American Outdoor Brands’ sales in the first quarter ending July 31 dropped 28.1 percent to $43.7 million. Gains in its DTC e-commerce sales were more than offset by weakness in wholesale sales due largely to bloated market inventories that impacted the shooting sports category.
Sales to traditional channels tumbled 47.6 percent to $23.1 million. Traditional channels reflect customers who generate the majority of the revenue from consumer purchases at the company’s brick-and-mortar locations.
On a conference call with analysts, Brian Murphy, president and CEO, said the year-over-year decline was due to fewer orders from retailers as American Outdoor Brands responded to reduced foot traffic and continued to limit its open-to-buy to curtail inventory levels across its offerings.
“While this dynamic impacted retail sales across our brand portfolio, it was more pronounced in our shooting sports category, which includes personal protection products, such as laser sights and sales of shooting accessories to firearm OEMs, dealers and distributors,” said Murphy. “It’s also important to note that strong net sales growth of over 70 percent in our traditional channel last year reflected that certain customers had accelerated their purchases to offset potential supply chain disruptions, creating a very tough comp for the current quarter.”
Murphy noted, however, that selected data from the first quarter indicated that POS trends across its brand portfolio were generally favorable versus the prior year. He said, “We view this as an important positive since it not only reflects a strong consumer preference for our brands, it also indicates that sustained consumer pull-through should continue to draw down retailer inventories on a go-forward basis.”
Also encouraging was its e-commerce channel, where sales increased 23.7 percent to $20.5 million. The e-commerce channel includes DTC sales and wholesale accounts that generate most of its website revenue.
The e-commerce channel gain reflects a 234.8 percent increase in DTC sales over the comparable quarter last year.
American Outdoor Brands’ brands sold exclusively DTC represented $6.9 million, or 33.5 percent, of total e-commerce channel sales in the latest period, which includes sales from the acquisition of Grilla Grills completed this past March. The DTC gains also reflect gains by Meat! Your Maker meat processing equipment.
Together, Grilla Grills and Meat! Your Maker generated over 15 percent of net sales in Q1 and helped its Outdoor Lifestyle category expand to over 53 percent of total net sales in the quarter. Murphy said, “We consider our DTC sales to be one gauge of how well our brands resonate with consumers since those sales are not impacted by retailer issues such as inventory levels or limited open-to-buy.”
American Outdoor Brands’ owned brands include Bog, Bubba, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, Hooyman, Imperial, LaserLyte, Lockdown, Meat! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler. Licensed brands include M&P, Smith & Wesson, Performance Center by Smith & Wesson, and T/C.
The net loss in the quarter came to $5.7 million, or 42 cents per share, against income of $3.5 million, or 24 cents, a year ago. On an adjusted basis, earnings came to $84,000, or 1 cent per share, down from $6.8 million, or 48 cents, a year ago. Adjustments exclude acquired intangible amortization, stock compensation, technology implementation, stockholder cooperation agreement costs, and acquisition costs.
Quarterly adjusted EBITDAS was $1.4 million, or 3.2 percent of sales, down from $9.6 million, or 15.7 percent of sales, in the comparable quarter last year.
Gross margins decreased 410 basis points to 43.6 percent, driven primarily by lower sales volumes and increased freight expenses.
Total operating expenses increased to 56.3 percent of sales from 40.7 percent a year ago, mainly reflecting sales deleverage. Operating expenses were reduced slightly to $24.6 million from $24.76 million a year ago as lower sales volume-related accruals and lower advertising expenses were offset by legal and advisory fees associated with the completed cooperation agreement with a stockholder and standalone expenses related to IT technology.
Murphy said American Outdoor Brands remains excited about growth opportunities within its Outdoor Lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking, and rugged outdoor activities. Outdoor Lifestyle delivered growth of 26.5 percent over the first quarter of fiscal 2021 and 54.2 percent over the pre-pandemic first quarter of fiscal 2020.
Continued growth in the Outdoor Lifestyle category is expected to help mitigate fluctuations in its shooting sports category, which is more susceptible to short-term cyclicality.
“There is little doubt that consumer spending patterns are uncertain in the near term, given the current environment and the extremely high inflation rates we’re seeing lately,” added Murphy. “Despite these factors, we remain excited by the fact that consumer participation in the outdoors is at its highest level in years.”
He noted that OIA’s state of the outdoor industry market report released two weeks ago showed that since March 2020, the outdoor participant base had grown nearly 7 percent, adding more than 10 million new participants, and there has been a growth of 26 percent in new or returning outdoor participants. The report also notes that roughly 54 percent of the U.S. population participated in at least one outdoor activity in 2021 and that remote work has given more people time to spend outdoors, often during hours when they would have been in an office or commuting.
Said Murphy, “Importantly, the report stated something we believed for quite some time. Participation in outdoor recreation is sticky; once someone begins participating, they’re likely to continue. We remain excited about the growth opportunities these trends present for our brands in the long term.”
Murphy said American Outdoor Brands continued to leverage its Dock & Unlock strategy to drive innovation as new products generated nearly 26 percent of first-quarter revenue.
At ICAST 2022, Bubba received the award for ‘Best Cutlery, Hand Pliers and Tools” for the brand’s Multi-Flex Interchangeable Knife Sets, marking the third consecutive year that Bubba had received the category award. The Bubba Voyager Gear Box, its first entry into waterproof storage, was launched at the show, and a proprietary Bubba Electric Fish Scale showed ahead of the full launch and shipping of initial inventory in spring 2023.
During the first quarter, American Outdoor Brands amended its Columbia, MO, facility lease agreement to add 35,000 square feet of space. It then began plans to consolidate its Crimson Trace operations in Wilsonville, OR amd its Grilla operations in Holland, MI and Dallas, TX, into the Missouri facility. The consolidations are estimated to yield a net cost savings of approximately $1.5 million per year, beginning in its fiscal fourth quarter.
Inventories ended the quarter at $120.6 million, up 31 percent from $92.0 million a year ago.
Andrew Fulmer, CFO, said the implementation of targeted inventory reduction initiatives helped reduce inventory by roughly $1 million since the start of the quarter despite fresh inventory added to support new product launches.
“Our team is executing against a plan to reduce our inventory balance in the coming quarters to drive cash conversion from inventory in the second half of the fiscal year,” said Fulmer. “In addition, because the majority of retailers are focused on driving down their overall inventories at the moment, we have intentionally delayed certain new product launches to better align with current retail demand patterns. We believe this strategy will help us launch those products at a time when retailers open to buy dollars have normalized. In addition, it will allow us to better manage our inventories over time.”
Regarding its outlook, American Outdoor Brands, in mid-July, when it reported fourth-quarter results, declined to provide financial targets for the current fiscal year due to an uncertain inventory environment at retail in the back half of the year but provided some guidance.
Fulmer said, “We believe that retailers and distributors continue to be extremely cautious with regard to their inventory levels. That said, we also believe our brands are performing well and in alignment with recent consumer outdoor participation trends. As a result, we believe our revenue for fiscal 2023 could exceed pre-pandemic fiscal 2020 revenue by as much as 25 percent. We believe our solid financial position enables us to continue executing on our long-term strategic plan, investing in our business, and addressing the exciting growth opportunities we have identified for fiscal 2023 and beyond.”
