By Charlie Lunan
Vista Outdoor Inc.’s (Nasdaq:VSTO) rapid diversification beyond shooting sports saved the company from having to report a drop in sales and gross margin in the quarter ended July 3, despite going-out-of-business sales by major U.S. sporting goods retailers.
“We obviously had a tough quarter for our entire business on the outdoor products and outdoor rec side, but it has not affected the long-term value of those businesses,” said the company’s Senior Vice President and CFO Stephen Nolan. “So we remain on strategy with our acquisition plans.”
Vista Outdoor reported August 11 that consolidated net sales grew 23 percent to $630 million from the prior-year quarter, but fell when excluding $134 million in sales from recently acquired brands such as CamelBak, Bell, Giro, Blackburn and stand-up paddleboard maker Jimmy Styx. Organic sales, which consist primarily of revenues from ammunition, long guns, Bushnell optics and other shooting sports accessories brands, fell 4 percent as consumers shifted spending toward guns Vista Outdoor neither makes or accessorizes.
While Vista Outdoor maintained its earnings projection for the year, the most-recent quarter results missed Wall Street’s expectations, sending the company’s stock down more than 16 percent to less than $43 per share, following the news.
Sales at the company’s shooting sports segment increased 3 percent to $343 million due to strong demand, offset by lower international sales of center-fire ammunition. The segment encompasses 11 ammunition brands, Stevens shotguns brand and hunting rifle maker Savage Arms.
Growth would have been higher if not for capacity constraints that prevented the segment from meeting demand for the 9 millimeter and .556 and .223 caliber ammunition fired by such guns, officials said. The company announced plans in May to spend $100 million over the next three years to boost production of such ammunition by the fall of 2017.
Bushnell Underperforms
At Vista’s outdoor products segment, sales increased 57 percent to $287 million, as $134 million of sales from recent acquisitions were partially offset by a $29 million, or 16-percent, decline in organic revenue.
Chairman and CEO Mark DeYoung attributed the decline to a continuing shift in spending away from hunting rifles and shotguns and toward modern sporting rifles (MSRs) and handguns, which Vista Outdoor does not make or accessorize. Sales of tactical gear were also down.
DeYoung also conceded that growth at its optics business, which is driven by the Bushnell brand and includes Simmons, Night Optics and Weaver scopes, has lagged that of other leading brands.
“As optics have recovered here and there in some various pockets, we didn’t participate in that recovery as much as we would have liked to,” he said.
Liquidation sales at more than 500 Sports Authority, Sport Chalet and some Eastern Mountain Sports stores, meanwhile, weighed on sales of the legacy optics business as well as the recently acquired brands.
“That de-stocking is going to continue,” said DeYoung, predicting sales would continue to pressure margins throughout the company’s fiscal second quarter. “We are not past that yet.”
Also suppressing growth was the timing of shipments to international distributors.
Jimmy Styks Earnout Miss Helps Earnings
Vista Outdoor reported consolidated gross profit rose 23 percent to $171 million, including $42 million of gross profit from recent acquisitions that was partially offset by a 7-percent decrease in organic gross profit. Gross margin was 27.2 percent, up 20 basis points from the first quarter of fiscal 2015.
Operating expenses, however, jumped 40 percent to $112 million, due primarily to acquisitions and previously announced initiatives, including the three-year plan to boost ammunition capacity. The company offset some of that by lowering its estimate of the earnout it will pay the former owners of Jimmy Styks after the standup paddleboard company failed to reach its first-year financial goals. Vista Outdoor has since expanded the brand’s distribution into Cabela’s, Academy Sports and Dick’s Sporting Goods stores.
Net income came in at $29.1 million, or 48 cents per fully diluted share, down 14.1 and 9.4 percent, respectively, compared with a year earlier, following a $22 million, 462,000-share stock buyback.
Outlook, Ammunition Prices Intact
The company affirmed its full-year outlook, saying it expects the retail environment and its own product sales to improve in the back half of the fiscal year, as sales of the more than 100 products it debuted at the NRA show in May peak and it begins showing and shipping new products to distributors.
Although several national shooting sports retailers drew down their inventories during the quarter, Vista Outdoor executives said wholesale ammunition prices remain steady and the company has no plans to offer discounts beyond what it offers normally to help customers make room for new products or draw seasonal traffic.
Photo courtesy Vista Outdoor/CamelBak