Fox Factory Holding Corp. that its mountain biking (MTB) sales grew just 2.3 percent in the fourth quarter and declined 1 percent in the year ended Dec. 31, 2014, compared with annual growth of 14.4 percent in 2013 and the company's own long range targets of mid-to-high-single digit growth.


  • MTB sales grew just 2.3 percent in the fourth quarter, decline 1 percent for the year
  • Port congestion expected to hit bike business harder in first quarter
  • Forecast calls for sales growth to resume mid-to-high-single-digit pace with model year 2015 OEM shipments in back half
  • Expect to ship first forks for sub-$2,000 MTBs market in mid-2016
  • Fat bikes present nice mid-term growth opportunities

The Scotts Valley, CA company expects MTB sales to pick up in the back half of 2015, when it begins shipping forks and shocks for model year 2016 bikes to OEMs.

“When we get to the new model year that begins shipping in larger volumes towards the very end of Q2, we believe that the bike business can grow at our stated target of mid- to high-single digits,” said Mario Galasso, president of FOXF's business divisions.

FOXF CEO Larry L. Enterline said customer and media response to the Factory Series 36 all-mountain suspension fork, which will begin shipping in the third quarter, and resolution of a labor dispute at West Coast ports give him confidence that sales will accelerate toward end the end of the second quarter.

Enterline said the port issue is likely to have a bigger impact in the current quarter because the worst of the delays came in January and February as negotiations between employers and dockworkers reach an impasse. He noted that the slow down would have hurt FOXF much harder had it not begun shifting manufacturing of MTB forks  to Taiwan a few years ago to be closer to Taiwanese companies that account for about half of FOXF's bike OEM sales. In 2014, FOXF manufactured about 85 percent of its MTB forks in Taiwan. The company expects to make roughly the same amount of its rear suspension products there by the end of 2015.  

FOXF reported a 34.0 percent increase in sales at its powered vehicle business pushed up total sales 13.6 percent to $74.1 million in the fourth quarter. The growth in powered vehicle product sales was primarily driven by acquisitions and increased sales of products used to enhance the performance of side-by-side, truck, and on-road motorcycles.

Gross margin was 29.6 percent, up 90 basis points compared with the fourth quarter of fiscal 2013. The gain reflects manufacturing and supply chain efficiencies gained in the move to Taiwan as well as continued execution of the company's “product design for manufacturability program.”

FOXF reported operating income slipped $3.6 million, or 46.2 percent, to $4.2 million, while net income slipped 41.5 percent to $2.9 million, and earnings per diluted share declined to 8 cents from 13 cents. Non-GAAP adjusted net income and diluted earnings per share, which exclude acquisition and other non-recurring items, grew 12.1 and 12.5 percent respectively.

The company ended the year with total debt was $50.0 million, up four fold from a year earlier due to borrowings for the company's acquisitions of Sport Truck and Race Face/Easton Cycling, which put FOXF into the cranks, seat posts, bars and wheels businesses. The acquisitions pushed up year-end inventory 38.3 percent to $59.2 million.  

FOXF said the West Coast ports situation clouded the outlook for the first half of 2015. As a result, it issued unusually broad guidance that calls for first quarter sales to grow in the 3.4-to-14.1 percent to $58-to-$64 million and non-GAAP adjusted earnings per diluted share in the range of 5-to-10 cents, down from 12 cents in the first quarter of 2014.

The low guidance assumes FOXF has trouble getting things out of the ports this quarter, said Enterline. “That translates into lost sales then that we wouldn't recover this year,” he said. The guidance also accounts for having to idle a line one week for lack of parts and then work it overtime the next trying to meet customer commitments.

For the full fiscal year of 2015, FOXF expects sales in the range of $333-to-$357 million and non-GAAP adjusted earnings per diluted share in the range of 88 cents to $1.00.

The company's MTB sales are expected to get a lift in mid-2016, when it plans to begin shipping its first forks to OEMs for MTBs that sell below $2,000 at retail.  

Longer term, FOXF is looking for Race Face/Easton to gain share in the  wheel business. Many OEMs have found one of the most effective ways to grow sales in recent years is to experiment with different wheel and tire sizes.

The 29-inch wheel, and more recently the 27.5-inch wheel, are expected to make the 26-inch wheel a thing of the past in mountain biking, said Galasso. Adding to the wheel shift is movement toward wider tires, lead by so-called fat and semi-fat bikes. Originally designed to perform well in snow and sand, fat bikes are now geared towards the adventurer who treks similar to hikers and backpackers for either day or multi-day trips.

Like the original 29ers, fat bikes originated as hardtails, but will inevitably be specked with rear suspension as bikes bicycle brands take the design to new markets.

“We're seeing that those are being developed into full suspension bikes and evolving just like the 29er did,” said Galasso.

The Race Face/Easton acquisition will also create opportunities to migrate suspension technology developed for MTBs to road bikes.

“We feel like there are ride dynamics opportunities in road bicycles that we're excited about,” Galasso said.