Inside the outdoor industry

Vista responds to pressure as full year results published

Company promises increased focus on ammunition despite protests

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Vista Outdoor has announced a “strategic business transformation plan”, designed to allow the company to focus resources on pursuing growth in its core product categories, including its ammunition lines.

The plan is a result of a comprehensive strategic review, which began in November 2017.

“Our review identified product categories that are core to the company’s long-term business strategy,” said Vista Outdoor CEO, Chris Metz. “We believe future investment should focus on categories where Vista Outdoor can achieve sustainable growth, maximise operational efficiencies, deliver leadership economics, and drive shareholder value.”

Despite pressure from consumers in the wake of America’s latest high school massacre in Parkland, Florida over its support for gun lobbyist the National Rifle Association, the CamelBak owner says it intends to focus on its ammunition products. But it said it will explore options for other brands including its Savage and Stevens firearms.

In conducting the review, management defined several criteria to evaluate whether individual product categories are part of the company’s core based on their ability to do the following:

  • Serve the company’s target consumer – the outdoor enthusiast
  • Create cross-selling and other similar synergy opportunities
  • Achieve market leading positions and leadership economics
  • Demonstrate omni-channel distribution capabilities

Growth will be focused on brands in ammunition, hunting and shooting accessories, hydration bottles and packs, and outdoor cooking products.

“Vista Outdoor is excited about the potential of each of our core businesses, particularly ammunition, which is our largest core business.” said Metz. “An increased focus on our heritage ammunition business will manifest itself in more innovative and breakthrough new products introduced over the next few years. We also anticipate that by prioritising this business, we will be able to invest more capital to further enhance and expand our global leadership position.”

The company plans to explore strategic options for assets that fall outside of these product categories, including its remaining Sports Protection brands (e.g. Bell, Giro, and Blackburn), Jimmy Styks paddle boards, and Savage and Stevens firearms.

The firm said it expects that the process will significantly reduce the company’s leverage, improve financial flexibility and the efficiency of its capital structure, and provide additional resources to reinvest in core product categories, both organically and through acquisition.

“This transformation plan is a significant first step toward creating a portfolio of brands that is laser-focused on our target consumer and leverages the strengths of our combined platform,” said Metz. “This renewed focus will allow us to invest in these categories and their natural adjacencies. Coupled with our previously announced sales and marketing reorganisation to drive a founder’s mentality back into our brands, this strategic orientation will also allow us to accelerate our efforts to expand e-commerce capabilities and increase our emphasis on market-leading product innovation. The end result will be a Vista Outdoor that lives up to the potential envisioned three years ago when the company was formed. We intend to begin the portfolio reshaping immediately, and anticipate executing any strategic alternatives by the end of Fiscal Year 2020.”

Fourth quarter results

Vista also reported operating results for the fourth quarter and full Fiscal Year 2018 (FY18), both of which ended on March 31, 2018.

“We completed a strong fourth quarter,” said Metz. “For the second consecutive quarter, the company delivered sales and free cash flow above, and EPS within, our Fiscal Year 2018 guidance range. For the year, we generated in excess of $200 million of free cash flow, allowing us to pay down $206 million of debt. Importantly, we are beginning to see evidence that the market for our shooting sports and related outdoor products is leveling out, and we anticipate a return to growth in the second half of our Fiscal Year 2019.”

For the fourth quarter ended March 31, 2018, sales were $571 million, down one per cent from the prior-year quarter. The decline was caused by lower prices across all ammunition categories due to market conditions in the Shooting Sports segment, and lower sales in hydration, optics, and water sports in the Outdoor Products segment. These declines were partially offset by increased firearms sales due to a product refresh in Shooting Sports and improved sales in outdoor cooking and Sports Protection product categories.

Gross profit was $109 million, down 24 percent from the prior-year quarter. Adjusted gross profit was $112 million, down 22 percent. The decrease was primarily caused by unfavorable pricing in all ammunition categories, increased promotional activity, and rebates within the Shooting Sports segment. These decreases were partially offset by favourable volume, product mix and cost savings within Outdoor Products.

Operating expenses were $125 million, compared to $130 million in the prior-year quarter. Adjusted operating expenses were $123 million, compared to $129 million in the prior-year quarter. The decrease in operating expenses was driven by lower expenses for customer collections compared to the prior period and cost savings initiatives, partially offset by increased incentive accruals.

Interest expense was $12 million for the quarter, compared to $11 million in the prior-year quarter. The increase was caused by a higher average borrowing rate, partially offset by a lower debt balance.

Tax rate was 42 per cent, compared to 71 percent in the prior-year quarter. The adjusted tax rate was 46 per cent, compared to 56 per cent in the prior-year quarter, primarily caused by lower operating earnings in the current period.

Fully diluted earnings per share (EPS) was $(0.28), compared to $0.02 in the prior-year quarter. Adjusted EPS was $(0.22), compared to $0.03 in the prior-year quarter.

Full-year results

For the fiscal year ended 31st March 2018, sales were $2.3 billion, down nine per cent from the prior year. The decline was caused by lower volume in Shooting Sports across all ammunition categories, lower pricing across the portfolio, and lower firearms sales as a result of decreased demand impacting the shooting sports industry. Additionally, Outdoor Products declines were caused by market conditions affecting shooting-related categories, including hunting and shooting accessories, optics, and tactical products. In Outdoor Products, hydration and water sports were impacted by loss of retail space and lower demand. The declines in both Shooting Sports and Outdoor Products were partially offset by $33 million in sales related to the Camp Chef acquisition for periods in which they were not part of Vista Outdoor. Organic sales were down 11 per cent compared to the prior year.

Gross profit was $521 million, down 22 percent from the prior year. The decline was caused by lower sales volumes, lower pricing, increased promotional activity and unfavorable product mix in Shooting Sports. Outdoor Products declines were caused by lower sales, partially offset by $10 million in gross profit related to the Camp Chef acquisition. Organic gross profit was down 24 percent, compared to the prior year.

Operating expenses were $606 million, compared to $876 million in the prior year. Adjusted operating expenses were $444 million, compared to $455 million in the prior year. The decline in operating expenses was driven by cost savings initiatives and lower expenses for customer collections, partially offset by increased incentive accruals.

Interest expense was $49 million, compared to $44 million in the prior year. The increase was caused by a higher average borrowing rate, partially offset by a lower average debt balance and the lack of a prior-year write-off of debt issuance costs.

“Fiscal Year 2019 will be an inflection point for our business, and our financial guidance reflects this reality,” said Metz. “Increased commodity costs and lower volume will pressure both segments in the first half, and higher interest expense and unfavourable tax rate will pressure earnings for the full year. In response to these challenges, the company has taken several cost reduction actions and initiated targeted price increases, and we anticipate further actions if commodity pressures do not abate. As we move through the year, we anticipate sequential, quarter-over-quarter improvements in our gross profit percentages as a result of our actions. Our strategic transformation into a consumer-focused, less complex, and more agile business will position us to unlock the true value of Vista Outdoor and its market-leading brands.”

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