Q1 2021 Vista Outdoor Inc Earnings Call
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Good day and welcome to the Vista outdoor incorporated first quarter fiscal year 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Kelly Reisdorf Ma'am.
Good morning, and thank you for joining US right first quarter fiscal year 2021 earnings calls with me. This morning, Our Christmas and then the outdoor Chief Executive Officer and pit Hans you create Archie Senior Vice President and Chief Financial Officer before we begin I'd like to remind everyone that during today's call.
We will be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act.
These forward looking statements reflect 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 Vista outdoor and the industries in which we operate we encourage you to review today's press release and Vista outdoors FTC filings for more information on these risk factors and uncertainties.
Please also note that we have posted presentation materials on our web site at Vista outdoor Dotcom would supplement our comments. This morning and include a reconciliation of non-GAAP financial measures.
With that said I'll turn the call over to you Chris.
Thank you Kelly and good morning, everyone. Thank you for joining us.
This outdoor reported significantly better than expected earnings for the first quarter fiscal year 2021, we outperformed in most categories and metrics our performance can be attributed to a variety of factors, but the most important factor is our employees. Our team has stepped up and answers a call time after time during these unprecedented.
Unprecedented and volatile times I couldn't be prouder of our entire team.
The adversity is brought our employees together and we have rallied behind our shared mission of bringing the world outside this mission helps guide our company's actions and decisions. We're on the forefront of what we believe is a long term resurgence and outdoor recreation. We also believe this is perfectly situated to capitalize on these trends with our markedly.
Being brands in the transformation we have made.
Our first quarter results are a great start to the year end of accelerated our strategic transformation plan significantly as I mentioned, there were a number of actors that contributed to our results.
I'll provide more color on that in a moment. However, one of these factors was a manifestation of the last couple of years of heavy lifting what we rationalize corporate overhead streamlined and improved operations simplified our business units structure and improved key processes, all resulting in greater margin expansion and bottom line results.
Yeah.
We also continue to gain momentum on driving organic topline growth, which turned positive in the third quarter fiscal year 2020, and will continue as we go forward.
For the quarter I will provide some of the high points and students who will provide more detail.
First quarter sales were 479 million up 10% organically from the prior year, our overall EBITDA rate improved significantly ending the quarter at 13.5% up almost 200% and nearly 870 basis points improvement over first quarter last year.
We generated 51 cents of adjusted earnings per share versus a loss of negative eight cents excuse me last year.
Equally pleased that we generated 73 million in free cash flow and what is typically a cash use quarter for us and we brought our leverage ratio down to 2.6 times.
As we discussed on prior calls to the first stage of our transformation included major progress on SKU rationalization process improvements margin expansion and cost reduction combined with significant cuts to corporate SGN. A direct result has been a far more profitable platform that generates improved earnings per each dollar of added sales.
Yeah.
Free cash flow performance for the quarter has supported increased debt Paydown 12, the same time, boosting liquidity and keeping us on a fiscally stable path.
Despite the challenges and unknowns that based our brands heading into the first quarter I am proud of our teams who stayed nimble and thrived among so many changes and on nodes.
Some of the success in the first quarter can be attributed to the pandemic for civil unrest because there are many more layers to the story when the first quarter began the timing of store Reopenings was largely unknown and in hides hindsight occurred quicker overall than experts were predicting as lockdowns were lifted stores were flooded with consumers who wanted to.
Recreation safe and socially distant ways outdoor recreation quickly became the go to form of exercise and entertainment, which drove stronger than expected sales in most categories.
The key to increasing participation over the long term as recruitment and the silver lining independent and the pandemic is that Americans now more than ever have reunited and rediscovered outdoor activities.
We believe the structural changes not a three or six month within our country and lifestyles, but the beginning of a new norm in a way of life.
Continued uncertainty drove sales in our shooting sports categories and volumes not expected when the quarter began we're seeing a whole new refresh desire for self sufficiency and personal protection with our consumers. The trends we saw in the back half of last calendar year towards personal protection was well underway prior to the societal changes but.
Recent events had accelerated new user recruitment and increased participation.
Much of our success can also be attributed to direct actions, we took as a team the quarter began at the height of double global pandemic and at a time when locked down and stayed home orders were fresh this uncertainty required our teams to be creative in their marketing flexible in their production and innovative and what we make and how we.
Well in the marketplace.
The results of these actions led to increased sales organic growth and improved margins across the businesses.
The continued benefits of our operations center of excellence and heavy lifting work done around SKU rationalization, clearly enabled us to generate much greater earnings and anticipated. The segment realignment is also resulting in a more effective organisation aligned around the customer and benefits are materializing and strong ordering patterns in sales.
Growth.
Our marketing is a key element to driving organic growth and these unprecedented times brought out the best in our marketing teams.
Trade show season has historically been a big order writing opportunity for our brands and given the cancellation of many of the larger shows our sales and marketing teams has led the industry and creating virtual experiences to a wider audience of buyers receiving accolades for many key customers.
We also met the consumer where they were engaging in more meaningful ways and providing value that created brandloyalty demand for our new products and ultimately supported our gains and margin expansion inorganic growth.
