Vista Outdoor Inc. reported a net loss of $377.7 million, or $6.44 a share, in its third quarter ended January 1, dragged down by a goodwill charge of $449.2 million.

On January 11, the company said it expected an impairment charge for its Hunting and Shooting Accessories reporting unit in the range of $400 million to $450 million.

“Vista Outdoor is committed to delivering long-term growth through the execution of our strategy and a focus on new product development, operational efficiencies and execution excellence,” said Vista Outdoor Chairman and Chief Executive Officer Mark DeYoung. “The challenging retail environment we experienced in our first and second quarters worsened in our third quarter following a slow hunting season and the national elections. This resulted in the need for increased promotional activity to support sales and maintain market share. We have also seen increased inventory in our retail and wholesale channels. As a result of these market factors, we announced a non-cash intangible impairment charge. Although we are disappointed in the impairment within the Hunting and Shooting Accessories reporting unit, we continue to drive improvements in our execution and innovation in our product lines. The company launched more than 150 new products during the winter show season. We have created market leading positions in numerous outdoor product categories, and we are committed to delivering long-term value from our portfolio of top brands.”

For the third quarter ended January 1, 2017:

  • Sales were $654 million, up 10 percent from the prior-year quarter, including $92 million from the recent acquisitions. Sales were down 5 percent on an organic basis.
  • Gross profit was $169 million, relatively flat to the prior-year quarter. This includes $24 million of gross profit from the recent acquisitions, offset by a 14 percent decrease in organic gross profit.
  • Operating expenses were $553 million, compared to $92 million in the prior-year quarter. The increase primarily reflects a pre-tax, non-cash goodwill and intangible impairment charge of $449 million. The increase in operating expenses also reflects additional expenses generated by the acquired businesses. These increases were partially offset by reductions due to lower incentive accruals as a result of current-year performance, and cost cutting initiatives.
  • The tax rate for the quarter was 4.4 percent compared to 36 percent in the prior-year quarter. The difference in the current-year rate was primarily caused by the non-deductible treatment of the goodwill impairment charge noted above. The adjusted tax rates were 33.6 percent in the third quarter and 36 percent in the prior-year quarter.
  • Fully diluted earnings per share (EPS) were $(6.44), compared to 70 cents in the prior-year quarter. Adjusted EPS was 62 cents, compared to 70 cents in the prior-year quarter.
  • Cash flow provided by operating activities was $58 million compared to $71 million in the prior-year period. Year-to-date free cash flow use was $18 million, compared to free cash flow generation of $51 million in the prior-year period.
  • The company repurchased approximately 1.56 million shares for $60 million. On January 23, 2017, Vista Outdoor completed its $100 million share repurchase program. The total number of shares repurchased under this plan was approximately 2.737 million.

“The acceleration of current market challenges has led the company to update FY17 financial guidance,” said Vista Outdoor Chief Financial Officer Stephen Nolan. “For the full year, we expect gross margins to be roughly in line with the third quarter results. While we will release formal guidance for FY18 during our May earnings call, we do expect the revenue and margin pressures we are experiencing in the back half of FY17 to continue into next year. Despite the pressures this year and next, the company is committed to a value-creating capital deployment strategy, long-term sales growth and margin improvement, and delivering long-term value to our shareholders.”

Updated Outlook For Fiscal Year 2017

  • Sales in a range of $2.5 billion to $2.54 billion.
  • Interest expense of approximately $45 million.
  • Tax rate of approximately (12) percent, with an adjusted tax rate of approximately 35 percent.
  • EPS in a range of $(4.57) to $(4.42), with adjusted EPS in a range of $1.95 to $2.10.
  • Capital expenditures of approximately $90 million.
  • Free cash flow in a range of $25 million to $40 million.

The updated guidance above includes the previously announced Camp Chef acquisition but does not include the impact of the goodwill and intangible impairment that was recorded in the third quarter, any future strategic acquisitions, divestitures, investments, business combinations or other significant transactions, nor the impact of contingent consideration revaluation, transition expenses, the acquisition legal claim settlement or inventory step-ups for already-completed acquisitions.

The company’s brands include Federal Premium, CamelBak, Savage Arms, Bushnell, Primos, Blackhawk, Bollé, Bell and Giro.

Image courtesy Camelbak