With the final pieces in place to split the Vista Outdoor business and create two new entities, one to focus on the company’s ammo business and the other to focus on outdoor products, Vista Outdoor took the opportunity Thursday morning to update the market on the progress and process of the sale of the ammo segment and provide an opportunity for the new leadership of the two businesses to walk through the latest quarter.
Sporting Products Segment
Jason Vanderbrink, CEO of the Sporting Products segment focused on the company’s ammunition brands, reported that fiscal second-quarter sales for the segment were $350 million, which was a 19 percent decline versus the prior-year quarter.
The numbers were said to be in line with the recent earnings pre-release, driven primarily by lower shipments across nearly all categories as channel inventory has normalized, lower pricing, and the previously announced termination of the Lake City contract at the beginning of the third fiscal quarter of the prior year.
Gross profit decreased 28 percent to $115 million, primarily due to decreased volume and prices.
Operating income decreased 31 percent to $92 million, primarily driven by lower gross profit, partially offset by decreased selling costs. Operating income margin decreased 446 basis points to 26.4 percent.
Adjusted EBITDA decreased 29 percent to $99 million. Adjusted EBITDA margins decreased 409 basis points to 28.3 percent.
“While market conditions were more challenging in the second quarter, we see a higher baseline and participation rates remain very strong,” Vanderbrink explained on a conference call with analysts. “Index data continues to signal sustained gun purchases with now 50 straight months of firearms checks over one million. In September, this was 13 percent higher than 2019 and continues to show the industry has grown its user base. We have seen a return to seasonal buying patterns driving the consumer purchase cycle and continued participation from the 19 million new gun owners. There has also been a significant recent increase in demand across several categories due to global unrest that we are monitoring. We continue to monitor point of sale and customer level inventory in this dynamic market.”
The continued strength in the market and the possibility of expansion outside the U.S. was certainly a primary consideration in the acquisition of the Sporting Products segment by Czechoslovak Group (CSG) for $1.91 billion in October (read SGB Media‘s coverage here).
Vista Outdoor Interim CEO and Director Gary McArthur sees a nice upside for the remaining Outdoor Products business, which will be renamed Revelyst as a stand-alone company and traded under the stock symbol “GEAR.”
“We believe that this outcome provides great value [and] is the best strategic alternative for maximizing value to stockholders due to the payment of approximately $750 million of cash consideration and locking uncertainty of value for stockholders in the near term,” said McArthur on the call. “Long term, this outcome jump starts our compelling vision for Revelyst, by capitalizing its balance sheet with cash to accelerate its capital allocation strategy and puts us in a position to hit the ground running as a successful independent company.”
Vanderbrink added his take on the sale and said, “We believe the sale of Sporting Products to CSG is a great outcome for our stockholders, our business, our employees and our customers. A private global strategic owner will allow us to grow the reach of our iconic American brands and expand our legacy of U.S. manufacturer support for the military and law enforcement customers and investments in conservation and our hunting and shooting heritage.”
McArthur outlined in his opening remarks on the call that the Sporting Products business will remain headquartered in Anoka, MN and the business “will stay true to its long-standing heritage of manufacturing and selling our iconic American Brands in America.” He also went on to say that in teaming with CSG, Sporting Products will increase its efforts to market and sell its “iconic brands to civilian and government customers around the globe.”
Vanderbrink gave a nod to his new team, calling out Allan Kerfeld as the new company’s CFO, Jeff Ehrichas as general counsel and corporate secretary, and Mark Kowalski, as controller and chief accounting officer.
“This team has eight decades of combined experience and a great working knowledge of our business and the ammunition industry,” Vanderbrink shared.
To highlight some recent wins, Vanderbrink talked about a new deal that secured the Department of Homeland Security contracts for five years to provide the highest quality duty ammunition for both the U.S. Customs and Border Patrol and Immigrations and Customs Enforcement Agencies.
“The CBB contract is our second largest ever in both agencies chose Federal’s Tactical Bonded Ammunition for their duty rifles,” Vanderbrink shared. “This supports their mission to protect our borders and preserve national security and public safety.”
He said the company’s law enforcement team also secured a contract win with the Miami-Dade Police Department, the 8th largest department in the U.S.
“The 3500 member police force will use Spear 9mm Gold Dot for their duty pistol and Federal .223 Tactical Bonded Ammunition for the Department’s duty rifle,’ he detailed. “We are proud to provide the highest quality duty ammunition to law enforcement Federal Agencies in the United States and globally. Our employees produce excellent products that many law enforcement agencies in the United States trust to protect and serve our communities.”
Jason went on to say the Sporting Products team will continue to focus on making the best ammunition in America and delivering on the company’s goals as they work toward the closing of the sale to CSG,
“We believe our diverse customer base and multi-brand strategy will allow us to compete for additional market share, expand our presence into new markets, improve the financial performance of Remington and continue to deliver mid-20 percent segment-adjusted EBITDA margins,” Vanderbrink said.
