Niche position in the value-priced tools sector; Almost exclusively private-label brands; and Vertically integrated business model enables the company to offer significantly lower prices and contributes to some gross margin benefit over big box industry players. Strong cash flow generation and adequate liquidity; Aggressive capital structure, with a practice of debt-financed dividends; and Very aggressive financial policy influenced by the sole shareholder. The stable outlook reflects our expectation that Harbor Freight Tools USA Inc. (HFT) will continue developing new units annually and generate strong free cash flow, enabling deleveraging subsequent to any leveraged dividends. We expect moderate EBITDA base expansion, resulting in adjusted debt to EBITDA in the mid-3x area and funds from operations (FFO) to debt in the low-22%
