Q4 2020 Earnings Call
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And we achieved the record your your growth and our direct-to-consumer sales during the fourth quarter the covid-19 pandemic and the resulting lockdown have only accelerated consumers Move online. We expect this trend to continue even after the pandemic ads. We will continue to execute on our digital strategy to better serve our end consumers in our direct-to-consumer channels off or an aunt or movie to see websites during the quarter for CCI Blazer Bell Helmets zero and steer total company site traffic increase in the 4th quarter by roughly 20% year-over-year and our conversion rate in the quarter increased by roughly fifty basis points over the prior year.
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To expand upon the realignment of a recording statements better reflects. Our strategic focus on one area of opportunity is a refinement of our commercial approach for the hunting and shooting markets will be taking a more coordinated approach between our ammunition and hunting and shooting accessories teams to leverage consumer insights and optimize our brand presence and he channels we believe the Thursday will be a better experience for our customers and consumers alike another area where we are creating opportunities for growth in Greater synergies is between our Camelback and Bushnell golf range cable back recently entered the vacuum stainless steel drinkware market with the launch of its Horizon drink recollection, these two brand teams that were closer together to create unique sales programs chops and country clubs that will contribute to organic growth in the new year.
Lastly earlier this week. We announced the addition of two new board members. France is Phillip and Linda Nutter who recently welcomed and look forward to their contributions as we pursue our strategic priorities.
Thursday
Before I get into the results in Outlook, I'd like to take a minute and thank you Miss Lopez for example standing work as CFO from his tireless efforts to reduce our leverage to the Relentless pursuit of working capital efficiency to the world class seen that he has helped build. This is stronger today because of his successful tenure. I'm grateful for the tremendous contributions, you've made in helping us build a foundation for future growth has been working with us to ensure a smooth transition and we wish him well as future endeavors
With that said I'd like to formally introduce you down to. Our see who joined us on April 27th. I'm very excited to have you as a partner at this outdoor and I'll turn over to see down for a couple of remarks. Thank you, Chris and Kelly happy to be here today. I appreciate your efforts to get the integrated quickly into the organization given the challenges we all face right now. I'm like I spent with this transmission and both objective has only increased as connected with so many members of organizations leadership team and employees across distant Branch. What what the past few weeks. I look forward to trying on my experience including in e-commerce opportunity in the weeks and months ahead either organization respond and adapt covid-19.
good day and welcome to the Vista outdoor forequarter of 2020 earnings conference call today's conference is being recorded at this time. I would like to change conference over to mister Kelly Ryan's. Please. Go ahead. Thank you. Good morning everyone and welcome to the Vista outdoor fourth-quarter and full-year fiscal 2020 earnings call. I'm Kathy head of investor relations and Communications joining me today our Christmas chief executive officer and sudhanshu priyadarshi our new senior vice president and Chief Financial Officer wage, and he's Keegan vice president of fp&a. Sudhanshu is a global Retail Finance and operations leader with more than 20 years of experience. He most recently worked as CFO of flex sports package before that. He was the VP of Finance for Walmart eCommerce business.
Thanks for talking to.
We're excited to have you on the team. Let's review our results from the quarter and the fiscal year are common seating will largely focus on adjusted results. Also where noted organic results results of the best business is from a standpoint. We incurred a non-cash impairment charge in the fourth quarter of a $156 million on Goodwill and indefinite live in Los Angeles within our Outdoor Products segment as a result of our annual impairment testing. It's worth noting for our annual impairment. Testing are mentioning date was January 2nd when this outdoor stock price the $7 is lower stock price required us to use higher discount rates at a lower valuation multiples than our Goodwill valuation process, which accounted for most of the impairments decides to impairment will affect the community bus with 83 million of Goodwill tributable to our ammunition business.
Earlier this morning. We issued a news release announcing our fourth-quarter and full-year results. If you've not yet received a copy of the release you can access it on our website at Vista outdoor bath. We refer to some non-gaap Financial measures in our comments today and have posted presentation materials and include a Reconciliation of these non-gaap Financial measures to their Gap comparable to call today is being webcast on our website and will be archived along with the transcript of a call shortly after the event. I'd like to bring your attention to a few changes. We've made in our life cereal to provide investors with greater insight into our business.
Let's look at the leveraging progress. We have made given our commitment to stabilizing and building a resilient balance sheet. We ended the year with a net debt leverage ratio of roughly four point three times during the fiscal year. We improve net debt by over two hundred million. We remain on track to achieve our desired state of being roughly three times level.
