Q2 2021 American Outdoor Brands Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, everyone and.
Welcome to American outdoor brands Inc. second quarter fiscal 2021 financial results Conference call.
This call is being recorded.
At this time I would like to turn the call originally sharp Vice President of Investor Relations for some information about today's call.
Thank you and good afternoon.
Comments today may contain predictions estimates and other forward looking statements.
Our use of words like anticipate project estimate expect and trend should indicate suggest believe.
And other similar expressions is intended to identify those forward looking statements from.
And looking statements also include statements regarding our product development focus objectives strategies and vision, our strategic evolution are.
Our market share and market demand for our products.
Market and inventory conditions related to our products and in our industry in general.
And growth opportunities and trends.
Our forward looking statements represent our current judgment about the future and they are subject to various risks and uncertainties.
Factors and other considerations that could cause our actual results to be materially different are described in our securities filings you can find those documents as well as a replay of this call on our website at <unk> Dot com.
Today's call contains time sensitive information that is accurate only as of this time and we assume no obligation to update any forward looking statements.
Our actual results could differ materially from our statements today.
I have a few important items to note about our comments today.
First we reference certain non-GAAP financial measures.
Our non-GAAP results exclude amortization of acquired intangible assets stock compensation transition cost COVID-19 expenses related party interest income and the tax effect related to all of those adjustments.
Reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not and they were discussed on today's call can be found in our filings as well as todays earnings press release, which are posted on our website.
Also when we reference C.P.S., we're always referencing fully diluted EPS.
Joining us on today's call is Brian Murphy, President and CEO, and Andy former Chief Financial Officer and.
With that I'll turn it over to Brian.
Thanks Liz.
I'm excited to join you on today's call and share what we believe are exceptional results for our second quarter.
We believe our financial performance demonstrates the diversity and innovation of our brand portfolio as it continues to capture the attention of consumers.
As a result, we delivered net sales growth of over 65% and our gross margins expanded by 690 basis points to nearly 47%.
Based on our performance this quarter and her outlook for the second half day.
Today, we are raising our guidance for fiscal 2021.
I want to especially thank our employees, who helped us deliver outstanding results this quarter, while positioning us for an exciting groundbreaking first year as a public company.
Their hard work and commitment to the health of their coworkers combined with our award winning products made it possible for consumers to continue exploring their connection with the outdoors during these challenging times.
Kick things off I think it would be helpful to share with you and some of the trends were seeing across markets impacting our business.
In general we believe we are witnessing a new hire foundational level of consumer participation you know dry activities.
Responsible firearms ownership.
And adjacent home based hobbies, that's around outdoor adventure.
So what do I mean by that but simply.
Because of restrictions surrounding COVID-19, more people live and going outside.
Data suggests that there's been a meaningful shift and the number of people engaging and outdoor activities, which we believe has driven a new higher baseline, adding to a larger installed base of long term participants when compared to 2019.
We believe American outdoor brands in particular.
Is uniquely positioned to benefit from the shift.
Let me share some market information with you to further illustrate my point.
First camping participation has been on the rise in recent years.
Without further acceleration in 2020.
According to a K away study released and October nearly 50 per cent of campers surveyed said they went camping for the first time ever and 2020.
For for the first time in recent years.
In addition, a separate study by the outdoor industry Association and 2019 estimated that there were 42 million campers and the U.S.
This combined with the K away survey outlining new Kemper trends and 2020 suggest that overall participation. This year has been extraordinary compared to prior years.
Further came away estimates that 82% a first time campers have children and their household.
Which data suggests increases the likelihood that these new young entrance will be in the market for some time to come.
Second.
There were a strong participation and firearms ownership and shooting sports with a record number of new entrance this year.
Background check data gathered by the FBI indicates that a record number of firearms have been purchased in calendar 2020.
Background checks through November Thirtyth numbering 19 million.
And National shooting Sports Foundation estimates that 40% of those checks represent individuals who purchased a fire and for the first time, suggesting about 8 million new consumers entered the market this year.
This new and larger installed base of owners suggests strong future participation and shooting sports and the need for accessories.
Third.
I think he has also been on the rise this year and many states across the U.S. have seen meaningful increases and the number of new hunters and.
A review of two recent Wall Street Journal articles indicates that hunting license sales are up more than 12% nationwide from last year across.
