Fox Factory Holding Corp. reported sales at Specialty Sports Group (SSG), its cycling component division, climbed 63.9 percent in the second quarter, marking the segment’s fifth consecutive record revenue quarter. The gains came despite continued supply chain constraints.

“Thanks to our extremely capable team, we were able to scale and accelerate production while managing our supply chain to deliver for our customers in this robust demand environment,” said Mike Dennison, Fox Factory’s CEO.

He said despite a slight improvement, bike inventory channels across the marketplace remain close to historic lows. With the current pace of industry demand, Fox Factory estimates it will still take 8-to-10 months to match the current customer demand level and another 12-to-18 months to refurnish depleted inventory channels.

“As I mentioned in the last earnings call, we continue to capitalize on the expanded rider base during this unprecedented restocking cycle by leveraging strong OEM and supplier relationships,” said Dennison.

As part of its 2022 bike line, Fox launched two new forks, two new shocks, a new ultralight transfer SL dropper post, and two updated versions of the 34 Fork, one of Fox’s most popular models.

“These innovative products feature improved ride dynamics, more tunability and substantial weight reductions compared to last models,” said Dennison. “Our new dropper post and updated 34 Fork were featured in the Tokyo Olympics. In addition, between Downhill World Cups and Enduro World Series races, Fox athletes have taken 19 points in spots this quarter, and we are leading in the standing for both World Cup Downhill and Enduro World Series.”

Companywide, revenues climbed 79.2 percent to $328.2 million. The company’s other segment, PVG (Powered Vehicles Group) grew at a faster rate, climbing 92 percent year-over-year in the quarter.

The strong gains reflect the closure of the majority of PVG’s OEMs partners in the prior-year period due to the pandemic. However, Fox Factory’s momentum was still seen in its nearly 17 percent growth in Q2 revenue on a sequential basis versus Q1 of 2021.

“The demand across our product categories continues to be strong with no signs of abating, given our uncompromising brand and customer loyalty,” said Dennison.

Net income was $44.3 million, or $1.05 a share, compared to $12.6 million, or 32 cents, a year ago. Non-GAAP adjusted net income jumped 159 percent to a record $51.0 million, or $1.20, from $19.7 million, or 50 cents, a year ago.

Adjusted EBITDA doubled to $69.7 million, compared to $33.7 million in the second quarter of fiscal 2020.

Gross margin on an adjusted basis improved 100 basis points to 34.1 percent, excluding the effects of strategic transformation and acquisition-related costs. The increase was primarily driven by favorable product and channel mix led by higher volume sales in its Specialty Sports Group and the strong performance of its upfitting product lines. Additionally, the prior year’s results were negatively impacted by higher factory-related costs including incremental costs related to the pandemic.

As a percent of sales, operating expenses were 17.8 percent compared to 22.2 percent in the second quarter of fiscal 2020. Non-GAAP operating expenses were 15.7 percent of sales, down from 17.9 percent of sales in the second quarter of the prior fiscal year.

Said Dennison, ”The pandemic has brought a fundamental shift in consumer behavior toward health-conscious and outdoor lifestyle products. We believe this change is more secular in nature. Consequently, we are benefiting from the nature of the Fox enthusiasts in both recreational and professional categories.”

Looking ahead, Dennison said that while the company is pleased with the performance, supply chain headwinds are not easing and alternative sources are being sought to minimize disruptions.

“We believe that supply chain disruptions will remain at risk in the second half of this year,” said Dennison. “Additionally, component shortages across multiple industry segments are prevalent, leading to material price increases, which continue to put pressure on gross margins. Shipping and container shortages have also exacerbated freight costs and lead times around the world. These issues are consistent with what we are hearing from other management teams and will persist into next year. All this to say, we recognize the structural headwinds ahead of us, but we are refining our operational playbook to not only mitigate these challenges but also strengthen our core competencies, thereby extending our competitive differentiation.”

Photo courtesy Fox Factory