Profits at American Outdoor Brands Inc. dropped 77.0 percent in the third quarter ended January 31 as sales fell 27.4 percent. The maker of outdoor and hunt accessories lowered its outlook for its fiscal year.
Third Quarter Fiscal 2023 Financial Highlights
- Quarterly net sales were $50.9 million, a decrease of $19.2 million, or 27.4 percent, compared with net sales of $70.1 million for the comparable quarter last year. E-commerce channel net sales of $24.5 million declined 30.8 percent from the comparable quarter last year, resulting primarily from reduced demand in the Shooting Sports category. Despite the year-over-year decline, e-commerce net sales benefitted from a 37.5 percent increase in direct-to-consumer sales, which are primarily in the Outdoor Lifestyle category, and include sales resulting from the acquisition of Grilla Grills. Traditional channel net sales of $26.4 million declined 23.9 percent from the comparable quarter last year, reflecting the impact of lower foot traffic at retail and retailers’ efforts to reduce their overall inventory levels, as well as lower shooting sports sales to OEM customers. Compared with pre-COVID levels in the third quarter of fiscal 2020, total net sales grew 17.4 percent, while e-commerce channel net sales grew by 53.9 percent and traditional channel net sales declined by 3.7 percent.
- Quarterly gross margin was 47.1 percent, an increase of 130 basis points, compared with the quarterly gross margin of 45.8 percent for the comparable quarter last year.
- Quarterly GAAP net loss was $2.9 million, or $0.21 per diluted share, compared with a net income of $3.8 million, or $0.27 per diluted share, for the comparable quarter last year.
- Quarterly non-GAAP net income was $1.7 million, or $0.13 per diluted share, compared with non-GAAP net income of $7.4 million, or $0.52 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for net income excludes acquired intangible amortization, stock compensation, technology implementation, stockholder cooperation agreement costs, and facility consolidation costs.
- Quarterly Adjusted EBITDA was $3.3 million, or 6.4 percent of net sales, compared with $10.5 million, or 15.0 percent of net sales, for the comparable quarter last year.
Brian Murphy, president and chief executive officer, said, “In the third quarter, we addressed ongoing uncertainty in the macroeconomic environment while remaining focused on the future, investing in our long-term growth, managing the elements within our control, and delivering a number of important operational and financial achievements.”
“While net sales in our third quarter declined year-over-year as retailer destocking initiatives and consumer challenges persisted, they grew 17.4 percent over pre-pandemic levels. Our direct-to-consumer business, which largely consists of our Outdoor Lifestyle brands, delivered year-over-year growth of over 37 percent. We consider our direct-to-consumer sales to be one gauge of how well our brands are resonating with consumers since those sales are not typically impacted by retailers’ inventory levels or limited open-to-buy dollars. Our direct-to-consumer sales also include sales of MEAT! Your Maker meat processing equipment and Grilla outdoor cooking products, which are sold exclusively, direct-to-consumer, and, together, generated over 14 percent of our total net sales and helped our Outdoor Lifestyle category generate 55.6 percent of our total net sales in the quarter and growth of 39.1 percent over the pre-pandemic third quarter of fiscal 2020. Innovation remains a key element in our long-term strategy, and new products launched within the past two years generated nearly 24 percent of our third-quarter net sales. Our Dock & Unlock process continues to fuel innovation, and during the quarter we launched an array of internally developed new products, most of which incorporate proprietary features, and that together represent opportunities to enter new product categories and expand our product lines and distribution channels.”
“While we address the dynamics of the current environment, we continue to invest in our long-term strategy, which includes leveraging our business model. During the quarter, we expanded the lease at our Columbia, Missouri headquarters and distribution center, effective January 1, 2024. The agreement will provide us full use of the building’s 632,000 square feet of warehouse and office space, and we believe it offers us a potential opportunity to enhance operational efficiencies in the near term by optimizing the consolidations we have completed over the past six months. It also provides us with additional capacity, a benefit that aligns with our long-term plan to grow organically and through strategic acquisitions. Furthermore, during the quarter, we took the final steps in our ERP implementation and move to Microsoft D365, a platform that we expect to yield enhanced capabilities and improved analytics as we grow. After the close of the quarter, we successfully went live with D365, as planned, and on budget. The success of this important, strategic initiative is due to the hard work and dedication of our ERP implementation team and employees across the organization.”
Andrew Fulmer, CFO, said, “We continued to fortify our balance sheet in the third quarter, demonstrating effective capital deployment while making important strategic investments to support future growth. With robust operating cash flow in the quarter of $18.1 million, including an inventory reduction of $5.9 million, we paid down $10.0 million on our line of credit and repurchased over $1.8 million of our stock. We ended the quarter with a cash balance of $21.7 million and only $10.0 million outstanding on our line of credit.
“Turning to our outlook, we believe that our brands remain well-positioned to capitalize on positive, long-term consumer outdoor participation trends. However, we also believe that retailers and distributors remain cautious regarding their inventory levels and that consumer spending patterns are likely to remain challenging in the short term. As a result, we now believe that our net sales for fiscal 2023 could exceed pre-pandemic fiscal 2020 net sales by as much as 13 percent. We also believe our solid financial position enables us to continue executing on our long-term strategic plan as we invest in our business, return capital to stockholders, and address the exciting growth opportunities we have identified for our company,” concluded Fulmer.
Previously, the company said net sales for fiscal 2023 could exceed pre-pandemic fiscal 2020 levels by as much as 25 percent.