In many of our brands, we doubled or even triple the frequency of email marketing communications to keep people informed on new products from our partners and Influencers.
We also pivoted to more relevant life and creative content across our social channels given increases in mobile screen time during the pandemic.
At ammunition, they connected with their audience with new and old in many created an impactful ways data from the National shooting Sports Foundation shows that 40% of firearm purchases in 2020 have come from first time buyers.
Content focused on safety, how twos and learning the basics have driven the federal premium website to new highs since April their website as experienced 80% new users.
In addition to this influx of new users we are starting to see more diversity. According to the NSSF. The combined purchasing of firearms from persons of color and women. During the first six months of 2020 increased 58% over the same period last year. They ammunition team is focused on engaging and building lifestyle.
I am relationships with these new demographics.
Within camp chef the pandemic has led to a surge and outdoor cooking. Our online presence has not only led to major brand awareness and significant growth in sales, but sales on the camp chef Dotcom platform were up four times year over year during the month of June which led to significant profitability improvements.
The cycling industries seeing unprecedented growth due to the pandemic sales of adult bicycles have tripled sales of children's bikes have more than doubled compared with the prior year Bell in zero leaders and cycling helmets and accessories are leading the charge both brands quickly embrace the new landscape and adopted a digital first.
Strategy to both sales and marketing this has led to exceptional growth in all channels from specialty retail to mass market in E. Commerce. Our bell in your brands are now preparing for the long term resurgence of the industry by working closely with our retail partners.
For Camelbak the team has shifted their messaging content to focus on personalize pursuits of staying healthy. This includes partnerships and content creation centered are centered on home based exercise and fitness their social feeds and new thirst things first blog are filled with useful tips.
Tricks and routines to stay active bid and hydrated in these trying times.
Another major driver for the quarter was ammunition production the first quarter demonstrated again, why and how federal and CCBI sphere are the world leaders in ammunition manufacturing.
In a rapidly growing and unpredictable market our team was able to make real time adjustments and operations to meet market demands and simultaneously leveraged our commercial strengths and drove pricing leadership in the industry.
And as the result of our continued focus on employee safety our ammunition operations have stayed open through the pandemic.
During the last two and a half years, we've been taking advantage of the downturn to transform our ammunition business into a stronger leaner and more nimble operation. So that when the market recovered we was able to capitalize on growth even more than we could have before the fact that we were able to improve gross margins in this segment by more than a.
2000 basis points inside of 90 days is proof that our transformation in ammunition is working.
All of these factors demonstrate the sophistication of our ammunition operation and emerged as a major competitive advantage, allowing us to benefit from increased demand in ways that other ammunition manufacturers simply can't match.
Another key element to our organic growth as new products. Many of you heard me say time and time again, but new products of the lifeblood of this company our innovative new products drove demand supported margin expansion increase social following and interactions and ultimately accelerated organic growth this quarter.
The wing manned by Bushnell Goff is the industry's first speaker GPS and a true breakthrough product with this quality sound performance, our bite feature and GPS distances to the Green wing man is unlike anything in the market. The reception has been outstanding as Bush now evolved outsold the full first year projection.
In the first couple of months of its launch.
Camelbaks official launch of its horizon Drinkware line on Camelback Dot Com was a key driver in camelbak, achieving a record quarter in DTC sales digital marketing efforts in support of the Horizon launch also help produced a record quarter for the website traffic and social media engagement metrics for the business.
Spring is an exciting time for Turkey hunters and is the perfect way to socially distance and enjoy the outdoors federal introduced a new ammunition partnership with meet neither the.
And third degree Turkey loads provided a great performance and cross pollinated with mediators mantra of sustainable organic food sales of this product was strong and the partnership is extended market reach for our team.
Our first quarter is also critical time for big game ammunition, as we ramp up to the fall hunting seasons in the quarter, we saw strong ordering patterns in our premium hunting loads, which tracks with the spring increases and as an indicator for a strong fall season ahead. All of these new products have taken a strong step forward in our first quarter.
Our product vitality index, which we define as revenue from new products launched in the last three years is growing compared with three years ago, we intend to provide regular updates on the vitality index moving forward and look forward to continued progress critical to building on this momentum of product innovation success and increased participation comes with it.
Increased investments in R&D, which we are prepared to continue to do.
Investments in ecommerce and digital infrastructure paid off in major ways, when brick and mortar retail we're forced to close their doors, our ecommerce business, including BDC and E. Tailer accounts grew more than 40% over the prior year as more consumers came online our systems were ready and we continue to fulfill the needs.
The the consumer through DTC, and Etail supporting both topline and bottom line results.
Lastly, I'd like to briefly highlight a big when delivered by our teams proactive work on tariffs. Our teams were able to successfully obtained tariff relief in a variety of categories, including bicycle helmets as we look back on the quarter, we realize that the state of Global Affairs has driven people outdoors in historic numbers and created surges of Newport.
Disciplines in some of our categories, but I'd like to sports team filled with all stars teams about a game plan rarely make a deep playoff run Vista ahead of plan and external events drove people outdoors, we answered the call capitalize on the new demand and delivered profitable sales our teams not letting up and continue to prepare for all synergy.
