Shares of Vista Outdoor fell $5.19, or 28.1 percent, to $13.24 Thursday after the company drastically cut its earnings guidance for its fiscal year amid more impairment charges while also announcing plans to sell its Bollé, Serengeti and Cébé brands and eliminate the Shooting Sports segment president position.
“Significant changes are needed to reposition and stabilize the company and we will take an aggressive position on profit improvement through both margin expansion and cost reductions across all areas of the core business,” said Chris Metz, who became CEO on October 5.
Among the changes announced Thursday was the elimination of the shooting sport segment president position in order “to reduce cost, but also to strengthen the organization with leaders who have deep industry experience,” said Metz, who was president and CEO of Arctic Cat from 2014 to 2017.
He added, “We will also be looking to make changes that will allow these leaders to be able to own their businesses, drive change faster and react more quickly opportunities in the marketplace, as they will now have a clear line of sight to the goals at hand.”
With this restructuring, Shooting Sports President Bob Keller will leave the company on November 17. Al Kasper, president of Firearms, and Jason Vanderbrink, president of Ammunition, will then report directly to Metz, as leaders within the Shooting Sports Segment. Kasper currently leads Firearms for the company.
Metz said the company also be shortly announcing“critical changes” in its organizational structure around sales, marketing and product development, but Vanderbrink will continue to lead its sales organization as the company’s organizational structure is evaluated. Said Metz, “These and future organizational changes will allow us to drive accountability down to the lowest level.”
The company is also in the process of completing a portfolio review of its brands to “divest assets where we see potential to unlock shareholder value or where we are not the natural owner.”
As a result, the company will seek a buyer of its Bollé, Cébé and Serengeti brands in its sports protection business unit over the next few quarters. The brands accounted for total revenues of $130 million. Vista Outdoor CFO Stephen Nolan said much of their focus was on fashion, prescription and safety eyewear and they relied on different distribution channels than its other products.
The latest quarter also included an impairment of intangible assets of $152 million, with $77 million related to its hunting and shooting accessories business and $75 million related to its sports protection business.
Nolan said the impairment was triggered by increased downward pressure on sales and margins as a result of challenging market conditions that have persisted longer than previously expected. These challenging market conditions have been exacerbated by additional customer bankruptcies and consolidations.
“We continue to see high channel inventories for our Hunting and Shooting Accessories business,” said Nolan. “We expect these inventory levels will take the remainder of the fiscal year to work through, and will continue to put pressure on sales and margins. Our Sports Protection business has been impacted by the ongoing challenges facing the cycling industry broadly and by reduced retail space for our products.”
Furthermore, Vista slashed its earnings guidance for the year and slightly lowered its sales guidance due in part to ammunition pricing actions it took ahead of the second quarter to combat the high inventories in the marketplace with “additional significant pricing actions” taken during the second quarter that impacted the period but are expected to have “an even more significant impact on the remainder of the year.”
Added Nolan, “While we have taken actions to reduce costs, these initiatives have been more than offset by persisting market conditions.”
In the second quarter, sales were $587.3 million, down 14.2 percent from the prior-year quarter, including $12 million of additional sales from the acquisition of Camp Chef. Sales were down 16 percent on an organic basis.
Gross profit was $139 million, down 25 percent from the prior year quarter, including $3 million of gross profit from the Camp Chef acquisition. Organic gross profit was down 27 percent with reductions in both shooting sport and outdoor products.
Operating expenses were $105 million compared to $109 million in the prior year quarter due to cost cutting initiatives, partially offset by costs incurred within the Camp Chef business.
On an adjusted basis, earnings were down 56 percent to $20 million, of 34 cents a share. After charges, the net loss was $114.7 million, or $2.01 a share, against net earnings of $73.2 million, or $1.22, in the same period a year ago.
Second quarter sales in outdoor products were $292 million, down 9 percent, including approximately $12 million of sales from the Camp Chef acquisition. Organically the segment was down approximately 13 percent from the prior quarter due to lower sales across most product lines. The segment also CamelBak, Bushnell, Jimmy Styks, Bollé, Bell and Giro.
Gross profit of outdoor products was $76 million, a decrease of 10 percent from $84 million in the prior year quarter. Camp Chef acquisition contributed $3 million of gross profit. Organic gross profit in the segment was down 14 percent primarily as a result of lower organic sales across most product lines.
Shooting sports reported sales of $296 million, down 19 percent, as a result of persistent lower demand across most product lines, mainly center fire ammunition and firearms. The segment’s brands include Federal Premium, Savage Arms, Primos and Blackhawk.
Gross profit in shooting sports was $63 million, down 38 percent from $102 million in the prior year quarter. The year-over-year decrease was a result of lower volume, additional promotional activity and unfavorable changes in product mix. Another workforce reduction was just completed to better align production with demand.
For its fiscal year ended March 31, adjusted EPS is now projected in a range of 50 cents to 60 cents a share, down from $1.10 to $1.30 under its previous guidance. Sales are expected in a range of $2.24 billion to $2.26 billion, down from its previous range of $2.36 billion to $2.42 billion.
Metz said the company’s goal remains to become the largest and best platform in the outdoor sports recreation space.
He added, “We need to reposition the business where we can invest in exciting brands we retain, as well as new brands we intend to scale. Success will mean expanding on our distinct set of capabilities, to build new businesses that leverage our scale and reach. We’ll use this new model in targeted portfolio of strong brands to chart a path, to increase profitability in the next year.”
Photo courtesy CamelBak