While reporting a second-quarter loss, Vista Outdoor took combined charges of $152 million for write downs in its Sports Protection and Hunting and Shooting Accessories businesses. The company also announced plans to sell Bollé, Serengeti and Cébé and the elimination of the Shooting Sports segment president position.
The company also announced that its board of directors has named Michael Callahan to serve as chairman.
“I am honored to be elected chairman of Vista Outdoor,” said Callahan. “I am optimistic about the future, and the board is impressed with how quickly our new CEO Chris Metzhas wrapped his mind around the business. His strategic, savvy and decisive approach is exactly the right leadership the company needs to realize the full potential of our diverse portfolio of iconic brands.”
“I am excited to combine my passion for these brands and this industry with my professional experience and deep background in consumer products,” said Vista Outdoor Chief Executive Officer Chris Metz. “While I’ve only been here a short time, I realize we have much to do: we must make significant changes, act decisively, and move quickly to reposition and stabilize the company. We will take an aggressive position on profit improvement through both margin expansion and cost reductions across all areas of the core business.
“We’re in the process of completing a portfolio review of our brands, and we will divest assets where we see the potential to unlock shareholder value. As a first outcome of this process, we are announcing our intention to sell the Bollé, Serengeti and Cébé brands in the Sports Protection business. These brands were acquired as part of the Bushnell transaction in 2013 and focus primarily on fashion, prescription and safety eyewear, which are areas that we have determined are not core to our business. The sale of these brands is expected to take place over the next few quarters.
“To allow our business leaders to drive changes faster and have clear line of sight to the goals at hand, I have decided to eliminate the Shooting Sports segment president position,” said Metz.
With this restructuring, Shooting Sports President Bob Keller will leave the company on November 17, 2017.
“I want to thank Bob for his leadership and his many contributions to the company, and I wish him well in his future endeavors,” said Metz.
Upon Keller’s departure, Al Kasper, president of Firearms, and Jason Vanderbrink, president of Ammunition, will report directly to Metz, as leaders within the Shooting Sports Segment. Kasper currently leads Firearms for the company. He joined Savage Arms in 1996 as chief financial officer and became its president and chief operating officer in 2001. Vanderbrink has served as Vista Outdoor’s senior vice president of sales since January 2017 and will also continue to serve in the sales role as the company evaluates its organizational structure for sales, marketing and product development. He joined Vista Outdoor in 2005 and has 17 years of extensive experience in the outdoor recreation and shooting sports industries.
“Al’s tenure with the company and insights into the firearms industry make him ideal for this position. Jason has a proven history of strategic leadership at Vista Outdoor, and has strong customer relationships and market knowledge within the ammunition industry. I have confidence in both of these fine leaders and look forward to working with them as they deploy their capabilities across these critical roles.”
For the second quarter ended October 1, 2017:
- Sales were $587 million, down 14 percent from the prior-year quarter, including $12 million of additional sales from the acquisition of Camp Chef. Sales were down 16 percent on an organic basis.
- Gross profit was $139 million, down 25 percent from the prior-year quarter. This includes $3 million of additional gross profit from the Camp Chef acquisition, offset by a 27 percent decrease in organic gross profit.
- Operating expenses were $266 million, compared to $81 million in the prior-year quarter. This $185 million difference was primarily due to a $152 million goodwill and intangibles impairment in the current period, partially offset by a $30 millionacquisition settlement gain in the prior-year period.
- Fully diluted earnings per share (EPS) was $(2.01), compared to $1.22 in the prior-year quarter. Adjusted EPS was $0.34, compared to $0.74 in the prior-year quarter.
- Cash flow provided by operating activities year to date was $109 million, compared to $10 million in the prior-year period. Year-to-date free cash flow generation was $77 million, compared to free cash flow use of $48 million in the prior-year period, primarily driven by inventory reduction initiatives.
“During the second quarter, the competitive environment in ammunition, firearms and shooting-related accessories continued to impact our business,” said Vista Outdoor Chief Financial Officer Stephen Nolan. “Ongoing promotional activity combined with high inventory trends in our wholesale channels contributed to a challenging quarter. The company remains focused on cost-savings initiatives and working capital improvements. I’m pleased with the significant reductions to company inventory levels we have made, both year over year and sequentially. We just completed another workforce reduction to better align production with demand. The company generated cash at a level that is higher than our historic average, and we continue to build out our e-commerce strategy and invest in new, innovative products.”
Outlook for Fiscal Year 2018
“During the quarter we recorded an impairment of intangible assets of $152 million in our Outdoor Products segment, with $75 million related to our Sports Protection business and $77 million related to our Hunting and Shooting Accessories business,” said Nolan. “The impairment was triggered by increased downward pressure on sales and margins as a result of challenging market conditions that have persisted longer than previously expected. These challenging market conditions have been exacerbated by additional customer bankruptcies and consolidations. We continue to see high channel inventories for our Hunting and Shooting Accessories business. We expect these inventory levels will take the remainder of the fiscal year to work through, and will continue to put pressure on sales and margins. Our Sports Protection business has been impacted by the ongoing challenges facing the cycling industry broadly and by reduced retail space for our products.
“The market contraction and competitive environment I mentioned earlier will have more of an impact in the second half of the year than it did in the first half, including the full impact of the ammunition pricing action, which we took in the first and second quarters. While we have taken actions to reduce costs, these initiatives have been more than offset by persisting market conditions. As a result, we are revising our FY18 financial guidance for the year.”
Vista Outdoor revised its FY18 financial guidance.
The company expects:
- Sales in a range of $2.24 billion to $2.26 billion.
- An adjusted tax rate of approximately 25 percent.
- Adjusted EPS in a range of $0.50 to $0.60.
- Capital expenditures of approximately $65 million.
- Free cash flow in a range of $155 million to $175 million.
- Interest expense remains unchanged at approximately $50 million.
Under its previous guidance, the company expected:
- Sales in a range of $2.36 billion to $2.42 billion.
- Interest expense of approximately $50 million.
- Adjusted tax rate of approximately 37 percent.
- Adjusted EPS in a range of $1.10 to $1.30.
- Capital expenditures of approximately $70 million.
- Free cash flow in a range of $175 million to $200 million.
The guidance above does not include the impact of any future strategic acquisitions, divestitures, investments, business combinations or other significant transactions, nor the impact of transition expenses for already-completed acquisitions.
Vista Outdoor’s brands include Federal Premium, CamelBak, Savage Arms, Bushnell, Primos, BLACKHAWK!, Bollé, Bell, and Giro.