Vista Outdoor reported another tough quarter, but shares were up slightly Thursday as company officials indicated Outdoor Products’ profitability is improving, and the segment is still projected to resume growth by the holiday quarter. The Sporting Products segment, at the same time, is maintaining healthy margins as more normalized purchasing cycle returns.

Shares of Vista closed Thursday at $30.65, up $1.51, or 5.2 percent, to $30.65.

“Our top line continues to be tested, but we delivered solid EBITDA and free cash flow again this quarter,” said Gary McArthur, interim CEO at Vista Outdoor, on a call with analysts.

For investors, McArthur stressed that the company is on track to separate the Outdoor Products and Sporting Products segments in a spinoff by late October or early November.

The Outdoor Products segment includes Bell, Bushnell, Bushnell Golf, CamelBak, Camp Chef, Foresight Sports, Fox Racing, Giro, QuietKat, Simms Fishing, and Stone Glacier. The Sporting Products segment includes CCI, Federal, HEVI-Shot, Remington, and Speer.

McArthur noted that Vista continues to trade at a mid-single-digit enterprise value to FY2024 EBITDA, in line with other public-traded companies in the ammunition space. He expects the stand-alone Outdoor Product business will trade closer to pure-play outdoor products-focused peers, which tend to trade at double-digit enterprise value to EBIT.

McArthur also said each company is expected to benefit from having “a dedicated strategic focus, tailored capital allocation approach and its own set of competitive advantages.”

The Outdoor Products business is expected to have no or minimal debt at the time of spinoff and one to two times leverage long-term. The business’s primary capital allocation will be acquiring additional business opportunistic share repurchases.

The Sporting Products segment going forward, will focus on debt paydown and providing an attractive dividend to shareholders as a separately-owned business. Vista said Sporting Products’ stand-alone business expects to pay out approximately 20 percent to 30 percent of free cash flow in the form of dividends in the initial period post-spin period, with the rate expected to increase as the businesses’ leverage declines and higher priced debt is paid down.

McArthur said Vista made progress during its fiscal first quarter ended June 25, on all the conditions necessary to executive the spinoff, including establishing the Outdoor Product senior leadership team, facing a more stable macro-economic environment and improving the Outdoor Products segment’s financial performance.

He noted that Vista last week hired Eric Nyman, previously chief operating officer and president of Hasbro, Inc., as the Outdoor Products segment’s CEO, starting on August 21, saying he “brings a wealth of talent and experience to our organization.”

Nyman offered some brief comments on the call, “It’s an incredible opportunity to lead an iconic portfolio while also joining a purpose-driven company that connects people to the outdoors in deeper and more meaningful ways. I’m bringing to the job a passion for brands, growth and the outdoors. And 30 years of experience in multi-brand consumer products companies.”

Fiscal Q1 Results In Line With Expectations
McArthur highlighted that Vista’s results came in as expected in the first quarter, and the company was able to reiterate full-year guidance “despite market challenges.”

He noted that restructuring and profit improvement initiatives for the Outdoor Products segment “are taking hold and having a meaningful impact,” while the Sporting Goods segment is performing in line with expectations “in a normalizing market by focusing on what we can control and remaining disciplined in our strategy.”

In the quarter, companywide sales decreased 13.6 percent to $693 million; Organic sales were $611 million, a decline of 24 percent, driven by lower shipments across nearly all categories in the Sporting Products segment and declines in the organic Outdoor Products businesses.

Gross margins eroded 386 basis points to 32.7 percent as decreased volume and price in its Sporting Product segment, partially offset by the benefit of acquisitions. Recent acquisitions include Fox Racing and Simms Fishing during the second quarter of FY23.

Adjusted EBITDA decreased 37.7 percent to $126 million. Adjusted EBITDA margins decreased by 704 basis points to 18.2 percent.

Net income declined 53.9 percent to $58.1 million, or 99 cents a share, from $126.0 million, or $2.16, a year ago. On an adjusted basis, net earnings dropped 51.4 percent to $65.4 million, or $1.12, from $134.6 million, or $1.31, a year ago.

