American Outdoor Brands announced plans to acquire Michigan-based Grilla Grills, a maker of grills and smokers, as part of ramped-up expansion efforts around outdoor lifestyle products. The acquisition comes as a downturn in shooting sports accessories caused a significant reduction in guidance for its current fiscal year.

American Outdoor Brands, spun off from Smith & Western in 2020, manufactures outdoor products and accessories, including hunting, fishing, camping, shooting, personal security, and defense products. Brands include Caldwell, Wheeler, Tipton, Frankford Arsenal, Hooyman, Bog, MEAT! Your Maker, Uncle Henry, Old Timer, Imperial, Crimson Trace, LaserLyte, Lockdown, Bubba, and Schrade.

On an analyst call for the fiscal third quarter ended January 31, Brian Murphy, president and CEO, said the acquisition of Grilla will allow American Outdoor Brands to enter the estimated $7 billion U.S. barbecue grill market. The purchase price is $27 million in cash or approximately $24 million after factoring in the future tax benefit resulting from the asset purchase.

“Griller is a clear strategic fit for American outdoor brands that provides us immediate access to the $7 billion U.S. barbecue grill market with an estimated 9 million grills sold in the U.S. each year,” said Murphy.

He said the grill market has benefited from recent trends towards outdoor cooking with “plenty of runway for future growth.”

Founded in 2015, Grilla has generated sales growth of over 161 percent in the past two years, compounded annual growth rate of about 50 percent over the past five years, and calendar 2021 net sales of over $15 million.

“Along the way, Grilla has developed an impressive, strong brand authenticity among a loyal consumer base and has done so with the concentrated portfolio of innovative products,” said Murphy. “By plugging Grilla into our Adventure brand lane and employing our Dock And Unlock strategy, we see great opportunities to broaden its product offering.”

American Outdoor Brands sells its products through four distribution channels under the Marksman, Defender, Harvester, and Adventure brand lanes. The Adventure lane includes Ust, Bubba and Schrade.

The acquisition is also expected to be highly complementary with many of the company’s other brands, such as MEAT! Your Maker. Murphy stated, “After all, once our MEAT! consumers have processed their harvest, the next natural step is a Grilla grill that delivers that same high-quality performance.”

Opportunities are also seen to leverage American Outdoor Brands’ e-commerce platform. Importantly, Grilla significantly expands its direct-to-consumer (DTC) revenue base. Grilla joins MEAT! Your Maker are the company’s 100-percent DTC brands. When combined, the two brands would have generated about 8 percent of American Outdoor Brands’ trailing 12-month net sales on a proforma basis.

Lastly, the addition of Grilla will drive American Outdoor Brands’ revenue mix further toward the outdoor lifestyle category.

“Many of our new products reflect our intent to continue growing our outdoor lifestyle category while sharpening our focus in shooting sports on areas that represent large, long-term and more stable markets such as shotgun sports targets and scopes,” said Murphy.

The shooting sports category includes shooting sports accessories and products related to personal protection that are most correlated with purchasing a firearm even though the company does not make firearms. The outdoor lifestyle category includes our products related to hunting, fishing, camping and diverse outdoor activities.

The push towards outdoor lifestyle is partly because the company sees outdoor lifestyle products as “significantly larger” than the market for shooting sports products. Second, management believes different drivers fuel growth in each category.

“Our shootings sports product sales tend to be driven by consumer firearm ownership, which can be more susceptible to macro events,” said Murphy. “Our outdoor lifestyle product sales tend to be driven by longer-term trends, such as increased participation in the outdoors, as well as a focus on active and healthy living. Growth in both categories remains our focus.”

Lately, the outdoor lifestyle side has been generating faster growth, although both categories benefited from interest in outdoor activities due to the pandemic.

During American Outdoor Brands’ fiscal third quarter, ended January 31, sales of products in its outdoor lifestyle category grew 81 percent versus the pre-pandemic third quarter two years ago. Third-quarter sales of products in its shooting sports category grew by approximately 45 percent on a two-year basis.