Turning direct mythology the results. Let me first review adjusted results for the total company and then provide highlights within our newly of line segments in the fourth quarter. We recorded two thousand four hundred twenty six million down 17% compared with the prior to your quarter the sale of our Firearms business in the second quarter of this year account for the loss of just over fifty million in Revenue off on organic basis sales were down 80% largely reflecting the timing of the large International order that shipped in the fourth quarter of the prior year regarding the status of the large International. We discuss our third quarter earnings call this order did not in fact shipped in the fourth quarter and we expected to ship in FY 21 this fiscal year for the whole year sales were down 50% to 1.76 billion compared to the prior-year or down 5% on an organic basis. You're in a decline is warranty due to an international order from the prior-year quarter off.
The first is a disclosure of Phi reporting segments. This change is reflected in our quarterly management presentation. And we also have provided you with historical reconciliation in the appendix. You will find further details when our ten K to be filed later this month. We've also modified are reporting segments to reflect our strategic focus on true customer segmentation and growth potential the Shooting Sports reporting segment reflects the combination of ammunition and hunting and shooting accessories which have similar customers channels and Supply chains The Outdoor Products supporting segment reflects the combination of Action Sports and Outdoor Recreation, which also share similar customers channels and Supply chains are Bushnell golf brand is not advocated with an outdoor recreation. The number you will be today reflected from the structures. We are appreciative of our investors feedback and remain committed to enhancing our disclosures.
Before I turn the call over to Kristin sudhanshu, I'd like to remind listeners that during today's call. We will be making forward-looking statements and we may peace date.
Under the Safe Harbor provisions of the private Securities litigation Reform Act these forward-looking statements reflects our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face this to outdoor and the industries in which we operate we encourage you to review today's press release and the outdoors SEC filings for more information on these risk factors and uncertainties. I'm now pleased to turn the call over to Christmas.
The result of lower demand and hunting and shooting accessories in the outdoor products shape.
Adjusted gross profit for the fourth quarter was $85 million compared with hundred and three million in the prior year quarter pull your adjusted gross profit was three hundred sixty million compared with 432 million in the prior year on an organic basis gross profit dollars increased by 2% compared to the prior-year with the rate improved by approximately 62 basis points off with the prior-year adjusted operating expenses for the fourth quarter decreased 19% to $74 million compared to the prior-year quarter on an organic basis operating expenses were down 12% compared to the prior-year who your operating expenses decreased 15% $314 million compared to the prior-year on organic basis operating expenses decreased 6% or 20 million.
Good morning. Thank you. Kelly the official and the discs Outdoors fiscal year twenty-twenty traditionally this call service to close out the fiscal year and off stage the new year or due to the uncertainty created by the external environment. Today. We're going to spend a little extra time leading you on covid-19 related efforts with friends. We are seeing and what time is convenient for this over the next couple of quarters this for your 2020 was a momentous year for this apple War and the most transformative since our company was founded in 2015. We strengthened our team leadership positions across the business with highly capable and affected people. We completed the planned divestiture of our Firearms business, which is the biggest piece of old geezers portfolio reshaping are shooting sports segment manage adversity when the world's largest retailer of ammunition shifted their strategy and drop major categories from their shelves dead.
your your reduction
Airport quarter and full-year operating expenses demonstrates the continued success of our discipline cost reduction initiatives adjusted ebit was 11.1 million or up 5% compared with templates have a million in the prior year quarter and was up 236% of organic basis adjusting for the sale of firearms. This robust profitability impact is due to our focus on cost savings initiatives and higher efficiencies across all of our brands on an adjusted organic basis, even with 45 million or 41% on a year-over-year basis overall improvements were different by rigorous class controls positive gross margin Improvement favorable Commodities and cost-saving initiatives.
Are Apple products segment battle Paris and then pandemic and do supply chain disruptions? Despite all of these changes in headwinds. We exited fiscal year twenty-twenty stronger more money and more profitable than we have been since I joined the company in 2018. I'm proud to report that this after work performed well in fiscal year 2020 and delivered our commitments to our shareholders money on the financial time. We reduced our leverage ratio and improve our adjusted organic eBay by more than 40% year-over-year in e-commerce. We increase overall site traffic are continuing to improve conversion rates and our average return on an advertising space in our operations. We met high standard across employee safety and environmental compliance metrics home team answered the call and delivered positive change while much more work remains. We are pleased that our efforts are moving us forward.
Just the interest expense for the fourth quarter was 7 million down 38% with the prior year. Cunha just the interest expense was $35 million down 33% over the entire year.