As we navigate the world and its many changes.
The migration back to nature and into the outdoors is a future many trends in societal changes will drive a long lasting resurgence in a healthier more active population. This bodes well for the outdoor recreation industry and for Vista outdoor simply put we are in the right place at the right time among the trends were.
Public engine Democrats in Congress, just passed the Great American Outdoors Act, which is the largest outdoor recreation legislation since the 19 sixties. This legislation infuses federal recreation assets with an additional 900 million in funding each year.
Creating reactivation and Retainment strategies deployed by the hunting Goff bike and other communities are paying dividends with scores of people coming back we're trying out a new pursuit.
And our early pandemic trends are showing up as paradigm shifts when it comes to outdoor access new travel trends are showing that people want to stay closer to home traveling to destinations by car or recreational vehicles and are opting for rural experiences versus metropolitan visits there've been boost in suburban housing markets increases in remote work.
In an overall migration away from densely populated cities.
People for bikes, which is the trade associations that are bike industry has research that shows shows 85% of new bike owners will stay in the category post pandemic.
Across the country state fishing game agencies has seen a major surge and hunting and fishing activity lack of like sports social distancing and field. The table trends are additional drivers getting people back into the woods in the spring 2020 hunting season license and tag sales were up about 35%.
We follow several industry related capex, guys, including federal excise tax trends at VI Nics checks data from the NSSF and our own consumer panel all of these indicators show the long term potential for the shooting sports market July firearms background checks were another triple digit month, and we've said many times that ammunition.
Sales typically take multiple months to catch up.
Range membership has increased overall as well and many new shooters are shaping firearms instruction.
Combined with working from home less vacation travel and more free time. This has led to increases in participation in handgun rifle and shotgun sports, we're seeing stockpiling happening to it to a certain degree but the free time is giving people more opportunities to recreate in real time.
The industry and retail have seen an influx of new years before and this time around we are far more prepared during the last several years programs have been designed to be more welcoming inclusive and educational with a focus on long term engagement and sustainable participation heading into the suicidal changes having programs already.
In place will lead to greater long term industry health and participation.
In response to the changing demographic of new shooters, we're executing a series of targeted marketing campaigns designed to engage retain and educate we're also expanding our consumer insights panel leveraging analytics came from our website traffic to better connect with a wider and more diverse audience recent trends and recreation.
Funnel shooting personal protection and hunting presents an incredible opportunity to create new lifelong brand enthusiasts.
Finally, the pandemic has accelerated the migration to online commerce and shopping the outdoor industry is not immune to this migration and our teams are well positioned to adapt adjust and thrive in this digital marketplace.
These and other trends demonstrate that what we're seeing is not a surge, but rather a lasting resurgence in outdoor recreation and activities. The future is right and we're excited about our positioning over the long term.
Our successful navigation of the first quarter put us in equipment unclear control of our financial future strong cash performance allowed us to shift our capital allocation and more balanced ways, our cash and debt positions give us a flexibility to move into more aggressive growth categories, including tuck in acquisitions increases in R&D spending.
New product development and digital infrastructure, while also maintaining liquidity for future slowdowns were unexpected terms in the market. We realized during these times that domestic and global economic conditions can change in major an unexpected ways and our financial foundation allows us to better adjust and adapt.
We've also secured several contract agreements.
Which will inject stability and certainty into our operations for the immediate two to five year time horizon. The department of Homeland Security selected our spear gold dot product in a $112 million five year contract award for duty ammunition for the customs and border patrol. This contract is the largest.
Single contract issued by Federal law enforcement. This win illustrates that we make the best pistol ammunition in the market. We expect for shipments to begin as early as our third quarter on this contract.
The current supply agreements the Lake City includes at the end of our second quarter. We're pleased to share that we have reached new distribution contract agreement for Lake City ammunition with a new operators. The facility effective October one this agreement will contribute a portion of the previous volume at higher margins.
Finally, we have repurchased a portion of our own internal capacity to meet the continued unmet marketplace demands for fiscal ammunition, which has tended to be less volatile the category and higher margin profile when compared with the two to three by five six categories.
In closing the confluence of strong market trends accelerated financial performance and our steady pipeline marked the end of our turnaround and begins to transition to the next phase of the Vista outdoor story in this phase our corporate strategy will be focused on internal investments conservative balance sheet management and capital.
Location that is efficient strategic and supportive of organic growth and tuck in acquisitions. We also intend to place a larger emphasis on purpose and impact we want to do well so that room. So that we can do good for the outdoors and the communities where we operate.
This module will drive passion and performance and help us to make outdoor experiences meaningful more accessible and enjoyable for all students who will provide more color on our corporate strategy, our M&A criteria and detail on our financial results.
Im extremely proud of our team for delivering over the course of our transformation and more recently in the first quarter. We will continue to stay focused on our internal strategy external conditions and continued organic growth for this year and beyond.
I'll now turn it over to suit onshore.
