Vista Outdoor Inc. reported a steep decline in profits in the second quarter ended March 31 due to an “unprecedented decline” in demand for firearms and ammunition and a number of restructuring initiatives. Revenues were down 5 percent.

Sales were slightly higher than company guidance while earnings were slightly lower than projected.

“Vista Outdoor is focused on implementing initiatives that will ensure we achieve the vision and performance objectives we have established for this company, and in doing so, generate growth and returns for our shareholders,” said Vista Outdoor Chairman and Chief Executive Officer Mark DeYoung.

He continued, “We are experiencing unprecedented decline in demand for ammunition and firearms following the presidential election and softness in the retail environment. These impacts have manifested themselves in our results. In order to address ongoing market headwinds, we are taking actions on several fronts. We are expanding our brands’ e-commerce presence to capitalize on the shift by consumers to online shopping. We are right-sizing our workforce, streamlining the organization and reducing inventory. We are driving cost-savings initiatives and improved efficiencies within our manufacturing, sourcing and distribution capabilities. We have also negotiated a long-term agreement with Orbital ATK for the supply of ammunition products produced at the Lake City Army Ammunition Plant through September 2020. This new agreement sustains our leadership position in providing these products to the shooting sports market.

“The Outdoor Foundation recently published its 2017 ‘Outdoor Recreation Participation Topline Report’ illustrating that outdoor recreation remains a vibrant and expanding passion for millions of outdoor enthusiasts and casual participants. Vista Outdoor has brand presence and product offerings in six of the top 10 areas of growth in outdoor recreation participation over the past three years. This positive overall trend in outdoor recreation reaffirms our strategy to expand our outdoor products portfolio beyond shooting sports and into other outdoor recreation categories.

“We remain confident in our ability to compete and win with a broad portfolio of exciting brands and products, and in our ability to deliver growth and value over the long term,” said DeYoung.

Fourth Quarter Ended March 31, 2017

  • Sales were $579 million, down 5 percent from the prior-year quarter and down 21 percent organically.
  • Gross profit was $144 million, down 12 percent from the prior-year quarter and down 27 percent organically.
  • Operating expenses were $130 million. Adjusted operating expenses were $129 million, compared to $93 million in the prior-year quarter. The increase includes operating expenses from acquired businesses and a $17 million write off of a receivable due to a customer’s bankruptcy.
  • Fully diluted earnings per share (EPS) was 2 cents. Adjusted EPS was 3 cents, compared to 63 cents in the prior-year quarter. The decrease was caused by the items noted above, partially offset by lower share count due to share repurchases. Both fully diluted and adjusted EPS results include (18 cents) for the write off of the receivable mentioned above.
  • The company repurchased approximately 780,000 shares in the quarter for $24.5 million.

Fiscal Year Ended March 31, 2017

  • Sales were $2.55 billion, up 12 percent from the prior year and down 7 percent organically.
  • Gross profit was $669 million, up 8 percent from the prior year and down 12 percent organically.
  • Operating expenses were $876 million. Adjusted operating expenses were $455 million, compared to $344 million in the prior year. The increase includes operating expenses from acquired businesses and the $17 million write off mentioned above.
  • EPS was $(4.66). Adjusted EPS was $1.90, compared to $2.50 in the prior year. Both GAAP and adjusted EPS results include (18 cents) for the write off mentioned above.
  • Free cash flow was $38 million, compared to $163 million in the prior-year period.
  • Total year shares repurchased were approximately 3,876,000 shares for $151 million.

When it reported first-quarter results, Vista Outdoor expected sales in the range of $2.50 billion to $2.54 billion. EPS was projected in a range of $(4.57) to $(4.42), with adjusted EPS in a range of $1.95 to $2.10.

Outlook For Fiscal Year 2018
Vista Outdoor is establishing initial FY18 financial guidance. The company expects:

  • Sales in a range of $2.36 billion to $2.42 billion.
  • Interest expense of approximately $50 million.
  • Tax rate of approximately 37 percent.
  • 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.

“Our FY18 financial guidance reflects a continuation of the weakness in the shooting sports market through FY18,” said Vista Outdoor Chief Financial Officer Stephen Nolan. “While we still see indications that inventories in the channel will stabilize by the middle of the fiscal year, we expect the period of market correction will extend beyond that point. For FY18, we anticipate EBITDA margins of approximately 11 percent. Near term, the first quarter will reflect a continuation of the particularly weak market conditions we saw in the fourth quarter of FY17. We expect to generate approximately 22 to 24 percent of our annual revenue guidance in the first quarter. We also expect to generate approximately 10 percent of our annual EPS guidance during the first quarter, as a result of increased promotional activity, which is driven by continued weak market conditions and bankruptcy liquidations.

“Additionally, in partnership with our lenders, we amended the financial covenants in our credit agreement to give us improved financial flexibility over the current period of market softness.”

Photo courtesy CamelBak