Significant decrease was due to a lower debt balance and the lower-cost asset-based credit facility put in place in November of 2018. The adjusted tax rate in the fourth quarter is calculated as negative 50 6% compared with 170% in the prior year quarter the tax free benefit for the fiscal year. Was it -22 percent compared with 15% in the prior year. The tax rate was primarily affected by the release of tax reserves and the tax benefit from the coronavirus paid relief and Economic Security Act enacted on Thursday, March 27th of this year. It was partially offset by non deductible expenses incurred over the year any of these fixed amounts and moved the tax rate significantly we deliver name is chance of adjusted EPS in the fourth quarter, which is up from $0.01 from the prior-year quarter the company delivered full year adjusted EPS a $0.24 off.
Before we get started, I would like the first signals are employees who time after time that recently to the challenge the covid-19 pandemic has been a most recent challenge for our company and for our country and our team has responded with bigger and perseverance in January. We formed a dedicated covid-19 response team to assist in managing the supply chain impacts as a result of the birth of Irish operate from China and the virus spread closer to our employees and Facilities week Santa diss group to work daily with our executive team ensuring our operations remain safe and effective through the many shelter-in-place restrictions during this time. We'd implemented enhanced operating protocols to ensure the safety and well-being of our employees their families and our stakeholders wage for employees who the central functions are performed on site and in-person. We're consistently following CDC and World Health Organization guidelines. Yep.
all local mandates
We're taking appropriate precautions at the sites that we remain open including imposing travel and visit or restrictions instituting new cleaning procedures and mandating the use of personal protective equipment.
Who is roughly 70% over the prior-year are strong adjusted EPS was driven primarily by a cost savings initiatives rigorous product margin Improvement and Outdoor Products and strip club control measures throughout the entire the Improvement in the overall tax expense also contributed to our results free cash flow for the year was $59 million, which exceeded our guides forty to fifty million. This is different my strong collections total inventory management and reduced Capital expenditures compared to the prior-year we deliver it fully reboot on margins at 6.5% which was slightly better than our expectations of roughly 6% This even done Improvement was a result of a laser focus on organic growth from new products suck cost savings initiatives.
We lost in Antiquity and other Healthcare benefits for employees help mitigate financial hardship during this difficult time employees are the lifeblood of this outdoor and we are committed to keeping them safe.
Turning the Outdoor Products in the fourth quarter Outdoor Products segment reported sales of 132 million down 9% from the prior-year quarter reflecting lower demand for the majority of the quarter and headwinds in the retail Channel as a result of covid-19 offset by increased demand and bicycle helmet and accessories and outdoor cooking gear near the end of the quarter back who your sales were $567 million down 13% compared to the prior-year adjusted to reflect the sale of I wear in the second quarter of fiscal year 2019. The statement was down 5% on a year-over-year basis reflecting overall lower than a gross profit for the quarter was 32 million down 16% compared with the prior-year quarter back was profit for the full year was $149 million compared with a hundred eighty million in the prior year reflecting the sale of Iowa on organic basis wrote down 5% off.
Despite the economic shut down to have persisted throughout the world nearly, all of our distribution and Manufacturing operations are up and running during the fourth quarter are evil facility in Puerto. Rico was closed for the last two weeks of the fiscal year following local guidelines. We have since reopened in a month of April that are operating at partial capacity. Of course, it is showing operations at this time. He had been repurposed to produce quad Maps there in need during the pandemic in the month of March we to manufacturing facilities operating under minimal basic operational this reduced capacity at only a minor impact on a results for the quarter.
Additionally beginning on the last day of our fiscal year are Camelback and gold-tipped facilities in Mexico were shut down and the shutdown will be in place through the end of May for information available to us today in all these instances. We are closely following all legislative and Regulatory updates in each jurisdiction and will comply with local orders. Governing are returned to work. We took action to mitigate supply chain disruptions related to covid-19 while our teams are shifting capacities and capabilities to other facilities. We do expect reduced output to create a head with a first-quarter. Our organization takes pride in serving the needs of all of our customers that said covid-19 demek has not impacted all of our channels uniformly in a quarter. We saw a dramatic shift online consumer activity and spending as a result that restriction in place throughout the country.
different my sales volumes and
In an order the segment generated four million of even compared with eight million in the prior year quarter on an organic basis for the full year the segment generated Thirty million of eBay with a 5% increase over the prior year as a result of a rationalization efforts and cost savings initiatives this even Improvement despite continued Market edwidge affecting our top-line iPhone XR continued success in improving the underlying profitability of our business units.
Well, this presents a significant opportunity for our direct-to-consumer any comic sales, it will present a headwind for a traditional brick-and-mortar retail accounts as well as our network of independent dealers.