Thank you, Chris and good morning, everyone. My time as CFO Vista outdoor had alluded to beauty shop, but long lead excitement I will first quarter results have significantly accelerated or transformation and enable us to shift our collective focus to watch margin.
Topline growth, while maintaining a strong balance sheet to weather the current video dope uncertainty.
Let's start with our plus quarter considers itself. We have provided you with both as reported and adjusted results on an organic basis in our press release and depth flights to assist you in your understanding of the underlying numbers and can produce to prior period.
My comments today focus on an adjusted organic results.
Turning to slide seven the company reported flush cuattro sales of 479 million up 10% over the prior year on an organic basis.
They have a five key drivers that contributed to the results that exceeded our expectations for the quarter.
Well just.
The stores opened earlier than previously anticipated.
By the end of May most of our retail partners the open across the country.
Resulting in a stronger end to the quarter.
For instance in outdoor products.
Sales in the month of April but down 39%.
We're up 1% in May and finished strong at up 18% for the month of June when compared to prior year.
Second we had previously expected that consumers would be slow to tone to install shopping experiences during the pandemic.
But what neutralized by the strong Pos Neely EMEA immediately upon stores you will be.
Third we benefited from both general pricing improvement as bill as our ability to drive optimal mix across all brands into the channel.
Fourth with respect to the lot International order reference all the last call in light of continued quarterly related delays and continued strong demand in the commercial ammunition market, we elected to the zick disorder and was successful in relocating a portion of the inventory produced foot.
Auto to our higher margin commercial channels.
Lastly, our E Commerce channel, which do presents our DTC and Etail accounts grew more than 40% compared with the prior year.
Investment in this key growth capability for Vista.
Clearly delivered four hour telecom and consumer during the quarter.
Turning to gross profit.
Gross profit increased 41% 225 million from the prior year quarter.
The overall rate increased by nearly 600 basis points to 26% from 20% in the prior year quarter.
The increases in gross profit reflects overall improvement in pricing mix and volume across the elite all of our brands.
We also reduced operating expenses by 8% to 77 million from the prior year.
Reflecting an ongoing commitment to operating our brands in the lean and efficient manner.
As a result of this improved gross profit and reduced operating expenses overall profitability improved significantly along with improved top line.
Our EBIT margin by 10% and expansion of 874 basis points over the prior year quarter.
We have also increased our EBITDA margin rate.
13% from 5% in the prior year quarter.
Interest expense for the first quarter was 6 million a 42 plus introduction.
Compared with 11 million in the prior year quarter.
The average borrowing rate.
Our first quarter was 4.9% compared with 5.9% in the prior year quarter.
Our first quarter tax expense, plus 12 million or 28% compared with the tax benefit of 1 million or 10% in the prior year.
That cutting to your tax rate was increased as a result of uncertain tax positions and other non deductible item.
While we have at just did our tax rate to remove the benefiting our valuation allowance that income the owned will allow us utilize a portion of our losses from prior years to reduce the amount of cash tax we will.
Adjusted net income was 30 million, resulting in an adjusted EPS of positive 51 cents compared to loss off eight cents in the prior year quarter.
The difference between GAAP EPS of 69 cents, an adjusted EPS of 51 cents is the result of tax valuation allowance off negative 10.4 million.
We delivered positive 72 million of free cash flow in the quarter, which as Chris mentioned is typically a quarter in which we use gas.
This free cash flow was a result off continued working capital discipline stable collections and overall lower capital expenditure.
Turning to slide eight.
At the end of our first quarter of a net debt was approximately 400 into 15 million.
Down from 486 million due to strong cash generation in the quarter.
We have reduced our leverage ratio to approximately 2.6 times using a simple net debt to EBITDA calculation.
For the quarter on an existential Liberty was 290 million our balance sheet is stronger than ever before and we have ample liquidity to push for future growth. Despite the uncertain operating environment.
I'd like to highlight our commitment to our disciplined capital allocation as we look to take advantage of our robust castle and as tendon balance sheet. Please.
We intend to maintain our three times are below leverage ratio over the long term and manage our balance sheet conservatively. So that we can stay in control of our future and whether any storms that might be on the horizon.
Turning to slide nine we will not do you view operating segments results.
Shooting sports recorded first quarter sales of season into 34 million.
Up 17% compared with the prior year quarter.
Ammunition was up 22% and we continue to see a strong consumer trends to our personal protection.
Well as an influx of new users engaging in recreational shooting activities.
We also experienced increased demand for our premium hunting loads alongside a strong spring hunting season.
We believe that these trends are the result of reduced travel and other paradigm shift Chris just mentioned.
Hunting shooting accessories saw stronger Pos at stores reopened towards the end of the quarter and reporting unit was able to offset some of the headwinds as a result of fetal towards those earlier in the quarter.
The reporting unit ended a stronger in June and also saw overall higher direct to consumer sales throughout the quarter.
Plus quarter gross profit, but 85 million up more than 70% from the prior year quarter.
We're shooting sports segments gross profit rate for the quarter was 25%, which is nearly 800 basis points improvement compared with prior year quarter.
Outside of volume as the key driver.
Also as seeing pricing improvement margin lift driven by mix as well as favorable commodities and cost saving initiatives.
