American Outdoor Brands, Inc. — Q3 Fiscal 2023 Form 10-Q
Reporting period: Three and nine months ended January 31, 2023; comparisons are with the corresponding periods in fiscal 2022. The unaudited filing covers the company’s outdoor lifestyle and shooting-sports products business, including Grilla Grills, acquired in March 2022.
Financial performance
| Metric | Three months ended Jan. 31, 2023 | Nine months ended Jan. 31, 2023 |
|---|---|---|
| Net sales | $50.9 million; down 27.4% | $149.0 million; down 26.1% |
| Gross profit / margin | $24.0 million / 47.1%; margin up 130 bps | $69.0 million / 46.3%; margin down 40 bps |
| Operating income (loss) | $(3.0) million | $(8.7) million |
| Net income (loss) | $(2.9) million; $(0.21) per diluted share | $(8.2) million; $(0.61) per diluted share |
| Adjusted EBITDAS, non-GAAP | $3.3 million | $11.0 million |
For the nine months, operating cash flow was $24.3 million, versus cash used of $26.2 million in the prior-year period. Investing activities used $4.2 million and financing activities used $17.8 million, including $15.2 million of debt repayments and $2.6 million of share repurchases. Cash was $21.7 million at January 31, 2023, up from $19.5 million at April 30, 2022.
At January 31, 2023, current assets were $163.4 million and current liabilities were $24.1 million. Inventory was $105.5 million, down from $121.7 million at April 30, 2022. The company reported $10.0 million of revolver borrowings at 5.58%, due March 2027; the balance sheet reports notes and loans payable of $9.6 million. Operating lease liabilities totaled $25.4 million. No dividend was reported.
Material changes and management commentary
- Sales declines reflected reduced demand, retailer inventory reduction and lower orders, especially in traditional channels and shooting-sports products. Traditional-channel sales fell 23.9% in the quarter and 33.4% year to date; e-commerce fell 30.8% and 14.8%, respectively.
- Management attributed lower e-commerce sales principally to reduced orders from a major online retailer. Direct-to-consumer sales rose 37.5% in the quarter and 99.4% year to date, with Grilla Grills contributing to the increases.
- Quarterly gross margin improved on lower freight and tariff costs, new-product mix and favorable inventory valuation provisions, partly offset by product/customer mix and promotions. Year-to-date margin was lower due to volume, mix and promotions, partly offset by pricing and tariff drawbacks.
- Year-to-date operating expenses decreased 2.7%, but rose to 52.1% of sales from 39.6% as sales fell. General and administrative costs included $1.2 million of stockholder cooperation agreement fees and higher standalone IT costs.
- The company repurchased 275,661 shares for $2.6 million year to date under a $10.0 million authorization; $7.44 million remained available at January 31, 2023.
Outlook, risks and unusual items
- No revenue or earnings forecast is provided. Management expected fiscal 2023 capital expenditures of approximately $6.0–$6.5 million and said new products would launch later in the year.
- Management expected inventory to decline in fiscal Q4 as planned purchases are reduced, excluding purchases for new product introductions, and seasonality returns toward typical patterns.
- The company estimated fiscal 2023 IT infrastructure spending of $2.2 million in capital expenditures and $1.7 million in one-time operating expenses, with about $0.5 million of duplicative system costs during the transition. Estimated total IT infrastructure cost across fiscal 2022 and 2023 was $8.8 million.
- A lease assignment for the Columbia, Missouri facility is scheduled to take effect January 1, 2024, subject to conditions. It would provide use of the full approximately 632,000-square-foot facility through November 2038. Estimated annual lease expense would be $3.7 million, $1.3 million above the current sublease; management expects facility-consolidation and distribution savings to offset the increase. The company expects a $12.8 million right-of-use asset increase when effective.
- Key risks include softer consumer demand, excess inventory at retailers or the company, dependence on large customers, sourcing and freight disruption, product-launch execution, competition and pricing pressure, tariffs, and regulatory or political changes affecting firearm-related products. The filing reports no material change to previously disclosed risk factors.
- The company recorded a full valuation allowance against deferred tax assets; the nine-month tax benefit also included a $127,000 return-to-provision adjustment. Results for the interim period may not indicate full-year results.
Important facts for investors to verify
- Whether the steep sales decline and losses stabilize, and whether retailer inventory reductions continue to weigh on orders.
- Whether direct-to-consumer growth and new-product launches can offset weaker wholesale and shooting-sports demand.
- How much of the operating cash flow improvement came from inventory reduction, and whether that improvement is repeatable.
- Revolver availability, borrowing-base limits, interest costs and compliance with minimum debt-service coverage covenants.
- Whether the Columbia facility assignment conditions are satisfied and whether expected savings offset the incremental lease expense.
- The assumptions behind non-GAAP Adjusted EBITDAS and its reconciliation to GAAP results.