I'm turning the Shooting Sports sales for the fourth quarter with $295 million down 21% compared to the prior-year quarter due to the sale of firearms organically bank statement was down 5% reflecting the timing of a large International order that shipped in the fourth quarter of the last fiscal year ammunition sales were down 10% and hunting and shooting accessories down 3% when compared to the prior-year quarter the decline and ammunition sales during the quarter was due to a large International order that shipped in the fourth quarter of our fiscal year 2019 partially offset by an increased demand commercial ammunition in the latter part of the quarter. We're not for the shipment delay in this large order in the ignition would have been up by high single-digit wage.
It has also brought out the best in who we are we donating certain less GBE wherever possible and our 0 Grand has a repurposed thousands of ski and snowboard goggles home health care workers on the front lines. We're also standing by our partners in the nonprofit sector who's missions are getting kids veterans and the disadvantaged outside. We believe these non-profits major role in restoring our country and light covid-19. We've taken actions to ensure a strong balance sheet with flexible cost-efficient access to liquidity and a well-managed maturity profile. We currently have access to roughly $190 billion of additional liquidity under a 450 million asset-based revolving credit facility Thursday. We were able to further increase or access to pass beyond the revolver as a result of cash management and working capital efficiencies in the quarter a revolving credit facility in R350 Million Dead.
About standing senior notes both of you.
For the whole year the saving reported sales of 1.189 billion down 16% compared with the prior-year primarily due to the sale of firearms. What are all the same thing was down 5% through the large International order in the prior-year lower demand in hunting and shooting accessories partially offset by organic growth driven by new products off entirely Commerce related to as
fourth-quarter gross profit was $54 million or down 17% when compared with the prior-year quarter due to the sale of firearms on an organic basis gross profit was up 80% nearly three hundred basis point increase the rate. It's gross profit expansion is the result of new product introductions and higher margins discipline sales execution the face of the Earth and continued favorable commodity prices.
Not mature until late in calendar year 2023. We also continue to be vigilant with retail customer credit worthiness given the multiple foreclosures in the last two months wage established existing communication with our major Channel Partners to ensure the continuation of business revenues, while many of our Retail Partners have for the store locations many others have been able to maintain operations as essential businesses in the fourth quarter as a company is traditionally planned around Chinese New Year interruptions through strategic Investments inventory. We did experience by change impacts from the outbreak of the pandemic in China earlier in the quarter with a number of Our Brands currently most of our suppliers in Asia are back online and producing at near their country levels. Two notable. Exceptions are in select Camelback in Bushnell golf suppliers.
Hold your breath profit was 211 million down 16% in compared with the prior-year what was up 1% adjusting for the sale of firearms before your rates off the broccoli 100 basis points extended generated $22, even in the quarter, which is a 26% increase over the prior-year quarter and 116% in cash adjusted for the sale of firearms for the whole year the segment generated eighty million and even which is down 12% over the prior-year but up 16% on an organic basis during the month near me to send downturn we have been laser-focused on cost savings and efficiency issues to make a stronger better better and able to react faster the shift in consumer demand. I'm not seeing that the improvements we've made during the past two years will enable us to continue to grow more profitably engaged share.
overall
Please for the whole year mid-single and hygiene items improvements to either across the outdoor products and Shooting Sports segments respectively, each profitability improvements were achieved challenging market for much of the fiscal year. It is a testament to our Founders mentality 14th dedication and passion for objectives and approve point that our strategic initiatives are generating tangible results.
At this time, we anticipate the supply chain disruption will normalize in our first quarter recognizing the situation presents a fundamental shift in consumer spending Behavior. We respond with this Demand by executing a number of initiatives to expedite and or expand upon existing direct-to-consumer sites expand Dropship capabilities and support customer efforts online and it attempted mitigate what we are seeing with our brick-and-mortar retail accounts. Another of our strongest categories particularly commercial ammunition outdoor cooking and bicycle helmet accessories have been in high demand during the pandemic where consumers not purchase the products they need in stores. We've seen that demand Move online case in point. We recently took the Dropship capabilities for a key retail account in response to store closings appropriate and possible. We have redirected and rebalanced our inventory to support our direct-to-consumer Channel, where where birth
Want to be stranded in the retail supply chain.
Given the uncertainties around the health and government and timeliness around an economic recovery. We have limited visibility beyond our first quarter. However, given our song current ammunition ordering. We're able to provide guidance for the first quarter of fiscal year 21 instead in this guidance our assumptions include continuation of the current strength of the commercial ammunition Market any Commerce Market in our status as an essential business allowing us to keep our manufacturing and distribution facilities open we have however factored in declines at a recall Channel Partners, which stores have been closed due to covid-19 pandemic.
