Vista Outdoor Posts Q4 Loss On Impairment Charges

Vista Outdoor Inc. reported a steep loss in the fourth quarter ended March 31 after impairment charges as sales fell 8 percent adjusted for the sale of the firearms business. The company also provided an update on its business operations and announced a realignment of its reporting segments to better reflect the company’s strategic focus.

The company’s brands include Federal Premium, CamelBak, Bushnell, Camp Chef, Primos, Blackhawk, Bell, and Giro.

“Our results exceeded our expectations for the fourth quarter and full fiscal year,” said Chris Metz, Vista Outdoor chief executive officer.  “In this challenging environment brought on by the COVID-19 pandemic, we delivered strong financial performance, met our revenue expectations, and exceeded our expectations for adjusted EPS and free cash flow. Overall, the impact of the COVID-19 pandemic on our operations in the fourth quarter was minimal.  We experienced stronger than expected demand in many of our categories, including commercial ammunition, bicycle helmets and accessories, and outdoor cooking.  Looking forward, we believe that our stronger operating fundamentals, improved balance sheet and financial flexibility will help us respond to this uncertain environment and seize opportunities where they arise.”

“As many of our operations are designated as essential by the US government, the health and safety of our employees remain our first and foremost focus.  I would like to thank every Vista Outdoor employee for their incredible efforts during these unprecedented times and for their commitment to a founder’s mentality and to Vista Outdoor’s mission to bring the world outside.  Our teams have worked tirelessly to safeguard the health of our employees, support customer demand, and deliver on our strategic priorities.  Vista Outdoor has deep experience navigating, adapting to and overcoming challenges,” said Metz.

Fiscal Year 2020
In the second quarter of FY20, Vista Outdoor completed the sale of its firearms business for $170 million. The completion of this divestiture was a critical step in the company’s strategic portfolio reshaping and allowed the company to further pay down debt and free up capital to invest in product categories where the company believes it can be a market leader.

The company modified its segment reporting to better reflect its strategic focus. The company’s two new reportable segments are Shooting Sports and Outdoor Products.  The Shooting Sports reporting segment consists of the company’s Ammunition and Hunting and Shooting Accessories business units, which include the company’s Federal, CCI, Speer ammunition brands, as well as Bushnell Optics, Primos, BLACKHAWK! and Eagle hunting and shooting-related brands, among others. The Outdoor Products reporting segment consists of the company’s Action Sports and Outdoor Recreation business units, which include the company’s Bell/Giro, CamelBak, Camp Chef and Bushnell Golf brands, among others. The company’s reported fourth-quarter and full-year FY20 results reflect these two new reporting segments.  To assist in the analysis and understanding of the new segment structure, the company is providing selected recast financial data for the fourth quarter and full year of 2020, 2019 and 2018 in its earnings presentation slides, available on the Investor Relations section of the company’s website, reflecting the new reporting segments.  These changes have no impact on the company’s previously reported consolidated balance sheet, statement of income, or cash flows.

For The Fourth Quarter Ended March 31, 2020

• Sales were $426 million, down 17 percent from the prior-year quarter, or down 8 percent adjusted for the sale of the firearms business in the second quarter of fiscal year 2020. The decline in our organic business was due to a large international order in the prior-year quarter, and lower sales in hydration and hunting and shooting accessories in the quarter.
• Gross profit was $84.6 million, down 15 percent from the prior-year quarter. Adjusted gross profit was $85.4 million, down 17 percent from the prior-year quarter, or down 3 percent adjusted for the sale of firearms, due to lower volumes. The adjusted organic gross profit margin increased by 116 bps from the prior-year quarter.
• Operating expenses were $232 million, compared with $136 million in the prior-year quarter. Adjusted operating expenses were $74 million, compared with $92 million in the prior-year quarter, and down 12 percent adjusted for the sale of firearms, due to benefits from cost savings initiatives and lower overall selling costs.
• Earnings before interest and taxes (EBIT) were $(147) million, compared with $(36) million in the prior-year quarter. Adjusted EBIT was $11.1 million, or up 4 percent, compared with $10.7 million in the prior-year quarter, and was up 237 percent on an organic basis adjusted for the sale of firearms, due to increased efficiency and cost savings initiatives.
• Interest expense decreased to $7 million, compared with $11 million in the prior-year quarter, due to overall lower debt balance, and overall lower interest rate.
• Tax rate was 9 percent, compared with (3) percent in the prior-year quarter. The tax variance is due to the impact of the nondeductible goodwill impairment charge and change in the valuation allowance. The adjusted tax rate was (56) percent, compared with 170 percent in the prior-year quarter. The adjusted tax variance is due to the release of uncertain tax positions in the current period and the impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
• Fully diluted earnings per share (EPS) was $(2.44), compared with $(0.84) in the prior-year quarter, due to goodwill and indefinite-lived intangible asset impairment charges of $156 million recognized in the fourth quarter, and an impairment charge of $36 million on held for sale assets in the prior-year quarter. Adjusted EPS was $0.11, compared with $0.01 in the prior-year quarter, primarily due to a customer bankruptcy-related write-off the company recorded in the prior-year quarter, the benefit of cost savings initiatives, and a favorable tax rate.

For The Fourth Quarter Ended March 31, 2020, Operating Segment Results

Shooting Sports

• Sales were $295 million, down 21 percent from the prior-year quarter, or down 8 percent over the prior-year quarter adjusted for the sale of firearms.
• Gross profit was $54 million, down 17 percent from the prior-year quarter, up 8 percent adjusted for the sale of firearms. The gross profit margin was 18 percent, a 70 bps increase compared with the prior-year quarter, and was up 270 bps from the prior-year quarter adjusted for the sale of firearms.
• EBIT was $22 million, up 26 percent from the prior-year quarter, and was up 116 percent from the prior-year quarter adjusted for the sale of firearms.

