Speaking at Jefferies Consumer Conference, Chris Metz, CEO, Vista Outdoor, said the company across several brands continues to see softening in demand for opening price point products due to inflation’s impact on lower-income consumers. However, Vista expects strength at the premium products level and that most of the company products are consumables to help overcome those pressures.
Metz said Vista continues to benefit from many tailwinds coming out of the pandemic.
“Without question, COVID has created more interest in people wanting to get outdoors and recreate, and these participation levels and the interest in outdoor recreation have not waned. It continues at historical highs, which is exciting,” said Metz. “But what’s different about the current environment we’re in now is it’s an inflationary environment, which many folks in business haven’t seen in their lifetime. And coupled with that, the consumer is relatively healthy. Wages are high and unemployment is low.”
However, Metz noted that Vista now sees a “disparity” in performance across many of its brands. For instance, in the bike helmet category, softness is seen in opening price-point helmets sold at the mass channels over the past three to six months. By comparison, demand for premium helmets aimed at specialty channels continues to be strong. Said Metz, “We can’t build enough of them.”
A similar pattern exists within Vista’s hunting accessories, golf simulators and outdoor cooking platforms. Metz said, “What’s interesting is we see those price-sensitive opening price point categories being affected more, and we see the consumer at the higher end that’s gotten more discretionary income less affected by it.”
As a result, retailers facing weaker sales “have started to lean into correcting inventories gradually.” He said they are generally being “non-discriminatory” about the adjustments. Metz said, “If a large big-box customer has an inventory issue, they’re going to tell most of their buyers, if not all of them, to stop buying for a period of time until they’re back in a good position. We’ve seen it over the years, and it takes a quarter or so to work itself out. And because it is non-discriminatory, we all get a little bit of affected by it.”
At the same time, Metz said Vista can absorb the softness in opening price point SKUs because “other categories like golf, like sporting products, e-bikes, our high-end equipment are all faring very, very well.”
He noted those trends are built into Vista’s favorable guidance for the current fiscal year.
For its fiscal year ended March 31, 2023, sales are expected in the range of $3.15 billion to $3.25 billion, up 5 percent at the midpoint, excluding future acquisitions. The growth comes on top of year-over-year gains of 37 percent in the fiscal 2022 year and 27 percent in fiscal 2021 year.
Also helping drive Vista Outdoor’s growth is that three-quarters of its products are consumables or commodity-type products intended to be used up relatively quickly.
“They’re relatively easy price points to enter,” said Metz. “And of those consumables, 90 percent of all of our products are accessories and add-ons to a larger product purchase, which makes it more likely that people continue to buy our products. So it’s an on-purpose part of our strategic planning efforts as well to make sure that we’re investing in categories where we think we can grow greater rates.”
Finally, Metz believes it benefits from the leadership positions of its many brands that have been repositioned to better target growth since he joined Vista in 2017.
Vista’s Outdoor Products segment includes CamelBak, Bell, Giro, Camp Chef, Bushnell, Bushnell Golf, Foresight Sports, Stone Glacier, and QuietKat. The Sporting Products segment is the world’s leading manufacturer of ammunition with brands including Federal, Remington, CCI, Speer, and Hevi-Shot.
Metz said one focus since he joined was to bring back a “founder’s mentality” into each brand after a past focus on centralizing operations. He said, “We pushed back and brought the autonomy and the entrepreneurial spirit, if you will, back into our brands. And that made them much more creative, much more entrepreneurial, and enabled them to really develop some of these great new products.”
Many of Vista’s brands have benefited from an amplified commitment to innovation that only in recent years has started to pay off.
“When I walked in four and a half years ago, we were not innovating to the extent that we are now,” said Metz. “We brought in product-oriented leaders who understand how to put the consumer first and do the right market research. And that takes years to build that product pipeline.”