Outdoor Products Segment
Eric Nyman, the new CEO of the Outdoor Product segment, said on the call that he visited multiple Revelyst locations over his first ten weeks on a look, listen and learn tour.
“I had the chance to meet and hear from a large number of our employees who were eager to share their pride and excitement about the future of our company,” he said. “I left feeling energized as I saw a tremendous amount of potential and a lot to be excited about at this company, which we have recently named Revelyst.”
Nyman also outlined his new team, with Andy Keegan, currently VP and interim CFO of Vista Outdoor, planning to join Revelyst as CFO. He also called out new General Counsel Jung Choi.
“Andy’s work as Interim CFO has given me and the board high confidence in his ability to serve in this position,” Nyman shared. “Jung has over 15 years of diverse legal experience and expertise, most recently serving as the general counsel and corporate secretary for Boxed, a publicly traded e-commerce grocery platform.”
I am eager to partner with Andy, Jung and the rest of the leadership team in leading Revelyst during this transformational period in our company’s history and support the work that we are doing to advance our mission of creating the best and largest house of outdoor brands.
Andy Keegan shared the segment’s results in a recent press release, reporting that fiscal second-quarter sales decreased 6 percent to $327 million, in line with the recent earnings pre-release, and said to be driven primarily by lower volume as channel partners continue to be cautious with purchasing due to inventory levels and as consumers are pressured by high-interest rates and other short-term factors affecting their purchases of consumer durable goods.
Organic sales were $296 million, down 15 percent.
Gross profit decreased 12 percent to $94 million, reportedly caused primarily by “lower volume from organic businesses, partially offset by acquisitions.”
Operating income declined 57 percent to $13 million, said to be primarily driven by decreased gross profit, partially offset by reduced selling, general, and administrative costs related to organic businesses. Operating income margin decreased 459 basis points to 3.9 percent.
Adjusted EBITDA decreased 33 percent to $30 million. Adjusted EBITDA margins decreased 370 basis points to 9.3 percent.
“In the second quarter of fiscal year 2024 we remained focused on the health of our balance sheet, as we continued to prioritize debt paydown as our primary use of capital,” said new Revelyst CFO Keegan. “Our net debt decreased sequentially, and our net debt leverage ratio finished the quarter at 1.8x, within our target range of 1.0x to 2.0x. We expect to continue prioritizing debt pay-down ahead of our stockholder vote for the sale of Sporting Products, as we are unable, under applicable securities laws, to repurchase shares while the stockholder vote for our Sporting Products business is pending.”
Nyman went into more detail on the look ahead for the business and how they see right-sizing inventory and laying out the stable of brands to be better supported and structured for success, decentralization if you will.
“As I was able to reflect on what I saw and learned from my tour, a few things became very clear to me,” Nyman shared. “First, we have one of the most passionate workforces in the industry. Second, a big part of the reason for their passion is that our company is comprised of a collection of many of the world’s most iconic outdoor brands.”
Nyman said on his travels he observed and heard that in several ways from the team that the company’s powerful brands and assets have not yet been harnessed and elevated to achieve their true potential.
He said a transformation program will focus on three elements: Simplifying the business model; delivering increased efficiency and profitability from that simplified structure; and reinvesting in our highest potential brands to accelerate their growth and transformation.
“In the current structure, the business has become increasingly complex over time with multiple acquisitions causing brands to become independent of one another and creating inefficiencies across the entire company,” Nyman outlined. “Through a simplified structure, Revelyst can become an integrated house of iconic, high-performing outdoor brands that work together as one cohesive unit to form a globally branded company. We will leverage shared learnings and centers of empowerment across the company to drive efficiency through strong execution while embarking on a global omnichannel growth strategy that marries our imagination with innovation to create products that unlock wildly human experiences.”
He went on to say the first action toward achieving the goal of simplification is to reorganize the business, to create three distinct platforms and drive success.
The new platform structure will include:
- Precision Sports and Technology, consisting of Foresight Sports and Bushnell Golf, the company’s highest EBITDA margin and highest growth potential business, which will be led by Jon Watters and Scott Werbelow, co-presidents of Precision Sports and Technology.
- Adventure Sports, which will be comprised of Fox, Bell, Giro, CamelBak, QuietKat, and more. The largest segment with the most iconic brands will be led by Jeff McGuane, the new president of Adventure Sports.
- Outdoor Performance, which will include Bushnell, Primos, Simms, Camp Chef, Stone Glacier, and others, is a group with market leadership in hiking, camping, fishing, and hunting. The segment will also include the Blackhawk brand. This group will be led by Jordan Judd, the new president of Outdoor Performance.
