Mountain bike and motor sports suspension provider Fox Shox generated revenues of $43.3 million in the third quarter ended Sept. 30, up 30.8% from the prior year period, according its parent company, Compass Diversified Holdings Inc.
The increase was attributed to increased sales in Fox's Bicycle and Power Sports division, as well as growth in the aftermarket sales and service revenue. Sales are growing in Europe and the United States, where a growing number of OEMs are specking Fox components.
“No doubt that there are some people out there who would have otherwise gotten a high end mountain bike that are going to slow that down or not upgrade,” said Joe Massoud, CEO of Compass Diversified, on a conference call. “But what we're seeing in terms of actual real-time data is that the slowdown is not as significant as you would think in other luxury goods, which is consistent with our view on enthusiasts' products. At one point, we owned the largest BB gun manufacturer in the world and had a very similar dynamic in terms of enthusiasts do what enthusiasts do.”
Regardless of the economy, the shift from road biking to mountain biking, even in small increments, has and will continue to provide a huge amount of growth in mountain biking, Massoud said. “There's also no doubt that if you look at the largest four or five OEM manufacturers, that at their high end, we are spec'ed on a higher portion of those bicycles than we have been historically,” he added.
Operationally, Fox Shox is driving down components costs by soliciting bids from second and third suppliers. This has resulted in both better pricing, and in some instances, more timely deliveries of parts. “You might be able to get improvements in service; might even get some improvement in the product; some improvement in the coordination and design,” Massoud said.
Fox Shox has generated $12 million in free cash flow so far this year and could hit $18 million, he said.
In 2009, Fox Shox should begin to see growth from a number of opportunities outside its core mountain bike sector.
“So there's a lot of positive things going on at Fox, none of which is to deny the notion that there are certainly people who would have otherwise upgraded their mountain bikes or acquired new high end mountain bikes with this impact, with this economy impact,” Massoud said. “That must and can only be a fact. But we think the momentum in the business clearly points to charging right through that dynamic.”
