Moody's Ratings changes Harbor Freight's outlook to stable from negative; affirms B1 CFR

Moody's Ratings changes Harbor Freight's outlook to stable from negative; affirms B1 CFR

Moody’s Ratings has revised the outlook for Harbor Freight Tools USA, Inc. (HFT) to negative from positive, while affirming its corporate family rating (CFR) at B1. The ratings agency also confirmed the probability of default rating (PDR) at B1-PD and the senior secured bank credit facility rating due 2031 at B2 according to Moody's analysis. The negative outlook reflects heightened risks stemming from HFT’s exposure to Chinese tariffs and the need to adapt its sourcing strategy amid uncertain U.S. trade policy. Moody’s anticipates a significant decline in HFT’s operating income by fiscal year-end July 2026, which would weaken its credit metrics. As of January 31, 2025, HFT’s debt/EBITA ratio was 3.8x, and EBIT/interest stood at 3.1x. By July 2026, leverage is projected to rise to 4.5x–5.5x, with EBIT/interest falling to 2.0–2.7x.

Despite the negative outlook, Moody’s affirmed the B1 CFR, citing HFT’s strong liquidity—$1.17 billion available from its $1.6 billion asset-based loan (ABL) facility—as well as its disciplined financial policy under founder ownership. The company is also restructuring its sourcing model to reduce reliance on China and expand its product offerings to professional contractors. Governance factors, including a commitment to maintain net funded leverage between 2.5–3.5x and prioritize debt reduction, were also considered.

Moody’s noted that sustained operating margin declines, increased debt, or liquidity deterioration could lead to a downgrade. Conversely, consistent organic sales growth and conservative financial management could support an upgrade.