Vista Outdoor reported making progress with separating the company into two operating entities and selling its Sports Products segment (Kinetic Group) to Czechoslovak Group (CSG).
Long-term, CFO Andy Keegan said the company expects the separation to jump-start the “compelling vision” for Revelyst, the former Outdoor Products segment, by capitalizing its balance sheet with cash to accelerate its capital allocation strategy. “We believe Revelyst will be well-positioned to hit the ground running as a successful independent company,” he said.
Sales in the third quarter were $365 million with an adjusted EBITDA margin of 28 percent of sales, above expectations, driven by the company’s “focus on operational efficiency and profitability.”
Adjusted EBITDA was $15 million, with adjusted EBITDA margins of approximately 5 percent, which the company said met performance expectations due to higher promotions to move higher price inventory.
“The Revelyst culture of innovation drove many exciting new product innovations and content collaborations over the last few months and secured incremental revenue opportunities,” said Eric Nyman, co-CEO of Vista Outdoor and CEO of Revelyst. “Our team delivered new and innovative products, collaborations and contract wins that will allow us to exceed the requirements of our ambitious consumers.”
- In the Adventure Sports platform, Nyman said that Fox Racing expanded its helmet line by introducing the Crossframe Pro.
- In the Precision Sports Technology platform, Nyman said Foresight Sports is coming off its best quarter in company history with its strongest period of new product launches.
- In the Outdoor Performance platform, Blackhawk, the company’s play in law enforcement and military equipment, announced a four-year contract from the Federal Police in Belgium to deliver new duty holsters from the brand’s T Series Holster line.
Nyman said Precision Sports Technology and Adventure Sports platforms “performed strongly” as both increased holiday sales by nearly 20 percent compared to the same period last year.
Consolidated Vista Outdoor sales decreased 9.6 percent to $682 million in the fiscal third quarter, in line with company expectations. Keegan said the decrease in sales resulted from declines in both segments.
- Gross profit was $203 million for the quarter and gross margin decreased 257 basis points to 29.7 percent of sales. Decreases across both segments reportedly caused the decline.
- EBITDA decreased 30.2 percent to $94 million in the quarter, and EBITDA margin was 13.7 percent of sales, down 405 basis points. Keegan said the decline was driven by lower gross profit in both segments, partially offset by decreased selling costs at The Kinetic Group.
- EPS decreased 37 percent in the third quarter to 80 cents a share.
Keegan said the balance sheet had improved, and the company made “significant progress” in improving its inventory position. Total Revelyst inventory decreased more than 15 percent year-over-year and 5 percent sequentially from the fiscal second quarter.
“Revelyst, in particular, had success moving through high-priced inventory, decreasing by approximately 25 percent year-over-year and just under 10 percent sequentially,” Keegan shared.
The fiscal nine-month year-to-date free cash flow was $270 million. Net debt decreased $127 million sequentially to $778 million, and the net debt leverage ratio is now at 1.7x.
Revelyst Sales decreased 10.2 percent to $317 million in the fiscal third quarter, driven primarily by “increased discounting, lower volume and unfavorable mix as consumers continue to face pressures from high-interest rates and other short-term factors affecting their purchasing of consumer durable goods.”
- Gross profit decreased 17.2 percent to $85 million due to increased discounting, lower volume and unfavorable mix, partially offset by favorable foreign exchange rates.
- Gross margin decreased 228 basis points to 26.7 percent of sales in the quarter.
- EBITDA was $15 million for the period, down 52.6 percent, with an EBITDA margin of 4.6 percent, down 416 basis points. The decline in the quarter was said to be primarily driven by decreased gross profit.
Fiscal third-quarter sales in The Kinetic Group decreased 9.1 to $365 million, driven by “lower shipments across nearly all categories as channel inventory has normalized and lower pricing.” Keegan said increased shipments of rifle and primer categories partially offset these decreases.
- Gross profit decreased 16.5 percent to $118 million, driven by decreased volume, increased input costs due to inflation and lower pricing.
- Gross margin decreased 287 basis points to 32.4 percent of sales.
- EBITDA was $102 million, down 17.9 percent, primarily due to lower gross profit, partially offset by decreased selling costs. EBITDA margin was 27.9 percent, a decrease of 301 basis points.
The company reaffirmed its full-year 2024 guidance discussed on the previous earnings call. Looking ahead, Vista Outdoor sees:
- Full fiscal year 2024 sales of $2.725 billion to $2.825 billion for the period ending March 31, 2024.
- The Kinetic Group sales at a range of $1.45 billion to $1.50 billion.
- Revelyst sales at $1.275 billion to $1.325 billion.
- Adjusted EBITDA margin between 15.5 percent and 16.25 percent. The Kinetic Group EBITDA margin range is at 26.5 percent to 27.5 percent, and Revelyst EBITDA margin range of 7.75 percent to 8.25 percent.
- Adjusted EPS in the range of $3.65 to $4.05, an adjusted effective tax rate of approximately 19.5 percent.
- Interest expense in the range of $55 million to $65 million, and adjusted free cash flow is between $265 million and $315 million.
“At Revelyst, we expect a return to low-single-digit growth in the fourth quarter, driven by strength in golf as a result of the exciting new product launches, including the Falcon, the ForeCaddy and the Quad Max,” shared Keegan. “We also expect growth in Action Sports due to improving POS and stronger order books as compared to the prior-year period. Additionally, we successfully moved through much of our higher-priced inventory during the quarter and have observed marketplace retail and wholesale inventory becoming healthier in recent months.”
Keegan said the company sees “more optimistic purchasing patterns” and is starting to see the convergence of POS and selling within specific categories.
“As we look at Revelyst margins, we expect high-single-digit adjusted EBITDA margins in the quarter due to lower product discounting compared to the third quarter,” he continued. “We also see inventory cost improving as freight cost return to more normal levels and expected adjusted EBITDA margin towards the low end of the guidance range for the full fiscal year.”
At The Kinetic Group, the company expects sales to decrease in the low double-digits in the fourth quarter and closer to the low end of the guidance range for the full fiscal year 2024. Keegan said this was due to channel inventory normalizing in many categories.
“We expect adjusted EBITDA margins towards the high end of our guidance range for the full fiscal year of 2024,” Keegan concluded. “As we look at profitability on a total company basis for the full year, we expect adjusted EBITDA margins to be within our guided range for fiscal 2024 guidance, and we expect an interest expense towards the high end of the range for the full fiscal year.”
Photo courtesy Vista Outdoor/Fox Racing
For more details on the company’s transformation plans for Revelyst, including staff cuts and office closures go here: