American Outdoor Brands, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2021 (first quarter of fiscal 2022). The interim financial statements are unaudited. The prior-year period was prepared on a carve-out basis before the August 2020 spin-off, so it may not be directly comparable with results as a standalone public company.
Financial performance and position
| Metric | Quarter ended July 31, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $60.8 million | $50.5 million | +20.4% |
| Gross profit / margin | $29.0 million / 47.7% | $23.7 million / 47.0% | Margin +0.7 percentage points |
| Operating income / margin | $4.2 million / 6.9% | $2.5 million / 4.9% | Operating income +71.4% |
| Net income | $3.5 million | $1.8 million | +93.2% |
| Diluted EPS | $0.24 | $0.13 | Up $0.11 |
| Adjusted EBITDAS (non-GAAP) | $9.6 million | $8.7 million | +9.7% |
Operating cash flow was negative $3.2 million, versus positive $0.6 million a year earlier. Investing cash outflow was $1.0 million; financing cash outflow was $0.3 million. The operating cash use primarily reflected a planned inventory build. Cash and cash equivalents were $56.3 million at July 31, down from $60.8 million at April 30. Inventory rose to $92.0 million from $74.3 million.
There were no borrowings under the $50.0 million revolving credit facility; the full amount was available at quarter-end. Lease liabilities totaled $26.1 million, including $1.8 million current. Current assets were $190.9 million and current liabilities were $40.4 million.
Changes and business drivers
- Traditional-channel sales increased 70.4% to $44.2 million, while e-commerce-channel sales fell 32.3% to $16.6 million. The company attributed the comparison partly to elevated online sales and retail restrictions in the prior-year COVID-affected quarter. Direct-to-consumer sales on its own websites increased.
- Domestic sales grew 16.6%; international sales grew 112.3%, from a smaller base. One customer accounted for 18.1% of quarterly sales.
- Management cited stronger demand across outdoor activities and new product introductions; products introduced in the prior two fiscal years represented 22.3% of sales.
- Gross margin improved with higher-volume manufacturing efficiencies, favorable inventory adjustments, and lower spending, partly offset by customer mix and higher freight costs. Operating expenses increased 16.4%, including higher freight, advertising, compensation, and standalone-company costs.
Outlook, risks, and other items
- No revenue or earnings guidance is provided. Management expects fiscal 2022 capital expenditures of approximately $7.5 million to $8.5 million.
- The company estimates its independent IT and ERP infrastructure will cost about $8.0 million over fiscal 2022 and 2023. It expects fiscal 2022 IT-related capital expenditures of about $3.5 million, one-time operating expenses of about $1.6 million, and approximately $1.2 million of duplicative expenses during system changeover. For fiscal 2023, it expects about $2.0 million of capital expenditures and $1.0 million of one-time operating expenses.
- Management expects inventory to rise further in the second fiscal quarter for planned product launches, seasonal needs, supplier price increases, and protection against supply-chain disruption. It warned of possible manufacturing, import, port, and freight delays, including risks linked to COVID-19 and congestion.
- Other stated risks include consumer demand, product-launch success, customer concentration, competition and pricing pressure, product liability, regulation of firearms-related products, and availability of financing. The company reported no material changes to previously disclosed risk factors.
- Ordinary-course legal matters are disclosed; the company reported no material product-liability defense costs or settlements in either comparison period. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether planned inventory growth converts to sales and cash generation, and whether supply-chain or freight disruptions affect deliveries and margins.
- Whether the sharp channel mix shift persists, particularly the decline in e-commerce sales and the increase in traditional-channel sales.
- How the carve-out basis of the prior-year comparison, including allocated parent-company expenses, affects interpretation of year-over-year performance.
- Progress and actual costs of the IT/ERP program against management’s fiscal 2022–2023 estimates.
- Customer concentration and the availability and terms of the undrawn revolving facility if financing needs change.