With the market for many types of ammunition and firearms still soft, Vista Outdoor Inc. CEO Mark DeYoung showered praise on the company's Bushnell, business for launching a host of innovative products such as laser rangefinders that help golfers and archers find and hit their targets.
“I'm really pleased with what I would call the resurrection of innovation within Bushnell,” said DeYoung. “And our efforts there and the work of that team and those people is really beginning to pay off. I think we've turned the corner on that.”
Vista Outdoor reported sales declined 14 percent to $485 million in the fourth quarter ended March 31 compared with the prior-year quarter as a decline in sales of ammunition and firearms made by its Shooting Sports segment that spilled over into the accessories markets served by its Outdoor Products segment.
Ammunition prices holding steady
Shooting Sports sales fell 17 percent to $315 million due largely to a decline in sales of .223 caliber ammo as well as the 5.56 mm bullets used in many modern sporting rifles. The segment owns six ammunition brands including Federal Premium, CCI and Speer, as well as Savage Arms, which makes centerfire rifles. Gross profit declined 33 percent to 24.5 of next sales.
While demand for firearms, ammunition and accessories remains soft, DeYoung said inventory levels of VSTO's products are in “very good shape” across the supply chain.
“We see more promotional activity such as rebates being offered on products, advertising being increased on products, specialty items being produced and sold at some value pricing,” said DeYoung. “But in general pricing, I think, remains fairly stable.”
Rather than lower prices as it did on .223/5.56 ammo in the second and third quarters of fiscal 2015, VSTO is spending its promotional dollars on co-op advertising and other techniques that don't involve price cuts, DeYoung said.
A renaissance at Bushnell
At VSTO's Outdoor Products segment, sales fell 9 percent to $172 million as the decline in gun sales dragged down sales of accessories and demand for holsters, bags and scopes and other tactical accessories the company's Blackhawk subsidiary sells to law enforcement were also soft. That weakness more than offset promising growth in sales at Bushnell.
”Some of the innovations they have brought forward in golf – rangefinder, for example — is really state-of-the-art. It's setting a new bar for golfers to be able to have the kind of technology that we're providing in the Tour X with JOLT and pinseeker capabilities,” DeYoung said. “It's being very well received and elevating the Bushnell brand in the golf sector.”
JOLT provides the golfer with short vibrating pulses to give a tactile confirmation that the laser has locked onto the flag.
DeYoung said he also has high hopes for Bushnell's ClearShot laser rangefinder technology, which enables archers to scout obstacles such as tree limbs that might obstruct a shot.
Finally, safety eye wear and archery products, including Gold Tip arrows also showed strength. Gross profit, meanwhile, grew 18 percent to $47 million, or 27.2 percent of Outdoor Product sales, up 610 basis points thanks largely to the absence of restructuring charges taken in the segments military and tactical businesses a year earlier.
Shooting Sports expected to rebound in the fall
Vista Outdoor issued initial guidance for fiscal 2016 that calls for low single-digit revenue growth with low double-digit margins. EBITDA margins are expected to be at the lower end of the previously disclosed 14-to-16 percent range. That translates to sales in a range of $2.05-to-$2.11 billion and EPS in a range of $2.00-to- $2.20.
The forecast assumes sales of .223/5.56 ammo will continued to run below year ago levels in the first half of the current fiscal year before rebounding in the back half. At that point, VSTO expects to recapture shelf space lost to imports during 2013 and 2014, when retailers turned to overseas supplier to meeting booming demand. Despite the strong dollar, U.S. ammunition imports have declined two to three times faster than domestic shipments in recent quarters.
“In terms of ammunition, our FY16 guidance and plan assumes that we will continue to manufacture a robust level of ammunition, that we will continue to run our factories at high production levels,” said DeYoung. “With the exception of a few calibers such as .40 or .45, or some center fire rifle ammunition or premium shot shell, the rest of the ammunition market remains fairly robust.”
VSTO's forecast also assumes the company will spend about $2 million by June to move Blackhawk's distribution and packaging operation from Meridian, ID to facilities in Kansas and Mississippi. The company's Savage subsidiary, which laid off workers a year ago, has begun ramping up production amid signs that demand for long runs is rising.
Finally, the company's $263 million in cash and projected Fiscal 2015 cash flow of $190-to-$215 million ensures it will be able to continue acquiring new businesses and buying back stock, said Vista Outdoor SVP and CFO Stephen Nolan.
