Fox Factory Holding Corp. reported sales at Specialty Sports Group (SSG), its cycling component division, rose 44.6 percent in the fourth quarter, marking SSG’s best quarter to date for revenue. Officials were also bullish on continued robust segment growth in 2021.
The increase in SSG sales in the quarter was driven by increased demand in original equipment manufacturing (OEM) and aftermarket channels. For the full year 2020, SSG’s revenues grew 22.4 percent over 2019.
The segment makes mid-end and high-end front fork and rear suspension products under the FOX, Race Face, Easton Cycling, and Marzocchi brands. It also offers mountain and road bike wheels and other cycling components under the Race Face and Easton Cycling brands, including cranks, chainrings, pedals, bars, stems, and seat posts.
“Given our strong line of innovative products and ability to flex our production capacity, we were able to capitalize on the expanded rider base an unprecedented restocking cycle,” said Fox Factory’s CEO, Mike Dennison, on a conference call with analysts. “Through deeper penetration across sales channels, we had yet another record quarter for shock and fork unit volumes. These past few months represent not only tangible growth at our SSG business but also an expansion of our intangible relationships with OEMs.”
He credited his team’s efforts at successfully controlling costs and managing operations to meet OEMs’ expectations, helping customers manage evolving backlog and order trends.
To better serve its European customers, Fox Factory opened a new facility in Germany, which operates as its EU distribution and service center.
“As you have always heard me say, innovation is at the core of what we do. Building on our success, I am happy to announce that our recently introduced 38-inch fork received multiple awards for design and innovation,” added Dennison. “Based on the survey conducted by Vital MTB and Pinkbike, FOX continues to be the number one brand and Marzocchi at number three concerning intent to purchase for both forks and shocks.”
In the fourth quarter, he also noted that Fox Factory’s products enabled its athletes to dominate at various racing events, capturing 49 podiums, 15 wins and 3 world championships.
Companywide, sales grew 41.2 percent to $262.4 million. In its other segment, Powered Vehicles Group, sales jumped 38.7 percent.
Net income was $31.8 million, or 75 cents a share, against $22.5 million, or 58 cents, a year ago. On an adjusted basis excluding non-recurring items, earnings rose 50.4 percent to $38.2 million, or 90 cents, from $25.4 million, or 65 cents, a year ago. Adjusted EBITDA climbed 48.8 percent to $51.2 million.
Gross margins eroded 30 basis points to 31.8 percent. Non-GAAP adjusted gross margin decreased 10 basis points to 32.0 percent. The decrease was primarily due to higher transit costs due to the increase in demand, costs related to the transition and ramp of U.S. manufacturing facilities, and inefficiencies due to the COVID-19 pandemic, which were partially offset by favorable product and channel mix, including the impact last year’s acquisition of SCA Performance Holdings, Inc., an OEM-authorized specialty vehicle manufacturer (SVM) for light-duty trucks and SUVs.
Total operating expenses climbed to $45.8 million from $33.5 million a year ago primarily due to SCA-related expenses, higher headcount costs as administrative support functions were expanded, and higher incentive compensation. As a percentage of sales, operating expenses were 17.5 percent of sales compared to 18.0 percent a year ago. Non-GAAP operating expenses were $39.4 million, or 15.0 percent of sales, compared to $30.3 million, or 16.3 percent, in the year-ago fourth quarter.
For the year, sales increased 18.6 percent to $890.6 million, with sales of Specialty Sports and Powered Vehicle products rising 22.4 percent and 16.1 percent, respectively.
Net income came to $90.7 million, or $2.22, down from $93.0 million, or $2.38, in the prior fiscal year. Non-GAAP adjusted net income improved 16.5 percent to $123.8 million, or $3.03, from $106.3 million, or $2.72, a year ago.
Looking ahead, sales for the first quarter are projected in the range of $255.0 million to $275.0 million and non-GAAP adjusted EPS in the range of 75 cents to 85 cents. In the year-ago period, sales were $161.7 million, and adjusted EPS was 55 cents. For the fiscal year 2021, sales are projected in the range of $1.04 million to $1.09 million and non-GAAP adjusted EPS in the range of $3.30 to $3.60.
The guidance projects sales gains of about 64 percent in the first quarter and 20 percent for the year.
Asked about prospects for growth in 2021 from both segments, Dennison said he sees both segments “having some significant growth opportunity” while also facing risks.
With SSG, Dennison said the segment has “remarkable bookings that go throughout 2021. And so we have a pretty good view of that.” He said his only caution was some uncertainty about the back half of the year due to supply chain challenges. He said the company was focused on significant price fluctuations in raw materials and commodities like steel and aluminum and possible OEM shutdowns.
Dennison stated, “We are components on a bike; we’re not the full bike, as you know very well. And so, if other components cause push-ins or push-outs of bike manufacturing, that could affect us. We want to be conscientious of that and thoughtful about what that means in the back half of the year. But for right now, we look at SSG in 2021 and consider it to continue to be kind of oversized growth rate compared to the long-term expectations.”
Photo courtesy Fox Factory