Our operations.
The segment deliver exceptionally strong EBIT in the quarter.
EBIT dollar were up 250% over the prior quarter and the segments EBIT margin.
Improved by nearly 1100 basis points.
This improvement was the result of increased gross profit.
Disciplined expense management and colvard related travel restrictions.
Turning to slide 10.
Plus quarters sales in order products, there's 145 million down 4% when compare to prior year quarter.
We expect recent outdoor recreational activity trends to boards well for the segments going forward.
Entering into quarter, we believed quarterly religious fios would keep consumers at home.
We were successful in offsetting some of the region for their headwinds due to our DTC channel and email accounts.
Gross profit was 41 million up 2% from the prior year.
The overall margin rate saw roughly 200 basis points increase.
This is product of disciplined brand teams, we're laser focused on profitability improvements and capitalizing on our optimal mix.
Shannon fixable capabilities and missed the sellers in outdoor recreation trends.
What highlighting is that despite an overall China's topline given retail flows put the majority of the quarter. The segment delivered a 68% increase.
Year over year EBIT.
Turning to slide 11.
Our outlook for the second quarter, we've got as detailed in a moment is based on several key assumptions.
Number one.
That we see continued strength in demand for ammunition.
Number two that to be see continued increased participation in in outdoor recreation activities.
Number three continued strong growth in our E Commerce channel.
Annual capital expenditures and expected to be at or below that of last year's spend.
And we remain committed to improving our capital discipline and selectively investing in projects with the shortest payback period.
Given our low leverage and cost efficient capital structure.
We expect that our fully on interest expenses will be line with annualized fourth quarter results.
R&D expenses are critical to building momentum and fueling our future growth and to that end, we anticipate a mid single digit increase in fully at R&D spend in fiscal year 2021, as compared to last year.
Our tax rate for the second quarter is expected to be in line with our first quarter tax rate.
Given the current state of our end markets and a trend and visibility into cash flow.
We expect second quarter free cash flow results to be significantly better than the prior year quarter.
Based on duty assumptions, our second quarter fiscal year 2021 guidance is as follows.
We expect.
Revenue in the range off 495 to 550 million.
Each to present, a range of 11% to 16% increase over the prior year quarter.
And we expect adjusted earnings per share in the range of 60 to 70 cents.
As compared with breakeven in the prior year quarter.
In my first 100 days be the company I've been spending time learning organization getting up to speed on business drivers.
And integrating with the company is strong culture or business savvy, our duty to us.
It's clear that Vista outdoor has a very knowledgeable experienced and talented finance team.
We also benefit from healthy industry going through some very dynamic time.
Great brands in our portfolio and the strong profitability and cash generation Foundation, Chris on the team have built over the past two years.
We have many opportunities ahead of us and I look forward to helping Vista outdoor she's those opportunities, particularly in areas like E. Commerce. We had our initial investments are just beginning to pay off.
I'm excited to lead our finance organization and be a part of this dynamic type of growth in the Vista outdoor story and look forward to share any more details with you in the coming quarters.
Thank you for your time today.
And operator, we can open the line discussions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function has turned off to allow your signal to reach our equipment again press star one to ask a question well pause for just a moment to allow everyone an opportunity to signal for questions.
The first question will come from Jim Chartier with Moness Crespi Hardt. Please go ahead with your question.
Hi, good morning, Thanks for taking my questions and congratulations on some great results. This morning.
I'm, making sure Chris.
Yes. It looks like you guys are on pace this year to hit your previous low double digit EBITDA margin target.
What's the potential to maybe go a bomb above that.
Given the strong demand you're seeing and then.
I guess, what levers can you pull to kind of sustained EBITDA margins in that low double digit range.
You know when maybe the marketplace normalizes. Thanks.
Yeah, Jim analysts I appreciate the question.
So as evidenced by the first quarter, so scene and a half percent EBITDA margin.
We feel like and the way we've guided here in the second quarter.
We certainly have the momentum too.
Exceed the the long term guidance it that we had given before.
What excites us about the the current environment is.
The all the work that we've done in creating the platform that allows us to ensure that the the sales we get are increasingly more profitable. So ammunition at some point in time, we all know that the.
The surge that we're seeing right now will subside, but I'll talk in a bit about why we feel like it's even more.
More exciting as we go forward given the underlying trends but.
We certainly see ammo margins ammunition margins continuing to be strong.
We love, where we're at an outdoor products and some of the new products that we're introducing that are margin accretive will continue and so.
The new products combined with our E commerce efforts, all give us the confidence that.
The margin.
Lifted that we're seeing.
Certainly sustainable.
Great and then.
Appreciate your congratulation on.
Getting some of the Lake city volumes through the distribution agreement, but how should we think about the impact of that kind of Matt on the back half of this year.
Yes, so Jim as everyone knows the contract expires October Onest and so we're we're bound by confidentiality agreements I can't give too much detail, but we feel very good about.
Replacing a portion of the volume given the agreement that we've got in place with the new operator.
We've also got a number of other.
