Fox Factory Holding Corp. reported a 16.6 percent decrease in net sales for the first quarter to $333.5 million compared to net sales of $399.9 million in the first quarter of fiscal 2023.

Aftermarket Applications Group (AAG) net sales declined $36.9 million, or 26.6 percent, year-over-year. The decrease in AAG net sales to $101.9 million was driven by lower upfitting sales due to product mix and higher interest rates impacting industry dealers and consumers.

Powered Vehicles Group (PVG) net sales decreased $24.1 million, or 17.0 percent, to $118.1 million due primarily to lower industry demand in Power Sports because of higher interest rates.

Specialty Sports Group (SSG) net sales decreased $5.4 million, or 4.5 percent, to $113.5 million in Q1, primarily related to a $65.0 million reduction in bike sales from the ongoing channel inventory recalibration and, to a lesser extent, lower-end consumer demand, offset by the inclusion of $59.6 million in net sales from Marucci which the company acquired in November 2023.

“We delivered net sales that were in line with our expectations and adjusted EPS that exceeded our plan,” commented Mike Dennison, CEO of Fox Factory. “While the OEMs that we serve continue to face unique challenges in the near term, we remain focused on delivering long-term growth through our uncompromising commitment to innovation and product development while also being vigilant on managing costs and improving our balance sheet in the short term.”

Gross margin was 30.9 percent of net sales for the first quarter of fiscal 2024, a 240 basis-point decrease from gross margin of 33.3 percent in the first quarter of fiscal 2023. The decrease in gross margin was primarily driven by a shift in product line mix and operating leverage on lower volume.

Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup, decreased 180 basis points to 32.3 percent from the prior fiscal year period.

Total operating expenses were $94.3 million, or 28.3 percent of net sales, for the first quarter, compared to $78.6 million, or 19.7 percent of net sales, in the first quarter of fiscal 2023. Operating expenses increased by $15.7 million primarily due to the inclusion of $20.8 million of Marucci operating expenses and a full fiscal quarter of Custom Wheel House operating expenses.

In the first quarter, adjusted operating expenses were $80.3 million, or 24.1 percent of net sales, compared to $70.3 million, or 17.6 percent of net sales, in the prior-year Q1 period.

The company reflected a tax benefit of $1.3 million in the first quarter of fiscal 2024, compared to a tax expense of $9.4 million in the first quarter of fiscal 2023. The decrease in the company’s income tax expense was primarily due to the decline in pre-tax income.

Net loss in the first quarter of fiscal 2024 was $3.5 million, compared to net income and net income margin of $41.8 million and 10.4 percent, respectively, in the first quarter of the prior fiscal year.

Loss per diluted share for the first quarter of fiscal 2024 was 8 cents, compared to earnings per diluted share of 98 cents for the first quarter of fiscal 2023.

Adjusted net income in the first quarter of fiscal 2024 was $11.9 million, or 29 cents per diluted share, compared to adjusted net income of $51.0 million, or $1.20 per diluted share, in the comp period of the prior fiscal year.

Adjusted EBITDA in the first quarter of fiscal 2024 was $40.4 million, compared to $79.2 million in the first quarter of fiscal 2023. Adjusted EBITDA margin in the first quarter of fiscal 2024 was 12.1 percent of net sales, compared to 19.8 percent in the first quarter of fiscal 2023.

Second Quarter and Fiscal 2024 Guidance

Second Quarter Outlook
For the second quarter of fiscal 2024, the company expects net sales in the range of $340 million to $360 million and adjusted earnings per diluted share in the range of 30 cents to 40 cents per share.

“We continue to expect sequential growth in the second quarter and further acceleration in the second half of fiscal 2024 due to new product launches that are led by our first Fox Factory-branded off-road upfitted truck, model year ’25 bike releases, which are showing signs of improvement, and the introduction of side-by-side upfits,” commented Dennison continued. “However, we are narrowing our full-year fiscal 2024 outlook towards the bottom half of our previous range, effectively removing the upside scenario from our plan to align with the market’s latest expectations that interest rate relief will be pushed out beyond fiscal 2024. Our entire team at Fox Factory remains focused on controlling the aspects of the business that we can, including expense controls and productivity optimization, in order to improve margins while keeping our business positioned to reaccelerate growth as macro conditions improve.”

Fiscal 2024 Outlook
For the fiscal year 2024, the company expects net sales in the range of $1.53 billion to $1.61 billion, adjusted earnings per diluted share in the range of $2.30 to $2.55, and a full-year effective tax rate in the range of 15 percent to 18 percent.

Adjusted earnings per diluted share exclude the following items net of applicable tax: amortization of purchased intangibles, litigation and settlement-related expenses, acquisition and integration-related expenses, organizational restructuring expenses, and strategic transformation costs. A quantitative reconciliation of adjusted earnings per diluted share for the second quarter and full fiscal year 2024 is only available with reasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation. For the same reasons, the company could not address the probable significance of the unavailable information, which could be material to future results.

Image courtesy Fox Factory Holding Corp.