Vista Outdoor Inc. reported fourth-quarter profitability was lower than expected as a result of increases to reserves for customer credit risk and product liability litigation. In addition, the Shooting Sports segment experienced temporary production and supply issues.

“Vista Outdoor delivered solid FY19 results and made significant progress in the first year of our multi-year transformation,” said Chris Metz, Vista Outdoor chief executive officer. “We have taken significant cost out of our business, reduced corporate overhead, strengthened our leadership team and restructured our brand teams to allow them greater flexibility to respond to the needs of their consumers and deliver innovative products that will drive growth in the future – in short, we have rebuilt the foundation of our company. While there is more work to be done, these actions were designed to sharpen our strategic focus and provide our brands with a platform to support growth and improved profitability for the future.”

“The company exceeded sales guidance and delivered free cash flow within our FY19 guidance range, allowing us to pay down $211 million of debt throughout the full year. Sales and margin pressure in the Shooting Sports segment affected our EPS results, but we made great strides across our brand portfolio in our focus on profitability in FY19, while still continuing to deliver high-quality, innovative products to our consumers. I’m proud of what we accomplished this past fiscal year, and I’m confident that in FY20, Vista Outdoor will build on this stronger and more stable foundation as we continue on our path to restoring profitable growth for our company.”

Fiscal Year 2019

For the fourth quarter ended March 31, 2019:

  • Sales were $515 million, down 10 percent from the prior-year quarter. The decline was caused by the sale of Eyewear in the second quarter, lower sales in hydration and hunting and shooting accessories in the Outdoor Products segment, and lower demand within firearms.
  • Gross profit was $99 million, down 9 percent from the prior-year quarter. Adjusted gross profit was $103 million, down 8 percent from the prior-year quarter. The decrease in gross profit is due to the sale of eyewear and lower sales.
  • Operating expenses were $136 million, compared to $125 million in the prior-year quarter. Adjusted operating expenses were $92 million, compared to $123 million in the prior-year quarter. The decrease in operating expenses was driven primarily by the sale of eyewear, cost savings initiatives and lower overall selling costs.
  • Interest expense was $11 million for the quarter, compared to $12 million in the prior-year quarter. The decrease was due to overall lower debt balance, partially offset by a higher average interest rate.
  • Tax rate was (3) percent, compared to 42 percent in the prior-year quarter. The adjusted tax rate was 170 percent, compared to 46 percent in the prior-year quarter.
  • Fully diluted earnings per share (EPS) was $(0.84), compared to $(0.28) in the prior-year quarter. Adjusted EPS was $0.01, compared to $(0.22) in the prior-year quarter.

For the fiscal year ended March 31, 2019:

  • Sales were $2.06 billion, down 11 percent from the prior year. The decline was caused by the sale of Eyewear in the second quarter, lower demand in the market for rimfire and centerfire ammunition in the Shooting Sports segment, and hunting and shooting accessories, hydration, and Action Sports businesses in the Outdoor Products segment.
  • Gross profit was $416 million, down 20 percent compared to the prior year. Adjusted gross profit was $432 million, compared to $524 million in the prior year. The decline was caused by the sale of Eyewear, lower sales volume and pricing, increased promotional activity and unfavorable product mix in Shooting Sports and lower sales volumes in Outdoor Products.
  • Operating expenses were $1,026 million, compared to $606 million in the prior year, primarily due to goodwill, intangible and held for sale asset impairments. Adjusted operating expenses were $371 million compared to $444 million in the prior year. The decline in operating expenses was driven by the sale of eyewear, cost savings initiatives and lower overall selling costs.
  • Interest expense was $57 million, compared to $49 million in the prior year. Adjusted interest expense was $51 million, compared to $49 million in the prior year. The increase was due to a higher average interest rate, partially offset by a decrease in average debt balance.
  • Tax rate was 4 percent, compared to 55 percent in the prior year. The adjusted tax rate was 14 percent, compared to 8 percent in the prior year.
  • EPS was $(11.27), compared to $(1.05) in the prior year. Adjusted EPS was $0.14 compared to $0.50 in the prior year.

When reporting third-quarter results, Vista Outdoor guided EPS for the year in a range of $(10.36) to $(10.21) and adjusted earnings per share in a range of $0.20 to $0.35. Sales topped its former guidance in the range of  $2.00 billion to $2.05 billion.

Cash flow provided by operating activities was $97 million, compared to $252 million in the prior year. Free cash flow generation was $79 million, compared to $206 million in the prior-year period. The decrease was primarily a result of less favorable net working capital benefits and decreased gross profit, offset by lower operating expenses.

“We delivered a full year of solid FY19 operating results towards our strategic transformation amidst a challenging external marketplace,” said Mick Lopez, Vista Outdoor chief financial officer. “We exceeded our revenue guidance for the year, however our fourth quarter profitability was lower than expected as a result of increases to reserves for customer credit risk and product liability litigation. In addition, during the quarter we experienced temporary production and supply issues within the Shooting Sports segment that impacted our ability to meet demand for certain higher margin products.”

Outlook for Fiscal Year 2020

“We remain on track in our multi-year strategic transformation, with sharpened profit and cash generation focus and improved risk posture as a result of our enhanced capital structure,” said Lopez. “We expect to see contributions from our leadership changes in new product introductions and world-class marketing in the second half of fiscal year 2020 that should drive long-term profitable growth.”

Vista Outdoor FY20 financial guidance (including Savage Arms for the full year):

  • Sales in a range of $1.940 billion to $2.030 billion
  • Interest expense of approximately $45 to $50 million
  • Tax rate reported and adjusted of approximately 5 percent
  • Earnings per share in a range of $0.28 to $0.38
  • Capital expenditures of approximately $45 to $50 million
  • Free cash flow in a range of $55 to $65 million
  • The company also expects FY20 EBITDA margins of approximately 7 percent. FY20 guidance does not include the impact of any additional future strategic acquisitions, divestitures, investments, business combinations or other significant transactions.