According to the National shooting Sports Foundation if.
The trend continues through the end of the year. They say those license sales translate to 1 million more hunters this year and last.
Michigan alone has seen a 67% year over year increase and new hunters and through the end of November with Hunter is under the age of 17, increasing nearly 100 per cent during the same period.
The introduction of new hunters is critical to the long term growth and participation upon too.
Lastly.
Fishing has seen similar trends and.
According to the same Wall Street Journal article the recreational boating and fishing Foundation stated that there were 3 million more licenses sold nationwide this year and last a 14% increase.
And Louisiana alone between March and July of this year, the Louisiana Department and Wildlife and Fisheries sold approximately 60% more basic fishing and salt water licenses and for the same period and the prior year.
In addition to creating a larger market for many of our brands growth and hunting and fishing also had the benefit of generating more money for fish and wildlife agencies and so.
Reported wildlife management and sustainability.
This and turn it creates a more sustainable future for hunting and fishing as participants returned to these activities year after year.
Whether measured by the record number of new firearm owners or by the extraordinary number of consumers who have taken their first camping trip this year and data indicates to us and an outdoor Renaissance is underway.
And then its effects, maybe a long lasting.
Our four brand lanes defender.
Marksman Harvester and adventurer.
Position us well to capitalize on this increased participation and shooting sports hunting fishing and camping as well as address personal protection and home security needs.
The sales momentum that began during our first quarter continued and remained steady throughout the second quarter.
Net sales of over 79 million, representing an exceptional growth as we benefited from the activities I just outlined.
By and what the normal seasonality, namely the the fall hunting and holiday seasons, which occurred in our second quarter each year.
We believe that sales growth across both our traditional and ecommerce channels and the quarter demonstrates that the investments. We've made over time are paying off and we continue to achieve our objective to place our brands wherever the consumer expects to find us whether in a store or online.
This strength is especially important in times like this where consumer spending patterns are continually changing.
In the second quarter sales and our ecommerce channels grew over 213% compared to the prior year and included a notable increase in our direct to consumer sales.
Net sales in our traditional channels grew as well increasing by over 34% year over year.
Turning to profitability, our adjusted EBITDA loss performance for the quarter was also extremely strong.
In addition to higher gross margins year over year, we delivered a greater percentage of profitability that fell to the bottom line.
Demonstrating we believe just how leverageable our businesses thanks to the unique structure of our brand lanes.
I'm happy to report that during the quarter, we experienced growth across nearly all of our 20 brands and within each of the major activities we serve.
In fact, nearly half of our brands experienced triple digit sales growth in the quarter.
Furthermore.
Of our top four selling products in the quarter. Each came from one of our four brand lanes demonstrating the diversity that we have built across our business.
Our brand lanes provide us with what we believe is an ideal competitive advantage for developing exciting on trend and highly innovative new products year after year and turned new consumers into lasting advocates as we take our brands from niche to known.
In fact, it's not uncommon for us to launch over 300, new products annually.
And as I've shared before that process is rooted in our dock and unlock strategy.
Once the brand has docked into one a four brand lanes. We can then begin to unlock a brands true potential by leveraging the respective lanes resources, including brand marketing product development sourcing and E commerce.
Our dock and unlock process is proprietary.
Was developed internally and we believe provides a meaningful moat for our brands as they grow.
Our continued entry into new larger addressable markets utilizing this strategy continues to bear fruit as our brands progress along their transformation.
Today I want to provide you with some examples starting with the home grown favorite.
One where we believe the best growth is yet to come.
In March of this year, we launched our newest brand meet your maker.
This is a bold fun and contemporary brand that offers and innovative and affordable line of meat processing equipment, such as grinders slicer indie hydrate hers sold direct to consumer and meet your maker dotcom.
While the entire product line was conceived within our Harvester brand line to address the meat processing needs and hunters.
We're excited to share that these products are finding their way into home kitchens as well.
Following the field to table trend and the desire of consumers to control every aspect of processing the food they harvest.
Developed organically completely in house and launched just nine months ago.
Meet your maker has gone from literally non existant to self sufficient cash.
Weekly, becoming a multimillion dollar brand in our portfolio and it's just getting started.
