American Outdoor Brands, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2023, the company’s fiscal 2024 first quarter. Comparisons are with the three months ended July 31, 2022. The company designs, sources, markets, and sells outdoor lifestyle products and shooting sports accessories through owned and licensed brands.
Financial performance
| Metric | Quarter ended July 31, 2023 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $43.4 million | $43.7 million | Down 0.5% |
| Gross profit / margin | $19.7 million / 45.4% | $19.0 million / 43.6% | Margin up 180 basis points |
| Operating expenses | $23.8 million | $24.6 million | Down 3.2% |
| Operating loss / margin | $(4.1) million / (9.4)% | $(5.6) million / (12.7)% | Loss narrowed by $1.5 million |
| Net loss / diluted loss per share | $(4.1) million / $(0.31) | $(5.7) million / $(0.42) | Loss narrowed by $1.6 million |
| Adjusted EBITDAS (non-GAAP) | $1.1 million | $1.4 million | Down $0.3 million |
| Cash from operating activities | $5.2 million | $5.1 million | Up $0.1 million |
Gross margin improved primarily because inbound freight costs declined. Operating expenses fell, mainly due to lower legal and advisory fees and lower rent expense; selling, marketing, and distribution costs increased, primarily from outbound freight. Adjusted EBITDAS is a company-defined non-GAAP measure and should not be viewed as a substitute for GAAP results.
Sales trends and material changes
- E-commerce sales declined 10.6% to $18.4 million, primarily because of lower demand from the largest e-commerce retailer. Direct-to-consumer-only brands’ online sales increased 5.1% and represented 35.7% of e-commerce sales.
- Traditional-channel sales rose 8.4% to $25.1 million, supported by new hunting and fishing product introductions. New products, defined as SKUs introduced in the prior two fiscal years, represented 21.1% of quarterly sales.
- Shooting sports sales declined 1.5% to $20.1 million; outdoor lifestyle sales increased 0.4% to $23.4 million. Domestic sales fell 1.2%, while international sales rose 7.5%.
Cash, debt, and liquidity
- Cash and cash equivalents were $18.7 million at July 31, 2023, down from $22.0 million at April 30, 2023. Operating activities generated $5.2 million; investing used $0.8 million; financing used $7.6 million. Cash declined $3.2 million overall.
- Financing cash use included repayment of $5.0 million of revolving borrowings and $2.3 million to repurchase 267,991 shares. No revolving borrowings remained at quarter-end. The company has a $75 million asset-secured revolving facility maturing in March 2027, with availability subject to a borrowing-base calculation and facility terms.
- Current assets were $156.3 million and current liabilities $29.2 million. Inventory was $104.9 million, up $5.2 million from April 30, 2023. Total operating lease liabilities were $24.8 million; these are lease obligations, not revolving debt.
Outlook, risks, and unusual items
- The company expects fiscal 2024 capital expenditures of approximately $6–7 million, compared with fiscal 2023 spending that was $1.1–2.1 million lower.
- Management expects inventory to increase in the first half of fiscal 2024 to support fall hunting, winter holidays, and new product launches, then to decline by fiscal year-end compared with April 30, 2023.
- Management expects to fund known or reasonably likely cash requirements with operating cash flows, available cash, and borrowings under the existing facility. Future financing may not be available on acceptable terms; capital needs depend on sales, product investment, marketing, and potential acquisitions.
- The company cited risks involving consumer demand, product launches, supplier and freight disruptions, inventory exceeding demand, customer concentration, competition, tariffs, and possible changes in firearms-related regulation, among others. It reported no material changes to the risk factors in its fiscal 2023 Form 10-K.
- Subject to conditions, an assignment of the Columbia, Missouri facility lease is expected to take effect January 1, 2024. The company estimates annual lease expense of $3.7 million, $1.3 million above the current sublease, expects savings from consolidation and distribution efficiencies to offset the increase, and expects a $12.8 million increase in right-of-use assets when effective. The former parent is to guarantee the lease through its end.
- The filing describes ordinary-course litigation but reports no material product-liability defense costs or product-liability settlements for the quarter. It also describes potential duty-drawback reimbursements for certain tariffs as a gain contingency; no amount is recorded as a gain until resolved.
Investor verification points
- Track whether e-commerce demand stabilizes and traditional-channel growth and new product launches continue.
- Verify that the planned inventory build converts to sales and inventory declines by fiscal year-end as management expects.
- Monitor gross margin and freight costs, as well as whether operating expense savings persist while the company remains loss-making.
- Check the company’s cash generation, share repurchases, capital spending, and borrowing-base availability under the revolving facility.
- Confirm the facility lease assignment’s effective date, associated costs and savings, and any related balance-sheet changes.