“We believe that some of the gains experienced by us and throughout the industry over the past two years were propelled by the pandemic, resulting in outsized growth last year,” said Murphy.

As a result, total sales in the third quarter declined approximately 15 percent against more than 90 percent growth in the comparable period last year. The decline was driven by lower net sales of products within the shooting sports category, particularly products related to personal protection.

“We moved quickly to adjust to this change in the post-pandemic environment and worked closely with our firearm-related OEM customers and retailers as they address the shift in consumer firearm purchasing activity,” said Murphy. “That shift is reflected in recent NICS background checks, and it became visible in our incoming POS data, which reversed course in mid-December and took a sudden downward turn.”

Murphy said that despite the recent year-over-year declines in NICS, the shooting sports market has “delivered tremendous growth over the past two years, creating opportunities for our business. Since the pandemic began, 14 million firearm owners have entered the market, creating we believe a new, large and long term consumer base for our products in our shooting sports category.”

The outdoor lifestyle category grew 7 percent year-over-year and accounted for over 52 percent of total net sales in the latest quarter., The shooting sports category was just over 47 percent. In Q3 last year, that split was about 41 percent for the outdoor lifestyle and 59 percent for shooting sports.

Overall sales in the third quarter reached $70.1 million, down 15.1 percent year over year but up 61.8 percent on a two-year basis. On a two-year basis, the gains reflected growth in the traditional sales channel of 26.6 percent and growth in the e-commerce channel of 122.4 percent.

Gross margin of 45.8 percent increased 60 basis points over the comparable quarter last year.

Net income in the quarter declined 52.5 percent to $3.8 million, or 27 cents, from $8.0 million, or 56 cents, a year ago. On an adjusted basis excluding intangible amortization, stock compensation, transition costs, COVID-19 expenses, technology implementation, and other costs, non-GAAP earnings income fell 37.3 percent to $7.4 million, or 52 cents, from $11.8 million, or 82 cents.

Adjusted EBITDAS was $10.5 million, or 15.0 percent of sales, compared with $15.8 million, or 19.1 percent of net sales, for the comparable quarter last year.

Among new products across its brands, two new meat grinders recently arrived from MEAT!, and Caldwell introduced the Claymore clay target launcher. At the SHOT Show, its Crimson Trace Brushline scope, launched in 2021, received its American Rifleman Golden Bullseye Award for Optic Of The Year.

Said Murphy, “With a robust new product pipeline in place, a portfolio of authentic outdoor brands in hand, and an energized outdoor consumer, we are excited about the future and look forward to sharing our progress as we take our brands from Niche to Known.”

As of January 31, inventories were $119.6 million against $73.7 million at the same time last year.

Andrew Fulmer, CFO, the inventory increase reflects American Outdoor Brands’ moves to accelerate purchases of high-volume items to mitigate supply-chain and support new products.

Fulmer said that despite the downward shift in demand in shooting sports products that started to develop in the middle of the fiscal third quarter, “We believe this is inventory that will move through the channel within a reasonable amount of time. And the higher inventory levels allow us to be prepared for changes in demand, which can happen very quickly in that part of the business. We believe we are well-positioned to support orders in both shooting sports and outdoor lifestyle in the coming quarters.”

Due to weakening trends in the shooting sports business, the company reduced its outlook for the year.

For the year ending April 30:

  • Sales are now expected to range between $245 million and $250 million, previously $280 million to $285 million;
  • GAAP income per share between 61 cents to 74 cents, previously $1.00 to $1.19;
  • Non-GAAP income per share between $1.65 and $1.78, previously $2.02 to $2.21; and
  • Non-GAAP Adjusted EBITDAS between $34 million to $36 million, previously $42 million to $45.5 million.

Photo courtesy Grilla Grills