Fox Factory Holding Corp. reported a first-quarter loss on a steep goodwill charge related to tariffs, but adjusted earnings surpassed guidance with the benefit of cost-control efforts. Sales grew 6.5 percent with gains across its Aftermarket Applications Group (AAG), Specialty Sports Group (SSG) and Powered Vehicles Group (PVG) segments.

The company reaffirmed guidance for the year.

Management Commentary
Fox Chief Executive Officer, Mike Dennison, commented, “We are pleased with our start to fiscal 2025, delivering first quarter sales and adjusted earnings per share that met our expectations. Our operational improvements and strategic cost management initiatives are well underway, helping us drive strong sequential adjusted EBITDA margin improvements in both our PVG and AAG segments. We expect these decisive actions will yield more tangible margin improvement throughout the year. Looking ahead, while end market demand remains challenging and tariffs create additional uncertainty, we expect that the actions we have taken to optimize our business will allow us to generate free cash flow this year to further improve our balance sheet. As market conditions normalize and the cycle advances, we anticipate that we will be well positioned to restore our best-in-class adjusted EBITDA margin profile and leverage our diversified business to maximize value for our stockholders.”

First Quarter 2025 Results
Net sales for the first quarter of fiscal 2025 were $355.0 million, an increase of 6.5 percent, compared to net sales of $333.5 million in the first quarter of fiscal 2024. Fox Factory had projected sales in the range of $320 million to $350 million.

The sales increase reflects a $10.1 million or 9.9 percent increase in Aftermarket Applications Group (AAG) net sales, a $7.5 million or 6.6 percent increase in Specialty Sports Group (SSG) net sales, and a $4.0 million or 3.4 percent increase in Powered Vehicles Group (PVG) net sales. The increase in AAG net sales from $101.9 million to $111.9 million, driven by higher upfitting sales due to a shift in product mix and increased demand for aftermarket products; however, high interest rates impacting dealers and consumers, and high inventory levels at dealerships continue to pose challenges. The increase in SSG net sales from $113.5 million to $121.0 million is related to the growth in bike sales. Although bike sales improved compared to the prior year, the ongoing channel inventory recalibration and, to a lesser extent, consumer demand remain headwinds. PVG net sales increased $4.0 million from $118.1 million to $122.1 million, primarily due to the expansion of the motorcycle business, which offset lower industry demand in the traditional powersports product lines.

Gross margin was 30.9 percent for the first quarter of fiscal 2025, same as gross margin of 30.9 percent in the first quarter of fiscal 2024. Adjusted gross margin, which excludes the effects of amortization of acquired inventory valuation markup, decreased 140 basis points to 30.9 percent from the same prior fiscal year period.

Total operating expenses were $360.3 million, or 101.5 percent of net sales, for the first quarter of fiscal 2025, compared to $94.3 million, or 28.3 percent of net sales in the first quarter of fiscal 2024. Operating expenses increased by $266.0 million, driven by the impact of goodwill impairment. Adjusted operating expenses were $84.4 million, or 23.8 percent of net sales, in the first quarter of fiscal 2025, compared to $80.3 million, or 24.1 percent of net sales, in the first quarter of the prior fiscal year, primarily on higher research and development and sales and marketing expenses to support future growth and product innovation.

Tax benefit was $3.6 million in the first quarter of fiscal 2025, compared to a tax benefit of $1.3 million in the first quarter of fiscal 2024. The company’s income tax benefit increased primarily due to goodwill impairment.

Net loss attributable to Fox stockholders in the first quarter of fiscal 2025 was $259.7 million, compared to net loss attributable to Fox stockholders of $3.5 million in the first quarter of the prior fiscal year. Net loss per diluted share for the first quarter of fiscal 2025 was $6.23, compared to net loss per diluted share of 8 cents for the first quarter of fiscal 2024.

Adjusted net income in the first quarter of fiscal 2025 was $9.8 million, or 23 cents of adjusted earnings per diluted share, compared to adjusted net income of $11.9 million, or 29 cents of adjusted earnings per diluted share, in the same period of the prior fiscal year. Fox Factory has projected adjusted earnings per diluted share in the range of 12 cents to 32 cents.

Adjusted EBITDA in the first quarter of fiscal 2025 was $39.6 million, compared to $40.4 million in the first quarter of fiscal 2024. Adjusted EBITDA margin in the first quarter of fiscal 2025 was 11.2 percent, compared to 12.1 percent in the first quarter of fiscal 2024.

Balance Sheet Summary
As of April 4, 2025, the company had cash and cash equivalents of $68.6 million, compared to $71.7 million as of January 3, 2025. Inventory was $408.8 million as of April 4, 2025, compared to $404.7 million as of January 3, 2025. As of April 4, 2025, accounts receivable and accounts payable were $177.7 million and $119.3 million, respectively, compared to $165.8 million and $144.1 million, respectively, as of January 3, 2025. Prepaids and other current assets were $59.0 million as of April 4, 2025, compared to $85.4 million as of January 3, 2025. The decrease in cash and cash equivalents was mainly due to capital expenditures, partially offset by a decrease in prepaids and other current assets driven by lower chassis deposits due to working capital optimization efforts. The change in accounts receivable is due to higher sales in the fiscal quarter ended April 4, 2025, compared to the fiscal quarter ended January 3, 2025. The change in accounts payable reflects the timing of vendor payments. Total debt was $709.9 million as of April 4, 2025, compared to $705.1 million as of January 3, 2025. Goodwill is at $377.2 million, or down $262.3 million, after the company conducted its quantitative assessment triggered by adverse changes in U.S. tariff policies, new and expanded tariffs enacted by the current presidential administration, and resulting sustained decline in its stock price, leading to a non-cash impairment charge.

Second Quarter and Fiscal 2025 Guidance
For the second quarter of fiscal 2025, the company expects net sales of $340 million to $360 million and adjusted earnings per diluted share in the range of $0.32 to $0.62.

For the fiscal year 2025, the company reaffirms its guidance, expecting net sales in the range of $1.385 billion to $1.485 billion, adjusted earnings per diluted share in the range of $1.60 to $2.60, and a full-year adjusted tax rate in the range of 15 percent to 18 percent.

While the impact of the tariff policies on demand remains uncertain, new and expanded tariffs are expected to continue to pose significant challenges for the industries the company serves. The company estimates the annual potential impact of tariffs to be in the range of $50 million in higher costs. However, the company has identified countermeasures to partially offset these impacts and believes this unmitigated component can be absorbed in its current plan for the full year 2025.

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, non-cash goodwill impairment and strategic transformation costs. A quantitative reconciliation of adjusted earnings per diluted share for the second quarter and full fiscal year 2025 is not available without unreasonable efforts because management cannot predict, with sufficient certainty, all of the elements necessary to provide such a reconciliation. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results.

Fox Factory’s brand portfolio includes Fox, Marucci and Method Race Wheels.

Image courtesy Fox Factory