Things that we're looking at to help replace some of that loss volume and we've always kind of quantify the volume as as fairly meaningful on the topline, but but not as meaningful on the bottom line well given the fact that we're going to replace a portion of the volume with the new operator.
Back that we just one the new custom border patrol contract and the fact that we're doing some things within our factory that we've been working on over the past six months. It gives us a bit more capacity to meet some of the current demand we feel very good that we're going to be able to.
Replace that Lake City volume.
Great. Thank you.
Thank you. The next question will come from Mark Smith with Lake Street Capital partner Excuse Me Lake Street Capital markets. Please go ahead.
Hi, guys.
First off so to answer you talked a little bit about that shipment of the international order.
Can you just give us more insight on you know the decision to kind of recession that and take that away and then how much maybe that helped boost ammo sales during the quarter.
Yes. So thank you for the question basically with Debbie commercial ammunition market was doing hey are it didn't make sense for us to keep reading.
For those contracts that we managed to sell Heyler and got much better margin, but still have a portion of invented to south which we believe we would be able to sell that during this fiscal year.
Yes, some market, we didnt just to make it clear we didnt ship the the fall International order, we shipped a portion of it the rest of it will shift the the rest of the year widget, where do we are adjusting pragmatic. So when you think of how ammunition performed in the first quarter don't think that that international order had a.
A big effect on the quarter because it did.
Okay Perfect and then you guys talked about the E Commerce and I know you guys have done a lot of worked around direct to consumer can you quantify at all or maybe break down at all kind of the impact within ammunition market is how you've been able to kind of turn that on more so.
We've seen strong demand and maybe lower supply and retail kind of how you've seen a shift of people coming directly to you.
Yes. Good question Mark is.
Certainly our E commerce efforts and D to C don't apply just outdoor products business in fact, our ammunition business.
Their website traffic is frankly on fire.
In fact, they've seen at 80% increase in.
New user activity on the website in the first quarter from new purchasers of firearms that are frankly looking for.
Tips education safety clashes what have you.
All of this gives us an opportunity to interact with a new group of users that we hadnt before it also informs the marketing that we do in terms of different demographics.
And different type of users.
So.
What we see online is a continued growth and a lot of these trends were able then to go right back to our retailers and share those trends with them. So we can get.
Stock positions appropriate we can help share with them all the knowledge that we're gaining to make sure that what we're shipping to that is exactly what their consumers are looking for so theres a number of exciting.
Insights that we're able to garner from all the activity in the interaction, we're having with the with users online.
Okay.
And then as we look across the board and in supply chain can you talk about any headwinds that you see or maybe where you know the quarter was negatively impacted I know camel back you know some production out of Mexico early on in this quarter that maybe it was impacted but anything that you can talk about in the supply chain that maybe is tough right now where we should.
I have on our radar going forward.
Yeah. It's a good question market. It was a combination of factors and so I will talk a bit about camelbak camelback is one of the businesses. We're super excited about and they really had a strong last fiscal year. They were hurt the most in our fiscal first quarter. Some of it was due to the fact that.
Frankly the.
The shops that they sell through were impacted more so a lot of their retailers were shot more than say bike shops or some of the other locations outdoor retail locations that were open but they had a significant challenge.
In supply so it was it affected our reservoirs that affected our packs. It was multiple suppliers from Asia, frankly down to Mexico, and it was all coded related and so they were.
Shipping I guess with one arm tie behind their back there is still working through those constraints, but we expect those to be materially through us here in the second quarter and we fully expect them to return to growth in fairness given some of the excitement in demand that we saw the golf side, the Bushnell Bob side, we couldn't keep up.
But.
The wing man was so exciting that we outsold the first year forecast in the first two months and so we're going to be chasing demand in a in a really good way all year on that.
We've also got a distribution centers and one thing I've got a really call out for our employees.
So we talk about Covidien I know a lot of other companies were impacted greatly in the first quarter and you look at how our total outdoor products business performed vis-a-vis peers or what have you. We're really proud of the fact that our employees.
We're able to.
Fight through the pandemic, we're able to fight through personal.
Issues with kids being schools at home and all the shelters in place and what have you and so we we shipped at record levels through our distribution centers and.
In fact, we're still catching up so.
Some of the excitement and demand we saw in our bike category.
Actually could have been better had we've been able to ship more product, we're catching up on that as well and.
And you'll see that as we go forward.
Okay.
And then as we look at the ammunition market any commodity or component shortages or issues that your guess yesterday.
Well not is I mean, certainly.
Actually to be honest I mean, there's not.
Skewed shortages in materials.
You know theres more.
Just capacity constraints to be honest I mean, it's across the industry you walk retail today you will.
If you saw what our wholesalers and distributors are carrying it's the leanest, we've ever seen them in inventory, which is a really good sign and it's one of the key differences between previous surges. In this surge is inventory levels are as clean as we've ever seen them.
The one thing I will say about commodities as well as.
Our team has done a pretty nice job of.
Of commodity hedging if you will and we've needed it because we've had to pay overtime rates. We've had to pay surcharges. We've had to pay all sorts of premiums to keep our factory going in the current environment that we're in.
Okay.
Last one from me can you talk at all especially within ammunition about.