Where we are in a transformation is why we believe we can weather the economic storm brought by covid-19 the end of our fiscal year twenty-twenty and the beginning of the new year marks a transition from the same things to the middle Innings of the accelerated transformation plan. We believe it continues to be the right path at the right time for pitched outdoor. Our fourth quarter was strong. We met her page Finance expectations. We exceeded our expectations for earnings-per-share and for free cash flow. The last two years have been later focused on stabilizing and repairing foundation and strategically investing in platforms for growth. This is paid off in a noticeable improvement in our fundamentals. We reduced our net leverage ratio to 4.3 time the lowest it has been since 2018. I bought the teachers approach to re-establishing the founders mentality and instead of business operating from a profitability mindset has yielded. Yep.
the results we delivered
3% year-over-year organic Improvement and adjust the needle
Therefore our guidance for the first quarter is we expect sales in the first quarter in the range of 370 million to 400 million compared with four hundred thirty-five million and the page refresh the year which excludes that that's the businesses. We expect first quarter adjusted earnings per share in the range of a loss of $0.05 to break even compared with a $0.01 in the prior-year quarter our assumptions include benefits from cost savings initiatives continue Tailwinds from commodity costs and improvements and price is this Samsung support transparency and your modeling assumptions. We expect overall annual Capital expenditures generally in line with our fiscal year 20 results respect your interest expense annualized using Port quarter fy20 results.
and the fourth quarter which like the man levels for many of our products increase we're seeing consumers engaging an increased amount of outdoor activities in which the shelter-in-place orders and this has benefited many of our life. We've also seen a significant increase in demand in our ammunition Brands building on the consumer Trends in personal protection driving pistol ammunition demand that we discuss our third quarter. We continue to see increases in demand for pistol ammunition. Additionally. We also saw increases in demand for Rimfire materialized as well as we discussed before we tend to seem affected ammunition purchasing driven by background checks volume.
We anticipate free cash flow in the first quarter to be stronger than free cash flow in a previous year based on historical profiles are strongest cash flows typically occur in the back half of a year through the seasonal sales continue to actively plan for variety of scenarios that could play out over the next 12 months.
We anticipate that the effects of this pandemic will accelerate change for our customers suppliers and channel partners for the past two years of our transformation. We've been focused on Thursday. I mean our cost structure reducing financial debt improving operating leverage increasing the resiliency of our supply chain creating Channel Harmony accelerating expansion capabilities. We believe these efforts will make us stronger in the years to come as we move ahead and eventually emerged from the pandemic. We believe that this see outdoor activities or outdoor Mission are well-positioned for the positive and natural shift from shelter-in-place to the outdoors. The world has experienced life without everyday essentials wage variety of metrics surveys and walks around the neighborhood are showing the outdoors has been a source of comfort healing and enjoyment for millions of people around the world. We believe the effects should be long dead.
Speak to a manager in both within our retail and our e-commerce channels as well as our direct-to-consumer sites as the market share leader and the largest player and Rimfire category the investment we have made to our manufacturing operations and efficiencies have enabled us to quickly respond to changes in consumer demand going forward. We expect gross margins are ammunition business. She continued to improve we will continue to lead the industry on margin Improvement in efficiency efforts and pricing recovery expected to Surge in ammunition demand will also provide us an opportunity to drive off working capital efficiencies by normalizing payment terms with our customers while we're kind of getting from the surgeon ammunition demand today. It is unclear how long the service will last with demanding this product category strong couple of low inventory and channel heading into an election year. We are optimistic about our ammunition business going forward and believe it will offset Ted Williams dead.
Change and some of our other categories as a result of economic disruptions from the covid-19 pandemic.
In service is a major shift or individuals and Society with healthier more meaningful wise helping us to fulfill our mission of bringing.
The world outside now, we will think your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please take note by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's Tara want to ask a question or pause the just a moment to allow everyone an opportunity to signal for life.
The most recent Federal excise tax available through the fourth quarter calendar year 2019 indicated that domestic commercial ammunition Market grew by roughly 11% in our respective or market share grew by roughly mid single-digits this demonstrates the strength of our new product introductions driving demand in the marketplace as we look ahead to maximizing growth in this robust demand environment. We're confident that the improvements we've made during the downturn will translate to more growth and profitability expansion going forward.
Well now take our first question from Jim Cherokee, please go ahead your line is now open.
Our market share leadership and our nation's law enforcement Channel and reputation for product performance extends internationally as well. We've seen a recent successes in our efforts to secure new contract international law enforcement agencies particularly in our ammunition business. For example, our federal sphere in Port Saint Force Branch secured a new
Good morning. Thanks for taking my question. Of course. I was wondering if you could first try to quantify the impact of supply chain disruptions off to a products on first-quarter sales.