As examples, he cited Bushnell’s Bluetooth speaker technology for golf, CamelBak’s extension into soft coolers, and Camp Chef’sApex Grill, which marked the first dual-fuel grill. Said Metz, “Lots of innovation and we measure it so we’ve got a KPI that talks about new products and the percentage that contributes to overall revenue. It’s critical because we know that it’s important not only to growth, but it’s also important to extending and expanding our margins.”
The growth is supported by M&A efforts that focus on getting into fast-growing categories, such as launching monitors and golf simulators with Foresight Sports and e-bikes through QuietKat. Both companies were acquired last year.
Metz said Stone Glacier, its most recent acquisition, could be “the next Sitka or Kuiu.”
Another new avenue of growth in recent years is direct-to-consumer, “which is expanding margins and growing the top line,” said Metz.
Asked how Vista handles potential channel conflict with its push into direct-to-consumer selling, Metz said that in his earlier career at Black & Decker and his ten years in private equity before taking the Vista job, he’s learned that adding new distribution points tends to build brand awareness to help grow “the overall pie.”
“I think the largest retailers in America have already figured this out and that’s why they don’t give us any issue or pushback,” said Metz. “In fact, they encourage us because they know that the more we start to promote our brand online with the right guardrails in place, they know that they’re going to get the knock-on effect.”
Some of those “guardrails” include never violating MAP (minimum advertised pricing) with Vista’s brands DTC focus on the higher-end of the pricing range. Vista’s brands’ websites also offer a fuller range of products, including many higher-priced items that tend to be “big contributors to the overall brand halo.”
DTC selling also helps “test and learn” to see whether certain items have broader potential with wholesale partners.
Metz added, “Lastly, I would say that we want to control, or influence to a great degree, the way our brand is presented online. And an important part of that is us setting the stage for that.”
Metz said Vista’s e-commerce sales are currently in the range of 18 to 20 percent. The company estimates the top quartile performers in outdoor products are at around 30 percent online penetration and Metz expects the same potential for most of Vista’s outdoor brands.
He said, “In doing so, we’ll grow the whole pie. So we really think one plus one equals three.”
Asked about margins, Metz said Vista’s significant margin improvement since fiscal 2019 clearly benefited from “the COVID Bump,” but he believes the company has outperformed the margin improvement of many of its peers over the time because of changes made operationally pre-COVID.
The changes include streamlining SKUs to weed out items that “had short runs and produced issues for manufacturers.” The moves also created a healthier inventory mix so each brand could employ their “promotional dollars in a much more targeted way.”
Vista also introduced minimum advertised pricing (MAP), which helped protect margins at retail and as brands grew their DTC channels.
Finally, Vista recruited leaders who were focused on driving profitable growth. Metz said, “A lot of them have worked from previously and they understand to make money and they’re incented on making money. And so the way we make money is not just to grow, but to grow profitably.”
The margin expansion also reflects the payback from its innovation efforts, its entry into new categories, and its M&A focus.
Overall, adjusted EBIT margins surged 878 basis points in fiscal 2022 to 24.3 percent, exceeding a goal set in 2021 of EBITDA margins in the range of 15 to 20 percent. Adjusted EBIT margins improved from 15.5 percent in the fiscal 2021 and from only 6.5 percent in fiscal 2020.
For the current fiscal year, adjusted EBITDA margins are expected to decline to a range of 20.5 percent to 21.5 percent. Weakening ammunition margins after over-heated demand for much of the pandemic is a contributor to the decline.
Metz said he’s confident that Vista can meet its long-term goal of EBITDA margins in the range of mid-teens to high-teens as the company expands.
“We are very confident that we can continue to hit those targets with the structural changes we’ve made and frankly, there’s a there’s a number of leaders in outdoor products that routinely hit high-teens margins,” said Metz. “And I’ve said to our team for a long, long time, we’ve got too many number one brands, too many highly-coveted brands, not to be operating at top quartile outdoor products performance.”
Photo courtesy Vista Outdoor