We believe we have several brands and how's that harbor, the same exciting potential and.
In fact based on our research and consumer studies, we believe that most of our brands remain and their infancy and have yet to be fully explored.
Specifically this translates into three distinct priorities.
First expanding our brands by growing into new product categories.
And.
Entering new customer channels of distribution and.
And third entering entirely new and larger addressable markets.
We believe this strategy provides our brands with significant runway for long term growth and the dock and unlock strategy is designed to unleash that growth.
Situated within or Harvester brand Lane as Bogut, a brand with its origins and shooting sticks and rests use and hunting and.
That is well on its way to becoming a broader lifestyle hunting brand with versatile products that are engineered for the unknown.
One of our newest product launches, which also enters us into the large game camera product category.
Demonstrate this evolution perfectly.
For those of you who are unfamiliar with game cameras. These devices allow the user to monitor wildlife activity and hunting area.
And they represent a significant dollar investment from most hunters.
Introduced in 2020, our blood Moon game camera recently received a top rated ranking from trail Cam Pro dotcom.
Which is considered by many to be one of the leading reviewers of game camera performance and testing.
Here's what they like and I quote and.
Excellent photos and videos 20, plus months of battery life, and and saintly fast detection capability and growth.
And we Didnt just create a game camera for the sake of it we built ours from the ground up to include a patent pending removable of viewing screen that allows the user to quickly adjust camera settings and flipped through pictures on the fly without logging into their computer.
Next up is an example of from our defender brand line.
Our Lockdown brand began as a line of volte accessories, such as Dehumidify and rods and volte organizers.
Today and is in the process of expanding beyond the ball with products that help consumers secure their lifestyle.
Our new patent pending Lockdown PUC recently received the guns and ammo gun Tech of the year Award for 2020.
With built in Wi Fi the PUC pairs with a free logic up that allows the user to remotely monitor the humidity temperature and security status of any safe cabinet or other storage area.
The PUC allows the consumer to know that their firearms jewelry or other valuables are safe and secure from anywhere in the world.
Lastly.
And our adventurer Lane. We are excited to include our U.S.T. brand, which provides another example of taking one of our brands from niche to known.
U.S.T. has recently undergone a major brand relaunch with its origins and camp accessories, such as lanterns and fire starters.
We rebranded U.S.T. to expand into a broader offering that includes new innovative and higher ASP items geared around the camp lifestyle, such as tense sleeping bags and mattress pads.
Let me highlight one of our especially exciting new products the monarch sleeping bag.
The cocoon like monarch lends itself to a wide variety of environmental conditions with patent pending wing sections that allow the user to transition from a 17 degree bag.
237 degree bag.
The wings can also be detached and used as a pillow.
This fall Backpacker dotcom listed our U.S.T. monarch sleeping bag as the number one item on their list of the 27 best guess for backpackers of 2020.
These awards not only demonstrate the level of innovation that exist as a result from our brand and structure, but they punctuate the very exciting path that these brands travel as they evolve from niche to known.
And with that I'll ask Andy to cover the financial results Andy.
Thanks, Brian.
I'm excited to share insights into what we believe are exceptional results for our Q2.
We showed significant topline growth ex.
We exceeded our own expectations, where the gross margins and we're able to leverage our fixed operating expenses to yield almost 20% adjusted EBITDA margins.
Net sales for the quarter were $79.1 million come.
Compared to $47.7 million and the prior year and increase of approximately 66%.
As Brian noted almost half of our 20 brands experienced growth of over 100%.
With nearly all brands showing some level of growth over last year.
This performance was driven by the increased participation and outdoor activities.
As well as our continued discipline with certain retailers to take a more balanced approach to their ongoing replenishment orders as we've discussed on earlier calls.
We believe this approach allows our shipments to be better aligned to underlying consumer demand at retail.
Net sales and our ecommerce channel increased 213.4% over the prior year to $26.2 million.
As a reminder, our ecommerce channels include our direct to consumer sales.
They also include sales to retailer customers that do not traditionally operate a physical brick and mortar store, but instead generate most of their sales from consumer purchases on their retail websites.
Sales and our traditional channels were $52.9 million and increase of 34.3% over the prior year quarter.
As Brian mentioned, we have made significant investments over time to ensure our brands are located where the consumer expects to find us.