Yes Jeannette. It's obviously a very good question and it's something that when we look at certain categories that we know are going to continue to perform. Well given the endemic crisis. We know that's going to be offset by the retailers that are still closed and the categories that wage, um are affected as other consumer products are so we haven't Quantified in our guidance in broken out Shooting Sports from you know from outdoor products, but you can see in the guidance from even taking the the midpoint of our sales guidance for q1 versus previous year adjusted for a Savage. It's it's still down and we bring in a best view on Apple products that we think will be off-set to a degree by what we're seeing in Shooting Sports. And so that's that. That's Thursday.
For calling I will see this on Outdoor Products. So we've executed the year with an awful lot of new products. We're introducing in golf and Thursday. We're line in Camelback. It hasn't really seen the light of day yet. So we are optimistic. That is the shelter-in-place gets lifted people will start to seek those products out. Now. He's not built into our guidance our our guidance as you can imagine given what we've seen over the past 30 to 60 days reflects found out to a products business on the top line.
Okay, and then can you give me the strength from the ambition for the commercials backlog is looking for and then I know the ship the shift in the market International order of different fourth quarter. Are there any restrictions on exports for ammunition in the current environment?
So do you first walk into the backlog? We don't discuss backlog but as you can imagine in this environment, um, it's extremely healthy and across the retail change channels everywhere inventories are are very clean and our factories are are running full out and the students Supply that demand so dead. We don't see that subsiding anytime soon and optimistic as we go forward through the first quarter and frankly Beyond in terms of the restrictions. We we don't see issues and being able to ship the large International order this fiscal year. We won't ship in the first quarter, but we anticipate did it will shift during the fiscal year. There has been some changes in the restrictions and that played a part in the our ability to be able to ship it in the fourth quarter, but frankly it was dead.
More due to the fact of travel restrictions and and some of the requirements that were required to be able to inspect the product before unless the the ports. We think that will be lifted and shelter and places are listed in and we don't anticipate any issues regaining that that that contract issue.
best of luck
makes you
thank you. Well now take our next question from Eric Walters, please go ahead your line is now open.
Thank you. Good morning. A couple questions to drive a little bit more to the previous questions on the the pricing issues impacting any way to page mean provide my details around to have you know, what percentage of of those kind of look like the issues have already been corrected but yourselves he works still going to impact the results and did she have visibility on a terms of when plants reopen is trying to get a sense of based on when you currently know how much of that supplies an issue with lingering the second quarter.
Yeah, so Eric and and and the rest of the group in terms of supply chain disruption. Our team did a remarkable job of handling it. It feels like the coronavirus operating from China was ages ago, but I'll restate that. You know, the Chinese New Year saw the workers go home in place was put in place. They did not come back to work in large part which resulted in supply chain disruption our team Works fast and and remarkably well to get the supply chain systems back up and running and we don't see any disruption as we move forward in our in our supply chain channels as they sit together. And so we largely corrected that during the quarter as I mentioned. We had some new products particularly in golf and Camelback that it's shifted into our dog.
this year but know that the supply chain, uh
Should not be any disruption for us. We're in good healthy position and we anticipate that to continuously go forward.
Okay, maybe give you the original plan in Mexico to open towards the end of may I ask you currently know. I guess I'm sure it gets into.
Where there is incomplete visibility into plants reopening in supplying back out there, you know, you know how much of that is an impact in in the court guidance we can kind of what's already been happened and correct them before.
Yeah, there's very little very little so the supply team disruptions that we still have we've got without getting into too much detail. They affect a couple of Our Brands in business units wage, but frankly, it's it's immaterial versus the the rest of our Outdoor Products business. So I don't want anybody to walk away thinking a supply chain disruption is a it's a big issue for us as it's more than the retail environment. So, you know, if you look across our products across the world forty to fifty to sixty percent of golf Green Grass and location are closed you look at some of our major retailers. They're closed that is the issue that our businesses are facing and and we do it very much as a short-term issue with our direct-to-consumer was just um has gone really really well in the month of March as the store closures have been enacted we've song
Our retailers who are very Nimble online their their growth as well. But you've also got a couple of very big Retail Partners of ours that do a lot of e-commerce business the frankly shifted their thousand dollars and they're shipping capacities to essential items. So like a lot of other consumer products business is our issue is simply the the retail closed doors and not being able to overcome that in the short term but I will say that what we're seeing in our bicycle business is business our outdoor cooking business and what have you as shelters and places are lifted. We think that we are in categories and activities that are going to be um in higher demand than other consumer products business is people that Cabin Fever shelter and places are lifted and they're going to recreate in manners that we think our products play well, too.
Let me check one last question. Then it's going to be seen in in in consumer a modem and Barnes and recently moved from your end cuz of what you're seeing in to the dealer in the office in the channel and maybe update is on. You know, how much of the kind of the previous you know Walmart by you, you know censorship should go into the other wires.
