On its conference call with analysts, Vista Outdoor’s officials said part of the negative trends it experienced in its third quarter ended December 31 can be directly tied to the outcome of the 2016 Presidential election.
“The shooting sports market softened significantly following the election, as consumer demand was reduced due to more certain regulatory environment for gun owners under the current administration,” said Mark DeYoung, chairman and CEO, on the call. “We are currently experiencing volatility in the ammunition market in terms of daily and weekly order flow, and weaker point-of-sale trends.”
He added that the post-election decline in demand for shooting sports product is continuing into its fourth quarter and is expected to continue into its next fiscal year.
Beyond weakened demand for firearms, DeYoung said the third quarter was hurt by reduced in-store retail traffic and expanding channel inventories across both its shooting and outdoor sports segments. The company is also being hurt by continued share of wallet going to MSRs and handguns that the company do not offer.
“The sluggish market conditions result in increased competitive pressures that drove deep discounting,” said DeYoung. “In order to maintain market share and shelf space and to sustain revenues, we engaged in promotional activity that pressured margins and impacted our near-term cash flow.”
As previously warned on January 11, Vista Outdoor wound up recording a pretax non-cash impairment charge of approximately $450 million related to its hunting and shooting accessories reporting unit. Added DeYoung, “Although we are clearly disappointed with this impairment of tangibles, Vista Outdoor remains committed to delivering long-term value to the execution of our strategy, a focus on operational efficiencies and execution excellence, increasing our market share and improving our competitive position.”
Overall, the net loss in the period came to $377.7 million, or $6.48 a share, against earnings of $43.2 million, or 70 cents, a year ago. On an adjusted basis excluding non-recurring items, earnings slid 16.6 percent to $36.4 million from $43.6 million, or 70 cents, in the same period a year ago.
Gross profit was $169 million, relatively flat to the prior-year quarter. The latest year includes $24 million of gross profit from the recent acquisitions, offset by a 14 percent decrease in organic gross profit. Revenues grew 10.3 percent to $653.6 million, including $92 million from the recent acquisitions. Sales were down 5 percent on an organic basis
In the outdoor products segment, sales jumped 24 percent to $293 million due to acquisitions. Sales on an organic basis were down 15 percent. On the call, Stephen Nolan, SVP and CFO, said, “The organic decrease was caused by lower sales across all product lines including the impact of the increased promotional activities across the segment.”
Gross profit in the quarter for outdoor products was $71 million, an increase of 11.9 percent from $64 million in the prior-year quarter. The recent acquisitions contributed $24 million of gross profit, while organic gross profit in the segment was down 26 percent as a result of the decreased sales and increased promotional activity.
Acquisitions in the segment include BRG Sports (Bell, Giro, Blackburn, CoPilot, Krash and Raskullz) in April 2016 and Camp Chef in September 2016. The company acquired CamelBak in August 2015 and Jimmy Styks in July 2015. The segment also includes Bushnell and Bolle.
DeYoung noted the “vast majority” of the shortfall in the outdoor sports segment is due to “market dynamics and are being market driven by consolidations in the retail space.” He mentioned the consolidation in the golf channel, marked by the bankruptcy and liquidation of Golfsmith, as well as the impact of the exit of Sports Chalet and Sports Authority on CamelBak, Bell and Giro.
“We really are facing market dynamics which are giving us a majority of challenges,” added DeYoung.
DeYoung also noted that the integration and performance of Camp Chef brand is “on track and the business results are exceeding our expectations.”
In the Shooting Sports segment, sales in the quarter inched up 1.2 percent to $361 million. Increased sales of centerfire and rimfire ammunition offset decreases in shock shell ammunition and firearm categories, as well as the impact of increased rebate and promotional cost. Third-quarter gross profit in Shooting Sports was $98 million, down 6.1 percent as a result of products mix and increased rebate and promotional cost.
Looking ahead, Vista Outdoor now expects sales in the range of $2.5 billion to $2.54 billion, down from $2.72 billion to $2.78 billion previously. Adjusted EPS is projected in the range of $1.95 to $2.10, which compares to former guidance in the range of $2.65 to $2.85. Gross margins are expected to be roughly in line with its third-quarter results.
“Our preliminary review for fiscal 2018 is for continuation of the current revenue and margin challenges,” added Nolan.
Given the challenging conditions, DeYoung said the company is actively engaged in initiatives designed to reduce working capital, its overheads and product costs while continuing to invest in capital for improved efficiencies in its operations. He also said the company is actively engaged in pursuing long-term supply of products from the Lake City Army Ammunition Plant.
“We continue to drive improvement and innovation in new product development across the portfolio,” said DeYoung. “And the company launched more than 150 new products during the winter trade show season at the Archery Trade Association Show, the Outdoor Retailer Winter Market, the Shot Show and the PGA Show.”
DeYoung noted that Dave Allen was in mid-January promoted to lead the outdoor product segment with a goal of driving growth in sales and margins, addressing the increasing market pressures and further accelerating its innovation engine. Jason Vanderbrink was promoted to lead its worldwide sales organization to help leverage its overall portfolio capabilities globally.
“As we’ve done many times over the years in many different business cycles, we will focus on capturing market share, ensuring our role as a premier provider of outdoor product solutions for our customers and on delivering strong cash flow,” said DeYoung. “Our overarching goal is being one of the world’s top outdoor products companies is to deliver long-term growth and shareholder value. That has not changed. We are motivated, energized, focused on a bright future we know is ahead of us.”
Photo courtesy Savage Arms