Whether that is in a physical store.
Our retailers' website.
Or on our own branded online storefronts.
We believe these results reflect our success in those efforts.
Our Q2 gross margins were 46.9% assets.
690 basis point increase from gross margin of 40% last year.
We participated and some annual promotional programs and certain product categories as originally planned.
And margins were unfavorably impacted by increased tariff costs and inventory reserves.
All of that said, however, favorable product mix and the general lack of promotions and other products greatly offset these decreases and drove margins to levels that we haven't achieved since the introduction tariffs.
We have previously discussed our initiative to discount certain slower moving inventory in order to convert that product to cash.
We originally expected a portion of those sales to occur and our Q2.
But due to shifts in timing from now occur and the second half of the year.
That initiative commenced and our current Q3, and so far we have sold over $2 million of this slower moving inventory with a goal of selling a total of $5 million to $6 million across Q3 and Q4.
When they occur we expect these sales will yield minimal gross margins and of course, we've already included that impact and our updated guidance.
In the quarter GAAP operating expenses were $27.5 million compared to $20.6 million and Q2 last year.
The $6.9 million increase included $3.1 million.
Variable selling and distribution costs.
About $740000 from product development initiatives.
Over $600000 from the build out of our brand web sites and the creation and distribution of marketing content.
And $1.6 million from compensation related expenses in DNA.
Intangible asset amortization decreased approximately $700000 from 4.7 million to $4 million.
Consistent with Q1, our Q2 operating expenses were lower than planned largely due to the impact of the pandemic, which obviously drove meaningful restrictions and travel and the elimination of most trade shows including shot show where companies like ours launched the bulk of their new shoot.
And sports and hunting related products.
In order to ensure that we keep our marketing momentum going we plan to take those funds and redirect them into developing rich media content in support of our new product launches.
Non-GAAP operating expenses in Q2 were $22.5 million compared to $15.3 million last year.
Non-GAAP operating expenses exclude intangible amortization.
Stock compensation and certain nonrecurring expenses as they occur.
For the second quarter GAAP EPS was 52 cents as compared with an EPS loss of three cents last year.
Our non-GAAP EPS was 77 cents as compared to 20 cents and the year ago quarter.
These figures are based on our fully diluted share count of approximately 14 million shares.
Adjusted EBITDA came in at $15.8 million for a 19.9% EBITDA margin.
Paired two and 11.7% EBITDA margin last year.
The increase was driven by improvements in gross margin noticed noted previously.
And what we believe is significant leverage of the fixed cost investments, we've made and the business.
Turning to the balance sheet and cash flow.
On August 24th we completed the spin off and were capitalized with $25 million from our former parent company.
We generated approximately $3.9 million and cash from operations during the quarter, and we had cash outflows of $1.1 million for capital expenditures and patent costs.
We ended the quarter with a cash position and $33.9 million.
Accounts receivable increased by approximately $16 million in the quarter driven by the sequential increase and quarterly net sales of roughly $29 million.
At the end of Q2, we successfully completed two initiatives that will help reduce our overall dsos and should provide meaningful improvements and cash flow going forward.
Inventory increased by approximately $4 million, mainly due to our previously discussed investment to help mitigate potential pandemic related supply chain risks.
Increased tariff costs that were capitalized as well as new products are rising for launch in calendar 2021.
Here I would like to take a step back for a minute and talk about our long term plans for inventory management and what you can expect to see.
Youre recall, Brian mentioned that we're focusing on higher ASP items and two of our brands. This.
This initiative is actually taking place across many of our brands.
And that higher ASP focus will increase our inventory values somewhat.
In addition, as Brian noted, we launched a large number of new products each year and our pipeline remains robust.
Therefore, our inventory will reflect our preparation for those launches.
We anticipate that new product timing and its velocity along with our focus on higher ASP products.
We'll combine to elevate our inventory values over time.
While we anticipate this activity will be somewhat offset by sales of the slower moving inventory and mentioned earlier we.
We believe it will still increase the inventory dollars on our balance sheet.
That said in total we are actively managing our working capital turns remaining focused on maximizing our cash flow.
At the end of Q2, we had no borrowings on our $50 million asset based line of credit.
As a reminder, this facility also provides an additional 15 million of availability under certain conditions.
