America Outdoor Brands said it strengthened its balance sheet, generated significant operating cash flow, controlled costs, and continues to invest for its long-term growth, but full-year net sales were $191.2 million, a decrease of 22.8 percent, compared with the prior year and an increase of 14.2 percent over pre-pandemic fiscal 2020. Still, the company feels it demonstrated effective capital deployment in navigating market challenges that included weakening consumer demand and cautious retailer inventory management.
Fiscal fourth-quarter net sales decreased 8.0 percent to $42.2 million for the three-month period ended April 30, representing a sequential improvement over the full-year trend, driven by declines of 7.5 percent in Shooting Sports and 8.6 percent in Outdoor Lifestyle. On a three-year basis, total net sales in Q4 declined just 2 percent. The fourth quarter top-line results bested expectations, helping with a strong outlook to send AOUT shares up over 9 percent in pre-market trading.
“Over the past three years, our industry experienced a surge in consumer demand caused by the COVID pandemic, followed by challenges stemming from high inflation and rising interest rates, which reduced consumer spending and drove retailers to focus on de-stocking their inventories,” explained company President and CEO Brian Murphy. “All of this change occurred in parallel with our first few years as a new public company. And while the factors driving this change were largely out of our control, they presented us with a unique opportunity to reconfirm our strategy and fine-tune our focus towards areas we can control and where we can drive progress.”
For the year, AOUT said the Shooting Sports category was down 30.7 percent and the Outdoor Lifestyle category declined 14.3 percent compared to fiscal 2022.
“We believe these declines were mainly driven by reduced consumer spending as well as retailers’ efforts to lower their overall inventory levels,” said Andrew Fulmer, EVP and CFO. “Compared to pre-pandemic fiscal 2020, Outdoor Lifestyle increased 33.8 percent while Shooting Sports was down slightly by 2.2 percent. Outdoor lifestyle in fiscal 2023 represented nearly 54 percent of our total net sales compared to 48 percent of total net sales and fiscal 2022.”
Net sales in the traditional brick & mortar channel decreased 30.7 percent for the full year compared to fiscal 2022 and decreased by 8 percent from fiscal 2020. Net sales in the e-commerce channel were down 10.5 percent compared to the prior year but were up almost 61 percent over fiscal 2020.
“Because our direct-to-consumer sales are not impacted by retail inventory levels, we consider those sales to be an indicator of how well our brands are resonating with consumers,” Murphy shared. “Our direct-to-consumer sales also include sales of MEAT! Your Maker, meat processing equipment. Both MEAT and Grilla are sold exclusively direct-to-consumer, and together they generated nearly 13 percent of our total net sales in fiscal 2023.”
The two brands were said to have “performed very well” in the year and helped AOUT grow its direct-to-consumer sales by 76 percent over fiscal 2022.
Given its large consumer markets and its favorable long-term participation trends, AOUT believes the Outdoor Lifestyle category will continue to grow as a percentage of its business over time. Murphy said point-of-sale data they received from their retailers indicates that sales of their products declined in the high single-digits for the year.
“This is not a surprising result given the current environment,” said Murphy. “At the same time that our POS declined, however, data indicates that channel inventory of our products declined by 26 percent. We view this as an important positive dynamic, and we continue to believe this will drive replenishment orders in the second half of calendar 2023.”
Murphy also pointed to the international business as an “exciting growth opportunity” for the company.
“During the year, we expanded our international sales resources by signing a firm in Europe to represent our many cutlery brands and our Crimson Trace Aiming Solutions brand,” he said.
International net sales for fiscal 2023 approached $9 million, representing just under 5 percent of the total business and delivered growth of more than 37 percent over pre-pandemic levels.
“We’re in the early innings here, and we believe that international net sales could eventually comprise roughly 10 percent of our total annual net sales,” Murphy estimated.
Full-year gross margin was 46.1 percent of net sales, a decrease of 10 basis points from the prior year. Fulmer said the decrease was driven by product mix and a full return to pre-pandemic normalized promotions offset by lower freight costs.
“We have built our operating model with a low level of fixed cost and complexity, an approach which helped us deliver strong gross margins in fiscal ’23 despite the year-over-year decline in sales,” Fulmer said.
For the full year, GAAP operating expenses were $100.8 million compared to $170.8 million in the prior year.
“It’s important to note that fiscal ’22 included a noncash goodwill impairment charge of $67.8 million,” Fulmer explained. “Nevertheless, excluding that charge, GAAP OpEx still decreased by $2.1 million, mainly driven by lower variable selling and distribution costs from lower sales volumes, combined with reduced facility costs from the consolidation of Grilla and Crimson Trace into our Missouri headquarters,” Fulmer said the decreases were partially offset by planned IT costs and one-time legal and advisory fees from a shareholder cooperation agreement.