Vista’s debt ratio was reduced to 1.7 times, well within its long-term target of one to two times. McArthur said, “We will continue to prioritize a strong balance sheet.”

Sporting Products’ Q1 Sales Slide 26 Percent
By segment, Sporting Products’ sales fell 26 percent in the first quarter to $377 million, in line with guidance, driven primarily by lower shipments across nearly all categories as prior year shipments reduced finished goods inventory and the market normalized. The decline also reflects the previously announced termination of the Lake City contract at the beginning of the third fiscal quarter in the prior year.

Gross profit decreased 34 percent to $132 million, caused by decreased volume and price.

Operating income decreased 38 percent to $108 million, primarily driven by lower gross profit, partially offset by decreased selling costs. 

Operating income margin was 28.8 percent. Adjusted EBITDA decreased 37 percent to $115 million. Adjusted EBITDA margins decreased 523 basis points to 30.5 percent, also in line with forecasts.

McArthur said Vista continues to expect sales in the high-$300s per quarter in the Sporting Products segment and EBITDA margins to settle into the mid-20s in the back half of the year.

Outdoor Products Segment Sales Decline 8.5 Percent
In the Outdoor Products segment, sales increased 8 percent to $317 million. Organic sales were $235 million, down 20 percent, primarily caused by lower volume due to high channel inventory.

The 20 percent year-over-year decline marked sequential improvement from down 30 percent in the fiscal fourth quarter, noted Andy Keegan, VP and interim CFO. The Outdoor Products segment’s organic decline is expected to continue to improve further next quarter and turn to growth in the back half of the fiscal year.

Gross profit increased 3 percent to $95 million, driven by acquisitions, partially offset by decreased volume from organic businesses.

Operating income declined 76 percent to $7 million, primarily caused by increased SG&A costs related to acquired businesses, partially offset by increased total gross profit and lower selling costs related to organic businesses. Operating income margin was 1.9 percent.

Adjusted EBITDA decreased 39 percent to $24 million. Adjusted EBITDA margins decreased 592 basis points to 7.6 percent. Largely due to the cost and earnings improvement actions, EBITDA and EBITDA margins in the Outdoor Products segment are expected to continue to improve throughout the year.

Guidance
Looking ahead, Vista reiterated its guidance for the year ended March 31, 2024. The company outlook calls for:

  • Sales in the range of $2.85 billion to $2.95 billion, down 6.4 percent at the midpoint versus $3.1 billion the prior year;
  • Sporting Products sales are expected to be approximately $1.475 billion to $1.525 billion, down 16.7 percent at the midpoint versus $1.8 billion the prior year;
  • Outdoor Products sales are expected to be approximately $1.375 billion to $1.425 billion, up 7.7 percent at the midpoint versus $1.3 billion the prior year;
  • Adjusted EBITDA margin in the range of 17.75 percent to 18.75 percent against 20.2 percent the prior year;
  • Sporting Products EBITDA margin range of 26.75 percent to 27.75 percent, down from 31.4 percent in FY23;
  • Outdoor Products EBITDA margin range of 12.00 percent to 13.00 percent, up from 4.7 percent in FY23; and
  • EPS in the range of $4.38 to $4.88 against a loss of 17 cents a year ago. Adjusted EPS in the range of $4.50 to $5.00, down by 25.8 percent at the midpoint against $6.40 the prior year.

Providing some quarterly guidance, Keegan said sales in the Outdoor Products segment are expected to be approximately flat in Q2 “due to the pressures across all businesses,” followed by slight growth in Q3 and strong growth in Q4. Incremental improvement in Outdoor Products’ EBITDA margins is expected each quarter from current levels, including around double-digit margins in Q2 to margins above the guidance range by Q4.

In the Sporting Products segment, sales are to be roughly consistent in the high-$300s each quarter with EBIT margins in mid-20 percent for the remainder of the fiscal year. Keegan added, “We expect free cash flows to be weaker in the front half of the year and stronger in the back half of the year.”

Photo courtesy Vista Outdoor/Simms Fishing