The combination of revolver capacity and the roughly 34 million of cash on our balance sheet gives us nearly $100 million of capital.
We believe this level of resource prepares us adequately to support both our organic and inorganic initiatives as we remain actively involved and looking for potential complementary acquisitions.
Finally, we continue to expect approximately $4 million and total capex spending for the fiscal year with a portion of that being onetime in nature related to the spin off.
Now turning to our guidance.
We are pleased to announce increases in our net sales EPS and adjusted EBITDA EPS guidance.
Based on financial performance through Q2, and our expectations for continued strength and the second half of the year. We are now estimating full year net sales and the range of $235 million to $245 million, which would represent growth of roughly 40% to 46% year.
Every year.
With net sales in that range, we would expect full year GAAP EPS and the range of 52 cents to 70 cents.
And non-GAAP EPS and the range of $1.49 to $1.67.
We would also expect adjusted EBITDA EPS in the range of $34 million to $36 million.
Which would represent growth of approximately 176% to 193% year over year.
While our non-GAAP EPS guidance at the midpoint implies an increase of 45 cents and the second half of the year, you'll notice that our GAAP EPS is expected to decline.
This is attributable to approximately $8 million of acquisition related intangible asset amortization as well as approximately $1.5 million and stock compensation that we anticipate we will record between Q3 and Q4.
This effectively we will take our GAAP EPS from its current 65 cents per year to date.
To an estimated end of year midpoint of 61 cents.
Our Q2 tax rate of 24.7% includes discrete items related to the spin off.
And our guidance reflects a tax rate for the remainder of the year of approximately 27% last.
Lastly, all of our estimates are based on our forecasted fully diluted share count of approximately 14.2 million shares Brian.
Thank you Andy.
Calendar 2020 has delivered us a set of unprecedented circumstances. Among them is what we believe to be a new foundational level of participation and outdoor activities and firearms ownership.
It's healthy market has provided us with an opportunity to demonstrate how our unique brand lane structure combined with our dock and unlock strategy allows us to expand our reach by maintaining a connection with the consumer.
And using that dialogue to fuel our innovative process.
We believe our approach provides a truly unique and leverageable platform.
It will allow us to continue harnessing the power of our growing brand portfolio to drive our future growth and profitability.
With that operator, please open the call for questions from our analysts.
Ladies and gentlemen, and we'd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from Mark Smith with Lake Street Capital Markets. Your line is now open.
Hi, guys. A couple questions for me here any categories or brands that were supply constrained or overly supply constrained during the quarter.
Hey, Mark this is Brian so no the short answer we.
Our supply chain was and good order. This this quarter and we had no disruptions.
Okay.
And then.
One thing that we've heard from some retailers and the space is strong outdoor season demand for certain products for example.
This late fall early winter fishing products doing really well can you talk about if you're kind of seeing the same trends.
And any categories like Bubba or campaign, as we kind of move into colder months.
Yes that that's a great question we.
And I'm glad you assets, we are frankly across the entire portfolio.
I made mention that all four of our brand lanes were represented in our top four selling products.
When we did that review prior to this call and and it was pretty evenly distributed so certainly bubba would fall into that same trend.
So we so camp camping, some margin sleeping bags mattress pads tenants.
The bubble products.
Brands like Schrade, which is typically more of a summer brand.
Have done well, even well into the fall.
Excellent and then.
Look at E Commerce, and the growth that you've had there can you guys walk through at all any of the impact that that had on gross profit margin or even on an EBITDA margin basis.
Hi, Mark its Andy we can't really get into too much detail there.
As Brian said in the prepared remarks, our direct to consumer was up and that was again, great result, and obviously those have higher margins outside of that and can't really get into too much detail.
Okay and the last one from me you guys talked a little bit about some new places new addressable markets.
You know that you're really looking at can you give us any more insight into kind of what you're looking at and where the hot new categories. You think maybe our.
Sure are you are you asking specifically about markets or some of the new product categories, because we view the two a.
A little bit differently you know.
Why don't we talk about both of them that.
Okay sure.
So on the.
On the product side. So bog was a good example of Bob.
Bog and one of our hunting brands definitely focused on the lifestyle side of hunting and going from those very specific products to begin with and shooting sticks and routes to.
