Yahoo Finance American Outdoor Brands, Inc. (NASDAQ:AOUT) Q4 2024 Earnings Call Transcript
American Outdoor Brands, Inc. (NASDAQ:AOUT) Q4 2024 Earnings Call Transcript June 27, 2024
Operator: Good day everyone and welcome to the American Outdoor Brands, Inc. Fourth Quarter and Full Year Fiscal 2024 Financial Results Conference call. This call is being recorded. And at this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for some information about today's call.
Liz Sharp : Thank you and good afternoon. Our comments today may contain predictions, estimates, and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, could, indicate, suggest, believe, and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies and vision, our strategic evolution, our market share and market demand for our products, market inventory conditions related to our products and in our industry in general, and growth opportunities and trends. Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties.
Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at aob.com. Today's call contains time-sensitive information that is accurate only as of this time, and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today. I have a few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired and tangible assets, stock compensation, shareholder cooperation agreement costs, facility consolidation costs, technology implementation, tariff drawback adjustments, acquisition costs, other costs, and income tax adjustments.
The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Murphy, President and CEO, and Andy Fulmer, CFO. And with that, I'll turn the call over to Brian.
Brian Murphy : Thanks, Liz, and thanks everyone for joining us. I'm very pleased with our performance for fiscal 2024, a year in which we delivered year-over-year net sales growth that exceeded our expectations and achieved several strategic milestones, which position our company and our brands well for the future. At the core of our company is our relentless focus on innovation, which is driven by the activities of our consumer. This is a commitment that we maintain no matter what the environment, and it drives not only brand loyalty with our consumers, but also long-lasting and trusting relationships with our retailers. Those retailers have learned that while other suppliers are reeling from changes and uncertainty in the environment, often halting their innovation efforts and slashing prices, they can rely on us to remain steadfast in our promise to maintain the value of our brands, invest in innovation, strengthen our supply chain, and most of all, support their customers with a steady stream of exciting products from leading brands that bring shoppers through the door.
That reliability helped drive growth in fiscal 2024 by allowing us to forge stronger relationships with our consumers and retailers, despite the consumer uncertainty that characterized the year. It also allowed us to deliver on a number of commitments we made to our stockholders heading into fiscal 2024. When we entered the year, we shared our intent to control those elements, we could control, in order to best position us for those elements we could not control. We set out a number of objectives for fiscal 2024, and we believe the results we are sharing today demonstrate that we have delivered on those commitments. For instance, we said we would invest in international expansion to drive growth in the channel. We made that investment and delivered solid growth.
We said we would expand our MEAT! Your Maker brand beyond D2C into retail, and we introduced Meat into the retail channel in November. We said we would lay the groundwork to expand our Grilla brand into retail as well. We completed that work and Grilla is set to enter the retail channel in the coming months. We said we would keep our foot on the pedal when it came to innovation. And in fiscal 2024, we launched many new, meaningful products, several of which represent our entry into new markets and new product categories. We said we would plan for future growth and efficiencies, and in January we expanded the lease at our Missouri headquarters and distribution facility, making room for organic growth and acquisitions, and identifying a number of operational efficiencies, including supply chain consolidation.
And we said we would continue to exercise disciplined capital management. And in fiscal 2024, we further strengthened our balance sheet, ending the year with nearly $30 million in cash, returning capital to shareholders, and exiting the year debt-free at a strong position to drive future growth. I'm extremely proud of what our team accomplished in the fiscal year. So now let's dig into the details. Net sales in the year grew more than 5%, reflecting growth in our outdoor lifestyle category, as well as our shooting sports category. In outdoor lifestyle, which consists of products related to hunting, fishing, camping, outdoor cooking, and rugged outdoor activities, we grew sales by nearly 7%. That growth was led by strength in our hunting, meat processing, and fishing-related brands, most notably BOG, MEAT and BUBBA, and reflects the success of our strategy to identify incremental retail opportunities both domestically and internationally.
