<span style="color: #9e9e9e;">Riding strong double-digit growth in both its Shooting Sports and Outdoor Products segments, Vista Outdoor Inc. reported robust growth in the second quarter ended September 27, provided a bullish outlook for its holiday quarter and detailed how the newly-acquired Remington brand will support future growth.
Vista Outdoor’s brands include Federal Premium, CamelBak, Bushnell, Camp Chef, Primos, Blackhawk, Bell, and Giro.
In the second quarter, sales jumped 29 percent to $575 million, far ahead of Wall Street’s consensus estimate of $506.39 million. Vista officials had previously predicted sales in the range of $495 million to $515 million.
Net earnings came to $79.6 million, or $1.34 a share, against a loss of $11.9 million, or 21 cents, a year ago. On an adjusted basis, earnings were $65.4 million, or $1.10 a share, against a loss of $63,000, or close to zero per share, a year ago. Wall Street’s consensus estimate had been 64 cents, and Vista had predicted earnings in the range of 60 cents to 70 cents a share.
Adjusted earnings exclude the benefit of a tax valuation allowance and transaction costs tied to its acquisition of the Remington firearms brand in mid-October as part of a bankruptcy sale. The year-ago period excluded numerous operational and debt restructuring charges.
Gross profit margin improved by 786 basis points to 28.1 percent. Operating expenses were 15 percent of sales and improved by 483 basis points when compared with the prior-year quarter. Adjusted operating expenses were 15 percent of sales and improved by 356 basis points when compared with the prior-year quarter.
Earnings before interest and taxes (EBIT) increased to $75 million from $1 million in the prior-year quarter. Adjusted EBIT increased to $78 million from $10 million in the prior-year quarter.
<span style="color: #9c9c9c;">On a conference call with analysts, Vista Outdoor CEO Chris Metz, said, “We see the second quarter as marked by excellence in strategy execution, well-timed new product introductions in the marketplace, a brand portfolio of market-leading brands focused on outdoor sports and recreation, and a resilient business model now delivering significant profitability to fund the next leg of Vista’s market leadership.”
He said the stronger-than-anticipated sales were in part due to Vista’s steps to enhance its e-commerce capabilities, including increasing its online marketing efforts. E-commerce jumped more than 100 percent during the quarter, increasing to 22 percent of year-to-date sales and contributed to the healthy upswing in EBIT margin.
Another driver was the “ongoing shift in consumer preferences toward outdoor activities that can be enjoyed in safe and socially distant ways,” said Metz.
Several new successful product introductions including Bushnell’s Wingman GPS enabled speaker, Camelbak’s Horizon drinkware line and the introduction of Bushnell’s redesigned and repositioned line of optics also supported growth. Metz said, “The response in the channel, and with consumers to our innovation, has been strong and was well-timed.”
Metz also pointed to increases in recreational shooting sports participation, in part inspired by safety and personal protection, and growth in the sale of hunting-related ammunition and accessories, driven by a strong fall hunting season.
“Vista was able to meet these demands under challenging circumstances,” said Metz. “We’ve thrived as we’ve watched the economy go up and down, politics permeate even further into everyday life, and we’ve adjusted our processes to account for enhanced safety for all of our employees.”
Shooting Sports Segment Sales Jump 26 Percent
Among segments, sales in Shooting Sports increased 26 percent to $380 million year-over-year driven by continued strong consumer demand as a result of the resurgence in outdoor recreation activities and demand for personal protection.
Gross profit in the Shooting Sports segment increased 110 percent to $105 million. Margin acceleration is due to the result of improvements resulting from cost savings initiatives, mix, price, and favorable commodity costs.
EBIT for the Shooting Sports segment expanded 340 percent to $70 million compared with the prior-year quarter. EBIT Margin improved by 1320 basis points to 18.5 percent from 5.3 percent in the prior-year quarter.
Metz said Vista expects the high level of demand for its Shooting Sports segment – fueled by many factors, including civil unrest, a heightened desire for personal protection, and increases in recreational shooting activities – to continue into the future
One area of expected continued growth in demand is hunting as Vista saw a strong spring hunting season and the fall hunting season is trending the same way. Said Metz, “With continued COVID-19 restrictions and social distancing, more and more people are looking to spend time in nature and in the woods.”
For example, in New York state, hunting license sales tripled 2019 sales on opening day. In Michigan, license sales are up 28 percent with a large increase in the coveted 18-to-34-year-old demographic. Said Metz, “These trends are in line with internal demand for hunting ammunition and bode well for the hunting-heavy Remington brand.”
A second area of growth is continuing wins securing domestic and international government contracts.
Metz cited a number factors that makes the current surge in firearms different from the surge seen in 2016 that eventually led to a slowdown and bloated inventories across the marketplace. The factors should support healthy demand going forward.