And now getting into areas like game cameras, and which I mentioned is a very large.
Portion of the hunting purchases outside of the firearm itself and also bog has now gotten into like ground lines.
We weren't there a year ago, but now getting into each of those different areas. They represent big big categories, and hunting and significant wallet share for those hunters.
So again kind of progressing along where are these brands have permission to play and.
And I can give you more examples but that's that's a great one for.
How are we getting into some of these new product categories, where our brands have permission to play new addressable markets. So we've talked about the Lockdown Park.
Getting into we say rethinking the vault is how we describe it internally and.
And so going from vault accessories, something very specific for a specific use and we were a market share leader there inside the vault to now thinking outside of that and positioning locked down as more of a techie So high tech.
Patent pending technology with our logic system.
So that now it reaches outside of that traditional firearm owner and is accessible to other consumers, who maybe want to secure something maybe it's their wine cellar, maybe it's a fumidor something like that so those are much bigger markets meat. Another great example, meat processing is estimated at 10.
$10 billion.
And obviously includes a wide array of different products.
And you start getting into tuck in a marketplace like commercial and restaurants.
We have a restaurant here in town and Columbia that uses our meat processing equipment and they love. It. So much it's all commercial grade product so getting into some of those markets are some of our brands being pulled more and more into to those that were finding which was all part of our plan.
As and that speaks to the dock and unlock strategy.
Excellent and Thats helpful. Thank you guys.
Yes, thanks Mark.
Our next question comes from John Kernan with Cowen. Your line is now open.
Great and Brian Congrats on the momentum and the.
Upside on the on the quarter and for the year I was just curious what you can you walk us through what categories and brands and particular through.
This material upside to your guidance relative.
So where it was three months ago.
On both the sales and and really the.
EBITDA line.
Yes.
Hey, John this is Bryan.
I would say there hasn't been meaningful.
Meaningful shift in our brand portfolio. So if you look at the four brand lanes marks.
Marksman defender Harvester and adventurer we.
We haven't seen a significant shift.
Outside of any seasonal changes obviously in the fall we tend to sell more hunting products in the spring we tend to sell more Baba and.
And U.S.T. going into the summer camping season, so outside of some of those seasonal trends, we really haven't seen a shift.
And our portfolio does that answer your question.
Oh, a bit I mean, it sounds like it was pretty broad based there wasn't anyone.
Brand or category and seek what was seasonal seasonally strong was strong and now as we look into spring.
Do you expect that to kind of continue in the more seasonal spring and summer staff.
Yes.
Yes, that's correct.
And John This is Andy I can answer that EBITDA question. So when you look at.
You kind of take the guidance last guidance to this guidance implies.
Almost a 38% comp.
Contribution down to EBIT is that really as we talked about in the prepared remarks that really goes to the leverage ability of our platform. So our fixed costs were fixed and you see that as revenues rise, where we're able to really pull a lot of that down to the EBITDA line.
And John maybe I'm, just thinking more about your question I think I have something here that may be more helpful. So.
So if you think about the.
The increase lets say and personal protection and $8 million and estimated 8 million or so new.
Firearm owners entering the market that that trend certainly impacts brands like Crimson trace which is all about aiming solutions and really helping in particular and new buyers.
As they enter the market and then as they go to the range and and practice.
Firing that that new firearm brands like Caldwell, which is all about owning the range.
And helping them eliminate variables that makes and miss.
Caldwell Tipton Wheeler Frankfurt, so guns missing tools gun cleaning all of those are part of that kind of phase two after that initial buyer purchases that firearm.
And then and we talked about the fishing camping hunting trends. So this fall huge increase and hunting participation.
So we certainly saw a bump from that with our with brands exactly like bog.
And many others. So hopefully that gives a little bit more context to my original and yes, thats debt is helpful and it sounds like you firearm hunting fishing.
Really strong.
And that really plays across your whole portfolio and.
And maybe can you talk walk us through the puts and takes debt to gross margin and SG and eight.
For the quarter, but also embedded in the guidance you talked about the leverage ability and the fixed cost leverage that.
You're generating now and this tremendous sales growth. So maybe just a little more detail and color as much as you can give us on expectations for gross margin.
DNA.
Back cash.
Yes, no. It's a great question John.
On the gross margin side during the quarter as I said and the remarks.
