Vista Outdoor reported earnings and sales easily exceeded company guidance in the first quarter ended June 26 with strength in premium offerings; however, officials told analysts it was tempering its outlook for the fiscal year due to macroeconomic pressures, as category demand at lower-price points continues to be adversely affected by inflation.

Vista also elaborated on the pending acquisition of Simms Fishing, which was announced Wednesday, and Fox Racing, which was announced on July 6.

On a conference call with analysts, Chris Metz, CEO, said that during its first quarter, demand was beginning to soften at opening price points due to the lack of stimulus money this year and higher inflation.

“We understand the negative macro-economic pressures are real,” said Metz. “We are experiencing slowing demand in lower price points across our brands. We’re seeing pressures at key customers, including Target and Walmart.”

Metz said Vista expects to see lower-price-point categories continue to be affected more by inflation as reduced stimulus and higher prices have led to lower spending in areas such as hunting and shooting accessories, bike helmets in the mass channel, and grills at opening price points.

Metz sees the weakness at the lower-price price points to be “short term” as underlying participation rates remain elevated. He also noted that Vista is seeing stronger performances elsewhere to help offset much of the weakness at lower price points.

“At higher price points, we continue to see strong demand, and participation rates remain steady,” said Metz. “Within outdoor recreation, golf posted exceptional growth and sales at CamelBak also increased, primarily driven by new products.”

Metz said its outdoor cooking platform, led by Camp Chef, was impacted in the quarter by high comps from sell-in last year as retailers replenished low inventory to keep up with elevated demand. This year, retailers are in an overstock position, particularly at lower-price and medium-price point grills.

In the domestic commercial ammunition market, Vista sees a normalization of demand after the pandemic surge that is settling at an elevated run rate that is higher than prior post-peak levels.

“Our outlook for ammo remains positive,” said Metz. “The ranks of new shooters are increasing both in quantity and diversity. Recent growth has not been politically driven but culturally driven by new entrants participating more frequently and consuming more ammunition than legacy shooters. We expect demand to remain solid through midterm elections as we are confident this event won’t have a large impact on demand.”

Metz also noted that Vista’s latest completed acquisitions, including Foresight, Stone Glacier and QuietKat, are performing well despite the economic headwinds.

“We believe this reflects two dynamics. First, they’re selling to higher-end, more affluent consumers less affected by inflation. Second, they’re participating in higher growth categories, which is a key reason we acquired these businesses as well as our planned acquisitions of Fox Racing and Simms Fishing,” said Metz. “We expect these acquisitions to partially offset the slowing of legacy products from historic highs, demonstrating that having a diversified portfolio affords the flexibility to be strategic in the current operating environment.”

Regarding the recently-announced acquisitions, Metz said Fox Racing and Simms Fishing “are iconic brands with a cult-like following in their categories.”

Fox Racing, the maker of performance motocross, mountain bike and lifestyle gear, is expected to generate $350 million in revenue this calendar year. Simms Fishing, a manufacturer of waders, outerwear, footwear, and technical apparel, is expected to generate $110 million in annual revenue this calendar year.

“With Fox Racing, this legendary brand will bring us into one of the most passionate sporting bases we address with motocross and mountain biking,” said Metz. “With Simms Fishing, we believe we can create a fishing platform that delivers long-term growth and value for all stakeholders. With each of these planned acquisitions, we are continuing the successful implementation of our strategy to use accretive acquisitions, to expand leadership positions across categories while enhancing our ability to capitalize on long-term growth opportunities in outdoor recreation.”

Fox Racing and Simms Fishing will join Vista’s Outdoor Products segment, which includes CamelBak, Bell, Giro, Camp Chef, Bushnell, Bushnell Golf, Foresight Sports, Stone Glacier, and QuietKat. Vista’s Sporting Products segment includes Federal, Remington, CCI, Speer, and Hevi-Shot.

In the first quarter, Vista’s sales increased 21 percent to $803 million, surpassing Vista’s guidance that called for sales in the range of $770 million to $790 million.

Gross margins in the quarter improved 15 basis points to 37 percent. Operating expenses were $121 million, up nearly 24 percent, primarily driven by acquisitions.

Earnings before interest and taxes (EBIT) increased 20 percent to $172 million. Adjusted EBIT rose 26 percent to $183 million. Adjusted EBIT margins increased 87 basis points to 23 percent.

Earnings before EBITDA increased 20 percent to $192 million. Adjusted EBITDA rose 25 percent to $203 million. Adjusted EBITDA margins increased 83 basis points to 25 percent, topping Vista’s guidance in the range of 22 percent to 22.5 percent.

EPS was $2.16, up 26 percent, compared with $1.71. Adjusted EPS was $2.31, up 33 percent, compared with $1.74 and ahead of Vista’s guidance in the range between $1.85 to $1.95.

In the Sporting Products segment, sales rose 40 percent to $511 million, driven by growth across all calibers. Volume was the largest contributor to growth and pricing to a much lesser extent.

Gross profit in the Sporting Products segment increased 35 percent to $201 million. Margin expansion was driven by higher volume, improved mix and higher pricing, partially offset by higher commodity and freight costs.

EBIT in the Sporting Products segment jumped 41 percent to $176 million, driven by higher gross profit and selling and general and administrative expense leverage. EBITDA improved 39 percent to $182 million. EBITDA margins decreased 28 basis points to 36 percent.

In the Outdoor Products segment, sales decreased 2 percent to $292 million, primarily driven by Outdoor Accessories, which was partially offset by growth in Outdoor Recreation. The prior year period was particularly boosted by stimulus checks, a lower inflationary environment and higher-than-average sell-in to replenish low channel inventory and meet elevated demand.

Gross profit in the Outdoor Products segment remained flat at $93 million, primarily due to lower Outdoor Accessories sales and higher transportation and freight costs, offset by the addition of accretive acquisitions. EBIT decreased 36 percent to $28 million, primarily driven by lower sales and higher selling, general and administrative expenses from the addition of acquisitions. EBITDA decreased 24 percent to $39 million. EBITDA margins decreased 381 basis points to 14 percent.

Vista said that the current macroeconomic landscape and its two pending acquisitions, the company isn’t planning to pursue any further material acquisitions before its planned separation. On May 5, the company said its board unanimously approved a plan to separate its Outdoor Products and Sporting Products segments into two independent, publicly-traded companies.

Sudhanshu Priyadarshi, CFO, said Vista’s capital allocation strategy now focuses on debt repayment and opportunistic share repurchases. Vista’s net debt leverage ratio at the end of the first quarter was well below the company’s targeted ratio of one to two times. Following our recent acquisitions, Vista expects to be within that targeted range at approximately 1.6 times.

Priyadarshi said, “We are tracking ahead of pace to complete the spin-off in the calendar year 2023 and excited about the future of both segments as we seek to further unlock shareholder value.”

Vista’s updated outlook is adjusted for some pressures due to the macroeconomic environment. It assumes the acquisitions of Fox Racing and Simms Fishing close by the end of the second quarter. The updated guidance calls for:

  • Sales in the range of $3.200 billion to $3.325 billion, up 7 percent at the midpoint;
  • Adjusted EBITDA margin in the range of 21.0 percent to 21.5 percent; and
  • Earnings per share (EPS) in the range of $6.90 to $7.50 and adjusted earnings per share (EPS) in the range of $7.05 to $7.65.

Previously, Vista guided sales to arrive in a range of $3,150 million to $3,250 million, up 5 percent at the midpoint, adjusted EBITDA in the range of 20.5 percent to 21.5 percent, and EPS in a range of $7.00 to $7.75.

Photo courtesy Simms Fishing