On a call with analysts, Vista Outdoor officials said inflation and rising interest rates have impacted consumer spending at a faster rate than the company expected last quarter, prompting the company to reduce its outlook for its fiscal year.

Sudhanshu Priyadarshi, SVP and CFO, also noted that retailers are also working through higher inventory while promotional activity rises.

“Given the uncertainty of a possible recession or how long it could last and how long it will take retailers to improve inventory levels, we believe it is prudent to reflect these uncertainties in our revised guidance for fiscal year 2023,” said Priyadarshi. “We do not take these decisions lightly. We are taking several actions to mitigate risk by managing inventory, controlling costs and improving SKU productivity.”

The updated guidance came as Vista reported second-quarter results in line with recently updated guidance.

Results for the second quarter ended September 25 were in line with updated guidance given on October 24. At the time, Vista provided adjusted EPS guidance of $1.71 for the period, slightly below the consensus EPS estimate of $1.76. Revenue was expected to reach $782 million, above the consensus revenue estimate of $757.1 million.

“We posted another solid quarter despite the external challenges we’ve been navigating over the last year,” said Chris Metz, CEO, on the call.

The biggest change in the updated guidance for the fiscal year ended March 2023 is a reduction in expectations for growth in the Outdoor Products segment. The segment includes CamelBak, Bell, Giro, Camp Chef, Bushnell, Bushnell Golf, Foresight Sports, Stone Glacier, and QuietKat as well as the recently-acquired Fox Racing and Simms Fishing brands.

Sales for the fiscal year for the Outdoor Products segment are now expected in the range of $1.325 billion to $1.375 billion. Previously, Outdoor Products sales were expected to be approximately $1.475 billion to $1.550 billion.

Sales in its Sporting Products segment are expected to be approximately $1.725 billion to $1.775 billion, the same as previous guidance. Vista’s Sporting Products segment includes Federal, Remington, CCI, Speer, and Hevi-Shot.

Due to the downward adjustment to the Outdoor Products segment, overall sales are now projected in the range of $3.05 billion to $3.15 billion, up 2 percent at the midpoint. Previously, sales were projected in the range of $3.2 billion to $3.325 billion, up 7 percent at the midpoint.

Adjusted EBITDA margin for the fiscal year are now expected in the range of 19.75 percent to 20.25 percent, down from a range of 21.0 percent to 21.5 percent previously.

EPS is now projected in the range of $5.76 to $6.26 and adjusted EPS in the range of $6.00 to $6.50. Previously, EPS was expected in the range of $6.90 to $7.50 and adjusted EPS in the range of $7.05 to $7.65.

Second-Quarter Revenues Increase 0.4 Percent
In the second quarter, sales inched up 0.4 percent to $781.7 million, driven by acquisitions and DTC sales which increased approximately 65 percent. This was partially offset by a low double-digit decline in organic sales.

Gross profit declined 12 percent to $263 million and gross margin eroded 477 basis points to 34 percent, primarily due to higher supply chain and other input costs including freight.

Operating expenses were $132 million, up nearly 22 percent, primarily driven by acquisitions. As a percent of sales, operating expenses grew to 16.8 percent from 13.9 p percent.

EBIT decreased 31 percent to $132 million while adjusted EBIT slumped 28 percent to $141 million. Adjusted EBIT margins decreased 694 basis points to 18 percent.

EBITDA slid 33.0 percent to $155 million, or $1.62 a share. Adjusted EBITDA fell 22 percent to $164 million, adjusted EBITDA margins decreased 611 basis points to 21 percent.

Net earnings slid 33.0 percent to $93.4 million, or $1.62 a share, from $139.5 million, or $2.36, a year ago. Adjusted EPS was $1.71, down 29 percent, compared with $2.41.

Metz noted that the solid adjusted EBITDA margins of 21 percent came despite the company absorbing higher input costs, including freight and labor from rising inflation.

The earnings decline was driven by higher operating costs, largely due to inflation as well as higher interest expense. In the year-ago period, Vista posted record second quarter in sales, EBITDA and EPS.

Metz also estimates that Vista absorbed $90 million in higher supply chain, freight, tariff and other input costs in the first two quarters of FY2023 as compared to the same period last year. He added, “However, we are not anticipating any benefits from lower supply chain costs this fiscal year. It will likely be a benefit next year in FY2024.”

Sporting Product Sales Slide 4 Percent
By product segment, sales of Sporting Products declined 4 percent to $432 million, in line with guidance, driven primarily by low finished goods inventory entering the quarter and labor shortages in certain regions.

Gross profit in the Sporting Products decreased 21 percent to $159 million due largely to lower sales and higher commodity and freight costs.

EBIT slumped 24 percent to $134 million and EBITDA decreased 23 percent to $140 million. EBITDA margins decreased 804 basis points to 32.4 percent. In the prior year period, EBITDA margins hit a record at 40.4 percent, reflecting an expansion of nearly 19 percentage points as compared to the second quarter fiscal 2021, which included favorable hedges.

