American Outdoor Brands reported a 27.4 percent sales decline in the third quarter and slashed its growth targets for the current fiscal year. Company officials warned on an analyst call that the cautious ordering patterns due to elevated inventories at retail would not recover until the second half of 2023.
“Many retailers continue to focus on destocking initiatives, a legacy from supply chain issues and inventory builds that emerged during the pandemic,” said Brian Murphy, president and CEO. “This process takes time to work out and, as a result, we believe a return to normalized replenishment orders from retailers is unlikely to occur until later in 2023.”
Asked in the Q&A section of the call by an analyst whether retail inventories were improving, Murphy said POS inventory data was down over 30 percent year-over-year within the outdoor and hunt channels American Outdoor Brands serves and declined 26 percent sequentially from the December quarter versus the September quarter. He said the outdoor lifestyle channel “performed actually pretty well” while the shooting sports channel was “a little bit softer.”
Nonetheless, he said a recovery to normalized ordering patterns would not likely occur until the second half. Murphy said, “Based on what we’re seeing, based on that continuation, the decline in inventory within the channel, and what we’re hearing from our retailers, it does look like, based on those facts, that kind of things will pick back up in the second half of this calendar year.”
On the positive side, POS data American Outdoor Brands received from its retail partners indicated that sales of the company’s products declined in the third quarter in the high-single-digits, meaning many of its brands are gaining share in the face of the inventory realignment.
“We believe this is a reasonable result given the current environment,” said Murphy. “POS data also indicates that consumers continue to choose our brands, which is great news. In fact, several of our major retailers have told us we are outperforming other brands in our categories.”
American Outdoor Brands makes outdoor accessories under Bog, Bubba, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, Hooyman, Imperial, LaserLyte, Lockdown, Meat!, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler.
In its fiscal third quarter ended January 31, sales reached $50.9 million, down 27.4 percent year-over-year.
E-commerce channel sales declined 30.8 percent to $24.5 million, primarily from reduced demand in the Shooting Sports category. The decline came despite a 37.5 percent increase in direct-to-consumer sales, primarily in the Outdoor Lifestyle category and including sales from the May 2022 acquisition of Grilla Grills. Traditional channel sales of $26.4 million declined 23.9 percent year-over-year, reflecting the impact of lower foot traffic at retail, inventory reduction efforts in the marketplace and lower shooting sports sales to OEM customers.
Compared with pre-COVID levels in Q320, sales grew 17.4 percent, while e-commerce channel net sales grew 53.9 percent and traditional channel sales declined by 3.7 percent.
Gross margins in the quarter improved by 130 basis points to 47.1 percent due to reduced tariff and inbound freight costs and progress in reducing internal inventory levels.
The net loss was $2.9 million, or 21 cents a share, compared to a net income of $3.8 million, or 27 cents, for the comparable quarter last year. On an adjusted non-GAAP basis, net income tumbled 77.0 percent to $1.7 million, or 13 cents, from $7.4 million, or 52 cents, a year ago.
Adjusted results exclude 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 sales, compared with $10.5 million, or 15.0 percent of net sales, a year ago.
Inventory levels were $105.5 million at the quarter’s end, down from $119.6 million a year ago.
Andy Fulmer, CFO, noted that American Outdoor Brands built up our inventory levels in the year-ago period to mitigate supply chain risks and to keep fill rates high with customers. As consumer demand started to decline in the current fiscal year, the focus shifted to reducing inventory levels to improve working capital metrics. Said Fulmer, “Those efforts have been successful, and we have taken our inventory from $120.6 million at the end of our first quarter to $105.5 million at the end of our third quarter, a reduction of over $15 million. In Q3 alone, we reduced inventory by nearly $6 million. Going forward, we plan to further reduce our inventory and enhance our cash conversion cycle.”
Looking ahead, American Outdoor Brands now expects sales for fiscal 2023 could exceed pre-pandemic fiscal 2020 levels by as much as 13 percent. Previously, it expected growth of as much as 25 percent above pre-pandemic levels.
“In Q3, we continue to see reduced ordering from our retailers and distributors as they work down their overall elevated inventory levels while navigating through uncertain consumer demand patterns. We believe that consumers are spending less on discretionary products in this uncertain macroeconomic environment, driven by elevated inflation and interest rates,” said Fulmer. “We continue to believe our brands are well positioned to capitalize on long-term outdoor participation trends. However, we also believe the current dynamic is affecting us in the short-term and will likely take a couple of fiscal quarters to sort out.”
Photo courtesy Hawke Life
