Consumer & Retail: Pumping the brakes

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Consumer & Retail: Pumping the brakes

FY27, though even with ~$75mn incremental term loan reduction in the balance of FY26,

leverage is est. 3.6x leaving pressure on IG ratings. We believe FLO’s messaging and

action was intentionally aligned with agencies’ focus areas to attempt to defend the

balance sheet & ratings for 1-2 more quarters but business risk factors remain elevated

and discussion of capital for reinvestment and restaging Nature’s Own takes away from

credit improvement. Additionally, with refinancing needs cleared until 2031, FLO is less

incentivized near-term to defend IG ratings full stop, as seen by FLO’s statement of

managing to an “IG profile” thus crossover risk remains elevated. In response, FLO’s

curve steepened with ‘35s -7bps tighter vs. ‘55s +30bps wider w/w. In other news, S&P

revised Hershey’s A outlook to stable from negative on clearer expectations for profit

expansion in FY26–27 driven by cocoa price deflation and steady revenue growth,

enabling leverage to remain <2x even as share repurchases resume. Separately, we

published a new tracker to monitor inputs & raw materials in COGS of Staples, see Cost

of Consumption: Inflation tracker for more details. In Consumer Products (-1bp),

Hasbro’s 1Q26 results beat expectations, driven by strong Wizards of the Coast

performance (MAGIC +36% y/y) and stable Consumer Products POS & healthy

inventories, with margins benefiting from favorable scale and mix. Despite the beat,

unchanged FY26 guide pressured sentiment alongside expectations for tougher 2H

Wizards comps and cyber-related timing shifts pushing Consumer Products strength to

3Q. Lastly, Estee Lauder (EL) terminated talks with Puig Brands (PUIG), removing the

near-term M&A overhang and potentially supporting its low-A ratings, while reiterating