Vista Outdoor Posts Heavy Loss On Impairment Charge

Vista Outdoor reported a net loss of $294 million after taking an impairment charge of $374 million. Adjusted earnings per share were down 47.1 percent on a sales decline of 8 percent and lower gross margins.  Vista forecasted sales for the current year to decline by about 6.5 percent. 

Highlights of the period ended March 31 include:

• FY23 sales of $3.1 billion. FY23 Q4 sales of $741 million; outdoor products sales of $327 million and sporting products sales of $413 million;
• FY23 net income and adj. EBITDA of $(10) million and $622 million; FY23 net income included a non-cash impairment of goodwill and tradenames of $374 million in Q4;
• FY23 cash flow from operating activity of $486 million; record FY23 adj. free cash flow of $493 million;
• Net debt leverage ratio improves to 1.6x, within the target leverage ratio of 1-2x; debt paydown remains a priority; and
• Expect FY24 sales of $2.85 billion to $2.95 billion, expect EBITDA margin in the range of 17.75 percent to 18.75 percent

FY23 sales of $3.1 billion topped recent guidance in the range of $3.06 billion to $3.08 billion. Adjusted FY23 EPS of $6.40 in the year topped recent guidance in the range of $6.05 to $6.30.

“Our business faced a number of headwinds in our fiscal year 2023 that were met head-on by our team with decisive actions to deliver a solid performance and maintain a healthy balance sheet,” said Gary McArthur, interim CEO of Vista Outdoor. “As part of our annual goodwill/tradename impairment test, it was determined that an impairment had occurred. This was the result of the worsening economic environment with increasing inflation, decreasing consumer demand and an increasing federal funds rate that resulted in reduced forecasts and higher discount rates. Long-term, we remain bullish on the outdoor recreation and shooting sports markets. Participation remains above pre-pandemic levels, a trend we see continuing, and our broad and diverse positioning in the marketplace will enable us to capitalize on tailwinds across our categories.

“Our Sporting Products segment had another strong year of sales and profitability as the market continues to normalize and experience lower sales volumes in certain calibers. Our culture of innovation has powered this business forward and combined with product mix improvements, we have successfully offset higher input costs. We expect the market to continue to normalize in fiscal year 2024 and remain confident in our ability to achieve mid-20s percentage point EBITDA margins long-term, well above pre-pandemic levels.

“Our Outdoor Products segment is navigating market-wide uncertainty and retail inventory challenges. We’ve taken tactical and strategic actions to ensure success long-term and combined with our earnings improvement program, we are positioning the segment favorably against near-term headwinds the outdoor industry is experiencing. We are beginning to see improvement in retail inventory levels from quarter to quarter, and we expect to see a return to organic growth in the back half of fiscal year 2024 once POS and sell-in become more closely aligned.

“We remain on track to complete the previously announced separation in calendar year 2023. Key to completing the spin this calendar year will be establishing the Outdoor Products senior leadership team, a more stable macro-economic environment and improving Outdoor Product’s financial performance. I am proud of our teams across the portfolio whose hard work, passion and dedication have built strong businesses that are well-positioned for continued success as independent companies,” concluded McArthur.

For the three months ended March 31, 2023 versus the three months ended March 31, 2022:

• Sales were $741 million, down 8 percent. Organic sales were $654 million, down 19 percent, driven by a decrease in Sporting Products volume and Outdoor Products organic business volume, partially offset by pricing.
• Gross profit decreased to $236 million, down 18 percent, primarily due to volume declines, unfavorable mix, and increased freight costs, partially offset by volume from acquired businesses and improved pricing in both segments.
• Operating expenses were $528 million, up 293 percent, driven primarily by a non-cash impairment of goodwill and indefinite-lived tradenames and increased selling and marketing expenses related to the acquired businesses.
• Operating income (loss) decreased to $(292) million, compared with $153 million in the prior year quarter. Operating income (loss) margin decreased to (39.5) percent. Adjusted operating income (loss) was $95 million, down 41 percent. Adjusted operating income (loss) margin decreased by 704 basis points to 12.8 percent.
• Net income (loss) decreased to $(294) million. Net income (loss) margin was (39.7) percent
• Adjusted EBITDA decreased 34 percent to $120 million. Adjusted EBITDA margin decreased 618 basis points to 16.2 percent.
• Diluted earnings per share (EPS) decreased to $(5.18), compared with $1.93 in the prior-year quarter. Adjusted EPS decreased to $1.08, compared with $2.04 in the prior year quarter, primarily driven by lower sales and gross margin contraction.
• Cash flow provided by operating activities was $179 million, compared to $99 million in the prior year fiscal quarter. Adjusted free cash flow generation was $178 million.

For the three months ended March 31, 2023 segment results versus the three months ended March 31, 2022:

Sporting Products

• Sales decreased to $413 million, down 10.9 percent, due to the termination of the Lake City contract at the beginning of the third fiscal quarter and a decrease in volume, partially offset by improved pricing.
• Gross profit decreased to $152 million, down 16.7 percent driven by lower volume, unfavorable mix, and increased commodity and freight costs, partially offset by improved pricing.
• Operating income (loss) decreased 17 percent to $125 million due to lower gross profit, partially offset by lower selling, general and administrative expense. Operating income (loss) margin was 30.2 percent.
• Adjusted EBITDA decreased 17 percent to $131 million. Adjusted EBITDA margin decreased 220 basis points to 31.6 percent.