Yes.
So our team immediately following the Walmart announcement, um did a remarkable job of partnering with um are other key customer to ensure that the product was in locations geographies that Walmart shoppers like the shop and we're accustomed to shopping. So we quickly feel a lot of that void in his we moved into this year. I'm happy to say that we're going to make that for all of that Walmart volume faster than we thought we would interest the current environment and the supply chain, um inventory levels. Um, honestly, they couldn't be healthier. I mean, I wish there was more in stock in some of our customers is our customers wish the same thing. We're producing as much as we can and in the current environment, we're not able to supply all the demand that is out there. So it's a good situation.
Kitchen for us right now. And again, we you know, we don't see that Society any time soon.
Thank you, and I'll take our next question from Brett, please. Go ahead. Hey good good morning kind of off that question. If you could help him up a little bit more what the retail inventories maybe look like on a year-over-year basis on the ignition side. And then how much visibility do you have? A new key from long-time orders is retailers. I would imagine are looking to to reach back here in the coming months.
Yes, good morning you over a year, you know unlike the Firearms industry that measures the exact inventory and you know, their product is all she realized and they know exactly I'm moving in and out. We don't have it down to an exact science, but I can tell you inventory levels last year at this time. We're healthy, um this year they're leaner, which is a good thing. So our retailers feel to to a customer very good about their inventory positions. In fact, we're going to continue to run our facilities all out to be able to fill the shelves even as the as the demand continues in you know, whenever it does start to taper off. If it does we still have to continue to fill those channels. So we're working our organization extremely hard. We've shifted our capacities and our
In our capabilities two calibers and products that are in most demand as an example. Nine millimeter is one of the highest caliber right now. So we shifted more and more capacity to that so that we could take our lead times to your question down. We've done the same thing with Rimfire where we've seen an increase in Rimfire that's been down over eight years now and we shifted some of our capabilities to to there as well. So over the past couple of years has the as we've looked to lean out our facilities and become more efficient with our lead times have come down and so we're much we're in a much much better position to be able to be responsive to customers increases in demand, but this is an unusual time and we're working as hard as we can to fill those all those orders.
Thank you. And then you know bigger picture question here. I know we've talked in the past. You know, I'll be tailored just structurally started to take down ammunition inventory levels, but do you think wage discrimination demand shock has the potential for retailers to you know, rethink their prior immunition stock levels as I mean, especially seem to intellectual.
No. It's a really good question. I think there is is absolutely no question that coming out of the 2016 general election. Wholesalers by groups retailer wage where we're starting a bit and you know, four years three and half years later. They worked their inventories down to a level that I think they'd all say his boss is probably to lean in many respects, but I don't want to speak for our customers in terms of their stocking levels. I can just tell you the conversations were having with them is we need to log some partner with them to get them in healthier larger stock positions.
Thank you.
Yes.
Thank you. And now take our next question from Ghana, please go ahead your line is now open.
Hey guys, this is Dan on forgotten. Thanks for the question. Hope you're all well.
So you guys talked about large International order last quarter? I think maybe you alluded to it in in the prepared remarks briefly. But God, what's the deal with that has been put on hold or did that have already?
No, so damn that was a order that we anticipated being able to ship in the fourth quarter for a variety of reasons it it got delayed and it will ship this upcoming fiscal year. So we have a double whammy for it because not only were we expecting that the shift but we're also topping off of a prior-year fourth-quarter where we had the they have similar shipment go out. So topping off of a tougher comp and a an order that didn't go through but we're you know, there's always a silver lining in the Silver Lining is just ship this year.
Yeah. It okay. And what was the size of that?
We don't size that up for confidential reasons as far as the contract with our our customer.
Okay, no problem. Understood.
And then just so obviously, you know, demand is surging right now and we don't know exactly how long that's going to last. Did you kind of just discussing not responding on the supply side if you're you know, feeling the production extra shifts with the deal is with that and
depending
Modifications on the supply side, that would be helpful. Thanks.
Yes, sir, 8 a.m. And for the rest of the group, I think it's important to note that you know, the surge we're seeing the ammunition is not just an overnight service and it just didn't happen. You know Thirty days ago long as most of you know, one of the the large leading indicators for us is is Nick sticks and we typically lagged mixed-sex by a number of months or a quarter or two and we suggested to see next text really start to increase in the middle of last year. So true to form our ammunition business started increasing months ago. And so what we've seen recently from the covid-19 demek is just an increase in the general order demand and what we anticipate is that continuing As you move into a general election year, but we've been saying for a long time the underlined, uh health of Shooting Sports and the participation that we're seeing in,
Some of the hunting categories is is really good is very very encouraging and I think some of the Innovation that we've seen from our brethren in the Firearms industry, whether it be 9 a.m. Or compact or not knowing their subcompact concealed carry would have you as really increase the the demand for our product. So we've shifted our our production capacities took two calibers that uh, we feel like are going to be in most demand which is different than we've done in the past. You know, we're being much more judicious and selective in terms of the way. We lay our capacity Out and because of the initiatives we've taken over the past two years when things have been a bit quieter we're able to really jump on that and the a lot more responsive but also offer a lot more efficient, so we're in we're in a good spot.
