American Outdoor Brands, Inc. said flattish sales growth and a smaller net loss in the first quarter fiscal ended July 31 reflected solid execution in sales, profitability and capital management combined with ongoing progress against the company’s long-term strategic objectives. The recent issues with inventory and reduced consumer demand in the broader firearms market at retail had an effect of the company’s Shooting Sports segment, but strong growth in the company’s Outdoor Lifestyle segment offset the decline in the shooting accessories business.
Company President & CEO Brian Murphy said on a conference call with analysts that they view the fiscal al Q1 results “favorably” given the fact that retailers continue to remain cautious about their inventories and available open-to-buy dollars in the quarter.
“We are especially pleased with the longer term growth we delivered,” Murphy commented. “Our first quarter reflected net sales growth of nearly 31 percent over our pre-pandemic first quarter of fiscal 2020 with growth over 10 percent in shooting sports and over 54 percent in outdoor lifestyle, including our acquisition of Grilla Grills.”
The company reported fiscal first-quarter net sales were $43.4 million, a decrease of 0.5 percent versus the comparable quarter last year. Traditional channel net sales increased 8.4 percent, while e-commerce net sales declined 10.6 percent. Compared with pre-COVID levels in fiscal 2020, quarterly net sales increased 30.8 percent.
The Shooting Sports category saw a 1.5 percent decline in net sales compared to the prior-year quarter, a result that Murphy said is consistent with reports from firearm manufacturers, citing ongoing, heightened channel inventory and reduced consumer demand. While AOUT does not produce or sell firearms, the reduced sales of firearms in the market impacts the company’s shooting sports related accessories. The decline in Shooting Sports was reportedly offset by a 0.4 percent increase in the company’s Outdoor Lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking and rugged outdoor activities.
“This is a solid result, which we believe reflects the strength of our brands in the category and the success of our strategy to invest in this growing part of our business,” Murphy expressed.
Murphy said they continue to benefit from their strategy to intentionally place their brands where consumers expect to find them whether online or in store.
Net sales growth increased 8.4 percent in the Traditional (brick & mortar) channel, supported by new product introductions in hunting and fishing under the BOG and Bubba brands.
“We are encouraged by this result as we believe it reflects the ongoing convergence of inventory de-stocking activities by retailers with their need to replenish inventories, Murphy said. “It also bodes well for many of our brands since we believe retailers are seeking out innovative products to help drive foot traffic and attract today’s more discerning consumer.”
Net sales in the E-commerce channel declined 10.6 percent year-over-year, driven primarily by the company’s largest online retailer, partially offset by increased sales of certain hunting and shooting sports products to other online retailers.
“Online net sales of Meat! Your Maker and Grilla, our two direct-to-consumer only brands were up slightly year-over-year,” Murphy shared. “Meat! and Grilla generated over 35 percent of our total e-commerce sales and together, they delivered strong trailing 12 months net sales of over $24 million. That said, due to the planned closures of our Michigan and Texas retail Grilla stores, total net sales for these two brands were down slightly in the quarter.”
Murphy also shared that point-of-sale (POS) data received from retailers indicates that sales of the company’s products declined slightly in the first quarter, driven almost entirely by products in the shooting sports category.
“At the same time, POS data also indicates that channel inventory of our products improved in the quarter, lower on a sequential basis from Q4 and down in the mid-teens on a percentage basis year-over-year,” he reported. “We view this as a positive dynamic, which supports our belief, they will begin to see an increase in replenishment orders in the second half of the year.”
Murphy also said new products launched in the last two years generated over 21 percent of first quarter net sales, a result that met their internal expectations.
CFO Andrew Fulmer was on the call to walk through the financials, indicating that during Q1, the company strengthened its balance sheet, fully paid-off the outstanding balance on its line of credit, demonstrated effective capital deployment with the share repurchase program, and delivered net sales and profitability in line with expectations. He emphasized they met these goals while navigating ongoing market challenges that included a continuation of cautious inventory management by retailers.
Gross margin for Q1 came in at 45.4 percent of net sales, 180 basis points higher than Q1 last year, driven primarily by lower inbound container freight costs.
