Fox Factory Holding Corp. reported sales in its Specialty Sports Group (SSG), its cycling component segment, delivered its ninth consecutive record revenue quarter in the three months ended July 1. Sales reached $178 million, up 28.1 percent on a year-over-year basis.
The gains in the second quarter were primarily due to increased demand in OEM channels.
Fox Factory’s CEO Mike Dennison told analysts, “We continue to optimize our capacity, our productivity and workforce in Taiwan as well as combat the increased prevalence of COVID on the island and within our factories.”
Regarding channel inventory, Dennison said high-end non-bike levels are still below the preferred levels as the rising popularity of e-bikes continues to fuel demand while supply chains improve.
Added Dennison, “We are, however, seeing signs of a return to normal, and, consequently, we expect SSG to return to more typical growth rates beginning in Q3 and return of seasonality in Q4.”
Companywide, sales increased 23.9 percent to $406.7 million, topping Wall Street’s consensus estimate of $399.07 million. Fox Factory’s guidance called for sales in the range of $385 million to $405 million.
In its other segment, Powered Vehicles Group, sales grew 20.9 percent to $229 million, its second consecutive quarter with over $200 million in revenue. The gains were led by strong performance in its operating product lines and increased efficiency and output in its Gainesville, GA facility, which opened in 2021.
Gross margins improved 120 basis points to 35.1 percent, and non-GAAP adjusted gross margin percentage increased 120 basis points to 35.3 percent. The margin increase was primarily driven by a favorable product mix, led by higher volume sales at SSG and strong performance in its upfitting product lines. Increased factory efficiencies also helped offset higher inflationary pressures, including labor, input and freight costs.
Net income improved 20.8 percent to $53.5 million, or $1.26 a share, from $44.3 million, or $1.05, a year ago. On an adjusted basis, non-GAAP net income rose 14.9 percent to $58.6 million, or $1.38, compared to $51.0 million, or $1.20, a year ago, and ahead of Wall Street’s consensus estimate of $1.22 per share. Company guidance was in the range of $1.10 to $1.25.
Adjusted results exclude the amortization of purchased intangibles, transformation costs related to the expansion of the Powered Vehicles Group’s manufacturing operations and other non-recurring items.
Adjusted EBITDA climbed 26.4 percent to $88.1 million, or 21.7 percent of sales, compared to $69.7 million, or 21.2 percent, in the same period last fiscal year.
Inventory was $349.1 million as of July 1, 2022, compared to $279.8 million as of December 31, 2021. The increase is primarily due to additional raw material purchases to mitigate risks associated with supply chain uncertainty and higher input costs.
For the third quarter, the company expects sales in the range of $385 million to $405 million, representing a gain in the range of 10.8 percent and 16.6 percent from $347.4 million a year ago. Non-GAAP adjusted EPS is projected in the range of $1.15 to $1.35 against $1.19 a year ago.
For 2022, Fox Factory expects sales in the range of $1.535 billion to $1.565 billion, up from previous guidance in the range of $1.5 billion to $1.53 billion. Non-GAAP adjusted EPS is still expected in the range of $5.00 to $5.30.
Dennison said, “From a general economic standpoint, we continue to deal with inflation, labor and supply chain disruptions, and we believe this difficult environment will likely persist well into 2023. What exacerbates our supply chain issues and lead times, in general, are the highly-engineered and precision machine components we require that utilize higher-grade aluminum steel. Consequently, we will continue to leverage dynamic pricing to combat inflationary pressures.
“Demand remains healthy across most of our diversified portfolio, and we believe that will remain for the balance of the year. We will continue to strengthen our core competencies and be relentless in extending our competitive differentiation.”
Photo courtesy Fox Factory