Backlog or or maybe a different way of looking at it if we shut off all sales today, how long would it take just to refill channel inventory.
Yes, the market. So it's an insightful question and I think if you talk to our retailers, which we talked to them. All the time, They said hey, listen if if everything were just to come to a screeching halt right now it would take us months just to stock ourselves to stock our warehouses to get back to a point where we.
Feel comfortable that we've got the this supply that we need.
So that.
There's.
So that was kind of the first part your question was the other part of your question Mark on make sure I address it.
Yeah, just just anything on that backlog anything that you quantify or help with on on kind of how long do you think maybe this goes just to try to catch up.
Well here here's the interesting thing about backlog. So we you know we had our strongest order writing month.
Back in March.
Followed by our second orders strongest order month, which was this past month July So July which there is the beginning of our second quarter was our strongest order writing months. So it certainly hasn't.
Hasn't slowed down at all.
Okay. That's great. Thank you guys.
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Thank you. The next question will come from gotten caught up with Cowen and company. Please go ahead.
Hey, guys. This is Dan on forgot.
Good morning.
One of them.
So.
I don't think that this would have been an issue. It's just just to confirm.
Were there any problems with consumers.
Getting out to ranges during a lock downs and then as a follow up to that you had.
Good idea of demand from usage first it stockpiling.
Yes, so Dan.
To answer your question specifically on ranges at the beginning of the.
Coded shelter in place it was a bit of a mixed bag. It was some ranges we're able to be open some ranges we're not.
They gradually through the first quarter work their way to the point that they're all open and going strong.
We have personally reached out to all of our big range customers. The biggest ranges in the U.S. in fact.
What we're hearing from the range is is really really exciting their volume as measured by number of round shot is up dramatically year over year.
They've also told us that the increase in first time buyers as.
As evidenced by their total sales so new buyers divided by total sales is up over 50%.
And they have also told us that to there.
[noise] their classes are oversubscribed classes for all sorts of thing whether it be concealed carry whether it be safety, whether it be general education usage markman ship or what have you. So.
What we're seeing from a consumer and a usage standpoint is.
Very very exciting that didn't know there's no question I think in our minds that there's some build up at the consumer level, but different than what we've seen previously is we see a lot more new users and we see a lot more participation.
Got it okay and that was that was actually my next question was on the new shooters, which I think we've heard similar things about growth there and I would assume that.
Yes that those users typically use ammo more immediately then.
[music].
Yes, Mike might start stockpiling would would you agree with that.
Yeah definitely Dan affect some of the frustration weve frankly heard from some of the new users as a they bought a firearm and they can't find any ammunition.
The because it's in short supply.
Yeah, Yeah definitely Lisa for the same thing okay. Thanks.
Yep.
Thank you as a quick reminder, if you have a question at this time, please dial star one to enter the Q. The next question will come from Scott Stember with CL King. Please go ahead.
Hi, good morning, and thanks for taking my questions.
Oh, yes.
Can you guys talk about other SKU rationalization process it seems.
That's fallen off pretty precipitously, just talking about how much of an impact that's had.
You organic sales over the course, the last few quarters.
Yes, Hey, Scott Thanks for the thanks for the question. So skew rationalization is one of those no secret ingredients in our recipe for simplifying the business and really getting.
The team focused on what really matters and so when SKU rationalization is meant to our businesses is it's enabled us to carry less inventory, it's enabled us to focus on higher margin product.
It's enabled us to really focus on.
Our capital expenditures as one of the reason why capital expenditures are down is because we're discontinuing older slower moving product because we think frankly, it just cannibalizes some of the higher margin more exciting product. So that's all part of.
What we think is just given us frankly, a stronger more profitable foundation, which is a contributor to driving organic growth.
Got it on the capacity front, mainly in ammo.
Talk about your ability to keep up with demanded a few I have to go to any extreme measures to be able to fulfill demand.
Yes, so I mean as you can imagine in this environment. There is nothing of higher priority, then working through our ammunition capacity and ER and meeting the demand out there.
And what is exciting to US is we spent the last probably last three years of the.
Of the environment that we're working in getting ready for this moment.
And so we had a lot of capex investments of yester year that we called factory to future.
That we really dialed in over the past few years to help us with efficiencies to help us get more out of less if you will so a couple of things that.
We feel like we've got opportunity and going forward is.
One is the rimfire category, which had really really slowed down it picked up dramatically in the first quarter and we frankly weren't able to meet demand. We've been spending last 30 to 45 days are getting ourselves in a position where we can more readily meet some of that demand. So that's just one example of some of the categories that were looking at that we think.
We can.
We can grow our business and meet the demand there.
Alright, Thats, great and just last question brick and mortar obviously stores are coming back online you've talked about how that's improving but where I guess.
How much of your and brick and mortar locations that you eventually sell to do you think.
We'll have to come back online or you close to being back to where you were pretty code.
Scott I'd say, so yeah I you know there's very little.
Closures at this point in has very little disruption.
But that we see in brick and mortar and so even some of our customers that had really lean doubt.
Suggesting that.
They may have closures for longer are now open as well so.