We were pleased to see we participated in our annual promotional programs that we always do and certain product categories, but some of the other types of promotions again really weren't necessary kind of dovetailing from Q1.
So definitely favorable margins in Q2 with with respect to that the rest of the year the way that I would kind of look at the rest of the year is.
I would probably estimate we expect probably mid fortys as as far as margin percentage and that's really driven by what I said and the comments about the $5 million to $6 million of revenue and that slower moving inventory that we expect to kind of little to no margin on.
So that has and that has a pretty decent effect on gross margin percentage. When you look and I like that and then with respect to Opex I would say.
We expect Q2 to be kind of a peak level of opex, especially when you look at the variable selling and distribution costs that were unrelated to the $79 million in revenue.
And we also had some a number of website web site cost from launches that we had in the quarter. So that'll drop a little bit going forward, but I think with that hopefully you can kind of do the math based on based on our EPS and EBITDA EPS guidance.
Got it that's helpful. Maybe one more final question from me just what are you. Most excited about as we go into we change seasons here and get into spring of next year.
And just by brand and and and channel.
Yes. This is Brian.
Obviously for US the adventure Lane hits, its stride coming out of the winter season and into the spring.
And we've got some exciting new product launches planned for those brands and particular that you'll you'll see and I think should be well received like I mentioned earlier and the call we launch upwards of or more than 300, new products each year.
So really beginning in January I would say through.
April and May you're going to see a lot of new products coming out from all of our brands.
And and should create quite a bit of excitement across the board but.
Yes. He is is one that.
I think very highly of you know, we again went through our rebrand.
We went from low ASP items to now much higher ASP items those products tend sleeping bags mattress pads have been very well received by our customer base.
And in fact have have drawn a lot of interest there from from certain large customers that.
We can report on more down the road, but.
That's that's where we're excited and and then you've got brands like meet your maker.
That is really appealing to a trend that transcends beyond just the hunting season.
And people just personal interest and this field to table trend, where they want to again control every aspect of preparing their own meat and then putting it on the grill and.
Just they are becoming much more intimate and that process.
So that's been really need to watch and I think our brands are well positioned.
That's great guys. Thank you best of luck.
Thanks. Thanks.
Our next question comes from Scott Stember with CL King Your line is now open.
Good evening, guys and again.
Congrats on a great start to being a flow.
We try and company.
Thanks Scott.
You guys earlier talked about some new initiatives that you are really focusing on one of them was new distribution.
Areas can you maybe go a little bit more to that.
Sure Scott This is Bryan.
So when I when I talk about new customer distribution channels of distribution.
We have brands, such as who we man, so whom and started out again. This is also good assets to non story, but.
Whom and started out primarily selling tree saws used for clearing.
Clearing shooting lanes for hunters. So they would go up and they are stand and they want to make sure they're they're shooting lane as clear of any branches and that's where the thats, where the brand started but as part of our dock and unlock process.
We we saw who even more as a land management brand that could extend well beyond just tree three saw zone.
And so now we have in the last year, we've come out with rakes shovels Mallets machetes things like that that have a very distinct grid.
Grip and has become pretty popular we call. It the h. grip well that product, which would have been found traditionally in a sporting goods or sports specialty store I should say.
It is now being pulled into new channels of distribution. So you can now find that brand in home and hardware type channels. When a year ago, you really wouldn't find them. There honestly so areas like that where some of our brands are being pulled into those there are other other sections Wheeler.
Is another Great example of Wheeler was really known as a gun Smith and brand.
But we're finding that consumers use that use that brand and use those products on their cars fixing their cars. They use them on DIY projects and the home and so more of those requests are finding their ways to our customers and as a result, and thats, where those brands are beginning to pop.
Yup.
Got it and just taking a step back bigger picture you talked about some of the new foundational layers.
Within the market that should stick, but that would have a vaccine coming around could you just talk to that narrative and people being worried that with vaccine coming out.
You're going to see a whole bunch of people.
Ditching their outdoor acts and newly found outdoor activities, so essentially and talk about the stickiness and.
Yes.
And you see what's happening here in the years to come.
Sure sure. This is Bryan again.
I would say is my perspective.
