Chris Metz, CEO of Vista Outdoor, joins Yahoo Finance Live to discuss the company’s earnings, demand for outdoor sporting goods, M&A activity and why the company is splitting up.
Julie Hyman: Vista Outdoor, the owner of brands like Remington Ammunition and Camelback, is spinning off its ammo and outdoor segments into two separate public companies — two separate public companies. Vista announced the tax-free spin-off this week ahead of fourth-quarter earnings, in which it issued guidance that beat analysts’ forecasts. Stocks are pulling back a bit today.
Chris Metz, CEO of Vista Outdoor, is now with us to discuss. Chris, thanks for being here. Let’s talk about the growth prospects for these two separate parts of the business, because you have the higher growth outdoor and then you have the sporting goods sales growth that you’re seeing in the mid single digits for the year, high single digits for sporting goods. I’m curious about sporting goods and the prospects there and what’s driving growth as people get out and travel again. I suppose that has to do with it.
CHRIS METZ: Absolutely. So we’re really seeing very positive end-user trends and consumer engagement across the board. So think about the outdoors in general and the specific areas we play in. I mean, cycling is up 45% from 20 — 2019, 2020, so kind of a two-year outlook. New golfers on the courses have reached the highest levels since Tiger Woods’ resurgence in 1999 and 2000. Many people play golf indoors and outdoors. They think boating is up 7%. Recreation in parks has increased dramatically.
So people enjoy going out into nature. And we’re capitalizing on the legendary stable of 40 brands we have in the markets we participate in. So we’re in a really, really exciting time. And I think we’re bucking the trend of growing at the rate we are.
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BRIAN SOZZI: Chris, why did you feel it was necessary to split up the company?
CHRIS METZ: Well, we have two really, really good companies. And this is how we run the company today. We operate a sports product platform and an outdoor product platform. And remember, in the last two years, the last two years, we’ve doubled the size of our company. We’ve gone from about a billion 7 to $3.1 to $3.2 billion. For the past year, we’ve grown over 40% every quarter. We posted record EBITDA margins of 24% for the year. And our share price has been rewarded, right?
So in the last couple of years we’ve gone from about $5 to $39, to $40 today. But still, there is so much value in our product category that isn’t there yet. Therefore, we believe that after thorough analysis, separating these two companies is the best way to allow each of them to pursue their own individual investor base and capital allocation strategy, and frankly, thrive as a separate company with a separate strategy focus.
BRAD SMITH: You also mentioned the disruptions in the supply chain, which you expect to persist for the foreseeable future. Give us an optimistic timeline and what the near-term case might be for some of these strains to be alleviated, given that this has even been demonstrated with Acushnet, another company’s ability to just make golf balls. I mean, you’re in a lot more different categories than they are.
CHRIS METZ: It is difficult. No question. And I don’t see it going away any time soon. But things got a little better, didn’t they? So we’re starting to see inventory flow. We’re starting to see materials at a pace that we didn’t see six months ago. So what we’ve done in anticipation, we personally, is we have a supply chain center of excellence. And we got into it. We carry more inventory now, more really good inventory than we did six, nine months ago.
And we did that on purpose. We didn’t think it would be able to let up. And because of that, we were able to increase the sales that we were able to get. And as things progress, we will be able to meet that demand. And it will go on like this for a while. But it’s starting to get better. And it will gradually get better as we begin to move through the second half of this year.
Julie Hyman: Chris, sorry, just going back to the fork here for a moment. I’m wondering, given the increased interest in so-called ESG investing, has the ammo business with the outdoor business sorted you out in some way from investors who have shut you out for owning the ammo business?
CHRIS METZ: So that wasn’t really part of the analysis that we did. I mean when we were looking at this – and you can imagine a decision that big, we spent a lot of time at the board level with really good advisors and we asked ourselves why we weren’t able to unlock the value and we acted a multiple more in line with what our competitors are trading at? And that’s because the companies are very different. And the companies are difficult to understand as a unit, aren’t they? So you have two different companies that honestly operate in different ways.
Sports products is a lower-growth, very high-cash business that tends to attract an investor base that prefers to return to shareholders via dividends. Outdoor products, it’s a business that is growing faster. Half of our growth has been organic, the other half through acquisition. We have acquired five outdoor products companies in the last 12 months. And our investors want us to continue to bet on acquisitions and continue to grow on this side. So very different layers of investors.
And when you put them together, investors have a very hard time deciding whether this is an investment they want to make or not. And we’ve heard that from many of our investors. I think there’s an opportunity now to go out and attract very different and much larger investors to each of these individual companies.
BRIAN SOZZI: What other acquisitions could you be looking at in the sporting goods space, Chris?
CHRIS METZ: Well, first things first, we like to look at the platforms we operate on. And so we made an acquisition in our golf platform. We are leaders in data technology. And we bought a company, Foresight, the leading provider of launch monitors and game simulations. We bought a pellet company that is the fuel for our outdoor cooking, Pellet Grills. So we’re primarily looking at expanding our existing platforms, but where we see new platforms that we think will have high growth, like electric bikes that are exploding, we have the leading off-road bike company in Bought Quiet Cat.
So we have a really exciting pipeline. And we have a lot of dry powder, right, where despite acquiring five companies last year, we’ve reduced our leverage to 0.9 times our EBITDA. So we have a lot of capital that we can use. And we will focus on add-ons that make sense for our platforms and also on new exciting high growth platforms that will extend the growth that we are seeing in outdoor products today.
BRAD SMITH: Chris Metz, CEO of Vista Outdoor, thank you for being here today. Am grateful.