We feel pretty good about the the environment at brick and mortar.
Got it that's all I have thank you.
Thanks, guys.
Thank you. The next question will come from Brian to Rubio with Baird. Please go ahead.
Good morning.
Maybe just first starting off how are you guys thinking about your capital structure now given that you're under three times leverage.
Yes, so as you as you might imagine I mean, this is all come about pretty quickly, but we've been anticipating it for awhile and as we think about it.
Our number one goal is to continue to drive.
Accretive earnings and and free cash flow. So we can maintain our stated leverage of two to three times, but as you state where we're there today and we want to continue to focus on that.
We also want to focus more on organic growth.
We've stated over the past few quarters that is increasingly a focus for us to Don you mentioned in his remarks that we want to invest even more in R&D.
We've been behind the scenes investing a lot in E commerce and.
And those efforts and we're going to continue to do that.
We've also published on the.
On our web web slides that are what our acquisition criteria is so we're getting increasingly start to look more closely at smaller tuck in acquisitions that we think meet the criteria that what excites.
You as an investor and analyst and a us as a as shareholders as well.
Got it and it may be on just M&A or you know there are couple of ammunition properties that are up for sale. Currently is that something you're going to focus on or you're more focused on the the outdoor side.
Yes, you can appreciate.
That's something that that we can't really comment on what we may or may not do as it relates to specific M&A targets.
But you can imagine given our position in some of the segments that were in when something comes available of course, we're going to we're going to look and we're going to monitor it closely but.
Thats about all I'd feel comfortable saying at this point.
That's fair.
Just.
A year ago during your Investor day build your was potentially up for sale obviously the world. This change I mean as I told someone the other day.
Bullets and bike helmets are in short supply, especially around by May but how he is is that no longer sort of being viewed as a property that you're looking to exit.
How are you thinking about build your right now.
So I came out probably about nine months ago, 12 months ago, and said or thereabouts and said you know.
We think we.
We're better off holding bells euro because we love the potential of the business. We felt like there was a lot of.
Underperformance in that business nothing to do with the people just the way that the business was being looked at.
The more and more we studied it the more and more we realize we got a highly talented group of people that are very very capable of.
Delivering.
Much much much better results in so we went in and help them from an operational standpoint. So when we talk about SKU rationalization, we talked about spans and layers. We talk about focus that was a business unit, where we put a concentrated effort on and we're starting to see it read through in the results and we're excited about.
How they finished the last fiscal year, we're really excited about how they started this.
This first quarter and.
Thats a business that has got brands that are just riding the wave I mean, we want even talk about snow, but you know snow just completely shut down and when it shutdown last spring all the resorts close down zero was the fastest growing brand on the slopes, they're they're helmet was business was growing there.
I will business has just taken the number two share position.
We just really introduced some new products. This quarter that are really helping drive that zero business and bell is.
He is got some super exciting things going on as well, so long way of saying, where we like the business no intentions of selling it and certainly in this environment, we're happy to be owners of it.
Understood just from a question again, but going back to your Investor Day last year, you talked about the excess and obsolete inventory that you have had on hand at that point in time, just looking at margin performance. It appears as you just your mostly through that sort of can you give me a sensitive if that's correct or not.
Well excess and obsolete as one of those slippery things that.
You know when you're when you're swinging for innovation, you're going to you're gonna have hopefully a lot more wins and losses, but in any consumer products business I've ever been in Youre going to have some excess product no question about it weve whittle that down considerably as one of the areas I'm Super proud of our team is real.
Early focusing on on on willing that down but.
We still got little more little more ways to go on that.
But we're in we're in good stock we're in good position when you look at the overall health of our inventory.
Excellent thanks for the time.
Okay. Thank you.
Showing no further questions.
So one question I wanted to or one thing I want to do address is.
It's one of the reasons why we're so excited about the.
The current environment that we're in I know many of you have seen a lot of the underlying trends in question. The surge that we're in right now and what is different now than previous surges as we see it is.
There's just unprecedented number of new people that are rediscovering outdoors in in any number of our categories and we feel like it gives us the ability to market and attract.
New users more so than ever and you take one of our big our biggest category ammunition.
I thought the day I walked in the door that it had some of the best underlying trends underlying.
Trends within the outdoor recreation space and I think what we're seeing with new users being young.
Being female being people color that are coming in that are really rediscovering.
Outdoors with some of our products is super exciting to see and so thats kind of the mid to long term.
Trends that we see that that have is pretty excited so I wanted to thank you all for joining us today as today's discussion shows the overall progress and accelerated financial performance marks the end of our turnaround and begins to transition to the next phase of the Vista outdoor story.
The underpinnings of our strategy for this phase are familiar and we're confident that sustained focus on driving organic growth leveraging our centers of excellence disciplined capital allocation and impact will serve us well.
Our strong balance sheet and resilient business model provide a sustainable model for profitable growth and fuel the innovation our consumers depend on combined with encouraging market in outdoor participation trends, our brand and market share positions internal investments in digital new products in R&D, we're well positioned for success and believe the future is bright I want to thank every.
The one for being on the call today and have a great day.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect your lines.
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