Accordingly, we expanded MEAT! Your Maker, Meet Processing Equipment, into the retail channel in 2024, and we positioned Grilla Outdoor Cooking products for retail entry in fiscal 2025, providing new audiences for these popular consumer brands. We also expanded our presence in Canada during the year, bringing more of our exciting outdoor brands to Canadian consumers. It's worth noting that fiscal 2024 growth in our outdoor lifestyle category was entirely organic, as we've now lapped the acquisition of Grilla. In our shooting sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance, and personal protection, we delivered full year growth of 3.2%, despite adjusted NICS, background checks coming in 5.4% lower than the prior year.
Our net sales increase was driven by a combination of strong sales in our target shooting and reloading brands, namely Caldwell and Frankford Arsenal, along with our ability to clear out some slower moving inventory in the personal protection category during the year, as Andy will address during his inventory discussion. Turning now to our distribution channels. Increased and expanded distribution channel opportunities are one of the four growth avenues that comprise our long-term strategic plan. In our traditional and e-commerce channels, we've long said that we focus on ensuring our brands are available wherever consumers look for them, whether in-store or online. The importance of that focus was clear in fiscal 2024. While e-commerce sales declined slightly, due primarily to lower orders from our largest online retailer, sales growth in our traditional channel was up more than 12% for the year, driven in part by the entry of our meat brand into the retail channel and underscoring the strong retail partnerships I outlined earlier.
In our domestic and international channels, we delivered growth across the board in fiscal 2024. The international market represents a tremendous opportunity for our outdoor lifestyle oriented brands, particularly BUBBA, MEAT! Your Maker, and BOG, and its growth over time plays a key role in our long-term strategic plan. Expanding our distribution network in Canada in fiscal 2024 was an important milestone in that plan and was a significant factor in helping drive total international sales to over $12 million, representing about 6% of our business and delivering growth of more than 35% in the year. With regard to sell-through, we gather point-of-sale and channel inventory data from retailers that represent about half of our sales. We were very pleased with our POS results for fiscal 2024.
POS sales in our outdoor lifestyle category were strong, and inventories increased slightly. On the shooting sports side, it's not surprising that POS sales were weaker year-over-year, given the recent consumer market for firearms and related products, while POS inventories declined in the year. Lastly, I want to talk about innovation, which is our superpower, and core to our long-term growth strategy. Our Dock & Unlock innovation process is robust. In fiscal 2024, it helped to bring our total portfolio of patents and patents pending to over 390 and [drove the launch] (ph) of several exciting products across a number of our brands, including BUBBA, Caldwell, Grilla, and Hooyman. In fact, new products generated over 23% of our net sales in fiscal 2024.
There are a few of these that are noteworthy examples of our strategy in action, namely those that represent our entry into new markets and new product categories. For example, for the 10 million Americans participating in shotgun sports, we launched the Caldwell Claymore Solo, a lightweight, battery-free, single clay thrower that fills a market gap with its innovation and extreme value, as well as the Claymore PullPup, a handheld clay thrower that flies past the competition in terms of delivering an improved user experience. For the 50 million-plus anglers in the US, we launched the BUBBA Pro Series Smart Fish Scale, our first entry into the catch and release market with the revolutionary Fish Scale and App, designed to gamify fishing. In fact, the Pro SFS is so revolutionary that it won a major industry Award shortly after its launch and has already been named the official scale for major League Fishing.
For the millions of households and professionals across America who practice land management, our new Hooyman, chest-mounted and vehicle-mounted seed spreaders, helped us secure important new retail outlets, expanding the distribution for this growing brand by bringing it into the DIY and farm and home markets. And for the nearly 100 million households that participate in outdoor cooking, we launched the Grilla Mammoth Vertical Smoker, an innovative and feature-rich pellet smoker that represents a new product category for our expanding Grilla family, and won Field & Stream's Best Vertical Smoker Award for 2023. These are just a few of the products we launched throughout fiscal 2024. Taken together, our new products position us well for fiscal 2025 and beyond, as we expect that both traditional and online retailers will continue to seek out strong and innovative brands to help drive consumer foot traffic and deliver an enhanced consumer experience.
I believe we have the most robust new product pipeline ever in our company's history, extending well into the next five years and providing us with a significant long-term competitive advantage. Before I hand it over to Andy, I want to share what excites us most about heading into FY’25. Our 21 brands operate across a highly fragmented outdoor industry where growth is supported by a large installed base of millions of passionate enthusiasts, many of whom consider new gear and technology essential to advancing their pursuits. Our growth strategy is a bet on innovation, which is differentiated by a process that yields repeatability and generates IP-protectable innovation designed to disrupt those large stagnant categories, where consumers are starved for new gear and technology.
