Moody’s downgrades Spencer Gifts, loan

Moody's Investors Service said it downgraded Spencer Gifts LLC's (Spencer Spirit) corporate family rating to B3 from B2, probability of default rating to B3-PD from B2-PD and senior secured term loan to B2 from B1.

The outlook is stable.

Moody’s said the downgrade reflects its expectation for further earnings deterioration in the Spencer Gifts segment due to declining bricks-and-mortar revenue, rising wage and other costs, and margin pressure from the shift in consumer spending to e-commerce.

“Spencer Gifts' same store sales have declined as steady increases in transaction size only partially mitigated lower traffic,” the agency said in a news release.

“The company had previously offset any weakness in Spencer with strong growth in the Spirit Halloween segment. However, the combined entity's ability to generate stable and growing earnings is less certain given increasing traffic headwinds and the need for investment to retain share.”

Moody’s said it expects Spencer Spirit to maintain adequate liquidity in the next 12 to 18 months, including modestly positive annual free cash flow with a high degree of seasonality, and adequate revolver availability.

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