Vista noted that Sporting Products’ profitability remains much stronger than prior to the pandemic due to a broader and more profitable product mix as a result of the acquisition of Remington and a strategic decision to shift away from less profitable and more volatile ammunition product categories purchased from the Lake City Army Ammunition Plant. 

Outdoor Products Revenues Climb 6 Percent
Sales in the Outdoor Products segment increased 6 percent to $349 million, driven by the acquisitions of Foresight Sports, Fox Racing, Simms Fishing, Stone Glacier, and Fiber Energy. Last year, in the first half of fiscal 2022, consumers benefited from stimulus checks and a lower inflationary environment which drove higher-than-average sell-in to replenish low channel inventory and meet elevated demand.

Outdoor Products second-quarter sales were up 15 percent compared to the second quarter of fiscal 2021 and 49 percent compared to the second quarter of fiscal 2020.

The gains from acquisitions were largely offset by lower organic sales, particularly in Outdoor Accessories, as demand remained consistent with the prior quarter. Priyadarshi shared, “In the first half of last year, we had higher sell-in due to lower channel inventory and continued elevated demand. Thus, we expected continued pressure in quarter two as consumers are experiencing higher inflation and the lack of stimulus checks.”

Gross profit in the Outdoor Products segment increased 11 percent to $107 million, primarily due to the addition of accretive acquisitions which were partially offset primarily by lower Outdoor Accessories sales and higher transportation and freight costs.

EBIT in the Outdoor Products segment decreased 29 percent to $30 million primarily due to higher SG&A expenses from the addition of acquisitions. EBITDA decreased 11 percent to $46 million. EBITDA margins eroded 261 basis points to 13.2 percent.

Vista’s Three Themes
Metz said the wanted to leave investors with three “key themes” around Vista: the strong underlying fundamentals for the company’s two segments, Vista’s solid balance sheet and robust free cash flow, and the company’s capacity to mitigate risks in a more challenging environment.

In the Sporting Products segment, Metz said the acquisitions of Remington and non-lead shotshell manufacturer HEVI-Shot are enabling the segment to refocus its product mix on less volatile and more profitable products, such as hunting loads and shotshells. Said Metz, “Today, whereas 5.56, 2.23 calibers are now experiencing slowing demand and accumulating channel inventory, we continue to see high demand and low channel inventory in hunting, shotshell and other categories where our ammunition business is now by far the leading player in the market.”

He further said the Sporting Products business is now focused on categories that are less politically driven and where demand is driven primarily by usage rather than stockpiling. Metz said, “We expect that our business will be able to produce steadier, more profitable results in coming years than were possible before we made the strategic decisions to refocus our product mix.”

Regarding the Outdoor Products segment, Metz noted that annual revenues are expected to grow over 50 percent as compared to FY20, boosted by six acquisitions in the last two years and organic growth from new product innovation, market share gains and implementing DTC capabilities.

Vista’s FY20 Outdoor Products sales were approximately $880 million across 27 brands. In FY23, Outdoor Products sales are expected to be approximately $1.35 billion across 34 brands.

The new acquisitions expand the segment’s TAM (total addressable margin) and contribute higher-than-average margins. Metz also noted that adjusted EBITDA margins at the Outdoor Products segment have improved nearly 400 basis points year-to-date FY23 and DTC sales have increased over 400 percent in Q2 FY23 as compared to Q2 FY20.

Metz also noted that Vista’s sourcing team has not only helped mitigate disruption in recent quarters but is making good progress in efforts to diversify its supply chain away from China for key CamelBak, Bushnell Golf, Bell and Giro products.

On the second theme related to its financial condition, Metz noted that Vista has improved its financing through lower rates and better terms over the last three years. Its net debt-to-EBITDA leverage ratio was shrunk from 4.3 times at year-end FY20 to 1.7 times at the end of our Q2 FY23.

Finally, Metz said Vista is positioned well to mitigate risks with a focus on managing inventory, controlling and reducing costs and improving the productivity of its product mix through SKU reductions. Metz added, “With regards to managing inventory, we’ve been slowing our buy orders for a couple of quarters to better align with current demand in Outdoor Products while continuing to monitor weeks of supply, POS activity and DTC trends.”

Vista’s Q2 total inventory increased 15 percent, excluding acquisitions, with higher inflation among the factors increasing the cost of inventory.

“As we look at the retail channel, we are seeing pockets of higher inventory due to slowing demand for products at opening price points, which have now expanded into mid-tier price points, particularly in the mass channel for bikes, and in our outdoor accessory business,” said Metz. “However, we are leveraging promotions strategically and participating at the right level across all our channels, including D2C and in ways that retain competitiveness and protects our brands and share long-term.”

Photo courtesy CamelBak