The differences include a significantly greater amount of new shooters and a greater diversity of new shooters, including large increases in both women and people of color entering the sport. Another difference is the strength being seen in a number of accessory categories, such as gun cleaning kits, slings, spotting scopes and eyes/ear protection, with many categories experiencing gains in the low-40s to high-50s.
Metz also said inventory levels compared to 2016 are much cleaner across all retail and wholesale locations with many customers seeking more supply. Finally, he pointed to Vista’s sizable backlog at over a year’s worth of orders for ammunition in excess of a billion dollars. Said Metz, “This is unprecedented for our company with demand far outstripping supply and inventory levels in the channel at all-time lows. We see strong demand continuing.”
Outdoor Products Segment Sales Leap 35 Percent
In the Outdoor Products segment, sales increased 35 percent to $195 million driven by strong consumer demand as a result of the resurgence in outdoor recreation activities and increases in sales in its e-commerce channels across brands. Strong demand was somewhat offset by continued COVID-19 supply chain disruptions primarily related to its Hydration business unit.
Gross profit for the Outdoor Products segment increased 39 percent to $57 million due to improvements in mix and increases in the e-commerce channel across all brands. Gross profit margin was 29 percent up 83 basis points from the prior-year quarter.
EBIT in the Outdoor Products segment climbed 156 percent to $26 million compared with the prior-year quarter. EBIT margin improved by over 600 basis points to 13.5 percent from 7.1 percent in the prior-year quarter.
Metz said the acceleration of remote work and migration away from cities “continues to provide positive influence on outdoor recreation.”
In hydration, Camelbak continues to benefit from its high customer brand affinity and link to healthy lifestyles and is “thriving despite continued COVID-related supply chain issues, primarily in Asia, as well as Mexico.” Camelbak is working on securing secondary suppliers to address the challenges.
Bell and Giro continue to benefit from the surge in people riding bikes again with sales strong across the portfolio from specialty retail to mass channels. The brands have also seen more consumers getting back on their motorcycles with many of them buying a new helmet for themselves or for family members. Said Metz, “Market research data indicates that the demand for bikes and related accessories will continue well into the future.”
Camp Chef is benefiting from the surge in outdoor cooking continues and its strong brand awareness in the space. Sales during the quarter on the Campchef.com were up significantly year over year, helping further drive brand awareness and gross margin improvement.
Camp Chef’s Wi-Fi Pellet Grill, launched just before the pandemic, is “selling like crazy online and at retail and marketed a new MSRP of over $1,000. Added Metz, “Camp Chef’s history shows that the first purchase leads to a prolonged and productive relationship with the consumer. So we believe the surge today will continue to pay dividends tomorrow.”
But the Wingman GPS speaker has been a hit with Bushnell able to grow its market share in GPS devices from zero prior to its launch to 15 percent during the quarter. Said Metz, “We’ve sold five times more than we initially anticipated, as the channel and consumer response has been much stronger than anticipated.”
<span style="color: #9c9c9c;">Regarding the Remington acquisition that was completed on October 13, Metz described Remington as “one of America’s best known and oldest ammunition brands with a rich heritage and passionate and loyal customer base.”
The acquisition for $81.4 million included ammunition and accessory assets, the Arkansas manufacturing facility, the Remington brand, and intellectual property.
“Remington furthers our strategy of building market-leading brands aligned to outdoor sports and recreation,” said Metz. He noted that Vista was able to buy the business, which had aggregate sales of about $200 million in 2019, for roughly $51 million in cash-on-hand and $30 million from its revolving credit facility.
“Importantly, this deal provides us with much-needed manufacturing capacity to meet consumer demand without adding any additional capacity to the industry,” said Metz. “We also believe the iconic Remington brand provides us a valuable and untapped future licensing business in key product categories. Because of the synergies we see, this is truly a once in a lifetime acquisition opportunity.”
He added that it “will take us a couple of quarters” to fully integrate Remington into Vista’s operations. The transaction is expected to be accretive to earnings, excluding transaction and transition costs, in Fiscal Year 2022.
Other accomplishments cited by Metz included being able to achieve a year-to-date free cash flow of $190 million.
“The strategic work we’ve done over the past two years to improve performance, efficiency and profitability turned our increased sales into significantly higher margins and dramatically better free cash flow,” said Metz. “We improved our leverage ratio to 1.4 times in the quarter enabling us the financial flexibility to weather global uncertainty, invest in critical internal initiatives, brands, and tuck in acquisitions as a further level of growth.”
For the third quarter ended December 31, sales are projected in the range of $510 million to $530 million, representing a gain between 20 percent and 25 percent year-over-year against sales of $425 million a year ago. EPS is expected in a range of 55 cents to 65 cents a share, up more than double from 21 cents a year ago.
Photos courtesy Camelbak, Remington