As we transition from our early innings as a new public company, we believe our recent significant investments in infrastructure have cleared the way for further sales in EBITDA's growth, led by our Leverageable Operating Model. And lastly, Disciplined Capital Management has reinforced our strong balance sheet with no debt, cash flow upside, and available capital of $120 million. With that, I'll turn it over to Andy to discuss our financial results.
Andy Fulmer : Thanks, Brian. In fiscal 2024, we strengthened our balance sheet, generated significant operating cash flow, controlled our costs, and demonstrated effective capital deployment, all while growing year-over-year net sales by more than 5%. We ended the year with several achievements and highlights, so let me walk you through the details. Net sales for the year were $201.1 million, an increase of 5.2% compared to fiscal 2023, and an increase of 20.1% over pre-pandemic fiscal 2020. On a category basis, outdoor lifestyle sales increased by 6.9% and shooting sports sales increased by 3.2% compared to fiscal 2023, driven mainly by increased net sales in the hunting, fishing, and shooting accessories categories. Compared to pre-pandemic fiscal 2020, outdoor lifestyle sales increased 43%, which includes the acquisition of Grilla, and shooting sports sales growth was generally flat at about 1%.
Outdoor lifestyle represented roughly 54% of total net sales in both fiscal 2024 and fiscal 2023. Turning now to our traditional brick and mortar sales versus e-commerce. Net sales in our traditional channel increased 12.3% compared to the year ago period and 3.3% compared to fiscal 2020. Net sales in our e-commerce channel were down slightly at 3.3% compared to the prior year, but they were up more than 55% over fiscal 2020. Our e-commerce channel sales include our sales to online retailers and our own direct-to-consumer or D2C sales. On a standalone basis, D2C net sales for fiscal 2024 were $29.1 million, roughly flat to last year, and represented approximately 15% of our total net sales. It's worth noting that our D2C sales also reflect the closure last year of a legacy Grilla retail location in Michigan, which largely serviced local sales in that area.
Excluding sales from that store, fiscal 2024 D2C sales would have been up 3.3% over fiscal 2023. And while we don't expect it to be a significant sales generator, we do plan to open a small factory outlet here in our Missouri facility later this year, leveraging our newly expanded facility space and giving us an opportunity to connect with consumers and one of our country's top barbecue capitals. On a quarterly basis, net sales in Q4 came in above our expectations at $46.3 million, roughly 10% above the prior year quarter, driven by an increase of 10.3% in shooting sports and an increase of 9.1% in outdoor lifestyle. We benefited in the quarter from approximately $2 million to $3 million in orders in the shooting sports category that we had originally expected to receive in Q1 of fiscal 2025.
Turning to gross margin, fiscal 2024 GAAP gross margins came in as expected at 44% compared to 46.1% in the prior year. The 210 basis point decrease was mainly due to higher tariff and freight costs from increased inventory purchases, increased promotional activity, and the adjustment of a prior year tariff drawback. Our long-term target for gross margins is in the mid-40s and our fiscal 2024 results were right on track. On a non-GAAP basis, fiscal 2024 gross margins were 44.5% compared to 46.2% in the prior year. Non-GAAP gross margins exclude the impact of the tariff drawback adjustment and facility consolidation costs. Turning now to operating expenses. For the full year, GAAP operating expenses were $100.9 million compared to $100.8 million last year.
This result is due mainly to higher variable selling, distribution, and compensation costs, which were driven by higher sales, netted by decreases in legal and advisory fees, lower rent from facility consolidations, and reduced ERP implementation costs. I'm pleased with this result, which I believe reflects our dedication to tightly managing our costs across the company, while continuing to invest in those areas that are important to our long-term growth. Non-GAAP operating expenses for fiscal 2024 were $84.1 million compared to $80.5 million last year. Non-GAAP operating expenses, exclude intangible amortization, stock compensation, and certain non-recurring expenses as they occur. GAAP EPS for fiscal 2024 was a loss of $0.94 as compared with a loss of $0.90 in the prior year, while non-GAAP EPS in fiscal 2024 was $0.32 compared to $0.48 in fiscal 2023.