“We expect that this effort will streamline our operations and unlock profitability improvements and cost savings beginning in Q4 fiscal year 2024, with an estimated $100 million of realized annual cost savings by fiscal year 2027,” Nyman surmised. “These net savings are in addition to the $50 million cost restructuring program announced in April 2023 with about $25 million of those early savings specifically related to Revelyst for a total of $125 million in cost improvements, on a run rate basis. Enabled by a simplified structure and powered by a recently signed deal with a leading consulting partner, this new initiative will maximize efficiency through consolidation of our current real estate footprint as well as within our back office technology stack, supply chain, and organizational structure.”
Nyman said they are taking decisive action at this time to position Revelyst well ahead of the separation and set it up for a strong start to fiscal year 2025.
“As reflected in our guidance, we are working hard to clear high-priced inventory to ensure that our products are front and center with our channel partners during the holiday season,” Nyman said. “We intend to utilize strategic promotions to work through the high-priced inventory and continue driving market share gains across categories regardless of external market factors. We are building momentum from the ground up and expect sequential margin improvements from Q3 to Q4 finishing the fiscal year strong.”
He went on to talk about inventory, suggesting that it will be right-sized in the back half of fiscal year 2024.
“Our restructuring program will begin taking hold and other strategic growth initiatives across the company will fuel organic top line growth reversing the declines experienced over the past few quarters, carrying us into fiscal year 2025 with momentum.,” Nyman shared.
Andy Keegan, speaking in his interim CFO of the Vista Outdoor business voice, walked through the consolidated results for the quarter in an earlier press release and also reviewed them on the call.
Vista Outdoor consolidated sales wre down 13 percent to $677 million in the quarter, in line with a recent earnings pre-release, driven by lower shipments across nearly all categories in the Sporting Products segment and lower volume as channel partners continue to be cautious with purchasing due to inventory levels and short-term consumer pressures in the Outdoor Products businesses.
Organic sales were $646 million, a decline of 17 percent for the period.
Gross profit declined 21 percent to $209 million and gross profit margin decreased 270 basis points to 30.9 percent primarily due to decreased volume and price in the Sporting Products segment and decreased volume in the organic Outdoor Products businesses, partially offset by acquisitions.
Operating expenses were $133 million, up 1 percent, primarily driven by increased selling, general, and administrative expenses from acquired businesses, partially offset by decreased selling costs in Sporting Products and decreased selling, general, and administrative expenses related to the organic businesses in Outdoor Products.
Operating income decreased 42 percent to $76 million. Operating income margins decreased 560 basis points to 11.2 percent.
Net income decreased 53 percent to $44 million. Net income margin decreased 539 basis points to 6.6 percent.
Adjusted EBITDA decreased 28 percent to $116 million. Adjusted EBITDA margins decreased 370 basis points to 17.2 percent.
Diluted Earnings per Share (EPS) was $0.76, down 53 percent, compared with $1.62. Adjusted EPS was $0.96, down 42 percent, compared with $1.67 a share.
Year-to-date (YTD) cash provided by operating activities was $107,540, compared with $193,402 in the prior-year YTD period. Year-to-date adjusted free cash flow was $115,735, compared with $201,489.
Outlook Fiscal Year 2024
Vista Outdoor in Forecasting:
- Sales in the range of $2.73 billion to $2.83 billion.
- Sporting Products sales are expected to be approximately $1.45 billion to $1.50 billion.
- Outdoor Products sales are expected to be approximately $1.28 billion to $1.33 billion.
- Adjusted EBITDA margin in the range of 15.50 percent to 16.25 percent.
- Sporting Products EBITDA margin range of 26.50 percent to 27.50 percent.
- Outdoor Products EBITDA margin range of 7.75 percent to 8.25 percent.
- Earnings per share in the range of $3.37 to $3.77 a share. Adjusted Earnings per share in the range of $3.65 to $4.05 a share.
- Cash from operating activities between $284 million to $336 million; adjusted free cash flow in the range of $265 million to $315 million.
- Effective tax rate of approximately 19.5 percent.
- Interest expense in the range of $55 million to $65 million.
- Capital expenditures, as a percent of sales, of approximately 1.50 percent.
“We are reaffirming our guidance for fiscal year 2024,” said Keegan. “At Outdoor Products, the teams are hard at work clearing high-priced inventory and we expect this to lead to Adjusted Segment EBITDA margins in the mid-single digits in the third quarter of fiscal year 2024, with sequential improvement to high single digits in the fourth quarter reflecting the beginning of our cost savings taking hold. At Sporting Products, we believe that the current increased global unrest along with a strong hunting season in the third quarter and the start of the election season in the fourth quarter will result in a more favorable performance than the second quarter. This is within our recently communicated guidance for the full year.”
Photos courtesy Vista Outdoor