Fox Racing Shox, Profits Rise 52.7 Percent in Q2

At Fox Factory Inc., which makes supsension systems for mountain bikes and motorsports, net sales increased approximately $11.2 million, or 32.4%, compared to the corresponding period in 2010. OEM sales increased $8.2 million to $35.0 million during the three months ended June 30, 2011 compared to $26.8 million for the same period in 2010.

The increase in OEM net sales is attributable to increases in sales in the mountain biking sector totaling $4.7 million (22.6%) and increases in sales in the powered vehicles sector totaling approximately $3.5 million (60%). The increase in OEM sales in the mountain biking sector during the three months ended June 30, 2011 is due to strong sales of the new model year products.

The increase in OEM sales to the powered vehicle sector during the three months ended June 30, 2011 is the result of an increase in sales of suspension components to the ATV and off-road markets. Aftermarket sales increased approximately $3.0 million to $10.9 million during the three months ended June 30, 2011 compared to $7.6 million in the same period in 2010. This increase is attributable to increases in Aftermarket net sales in the powered vehicles sector totaling approximately $1.9 million and the mountain biking sector totaling approximately $1.1 million.

International OEM and Aftermarket sales were $30.4 million during the three months ended June 30, 2011 compared to $21.0 million during the same period in 2010, an increase of $9.4 million or 44.8%.

Cost of sales for the three months ended June 30, 2011 increased approximately $8.3 million, or 33.5%, compared to the corresponding period in 2010. The increase in cost of sales is primarily attributable to the increase in net sales for the same period. Gross profit as a percentage of sales was approximately 27.9% for the three months ended June 30, 2011 compared to 28.5% for the same period in 2010. The 0.6% decrease in gross profit as a percentage of sales during 2011 is attributable to an unfavorable product and customer mix, increases in raw material costs and the negative impact of a weak dollar.

Selling, general and administrative expense increased approximately $1.4 million during the three months ended June 30, 2011 compared to the same period in 2010. This increase is the result of increases in (i) sales and marketing costs ($0.2 million), (ii) engineering costs ($0.4 million), and (iii) other administrative costs ($0.8 million) during the three months ended June 30, 2011, compared to 2010, principally to support the significant increase in sales.

Income from operations for the three months ended June 30, 2011 increased approximately $1.6 million to $4.6 million compared to the corresponding period in 2010, based principally on the significant increase in net sales, offset in part by the increases in selling, general and administrative costs, all as described above.

 

At Liberty Safe, net sales for the three months ended June 30 increased approximately $5.0 million, or 37.1%, over the corresponding three months ended June 30, 2010.

Non-Dealer sales were approximately $10.4 million in the three months ended June 30, 2011 compared to $7.8 million in the same period in 2010 representing an increase of $2.6 million or 33.3%. Dealer sales totaled approximately $8.2 million in the three months ended June 30, 2011 compared to $5.8 million in the same period in 2010 representing an increase of $2.4 million or 41.4%.

The significant increase in Non-Dealer sales in 2011 is due to strong results in the sporting goods channel ($1.4 million) and the farm and fleet channel ($2.4 million) offset in part by the loss of a club account to an import product line ($0.6 million) and a decline in the home improvement channel ($0.6 million). The sporting goods channel increase is the result of Liberty Safe being the sole supplier to two major accounts that offered robust sales promotions in the second quarter of 2011 resulting in higher retail sales. The farm and fleet channel increase is attributable to (i) fulfilling a significant number of backorders that existed at the end of the first quarter and (ii) increased sell through at retail driven by a robust co-op advertising campaign. Management believes that these increased sales levels are the result, in large part, to sales generated by its national advertising campaign in conjunction with those accounts that maintain consistent Liberty Safe product advertising at the local level.

Cost of sales for the three months ended June 30, 2011 increased approximately $3.6 million. The increase in cost of sales is primarily attributable to the increase in net sales for the same period. Gross profit as a percentage of net sales totaled approximately 26.1% and 25.0% of net sales for the three month periods ended June 30, 2011 and June 30, 2010, respectively. The increase in gross profit as a percentage of sales for the three months ended June 30, 2011 compared to 2010 is attributable to a price increase that took effect on June 1, 2011 and a favorable product mix with certain customers. This was offset in part by higher freight costs.

Selling, general and administrative expense for the three months ended June 30, 2011, increased approximately $0.2 million compared to the same period in 2010. This increase is largely the result of increased direct commission expense and co-op advertising, both related to the significant increase in sales.

Income from operations was approximately $1.0 million for the three months ended June 30, 2011, representing an increase of $1.2 million compared to the same period in 2010, which reflected an operating loss of $0.2 million. The improved operating results are principally due to the factors described above, particularly the increase in net sales.