American Outdoor Brands, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended January 31, 2022. The company designs, sources, manufactures, markets, and sells outdoor products and accessories. The prior-year comparison includes pre-spin-off carve-out results, which may not be directly comparable to results as a standalone public company.
Key financial results
| Metric | Three months ended Jan. 31, 2022 | Year-over-year change | Nine months ended Jan. 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $70.1 million | Down 15.2% | $201.6 million | Down 5.0% |
| Gross profit | $32.1 million | Down 14.1% | $94.1 million | Down 4.1% |
| Gross margin | 45.8% | Up 60 basis points | 46.7% | Up 40 basis points |
| Operating income | $4.7 million | Down 53.6% | $14.3 million | Down 35.8% |
| Net income | $3.8 million | Down 53.1% | $11.8 million | Down 31.2% |
| Diluted EPS | $0.27 | Prior year $0.56 | $0.82 | Prior year $1.20 |
| Adjusted EBITDAS (non-GAAP) | $10.5 million | Prior year $15.8 million | $31.8 million | Prior year $40.3 million |
Quarterly operating margin fell to 6.7% from 12.3%; the nine-month margin fell to 7.1% from 10.5%. Management attributed lower operating income and earnings mainly to weaker sales and gross profit alongside higher operating expenses. Price increases supported gross margin, partly offset by promotions and higher freight costs.
Cash flow, balance sheet, and liquidity
- Cash and cash equivalents were $22.8 million at January 31, 2022, down from $60.8 million at April 30, 2021.
- Operating cash flow was negative $26.2 million for the nine months, versus positive $17.1 million in the prior-year period. The principal use was a $45.3 million inventory build; receivables also rose $7.9 million.
- Investing cash outflow was $4.7 million, including $4.3 million of property and equipment purchases. Financing cash outflow was $7.1 million, primarily reflecting $7.0 million of share repurchases.
- Current assets were $198.1 million and current liabilities were $40.9 million. Inventory was $119.6 million, up from $74.3 million at fiscal year-end.
- No borrowings were outstanding on the $50 million revolving credit facility; the full amount was available at period-end, subject to its borrowing-base calculation and covenants. The facility includes an option to increase commitments by $15 million.
- Operating lease liabilities totaled $25.4 million. These are lease obligations, not borrowings under the revolving credit facility.
Material changes and management commentary
- Quarterly traditional-channel sales declined 24.9%, while e-commerce sales declined 2.9%. For the nine months, e-commerce fell 8.8% and traditional channels fell 2.3%.
- Management linked lower shooting-sports sales to reduced firearm demand, measured by adjusted NICS background checks, and to elevated prior-year demand. Outdoor-lifestyle products, including fishing, hunting, and rugged outdoor products, partially offset declines.
- New products introduced within the prior two fiscal years represented 28.8% of quarterly sales and 26.0% of nine-month sales.
- Management said the inventory build was planned to support new product launches and mitigate supplier price increases and supply disruptions; it expected inventory to be relatively flat in fiscal fourth quarter 2022.
- The company repurchased 364,398 shares for $7.0 million through January 31 under a $15 million authorization. After quarter-end, it completed the program by repurchasing another 472,566 shares for $8.0 million.
- On March 8, 2022, the company agreed to acquire substantially all net assets of Fahrenheit Technologies, doing business as Grilla Grills, for $27.0 million subject to adjustments. It expected to use cash and revolver availability. Purchase-price allocation was not complete at filing.
Outlook, risks, and unusual items
- The filing gives inconsistent fiscal 2022 capital-expenditure estimates: one section states approximately $7.5–$8.5 million, while MD&A states approximately $7.0–$7.5 million. MD&A says the latter includes spending on the independent IT infrastructure. Investors should confirm the intended estimate.
- The IT infrastructure and ERP project is estimated to cost approximately $8.0 million across fiscal 2022 and 2023. Management expects fiscal 2022 project capital expenditures of about $3.5 million, one-time operating expenses of $1.6 million, and $1.2 million of duplicative expenses during system changeover; fiscal 2023 estimates are $2.0 million of capital expenditures and $1.0 million of one-time operating expenses.
- Risks include COVID-related supplier or manufacturing disruption, Asian sourcing and U.S. port delays, freight and input-cost increases, demand volatility, inventory forecasting, customer concentration, competition, and firearms-related regulatory or political changes. The filing reports no material change to previously disclosed risk factors.
- One customer represented 36.5% of quarterly net sales. At January 31, two customers represented 40.5% and 13.4% of accounts receivable, respectively.
- The company disclosed ordinary-course litigation but reported no material product-liability defense costs or settlements in the periods presented. Potential Chinese-tariff duty drawbacks remain a gain contingency and were not recognized as income.
Important facts for investors to verify
- Clarify the conflicting fiscal 2022 capital-expenditure guidance and track actual spending on the IT/ERP implementation.
- Assess whether the inventory build converts to sales and cash, particularly given management’s flat-inventory expectation for the fourth quarter.
- Monitor customer concentration, receivable collections, and the impact of lower shooting-sports demand on sales and margins.
- Confirm closing terms, funding, and integration plans for the $27 million Grilla Grills acquisition.
- Review the post-quarter completion of the $15 million repurchase program and resulting cash and share count.