Thank you, and I'll take our next question from Ryan Myers, please go ahead your line is.
Hey guys. Thanks for taking my question. First time for me. It's kind of a follow up with previous question. So, you know given what we've seen in consumer ignition markets and your guys's comments on healthy backlogs, you know, we're a little surprised that guidance 41 sales run a bit higher you guys just Expecting The Outdoor Products in retail environments of this week really really weak.
Yes, the Rhine as you can imagine like any consumer Products Company out there. We're a little gun-shy, right? This is unprecedented time. It's not the time to you know, clean out there and set guidance that we think is is unrealistic in the environment that we're in right now. I called at the best. We we think we can call it. But I think this is probably a good opportunity for me to kind of share why we're really really optimistic about the the current environment, you know, there's three reasons that I feel very good about the prospects for this. We're going forward one is we got a battle-hardened team what we're seeing here in this coronavirus is new for a lot of companies and I've talked to a lot of my colleagues and my peers had different consumer products companies and they're faced with taking action that we took two years ago. We
Take a lot of cost out of the system. We spent a lot of time.
I'm leaning our facilities out. We got a group that is hungry to win and you can see in our inventory numbers are debt levels are sg&a of the expansion of our gross margin line. And we said that the next phase is organic growth and we promised that we'd get it in the back half. Well, we got it in the third quarter and we would have gotten in the fourth quarter, but for the international shipment and the the code big crisis, we've got more new products coming from than we had in the company's history. We feel really good about you know, when things get back to a more normal environment and if they don't and we're not planning them too and that's what our guidance reflects is it we're going to continue to grow our b2c Channel. We're going to continue to do the best we can do to control our destiny.
And then and then lastly is I missed them before were your initial product categories. That should rebound well so as much as we're trying to be cautionary on our Apple products business office were, you know, we're optimistic that this is going to bounce back and you know with their ammunition business, you know, again, we're we're trying to be cautious and our guidance. We didn't find out more than a quarter and we're trying to guide it is thoughtfully as we can to help you all build your models and and understand where we're going. So, you know, the home improvements we made to our gross margin align our cost. You see that in the increase year-over-year. Yes, and to the extent that we can get a little bit more lift in sales. You'll see a drop through at a nice rate.
Yeah, that's that's definitely helpful. I think you know and guidance in this environment is sort of a good thing with that being said you guys did a lot of cutting of operating expenses here in 20 28 hard. Should we think about your operating expenses in 2021?
Yes, so we we don't anticipate you know cutting more. We don't certainly don't anticipate adding more like most companies. We are very mindful of the environment. So because of the actions we've taken we dated expenses. We have our hands on the on the levers that we can pull if necessary, but we've done and this is why I like to uh, the image I'd like to project here is a lot of companies are putting both feet on the brake. We're tapping the brake and we've got our foot on the accelerator. You can see with the amount of Investments. We've made sure to see despite the cost reductions we've put on line over 20 websites. We're starting to tie these together with consumer insights and and some other things that we think will help accelerate it we're partnering with our customer Jean Dropship capability and we've reduced our lead times. We've increased our service level despite taking inventory out of the system. So we are going to hold our cost.
relatively flat is a percent to to sales and we're going to continue to invest in the areas as we do that to make sure that
As things get lifted, we take our fair share and more. Okay, that's helpful. And then last one for me. So you said you guys launched for new website currently how many brands do not wage a website?
All of our brands have e-commerce have sites online, but not all of our sites have e-commerce and and capabilities. And so what we're doing is we're just walk going through systematically and taking our our brand and we're making them fully capable and so suffice it to say our largest brands are are fully capable right now.
Okay that also that good.
Yes, I certainly want to be mindful of everyone's time here where we're at the end of our a lot of time and we're certainly available to answer any and all questions as long as we go forward out of the call, but I just want to thank everybody for joining us today. And we hope you and your families are all safe and healthy, you know, while the future is unknown. I believe that our mission are strong break in our employees have a very bright future and our principal actions will serve us well for the long-term, I'm proud of this now who are people in the performance levels we have achieved will speak again next quarterback.
Thursday Thursday