S&P Global Ratings Downgrades Lucky Strike Entertainment to 'B-' on Higher Leverage, Margin Pressure

S&P Global Ratings has downgraded Lucky Strike Entertainment Corp.'s issuer credit rating to 'B-' from 'B', citing the company's elevated leverage and weaker-than-expected profitability. The ratings agency on Friday also lowered its issue-level rating on the company’s senior secured debt to 'B-' but maintained a stable outlook.

Key Metrics Behind the Downgrade

The downgrade reflects Lucky Strike's financial performance for the fiscal year ended June 28, 2026, which fell short of S&P's prior expectations. The company's S&P Global Ratings-adjusted leverage rose to 8.6x, a key factor in the ratings action.

Profitability also came under pressure, with the S&P-adjusted EBITDA margin contracting by 300 basis points year-over-year to 31.7%. This was compounded by a negative free operating cash flow, which registered a deficit of $19 million for the fiscal year. S&P attributed the cash flow deficit to lower profits, higher interest expenses, and significant capital expenditures related to rebranding and deferred maintenance.

Operational Pressures and Revenue Mix

Several operational factors contributed to the weaker results. The company reported a 2.5% decline in comparable sales for its most recent quarter, which it attributed to consumer attention being diverted by the World Cup. Higher operating costs also squeezed margins.

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While walk-in and league bowling generated same-store revenue growth of $8.8 million and $4.1 million respectively, these gains were offset by declines in higher-margin alcoholic beverage sales and amusement revenues. Furthermore, traffic at the company's water parks was lower than anticipated due to adverse weather conditions, according to the report.

Outlook and Forecast

Despite the downgrade, S&P's stable outlook is based on an expected improvement in Lucky Strike's financial profile. The ratings agency forecasts that leverage will decrease to approximately 8.3x in fiscal 2027 and 8.0x in fiscal 2028.

This deleveraging is expected to be driven by incremental profits from waterparks acquired during fiscal 2026. S&P also anticipates free operating cash flow will improve significantly in fiscal 2027 to about $25 million. This turnaround is predicated on lower capital expenditure as major maintenance projects at the newly acquired parks are completed. However, the agency does not expect free cash flow to be sufficient to cover shareholder distributions until 2029.