Weber is under fire as consumers pull back discretionary spending amid high inflation and macroeconomic uncertainty. It also has a worrying liquidity position that could worsen, according to Citi. The bank downgraded the grill maker’s stock rating to sell from neutral and cut its price target to $2.75 from $7 in a note on Tuesday. The new price target represents a 67% downside from where the stock closed at $8.47 on Tuesday. “Given the headwinds facing consumers, the demand environment for grills looks set to remain challenged for some time,” Chasen Bender wrote in the note. “Indeed, also after the period of strong demand during COVID, management has suggested that FY23 sales could be similar to FY19 ($1.30 billion), which would represent a 21% year-over-year decrease from our FY22 estimate and is significantly more than we previously expected,” Bender added. Fanning the financial flames Although Weber has announced multiple strategic initiatives to boost sales, Bender says it may take some time to see any impact. At the same time, Weber’s profitability faces headwinds such as fuel surcharges and an unfavorable exchange rate environment. “While we expect the EBITDA-related cost improvement of $75mm to trickle down to the bottom line, we cannot completely rule out the possibility that some of these savings will need to be reinvested,” Bender said. Bender is also concerned about Weber’s deteriorating finances. At the end of the third quarter of the company’s 2022 fiscal year, it had about $41 million in cash and access to a $300 million revolving credit facility, of which $48 million was drawn, according to the note . “While management is confident that the company will have sufficient liquidity in FY22 given its existing cash balance, CFO and revolver, we are concerned about the company’s liquidity position during FY22 FY23,” Bender wrote. Given Citi’s expectation that sales and profitability will remain under pressure, the company could see its leverage fall even further, meaning it may need to raise capital to avoid breaching its contract of credit “While management has indicated that it is committed to working with its creditors, we are admittedly unsure of what the outcome would be in this scenario,” Bender said. —CNBC’s Michael Bloom contributed reporting.
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