By Eric Smith
Shares of Fox Factory Holding Corp. grew in the double digits before closing the day up $2.32, or 3.4 percent, to $63.45 after the company a day earlier not only announced a strong fourth quarter performance but also a CEO succession plan.
Mike Dennison takes over as CEO on June 29, replacing Larry Enterline, who is retiring after eight years in the role and will become executive chairman of the board.
Dennison is currently Fox’s powered vehicles group president, a position the company will now seek to fill. In other executive moves, Dudley Mendenhall will transition from chairman of the board of directors to lead independent director.
“I am honored to have the opportunity to succeed Larry as CEO and I look forward to continuing to work closely with him during the transition and in the future in his role as executive chairman,” Dennison said. “Fox is a unique company, and it has been my pleasure to work alongside such a high-performing team of people who care about delivering best-in-class, performance-defining products with an authentic brand experience. I thank Larry for his leadership and our collaboration, and I am confident that we are going to build upon our existing accomplishments to generate sustainable growth and value for our shareholders.”
During Tuesday afternoon’s earnings call with analysts, Enterline praised his successor: “Mike’s vast international operating experience and deep understanding of Fox, our people, and diverse end markets make him uniquely qualified to lead Fox into the next phase of our growth. I look forward to continuing to work with Mike, the board of directors, and our entire Fox team on strategy and business development initiatives in my new role as executive chairman. Under Mike’s leadership, Fox will continue to execute our shared strategic vision for growth.”
The news was well received, as evidenced by Fox’s shares climbing Wednesday but also based on analyst reaction, which touted Enterline’s tenure at the company and assessed Dennison as a worthy replacement.
Under his leadership, Fox grew both organically and via acquisition to increase sales from $197.7 million in 2011 to $619.2 million in 2018. He oversaw Fox going public in 2013 and helped generated a total shareholder return of more than 300 percent in his eight-year stint.
But Dennison’s appointment should bode well for the company. Dennison was appointed to head Fox’s powered vehicles division last August after serving as president and CMO for Flex Ltd. He had served as a director on Fox’s board of directors since February 2018.
As Jim Duffy of Stifel wrote in a note to investors, “Larry Enterline announced his retirement from the role of CEO at the close of an outstanding 2018 that featured 30.2 percent revenue growth and 40 percent growth in adjusted EPS. As CEO, Enterline oversaw an exceptional period of revenue growth and equity value creation (approximately 18 percent 5 yr. revenue CAGR and 25 percent 5.5 yr. compound annual return). New CEO Mike Dennison brings to Fox multifunctional experience with Flex Ltd. including deep supply chain expertise that we expect translates to favorable margin impact in coming years.”
The CEO succession is one of many transformational events happening at Fox. The company at the end of last year completed a headquarters move from Scotts Valley, CA, to Braselton, GA, where it already operated some offices.
Despite these ongoing executive and operational changes, the company showed no signs of disruption in the fourth quarter. Fox on Tuesday reported sales for the period of $156.8 million, which narrowly missed Wall Street’s targets (by $0.02 million) but increased 29.5 percent compared to the same period last fiscal year.
This increase reflects a 47.7 percent increase in powered vehicle group sales and an 11.9 percent increase in specialty sports group sales. The increase in sales across the company’s businesses was primarily due to success of its product lineup, particularly in the OEM channel, as well as the inclusion of a full quarter of sales from Tuscany.
Read more: Fox Factory Revenue Jumps 30 Percent In Q4
Non-GAAP adjusted net income was $22.5 million, or 58 cents of adjusted earnings per diluted share, beating Wall Street targets by 2 cents and up from $14.9 million, or 38 cents of adjusted earnings per diluted share, in the same period last fiscal year.
Also, gross margin increased 20 basis points to 32.5 percent compared to 32.3 percent in the same period last fiscal year. Non-GAAP adjusted gross margin remained unchanged compared to the same period last fiscal year. And adjusted EBITDA was $29.8 million, or 19 percent of sales, compared to $23.6 million, or 19.5 percent of sales in the same period last fiscal year
Chris Tutton, president of Fox’s specialty sports group, outlined that group’s business highlights in the fourth quarter and fiscal year. He said sales of bike products increased 11.9 percent in Q4 compared to the same period in fiscal 2017, and they increased 14.9 percent in the fiscal year compared to the prior fiscal year. He said the “sports group’s momentum continues on the back of a strong model year 2019 portfolio.”
Companywide, sales for the fiscal year ended December 28 were $619.2 million, an increase of 30.2 percent compared to fiscal 2017. Power vehicle group and specialty sports group increased 46.5 percent and 14.9 percent, respectively, in fiscal 2018 compared to the prior year.
Net income attributable to Fox stockholders in the fiscal year ended December 28, 2018 was $84 million, compared to $43.1 million in the prior year. Earnings per diluted share for fiscal 2018 was $2.16, compared to $1.11 in fiscal 2017.
For the first quarter of fiscal 2019, the company expects sales in the range of $150 million to $158 million and non-GAAP adjusted earnings per diluted share in the range of $0.44 to $0.49.
For the fiscal year 2019, the company expects sales in the range of $695 million to $715 million and non-GAAP adjusted earnings per diluted share in the range of $2.45 to $2.55. The company’s full year 2019 guidance assumes a non-GAAP tax rate range of 15 percent to 19 percent.
Photo courtesy Fox Factory