Moody's Lowers Ingles Outlook

SN STAFF

NEW YORK — Moody's Investors Service here said Monday it was affirming the corporate credit ratings for Ingles Markets, Asheville, N.C., but changing the outlook from stable to negative based on concerns about a potential lack of margin expansion.

In affirming Ingles' senior unsecured notes at B1 and its corporate family rating and probability of default at Ba3, Moody's said the chain "continues to have a solid position in its regional markets, evidenced by same-store sales growth and increased foot traffic."

However, it said the negative outlook reflects concerns over margin expansion due to Ingles' moderate scale, geographic concentration, inflationary pressures, competition from alternative channels and sluggish economic recovery, which could result "in little or no improvement in credit metrics for an extended period."

According to Moody's, the chain's credit metrics were also weakened by the issuance in January of $99.74 million in tax-exempt recovery zone facility bonds to finance construction of a new warehouse and distribution center. "Although the company's investment in new stores and store upgrades has been successful in helping customer retention and increasing traffic, it has not yet led to meaningful margin expansion," Moody's said.

Ratings could be downgraded, the service noted, if Ingles' profitability and cash flow deterioriate to the point that reported EBITDA margin does not trend above 4%; if debt-to-EBITDA is sustained above 4.0 times; if it experiences ongoing negative comps; or if returns to shareholders increase.