American Outdoor Brands, Inc. reported that fiscal 2025 first-quarter net sales fell to $41.6 million, a decrease of $1.8 million, or 4.1 percent, compared with net sales of $43.4 million for the prior-year Q1 period. New products reportedly “performed well” across several brands in both the Shooting Sports and Outdoor Lifestyle categories, helping to offset declines and deliver net sales in the quarter.

“Net sales results for our first quarter came in as expected, declining slightly year-over-year, driven by a combination of order timing and recent trends in certain consumer markets,” commented Brian Murphy, president and CEO of American Outdoor Brands, Inc. “Nevertheless, I am pleased with our performance, which included a significant increase of more than 76 percent in Adjusted EBITDA and reflected a consumer preference for innovative products from our popular brands in the Outdoor Lifestyle and Shooting Sports categories. New product innovation and expanded distribution opportunities are core to our long-term growth strategy, and both played a key role in our first quarter results.”

On a conference call with analysts, company CFO Andrew Fulmer reminded the participants that the company recognized $2 million to $3 million of Shooting Sports net sales in the fourth quarter, which had initially been expected to occur in the first quarter.

Segment Sales

Shooting Sports net sales, which include solutions for target shooting, aiming, safe storage, cleaning and maintenance, and personal protection, decreased 7.0 percent.

“In Shooting Sports, new products from our Caldwell Claymore family, including our Solo and Pullpup clay target throwers, drove strength in shooting accessories and helped partially offset the weakness in personal protection products that is reflective of recent trends in that market,” Murphy added. “It’s worth noting that while we don’t produce firearms, our shooting sports category tends to align with [NSSF-]adjusted NICS background check results, which were down roughly 3 percent in the same period.”

Murphy said it was not surprising that POS sales were weaker year-over-year, “given the recent consumer market for firearms and related accessories.”

Outdoor Lifestyle net sales, which consist of products related to hunting, fishing, camping, outdoor cooking, and rugged outdoor activities, decreased 1.7 percent.

“New products from our Meat!, BOG and Bubba brands delivered strong meat processing, hunting, and fishing performance and helped to nearly offset lower net sales in outdoor cooking and rugged outdoor-related products,” Murphy noted. “During the quarter, we expanded distribution of our BOG and Caldwell brands by placing them into new retail locations, introducing these popular products to a broader consumer audience.”

Murphy added that the company’s efforts to expand its distribution network extend to the international market. He also said POS sales in the category were positive in the quarter.

“Accordingly, our efforts to introduce more of our brands to Canadian consumers helped deliver international net sales of 4.4 million, comprising over 10 percent of our net sales in the quarter and representing growth of over 21 percent,” Murphy said. “While we’re still in the early innings, these results demonstrate the tremendous potential the international market holds for our brands.”

Murphy also noted that new products generated about 23 percent of net sales in the first quarter.

“During Q1, our team attended ICAST, the world’s largest sportfishing trade show,” he said. “Attendees at the show continued to rave about our new Bubba Pro Series Smart Fish Scale, which has now completed its first spring season as the official scale of Major League Fishing. The show provided us a great opportunity to give retailers a preview of an exciting new line of tools that will take our Bubba brand into new fishing markets and further extend its reach among the 54 million anglers in the U.S. who pursue their passion for sport fishing.”

Channel Sales

Traditional Brick & Mortar channel net sales were said to be “roughly flat” for the quarter.

E-commerce channel sales were reportedly down 10.2 percent for the period, driven mainly by outdoor cooking products.

“You’ll recall that all direct-to-consumer sales are included in our e-commerce net sales total,” Fulmer noted. “So it’s important to note that last year’s e-com results included our Grilla retail store in Michigan, which we closed as planned in July 2023. In addition, strong sales of Grilla in the fourth quarter left our inventory levels lower than we’d like. Those levels are now replenished.”

Income Statement Summary
Fiscal first quarter gross margin was 45.4 percent of sales, consistent with quarterly gross margin of 45.4 percent for the comparable quarter in fiscal 2024. Non-GAAP gross margin for the quarter was 46.0 percent. This result was said to be higher than the expectation the company had heading into the quarter and was driven by lower amortization of tariff and freight variances related to increased inventory levels.

GAAP operating expenses for the quarter were $21.5 million, compared to $23.8 million in Q1 last year. Fulmer said the decrease was driven by lower intangible amortization, legal, and advertising expenses.

On a non-GAAP basis, operating expenses in Q1 were $18.4 million compared to $19.6 million in Q1 last year. Non-GAAP operating expenses exclude intangible amortization, stock compensation, and certain non-recurring expenses as they occur.

First quarter GAAP net loss was $2.4 million, or a loss of 18 cents per diluted share, compared with a GAAP net loss of $4.1 million, or a loss of 31 cents per diluted share, in fiscal Q1 last year.

Non-GAAP net income for fiscal Q1 was $748,000, or 6 cents per diluted share, compared with non-GAAP net income of $98,000, or 1 cent per diluted share, in Q1 last year.

