Shares of Vista Outdoor fell $1.58, or 15 percent, to $8.99 on Thursday after the company earlier in the day cut guidance on its third-quarter report of a 20 percent revenue decrease and a $514.6 million loss on a goodwill write-down.
For the quarter ended December 30, 2018, the company—whose brands include Federal Premium, CamelBak, Savage Arms, Bushnell, Camp Chef, Primos, Blackhawk, Bell and Giro—reported sales of $468 million, down 20 percent from the prior-year quarter (down 13 percent on an organic basis) excluding results from the recently sold Bolle, Serengeti and Cebe brands. Wall Street’s consensus target had been $505 million.
Including the pre-tax, non-cash goodwill and intangible impairment charge, fully diluted earnings per share (EPS) was $(8.94), compared to 94 cents a share in the prior-year quarter. Adjusted EPS was 9 cents a share, compared to 13 cents a share in the prior-year quarter. Wall Street’s consensus estimate on an adjusted basis had been 6 cents.
On Thursday morning’s earnings conference call with analysts, CEO Chris Metz spoke of “continued softness in consumer demand [for ammunition] for the past two years, particularly for hunting and shooting related products.”
But mostly he spoke of Vista Outdoor’s continued “transformation plan” to cope with that changing marketplace, and so far it has resulted in the completed divestiture of its eyewear business and the ongoing process of trying to sell its Savage brands.
“This has been a major focus for all of us this quarter,” Metz said. “The process has been very competitive, and we are pleased with the current status of that transaction. … I’m pleased to report that, as we forecasted, we expect to be in a position to make an announcement on this transaction before the end of the fiscal year.”
Metz said Vista Outdoor has “entered into definitive negotiations [to sell Savage]; we have classified it as held for sale.” SGB will post updates on this sale as it happens.
Meanwhile, the company’s other transformation focal points over the last quarter include:
- Creating a leaner and more focused SG&A structure. Metz: “Through a combination of cost-cutting initiatives and restructuring, we’re quickly building a better foundation for our company, which will support a more disciplined strategy for profitable growth in our core categories.”
- Subleasing its former corporate headquarters in Utah. Metz: “We have now officially exited that facility, transferred our employees to other existing corporate locations, and considerably consolidated our corporate footprint by eliminating our most expensive piece of corporate real estate.” Vista Outdoor closed its Farmington, UT, headquarters in December; its headquarters is now split between Anoka, MN, and Arlington, VA.
- Delivering its first quarter of sequential quarterly growth in its organic gross profit rate (growing to 20.2 percent in Q3 from 19.4 percent in Q2. Metz: “This might not sound like much on the surface, however when you take into account that our revenue fell 11% during the same period of time and the competitive pricing pressure we saw in Q3, this is no small feat.”
- Hiring a new senior executive to lead e-commerce and digital initiatives. Metz: “E-commerce is one of our top corporate priorities, and a growth engine for future success. In just one quarter since announcing this critical hire, we’re already seeing returns on that investment. We now have a new mission, vision, strategy, and go-forward plan to attach the e-commerce market across all of our brands.”
“In summary, despite continued headwinds and challenges, we remain focused on driving profitability and cash flow across the organization,” Metz said. “While revenue growth is something we all want and, frankly, expect to achieve in the near future, every decision we make is channeled toward our focus on EBIT, operating margin and return on invested capital.
“I believe we have turned the corner and are on a path to continue delivering consistent and incremental improvements to our profitability. It may likely take a few more quarters to begin to show sales growth. However, our company is now at a much better position to control our own destiny, enabling us to grow our profits, even in a challenging environment like we are facing today.”
Looking at Vista’s business segments, Q3 sales in outdoor products were $226 million down 23.2 percent compared to the prior-year quarter. On an organic basis, without eyewear sales, sales were down 9.6 percent.
Q3 sales in shooting sports were $241 million, down 15.7 percent compared to the prior-year quarter. Ammunition revenue decreased 17.3 percent, and firearms revenue decreased 7.8 percent due to a softer an anticipated holiday shopping season.
Vista Outdoor lowered its guidance for Fiscal Year 2019. The company’s current guidance is as follows:
- Sales in a range of $2 billion to $2.05 billion, compared to $2.10 to $2.16 billion
- Interest expense of approximately $52 million, compared to $55 million
- Tax rate reported of approximately 5 percent and an adjusted tax rate of approximately 20 percent, compared to 10 percent and adjusted rate of 30 percent
- Earnings per share in a range of $(10.36) to $(10.21) and adjusted earnings per share in a range of 20 cents to 35 cents a share , compared to a previous earnings per share in a range of $(1.32) to $(1.17), and adjusted earnings per share 20 cents to 35 cents a share
- Capital expenditures of approximately $45 million, compared to $60 million
- Free cash flow remains in a range of $70 million to $100 million
“Despite top line challenges, our passion for our brands, our businesses and our employees remains unchanged,” Metz concluded before the conference call Q&A. “We are confident that the changes we are making now will translate into increase stability and growth in the future.”
Photo courtesy Vista Outdoor