Part of this is down to ‘aggressive promotional activity by its competitors’, with Garmin, in particular, keen to regain some of the market share that it lost to Wahoo with its oft-maligned x20 series of devices. With Wahoo having to follow suit to ensure sales, that is hammering its profitability.

What this means for everyday people is unclear at this point. Consider it a red flag but not a sign of imminent demise. Wahoo sponsors plenty of teams when it comes to using their devices but Lifeplus-Wahoo is one of the few where they have a large commitment. The team underwent a tough off-season due to Le Col having to step back from their naming sponsor commitments and it’s another potential issue for the team on the horizon. With any luck, they will be able to pay through this season and if there are any issues, be able to give plenty of warning that Wahoo won’t be able to commit further.