Anastasia Beverly Hills

Fitch Ratings has downgraded Anastasia Beverly Hills, and said it expects the brand’s revenue to dip around 30 percent in 2020.

The ratings agency downgraded ABH from B to CCC- — the same rating as J.C. Penney — and said the move reflected “ongoing deterioration in ABH’s operating trends and Fitch’s view that the company’s capital structure is unsustainable.”

ABH may have peaked with around $175 million in earnings before interest, taxes, depreciation and amortization in 2017, according to Fitch, and that could shrink to around $40 million over the next few years. If that happens, ABH’s leverage could shoot up to the mid-teens.

“These projections raise significant questions regarding the long-term health of the brand and the ability of management to successfully execute new product launches and expense management,” Fitch said in a report.

The business has also been affected by “poor execution of a warehouse move in 2017 and 2018” and weakness in the makeup category, Fitch said, adding that results for 2020 and 2021 will likely be impacted by coronavirus.

ABH took on about $650 million in term loan debt due in 2025 when it sold a minority stake in the business to TPG Capital in 2018. The deal happened around the time makeup sales peaked in the U.S. Since then, skin care and hair care have been growing quickly, and makeup has declined.

“Discretionary cash flow, after owner distributions for tax payments, is now expected to be moderately negative beginning 2020,” Fitch wrote. The agency placed a $200 million going-concern value on the company, “higher than the $95 million that Fitch estimates could be generated by an orderly liquidation of the business.”

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