GAAP operating expenses for the quarter were $23.8 million compared to $24.6 million in Q1 last year. The decrease was said to be driven by one-time legal and advisory fees incurred in Q1 last year relating to a shareholder cooperation agreement offset by an increase in outbound freight costs.
On a non-GAAP basis, operating expenses in Q1 were said to be up slightly to $19.6 million compared to $19.0 million in Q1 last year. Non-GAAP operating expenses exclude intangible amortization, stock-compensation and certain non-recurring expenses as they occur.
The fiscal Q1 GAAP net loss was $4.1 million, or a loss of 31 cents per diluted share, compared with a GAAP net loss of $5.7 million, or a loss of 42 cents per diluted share, for the comparable quarter last year. The GAAP income tax expense was negatively impacted by approximately 7 cents a share due to evaluation allowance recorded against deferred tax assets and an accounting treatment that removes any tax benefit that would have been derived from the GAAP loss from operations. Excluding that impact, GAAP EPS would have been approximately a loss of 24 cents a share in Q1 of this year, and a loss of 32 cents per share in Q1 of last year.
Quarterly non-GAAP net income was $98,000, or a penny per diluted share, compared with non-GAAP net income of $84,000, or a penny 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, and other costs.
Quarterly Adjusted EBITDA was $1.1 million, or 2.6 percent of net sales, compared with $1.4 million, or 3.2 percent of net sales, for the comparable quarter last year.
Fulmer said they continue to be pleased with their efforts to further strengthen the balance sheet.
AOUT ended the quarter with cash of $18.7 million, after paying down $5 million on its line of credit and repurchasing approximately $2.3 million of common stock. The company generated $5.2 million in cash from operations and invested just over $800,000 in CapEx resulting in free cash flow of approximately $4.3 million for the quarter.
“You’ll recall last quarter, I indicated our inventory levels would rise to above $100 million in Q1 and Q2, a planned increase design to support the fall hunting and holiday seasons, as well as new products that are scheduled for launch later this fiscal year,” Fulmer said. “Consistent with this plan, our inventory levels increased by $5.2 million in the first quarter. It’s worth noting that while we expect inventory levels to be above $100 million in Q2 and Q3 as well, we do expect them to move below $100 million by the end of fiscal 2024.”
The company ended the quarter with no outstanding balance on its $75 million expandable line of credit, bringing total available capital to over $108 million.
AOUT spent just over $800,000 on CapEx for the first quarter, mainly for product tooling and patent costs. The ERP project is now complete.
“For full fiscal 2024, we expect to spend between $3.5 million and $4.5 million for product tooling and maintenance,” Fulmer detailed. “In addition, we expect a one-time spend of approximately $2.5 million to purchase assets such as warehouse racking, office furniture and other fixtures when we assume the full lease at our Columbia, MO facility on January 1. Therefore we expect total CapEx spend in fiscal 2024 in the range of $6 million to $7 million.”
Fulmer said they continue to believe that fiscal 2024 could deliver fully year net sales growth of up to 3.5 percent supported by market share gains, expanded distribution and planned new product launches.
“We expect that growth will likely begin in Q3, following a year-over-year decline in revenue for Q2 due to the timing of shipments in first half of fiscal 2024,” he said.
“Our business typically follows a seasonal pattern with Q1 as the lowest net sales quarter, Q2 and Q3 as the highest net sales quarters, and Q4 coming in higher than Q1 and we expect that pattern to continue in fiscal 2024,” Fulmer said. “This pattern typically drives an increase in accounts receivable and a corresponding decrease in cash in Q2, with that cash collected by the end of the fiscal year.”
The company expects fiscal ‘24 gross margins to remain flat to fiscal 2023. OpEx for fiscal 2024 is expected to increase slightly, mainly from higher selling and distribution costs, offset by reductions from facility consolidations, one-time legal and advisory fees, and IT implementation costs.
“Based on these factors, we continue to believe our adjusted EBITDAS in fiscal 2024 could increase as much as 6.5 percent compared to fiscal 2023,” Fulmer concluded.