GAAP to non-GAAP adjustments for net income excludes acquired intangible amortization, stock compensation, non-recurring inventory reserve costs, technology implementation, and other costs.

Quarterly Adjusted EBITDA was $2.0 million, or 4.8 percent of net sales, compared with Adjusted EBITDA of $1.1 million, or 2.6 percent of net sales, for the prior year.

Balance Sheet and Cash Management Summary
American Outdoor Brands, Inc. ended the fiscal first quarter with cash of $23.5 million, down $6.2 million from the prior year-end, despite investments the company made in inventory during the quarter and a seasonal increase in accounts receivable.

“As a reminder, our business is seasonal in nature, with net sales typically increasing in Q2 and Q3 around the fall hunting and holiday seasons,” Fulmer noted. “As such, we typically use cash to build inventory and accounts receivable balances in the first half of our fiscal year and then generate cash in the second half of our fiscal year as we lower inventory levels and collect those receivables.”

He said the company expects fiscal 2025 to be consistent with this trend.

“In Q1, we used $4.4 million of cash for operations due to a build in our inventory levels of $13.4 million netted by increases in accounts payable and accrued expenses. We expect inventory to remain above $100 million through our third quarter and then drop slightly below that level by year- end,” he added.

The company ended the quarter with no outstanding balance on its $75 million expandable line of credit, bringing total available capital to over $113 million.

“Turning to capital expenditures, our operating model was designed to be asset-light, typically requiring annual CapEx of roughly 2 percent of net sales for patents, tooling, and maintenance investments, and our expectations for fiscal 2025 are right in line with our model,” the CFO shared.

“We spent $1.1 million on CapEx for the first quarter, mainly for product tooling and patent costs,” he continued. “For full year fiscal 2025, we expect to spend $3.5 million to $4.5 million, which includes a small amount to build out the new factory outlet store in our Missouri headquarters building. The strength of our balance sheet allows us to be very flexible with our capital allocation decisions and maintain focus on our three priorities, organic growth, M&A, and returning capital to shareholders based on what is most opportunistic at the time.”

AOUT expects to fund organic growth in fiscal 2025 with cash from operations.

“With respect to M&A, we are beginning to see an increase in higher quality acquisition targets,” Fulmer advised. “Given the strength of our balance sheet and our reputation for building solid brands, we believe we are regarded as a buyer of choice in the M&A market.”

Fulmer said the company continues to return capital to stockholders through its share repurchase program, noting that the company repurchased roughly 42,000 shares at an average price of $9.06 per share. He said AOUT has $6.9 million remaining on its current repurchase authorization which expires at the end of September.

Outlook
“While we anticipate that headwinds in the Shooting Sports category may continue, we believe that our initiatives to drive channel expansion, combined with our robust new product pipeline, will help deliver growth in our Outdoor Lifestyle category. Therefore, we continue to believe that fiscal 2025 net sales could grow by as much as 2.5 percent compared to fiscal 2024,” Fulmer suggested.

“We expect our net sales in fiscal 2025 to follow the typical seasonal pattern that I described earlier, with Q1 as our lowest net sales quarter, Q2 and Q3 as our highest net sales quarters, and Q4 coming in higher than Q1,” he detailed. “We expect Q2 net sales to decline year-over-year by between 8 percent and 9 percent, driven primarily by the Shooting Sports category, followed by growth in the second half of the [fiscal] year, driven largely by new product launches and distribution opportunities in our outdoor lifestyle category.”

He also pointed to comments earlier in the call about some underlying choppiness on a quarterly basis this year as the company moves toward full-year growth.

AOUT continues to expect gross margins for the full year to be approximately 45 percent versus 44 percent for the prior year.

“On a quarterly basis, we expect some fluctuation based on the timing of inventory purchases and the amortization of tariff and freight variances related to those purchases,” Fulmer said. “As a result, we expect Q2 gross margins to be roughly 45 percent. Then, as inventory balances decrease during the second half of the year, we would expect gross margins to come in slightly lower for the second half.”

Assuming net sales growth of up to 2.5 percent, the company expects overall operating expenses to increase slightly due to higher variable selling and distribution costs.

“Based on all of these factors, we continue to believe our adjusted EBITDA in fiscal 2025 will be in the range of 5.5 percent to 6.0 percent of net sales. The increase of between $1.5 million and $2.5 million in adjusted EBITDA would align with our long-term model, which calls for an incremental EBITDA contribution of roughly 30 percent on net sales over $200 million,” he estimated.

Fulmer added one final reminder on income tax expense.

“We’ve mentioned on previous calls that we have a full valuation allowance on our deferred tax assets; this removes any tax benefit we would have derived from our GAAP loss from operations. As such, we expect a small amount of income tax expense for GAAP purposes in each quarter for the remainder of fiscal 2025,” he concluded.

Image courtesy Grilla