American Outdoor Brands’ revenue for the first quarter ended July 31 fell 28.1 percent to $43.7 million. Gains in DTC’s e-commerce sales were more than offset by weakness in wholesale sales, largely due to bloated market inventories impacting the shooting sports category.
Sales through traditional channels fell 47.6 percent to $23.1 million. Traditional channels reflect customers who generate the majority of revenue from consumer purchases at the company’s brick-and-mortar locations.
In a conference call with analysts, President and CEO Brian Murphy said the year-over-year decline was due to fewer orders from retailers as American Outdoor Brands responded to reduced foot traffic and continued to limit its willingness to buy to limit inventory in its offerings.
“While these dynamics impacted retail sales across our portfolio of brands, they were more pronounced in our shooting sports category, which includes personal protection products such as laser sights and sales of shooting accessories to firearms OEMs, dealers and distributors,” said Murphy. “It is also important to note that the strong net sales growth of over 70 percent in our traditional channel over the past year reflected that certain customers had accelerated their purchases to offset potential supply chain disruptions, resulting in very stiff competition for the current quarter.” led.”
However, Murphy noted that select data from the first quarter indicated that POS trends were generally favorable year-over-year across the portfolio of brands. He said: “We see this as an important positive as it not only reflects a strong consumer preference for our brands, but also indicates that continued consumer migration should further reduce retailers’ inventories going forward.”
Also encouraging was the e-commerce channel, where sales rose 23.7 percent to $20.5 million. The e-commerce channel includes DTC sales and wholesale accounts that generate most of the website revenue.
Growth in the e-commerce channel reflects a 234.8 percent increase in DTC sales compared to the same quarter last year.
American Outdoor Brands’ brands sold exclusively by DTC accounted for $6.9 million, or 33.5 percent, of total e-commerce channel revenue over the most recent period, including revenue from the acquisition of Grilla Grills, which closed last March became. The DTC gains also reflect gains from meat! Your maker meat processing equipment.
Grilla grills and meat together! Your Maker generated over 15 percent of net sales for the first quarter and helped the outdoor lifestyle category grow to over 53 percent of total net sales for the quarter. Murphy said, “We view our DTC sales as an indicator of how well our brands are resonating with consumers, as these sales are not impacted by retailer issues such as inventory or limited willingness to buy.”
American Outdoor Brands brands include Bog, Bubba, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, Hooyman, Imperial, LaserLyte, Lockdown, Meat! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust and Wheeler. Licensed brands include M&P, Smith & Wesson, Performance Center by Smith & Wesson and T/C.
Net loss for the quarter was $5.7 million, or 42 cents a share, compared to a profit of $3.5 million, or 24 cents a year ago. On an adjusted basis, earnings were $84,000, or 1 cent a share, compared to $6.8 million, or 48 cents a year ago. Adjustments exclude acquired intangibles, stock awards, technology implementation, costs of shareholder collaboration agreements and acquisition costs.
Adjusted EBITDA for the quarter was $1.4 million, or 3.2 percent of revenue, compared to $9.6 million, or 15.7 percent of revenue, for the comparable quarter last year.
Gross margin decreased 410 basis points to 43.6 percent, mainly due to lower sales volumes and higher freight costs.
Total operating expenses increased to 56.3 percent of revenue from 40.7 percent in the prior year, mainly due to the reduction in revenue. Operating expenses decreased slightly to $24.6 million from $24.76 million in the prior year as a result of lower revenue-related accruals and lower advertising expenses offset by legal and consulting fees related to the entered into cooperation agreement with a shareholder and direct costs related to IT technology were balanced.
Murphy said American Outdoor Brands remains excited about growth opportunities in its outdoor lifestyle category, which includes products related to hunting, fishing, camping, outdoor cooking and rugged outdoor activities. Outdoor Lifestyle delivered 26.5 percent growth in the first quarter of fiscal 2021 and 54.2 percent growth compared to the first quarter of fiscal 2020 before the pandemic.
Continued growth in the outdoor lifestyle category is expected to help mitigate volatility in the shooting sports category, which is more vulnerable to short-term cycles.
“Given the current environment and the extremely high inflation rates we’ve been seeing lately, there is little doubt that consumer spending is uncertain in the near term,” Murphy added. “Despite these factors, we remain excited by the fact that consumer participation outdoors is at its highest level in years.”
He pointed out that the OIA report on the market situation of the outdoor industry, released two weeks ago, showed that the number of outdoor participants has grown by almost 7 percent since March 2020, adding more than 10 million new participants, and that there was a 26 percent growth in new entrants or returning outdoor participants. The report also finds that about 54 percent of the US population participated in at least one outdoor activity in 2021, and that remote work has given more people time to be outdoors, often during hours when they are in an office or were on the way to work.
Murphy said: “What’s important is that the report says something that we’ve believed for some time. Participating in outdoor recreation is sticky; Once someone starts participating, they are likely to continue. We remain excited about the long-term growth opportunities these trends offer for our brands.”
Murphy said American Outdoor Brands continued to leverage its Dock & Unlock strategy to drive innovation, as new products generated nearly 26 percent of sales in the first quarter.
At ICAST 2022, Bubba received the award for “Best Cutlery, Hand Pliers and Tools” for the brand’s Multi-Flex Interchangeable Knife Sets, marking the third year in a row that Bubba has received the category award. The Bubba Voyager Gear Box, their first entry into waterproof storage, was unveiled at the show and a proprietary Bubba electric fish scale was shown ahead of full launch and shipping of the first inventory in Spring 2023.
During the first quarter, American Outdoor Brands amended its lease at its Columbia, MO facility to add 35,000 square feet of space. The Company then began plans to consolidate its Crimson Trace operations in Wilsonville, OR and its Grilla operations in Holland, MI and Dallas, TX into the Missouri facility. It is estimated that the consolidations will result in net cost savings of approximately $1.5 million per year beginning in the fiscal fourth quarter.
Inventories ended the quarter at $120.6 million, up 31 percent from $92.0 million a year ago.
Andrew Fulmer, CFO, said the implementation of targeted inventory reduction initiatives helped reduce inventories by approximately $1 million since the beginning of the quarter, although new inventory was added to support new product launches.
“Our team is working on a plan to reduce our inventory in the coming quarters to drive cash conversion from inventory in the second half of the fiscal year,” Fulmer said. “In addition, with the majority of retailers currently focused on reducing their overall inventory levels, we have intentionally delayed the launch of certain new products to better align with current retail demand patterns. We believe this strategy will help us bring these products to market at a time when retailers’ openness to buying dollars has normalized. In addition, we can better manage our inventory levels over time.”
Regarding its outlook, in mid-July, when American Outdoor Brands reported fourth-quarter results, it declined to provide financial targets for the current fiscal year due to an uncertain retail inventory environment in the second half of the year, but provided some guidance.
Fulmer said: “We believe retailers and distributors remain extremely cautious about their inventory levels. Apart from that, we also believe that our brands are performing well and in line with recent consumer outdoor activity trends. As a result, we believe our fiscal 2023 revenue could exceed pre-pandemic fiscal 2020 revenue by up to 25 percent. We believe our solid financial position allows us to continue executing on our long-term strategic plan, investing in our business and addressing the exciting growth opportunities we have identified for fiscal 2023 and beyond.”