American Outdoor Brands, Inc. — Form 10-Q summary
Reporting period: Second quarter and first six months of fiscal 2022, ended October 31, 2021. The company designs, sources, manufactures and sells outdoor products and accessories across shooting, hunting, fishing, camping and personal security categories. It reports as one operating segment.
Key financial metrics
Amounts in millions, except per-share data and percentages.
| Metric | Three months ended Oct. 31, 2021 | Prior-year quarter | Six months ended Oct. 31, 2021 | Prior-year period |
|---|---|---|---|---|
| Net sales | $70.8 | $79.1 | $131.5 | $129.6 |
| Gross profit / margin | $33.0 / 46.7% | $37.1 / 46.9% | $62.0 / 47.2% | $60.8 / 46.9% |
| Operating income / margin | $5.3 / 7.5% | $9.6 / 12.1% | $9.5 / 7.2% | $12.0 / 9.3% |
| Net income | $4.6 | $7.3 | $8.0 | $9.1 |
| Diluted earnings per share | $0.32 | $0.52 | $0.56 | $0.65 |
| Adjusted EBITDAS (non-GAAP) | $11.7 | $15.8 | $21.3 | $24.5 |
For the quarter, sales fell 10.5% year over year as traditional-channel sales declined 18.2%; e-commerce sales rose 4.9%. For the six-month period, sales increased 1.5%, with traditional channels up 10.9% and e-commerce down 13.1%. International sales increased 28.3% in the quarter and 65.0% over six months, from a smaller base.
Quarterly gross margin declined 20 basis points, reflecting higher freight costs, an inventory write-down and unfavorable manufacturing absorption, partly offset by price increases and customer mix. Six-month gross margin improved 30 basis points, principally from improved manufacturing efficiencies and favorable inventory adjustments, partly offset by freight expense. Net income declined in both comparisons, with lower quarterly sales and gross profit and higher operating expenses contributing.
Cash flow, liquidity and debt
- Cash and cash equivalents were $32.6 million at October 31, down from $60.8 million at April 30, 2021.
- Six-month operating cash flow was negative $25.3 million, versus positive $4.5 million a year earlier. The main use was a $30.7 million inventory increase, alongside higher receivables and prepaid assets; management attributed inventory growth to planned product launches, seasonal preparation and supply-chain risk mitigation.
- Investing cash outflow was $2.8 million; financing cash outflow was $0.1 million. No debt was drawn on the $50 million revolving credit facility, and the full $50 million was available at quarter-end. The facility includes an option to increase commitments by $15 million.
- Operating lease liabilities totaled $25.8 million, including $1.9 million current and $23.9 million long term. No borrowings were reported under the credit facility.
Outlook, risks and unusual items
- Management expects fiscal 2022 capital expenditures of approximately $7.5–$8.5 million. Its independent IT and ERP build is estimated at approximately $8 million across fiscal 2022 and 2023; related spending includes expected one-time and duplicative operating expenses during the system transition.
- Management expects inventory to decline in the second half of fiscal 2022, citing holiday seasonality and planned product introductions. This is an expectation, not a guarantee.
- Key risks include COVID-related disruption, Asian sourcing and manufacturing constraints, port congestion and freight costs, product demand and customer inventory levels, customer concentration, and competition. Two customers represented 29.9% and 13.1% of quarterly sales; together, two customers accounted for 48.8% of receivables at quarter-end.
- Quarterly other income included sublease income and a tax incentive related to the company’s Columbia, Missouri headquarters. The company also notes Chinese tariffs on certain sourced goods; potential duty-drawback reimbursements are treated as gain contingencies and have not been recognized unless resolved.
- Routine litigation was disclosed; the company reported no material product-liability defense costs or product-liability settlements in the periods presented. It reported no material changes to previously disclosed risk factors and said disclosure controls were effective.
- After quarter-end, on December 6, 2021, the board authorized up to $15 million of share repurchases through December 2023. No purchases had been made under that authorization as of December 9, 2021.
Important facts for investors to verify
- Whether planned inventory converts to sales and cash as expected, given the six-month operating cash outflow and supply-chain uncertainties.
- Whether traditional-channel demand and e-commerce performance sustain the company’s sales and margin outlook.
- The effect of freight, sourcing and manufacturing costs, price actions, and inventory write-downs on future gross margins.
- The scale and timing of IT/ERP spending and its one-time and duplicative expenses relative to management’s estimates.
- Customer concentration, receivable collection and the availability and terms of the undrawn credit facility.
- Comparability: the prior-year period includes pre-separation carve-out results and allocations from former parent Smith & Wesson; those results may not represent the company as a standalone business.