Non-GAAP operating expenses for fiscal ’23 were $80.5 million compared to $83.8 million last year. Non-GAAP operating expenses exclude goodwill impairment, intangible amortization, stock compensation and certain nonrecurring expenses as they occur.
GAAP EPS for fiscal ’23 was a loss of 90 cents as compared with a loss of $4.66 in the prior year. Excluding the impacts of the impairment and the related tax charges, fiscal ’22 GAAP EPS would have been a positive 71 cents per share. Fiscal 2023 non-GAAP EPS was 48 cents a share as compared to $1.77 a share in the prior year.
The fourth GAAP net loss was $3.8 million, or 29 cents per diluted share, compared with a GAAP net loss of $76.7 million, or $5.71 per diluted share, for the comparable quarter last year. The quarterly net loss last year included a $67.8 million noncash goodwill impairment charge. Quarterly non-GAAP net income was $793,000, or 6 cents per diluted share, compared with non-GAAP net income of $1.9 million, or 14 cents per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for net income excludes a noncash impairment of goodwill, acquired intangible amortization, stock compensation, and other costs.
Full-year Adjusted EBITDAS was $12.8 million, or 6.7 percent of net sales, compared with Adjusted EBITDAS of $35.0 million, or 14.2 percent of net sales, for the prior year.
Fourth quarter Adjusted EBITDAS was $1.8 million, or 4.3 percent of net sales, compared with $3.2 million, or 7.0 percent of net sales, for the comparable quarter last year.
“The markets we serve are large and growing,” said Murphy. “According to an Outdoor Industry Association report released just last week, the outdoor recreation base has grown in each of the last eight years, adding over 14 million participants since 2020 and now totaling over 168 million participants or 55 percent of the U.S. population over the age of six.” See report highlights here.
Murphy said the change over the last three years occurred in parallel with the company’s first few years as a new public company. “While the factors driving this change were largely out of our control, they presented us with a unique opportunity to reconfirm our strategy and fine-tune our focus towards areas we can control and where we can drive progress.
“The first of these is innovation, Murphy explained. “We are proud to have introduced several breakthrough products in fiscal ’23, planting the seeds for future growth. We are reinventing the way people fish, manage their food plots, shoot clays and reload.” He said their cutting-edge offerings have been developed to meet the evolving needs of their customers, ensuring they stay ahead of the competition and capture new market opportunities.
“Second, we have completed critical infrastructure projects that lay the foundation for future growth,” he continued. “These initiatives include implementing a new ERP system that links our strategy with operations, consolidating our Oregon and Michigan facilities, and securing additional distribution space in our Columbia, Missouri facility to accommodate future planned growth.”
Murphy said these strategic investments are now complete, and they demonstrate the company’s commitment to enhancing operational efficiency, optimizing resources and preparing for future expansion.
“In parallel, we effectively managed our cash flow, generating $30.7 million in operating cash in fiscal ’23,” he said.
“Lastly, despite being a larger, more stable standalone business with greater growth potential than at the time of our spin-off three years ago, market forces have created the conditions for a lower stock price, leading us to opportunistically repurchase our own stock,” he surmised. “This approach not only demonstrates confidence in our company’s potential, but we believe that it also helps enhance shareholder value, reinforcing our commitment to generating long-term returns.”
Murphy also spent time on the call outlining their innovation pipeline and addressing the everyday needs of the outdoor consumer.
“We believe that over time, our demonstrated ability to innovate will fuel our top-line growth to $400 million and beyond, while our lean infrastructure will help deliver more of that growth to the bottom line,” he suggested.
Fulmer provided a more detailed outlook for fiscal 2024, forecasting that the company will deliver a return to growth, which will likely begin in Q3 and will yield full-year growth for fiscal 2024 of up to 3.5 percent, supported by market share gains, expanded distribution and planned new product launches.
“We expect our net sales in fiscal 2024 to follow 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. As a starting point, we expect Q1 of fiscal 2024 to be slightly lower than Q1 of fiscal 2023, and we expect a return to growth in Q3 and Q4,” Fulmer outlined.
“We believe that fiscal 2023 brought a return to a more normalized promotional environment and we expect the same level of promotions in fiscal 2024,” Fulmer continued. “We also expect fiscal ’24 margins to improve from fiscal ’23 due to lower inbound freight costs and savings from the facility consolidations we completed in fiscal 2023.”
Regarding OpEx, Fulmer said they believe that overall OpEx for fiscal ’24 will “increase slightly,” mainly from higher selling and distribution costs netted by reductions from their facility consolidations, one-time legal and advisory fees and IT implementation costs.
“Based on these factors, we believe our adjusted EBITDA since fiscal 2024 could increase by as much as 6.5 percent compared to fiscal 2023,” the CFO concluded.
Photo courtesy American Outdoor Brands/Crimson Trace