Outdoor Products

• Sales decreased 5 percent to $327 million, Organic sales were $241 million, down 30 percent, driven by a decrease in volume due to high levels of channel inventory and softening replenishment.
• Gross profit decreased to $85 million, down 19.3 percent driven primarily by volume declines and unfavorable mix, partially offset by improved pricing.
• Operating income (loss) decreased to $(9) million driven by lower organic volume and unfavorable mix as well as higher selling and marketing expenses from acquired businesses. Operating income (loss) margin was (2.6) percent.
• Adjusted EBITDA decreased 81 percent to $9 million. Adjusted EBITDA margin decreased by 1,138 basis points to 2.9 percent.t

The Outdoor Products segment includes Bell, Bushnell, Bushnell Golf, CamelBak, Camp Chef, Foresight Sports, Fox Racing, Giro, QuietKat, Simms Fishing, and Stone Glacier. Sporting Products include CCI, Federal, HEVI-Shot, Remington, and Speer.

For the twelve months ended March 31, 2023 versus the twelve months ended March 31, 2022:

• Sales increased 1 percent to $3.1 billion. Organic sales were $2.7 billion, down 10 percent, driven by reduced purchasing across nearly all channels.
• Gross profit decreased 7 percent to $1 billion due to lower organic business volume and increased product and freight costs, partially offset by improved pricing and volume from acquired businesses.
• Operating expenses increased 99 percent driven primarily by a non-cash impairment of goodwill and indefinite-lived tradenames and increased selling, general and administrative costs related to the acquired businesses.
• Operating income (loss) declined 83 percent to $108 million and operating income (loss) margin decreased 1,772 basis points to 3.5 percent. Adjusted operating income (loss) was $530 million, down 21 percent. Adjusted operating income (loss) margin decreased 470 basis points to 17.2 percent.
• Net income (loss) decreased to $(10) million. Net income (loss) margin was (0.3) percent
• Adjusted EBITDA declined 16 percent to $622 million. Adjusted EBITDA margin decreased 409 basis points to 20.2 percent.
• Diluted EPS decreased to $(0.17), compared with $8.00 in the prior fiscal year. Adjusted EPS declined to $6.40, or down 23 percent, compared with $8.29 in the prior fiscal year.
• Cash flow provided by operating activities was $486 million, compared to $318 million in the prior fiscal year. Adjusted free cash flow generation was $493 million.

For the twelve months ended March 31, 2023 segment results versus the twelve months ended March 31, 2022:

Sporting Products

• Sales increased 1 percent to $1.8 billion, driven by improved pricing in all categories and higher volume in primer and rimfire, partially offset by the termination of the Lake City contract at the beginning of the third fiscal quarter and volume declines in pistol.
• Gross profit declined 8 percent to $654 million driven primarily by increased commodity and freight costs and lower volume. These increases were partially offset by improved pricing.
• Operating income (loss) decreased 8 percent to $552 million, due to a decrease in gross profit, partially offset by decreased incentive compensation and marketing. Operating income (loss) margin was 31.4 percent.
• Adjusted EBITDA decreased 8 percent to $577 million. Adjusted EBITDA margin decreased 318 basis points to 32.8 percent.

Outdoor Products

• Sales rose 1 percent to $1.3 billion. Organic sales were $990 million, down 24 percent, driven by reduced purchasing across nearly all channels with the exception of direct-to-consumer.
• Gross profit decreased 3 percent to $387 million due largely to organic business volume declines and increased product and freight costs. These declines were partially offset by volume from acquired businesses and price.
• Operating income (loss) declined 62 percent to $62 million primarily caused by decreased gross profit in the organic businesses, as well as increased selling, general and administrative costs related to the acquired businesses. Operating income (loss) margin was 4.7 percent.
• Adjusted EBITDA decreased 39 percent to $125 million. Adjusted EBITDA margin decreased 633 basis points to 9.5 percent.

Fiscal Year 2024 Outlook
“We demonstrated our dedication to financial discipline in the fiscal fourth quarter and throughout fiscal year 2023,” said Andy Keegan, vice president and interim chief financial officer of Vista Outdoor. “For the full year, companywide revenue reached $3.1 billion despite economic headwinds pressuring our businesses. We generated $179 million of cash flow from operations and $178 million of adjusted free cash flow during the fourth quarter, bringing our full-year cash flow from operations to $486 million and total adjusted free cash flow to a robust $493 million. Our net debt leverage ratio finished the year at 1.6x, within our target range of 1-2x. We will continue to prioritize debt paydown as our primary use of capital leading up to our planned separation, which is on track to occur later in calendar year 2023. Our fiscal year 2024 guidance reflects our expectation that Sporting Products sales and profitability will continue to normalize and that we will continue to experience pressures in Outdoor Products in the first half of fiscal year 2024 due to current macroeconomic headwinds and elevated retailer inventory levels. We expect our Outdoor Products segment to return to growth in the back half of the year as these trends ease.”

Vista Outdoor Establishes Fiscal Year 2024 Financial Guidance
The company expects sales in the range of $2.85 billion to $2.95 billion.

• Sporting Products Sales expected to be approximately $1.475 billion to $1.525 billion
• Outdoor Products Sales expected to be approximately $1.375 billion to $1.425 billion

EBITDA Margin range of 17.75 percent to 18.75 percent, Sporting Products EBITDA Margin range of 26.75 percent to 27.75 percent, Outdoor Products EBITDA Margin range of 12.00 percent to 13.00 percent.

• Earnings Per Share (EPS) in the range of $4.50 to $5.00;
• Free Cash Flow in the range of $290 million to $340 million;
• Effective tax rate of approximately 23.5 percent;
• Interest expense in the range of $65 million to $75 million; and
• Capital expenditures as a percent of sales of approximately 1.5 percent