Our fiscal 2024 figures are based on our fully diluted share count of approximately 13 million shares and for fiscal 2025 we expect our fully diluted share count will be about 13 million shares as well. Full year adjusted EBITDAS was $9.8 million compared to $12.8 million in fiscal 2023. Turning to the balance sheet and cash flow. One of the top highlights of fiscal 2024 was the tremendous strength that we added to our balance sheet over the course of the year. We generated significant cash from operations, paid down our remaining debt early in the fiscal year, and continued to return capital to shareholders through our share repurchase program, all of which position us well for investing in organic growth and potential acquisitions. Regarding the latter, we are seeing a nice pickup in higher quality acquisition targets that are in alignment with our criteria.
And given our liquidity, we believe we are a buyer of choice in the current environment. We ended the year with cash of $29.7 million, an increase of $7.7 million over last year, despite paying down $5 million on our line of credit and repurchasing over $6 million worth of our common stock. Cash from operations was $24.5 million and capital expenditures were $6 million resulting in free cash flow of $18.5 million for the year. Since fiscal 2020, we have generated over $70 million in operating cash and nearly $50 million in free cash flow. Our team did an excellent job of decreasing our inventory levels in Q4 to $93.3 million, exceeding our expectations, and driven in part by clearing out some slow-moving inventory in the shooting sports category.
In fiscal 2025, we expect similar inventory seasonality to what we saw in fiscal 2024. Specifically, we expect inventory levels to increase above $100 million in Q1 and Q2, as we prepare for the hunting and holiday seasons, and then decrease in Q3 and Q4, resulting in fiscal 2025 ending inventory just below $100 million. Our balance sheet remains debt-free as we ended the year with no balance on our $75 million line of credit. As of Q4, we have total available capital of roughly $120 million. Turning to capital expenditures, we ended the year with CapEx of $6 million. Nearly $3 million of that spend was due to a one-time purchase of assets relating to the lease assumption of our Columbia, Missouri headquarters. For fiscal 2025, we expect to spend between $3.5 million and $4.5 million, mainly for product tooling, maintenance, and patent investments, as well as the buildout of the Missouri factory outlet that I mentioned earlier.
Finally, we continue to return capital to our shareholders through our share repurchase program. During fiscal 2024, we repurchased roughly 689,000 shares of common stock at an average price of $8.75 per share. And at year end, we still had roughly $7.3 million of availability remaining on our $10 million share repurchase program, which runs through September 2024. Now turning to our outlook. We're excited about the opportunities that lie ahead in fiscal 2025. We expect to see a continuation of strong growth in our outdoor lifestyle category, somewhat offset by a continuation of headwinds in our shooting sports category. Therefore, we believe that fiscal 2025 net sales could grow by as much as 2.5% compared to fiscal 2024. And that growth represents only organic growth independent of any acquisitions we might pursue.
We expect net sales in fiscal 2025 to follow our typical seasonal pattern with Q1 as the lowest net sales quarter, Q2 and Q3 as the highest net sales quarters, and Q4 coming in higher than Q1. As a starting point, we expect Q1 of fiscal 2025 to be slightly lower than Q1 of fiscal 2024 by roughly the same amount as the orders in the shooting sports category that benefited our Q4 results, as I mentioned earlier. Turning to gross margins, we expect gross margins to improve slightly for fiscal 2025 to approximately 45%, driven by an expected decrease in inbound freight costs and the continuation of our promotional environment similar to fiscal 2024. With regard to OpEx, we believe that overall OpEx for fiscal 2025 will increase slightly, mainly due to higher variable selling and distribution costs.
Based on these factors and assuming net sales growth of 2.5%, we believe our adjusted EBITDAS in fiscal 2025 will be in the range of 5.5% to 6% of net sales. The increase of between $1.5 million and $2.5 million in adjusted EBITDAS would align with our long-term model, which calls for an incremental EBITDAS contribution of roughly 30% on net sales over $200 million. And with that, operator, please open the call for questions from our analysts.
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