Outdoor Products

• Sales were $132 million, down 9 percent from the prior-year quarter, due to continued lower demand across the segment for the majority of the quarter and headwinds in the retail channel as a result of COVID-19 related restrictions, partially offset by increased demand in bicycle helmets and accessories and outdoor cooking near the end of the quarter.
• Gross profit was $32 million, down 16 percent from the prior-year quarter. Gross profit margin was 24 percent, down 224 bps from the prior-year quarter.
• EBIT was $4 million, down 49 percent compared with the prior-year quarter.

For The Fiscal Year Ended March 31, 2020

• Sales were $1.76 billion, down 15 percent from the prior fiscal year, and down 5 percent adjusted for divested businesses, due to a large international order in the prior year and lower demand for hunting and shooting accessories and in the Outdoor Products segment throughout the year.
• Gross profit was $359 million, down 14 percent from the prior fiscal year. Adjusted gross profit was $360 million, compared with $432 million in the prior fiscal year, due to the sale of firearms, increased promotional activity and lower sales volumes in Outdoor Products. The adjusted organic gross profit margin increased by 62 bps compared to the prior fiscal year.
• Operating expenses were $491 million, compared with $1.03 billion in the prior fiscal year. The decrease was due to goodwill, intangible and held for sale asset impairment charges of $621 million recognized in the prior fiscal year, and goodwill and indefinite-lived intangibles asset impairment charges of $156 million recognized in the current fiscal year. Adjusted operating expenses were $314 million compared with $371 million in the prior fiscal year, or down 6 percent adjusted for the sale of firearms, due to benefits of cost savings initiatives and lower overall selling costs.
• EBIT was $(132) million, compared with $(617) million from the prior fiscal year. Adjusted organic EBIT was $45 million, or up 41 percent, compared with $32 million from the prior fiscal year.
• Interest expense was $39 million, compared with $57 million in the prior fiscal year. Adjusted interest expense was $35 million, or down 33 percent, compared to $51 million in the prior fiscal year, due to an overall lower average interest rate and lower debt balance.
• Tax rate was 9 percent, compared with 4 percent in the prior fiscal year. The adjusted tax rate was (22) percent, compared with 14 percent in the prior fiscal year. The tax variance is due to the release of uncertain tax positions in the current period and the impact of the CARES Act.
• EPS was $(2.68), compared with $(11.27) in the prior fiscal year. Adjusted EPS was $0.24, or up 71 percent, compared with $0.14 in the prior fiscal year, due to benefits from cost savings initiatives and a favorable tax rate.
• Cash flow provided by operating activities was $77 million, compared to $97 million in the prior fiscal year. Free cash flow generation was $59 million, compared to $79 million in the prior fiscal year, due to overall improved cash management activities and networking capital efficiencies.

For The Fiscal Year Ended March 31, 2020, Operating Segment Results

Shooting Sports

• Sales were $1.19 billion, down 16 percent from the prior fiscal year, or down 5 percent over the prior fiscal year adjusted for the sale of firearms.
• Gross profit was $211 million, down 16 percent from the prior fiscal year, up 1 percent adjusted for the sale of firearms. The gross profit margin was 18 percent, and was flat to the prior fiscal year, and was up 99 bps from the prior fiscal year adjusted for the sale of firearms.
• EBIT was $80 million, or down 12 percent from the prior fiscal year, and was up 16 percent when compared with the prior year adjusted for the sale of firearms.

Outdoor Products

• Sales were $567 million, down 13 percent from the prior fiscal year, and excluding the results from the company’s eyewear business unit, which was divested in the second quarter of fiscal year 2019, sales were down 5 percent over the prior fiscal year.
• Gross profit was $149 million, down 17 percent from the prior fiscal year, and down 5 percent excluding the results from eyewear. The gross profit margin was 26 percent, down 143 bps from the prior fiscal year, and was flat compared with the prior fiscal year, adjusted for the sale of eyewear.
• EBIT was $30 million, down 14 percent from the prior fiscal year, and was up 5 percent adjusted for the sale of eyewear.

The company will provide additional information in its Form 10-K, which will be filed this month. Please see the tables in the press release for a reconciliation of non-GAAP adjusted gross profit, operating profit, tax rate, earnings per share, and free cash flow to the comparable GAAP measures.

Outlook
“As we begin fiscal year 2021, we are closely monitoring consumer purchasing behavior due to the uncertainty caused by COVID-19.  At this time, we believe it is prudent to set expectations only for the first quarter of fiscal year 2021,” said Metz.  “We will revisit guidance for the remainder of the year at a later date. We believe that the profitability improvements we have undertaken over the past two years, combined with our significantly reduced leverage and more flexible balance sheet, put us in a strong position going into fiscal year 2021. The solid foundation that we have built will allow us to navigate these uncertain times while continuing to generate profitable revenue and provide our core consumers with the innovative products that they depend on for their outdoor pursuits.”

Vista Outdoor Establishes First Quarter FY21 Financial Guidance

• Sales in a range of $370 million to $400 million, compared with $460 million in the prior-year quarter, which includes $24 million in revenue from divested businesses.
• Earnings per Share (EPS) in a range of ($0.05) to $0.00 or breakeven, compared with ($0.29) of GAAP EPS and ($0.08) of Adjusted EPS in the prior-year quarter.

The company expects to generate first-quarter free cash flows better than the prior-year quarter.

Photo courtesy Vista Outdoor