Participation in the intensely competitive and fragmented tool and equipment retail industry; Niche position in the value-priced tools sector; Vertically integrated business model that contributes to some gross margin benefit over big box industry players; and Promotion-heavy pull strategy contributes to positive sales trends but also somewhat pressures EBITDA margins, as does new store growth. Aggressive capital structure, with a practice of debt-financed dividends; Very aggressive financial policy influenced by the sole shareholder; and Solid cash flow generation and adequate liquidity. The stable rating outlook on Harbor Freight Tools U.S. Inc. (HFT) reflects our expectation that EBITDA margins will remain relatively flat as product promotions and new store operating costs moderate the incremental sales benefit from new stores. We believe