No one knows quite what's going to happen I have looked at quite a few surveys whether its camping fishing some of the industry associations out there have done a good job of trying to capture what portion of this is going to be sticky long term.
And it appears the overwhelming majority leased the studies that I've looked at show that people still intend to engage in these activities.
And and also.
I believe that there's been there's already been a wallet shift. So if you look at some of the macro data out there and look at consumer spending.
Before co bid and you can look at a different parts of the U.S, So credit card and debit card spending.
And there is a there is a massive drop off and kind of March April timeframe, and then it begins to slowly come back up to to really pre cope and levels is pretty remarkable and to me that says that there has already been a.
A wallet share shift of sorts, where some of those folks were spending that money on other areas of entertainment, maybe it's going to a movie theater going to sporting events and obviously there will be some return to that once the vaccine is widely distributed but.
But its people at least again, what we're seeing and tend to continue.
This now that they have this new found activity that a lot of times. They didn't have the time for before or even try and do you look at camping.
Now 50 per cent of the people that they surveyed kelway surveyed said that they went camping for the first time ever or for the first time in recent years. So it's just it's been a big shot in the arm for the industry I know other public companies and less of the same thing.
And it just bodes well for the long term viability one last thing on this is just the youth.
There was a statistic I can't recall the source off hand, but essentially it pulled.
Adults, who fish and asked them you know when did you start fishing before the age of 12, 91%.
Of the respondents said that they had started fishing before the age of 12 and.
And so you can see there is it a very sticky component to a lot of these activities.
That makes us very excited about the long term growth and a new baseline.
Got it and just a quick last question.
Back half of the year and is there anything you can give us as far as cadence between the two quarters.
And we'll be assume I guess essentially evenly split across the board, whether its revenues and margins.
And can you give us.
Yes, Scott this is Andy.
What I would say is if you look at historically are the trends quarterly on revenue are pretty are relatively predictable and you go like fiscal 18 1920.
Our peak is always in Q2, and then and kind of evens out out in Q3, and four you might see.
We believe that Q3 will probably be a little higher than Q4, but.
But you can kind of take a look at historical trends.
All right that's very helpful. Thanks again guys.
Thanks Scott.
As a reminder, ladies and gentlemen that is star then one and we'd like to ask a question at this time.
Our next question comes from the line of James Hardiman with Wedbush. Your line is now open.
Okay. My apologies I think I was and.
You there thanks.
Thanks for taking my question so.
Couple of follow ups on the guidance.
Obviously, you put up a.
Unbelievable number here in the second quarter 79 million in terms of revenues.
Back half guidance assumes a pretty big step down from there.
You touched on this a little bit how much of that is seasonality versus.
Versus just conservatism hard to anticipate.
Just how long does the surge can laugh.
Yes, James this is and Thats great question.
When you take a look at Q1 in Q2 last year those quarters were both down.
Q1 was down almost 11% Q2 is down almost 50%. So when when you look at what we've done so far and I and I want to take anything away from what we've done but the comps were slightly easier.
Probably the better comp is to actually go back to fiscal 19, and if you go back to fiscal 19 those numbers in Q1, our current year numbers 21 to 19.
35% and 41% so it kind of it starts to.
Makes sense as you look at our our implied growth and the second half of the year is almost 28%.
So thats debt kind of give you a little a little more perspective, when you take a look at fiscal 19.
Got it that's helpful and then.
I wanted to dig in a little bit I think.
Thank you with a comment from you Brian.
And when you were talking about some of the brand lanes and the and the idea that certain purchases would be maybe.
Maybe concurrent with the new firearm for for.
People that are new to the sport vs. Follow on can you can you dig into that a little bit I'm curious how much of a ripple effect and that there might be from from all of these new customers. They got into it to not only firearms, but maybe some of the other products right.
You had that surge in demand.
Is there sort of a secondary effect from some of your brand lanes that we should be keeping in mind.
Sure so.
I would say low so we'll start kind of and.
And that pathway.
With the consumer walks into the store and.
And and I would say, there's kind of two I'll start with Crimson trace and.
In this example, so crimson trace we sell Crimson trace directly to Oems.
Folks like Smith, and Watson, who we have obviously a great relationship with.
Along with other Oems and and now so the Crimson trace Red dots. For example are gaining a lot of momentum in the market.
And so we've seen an increase in demand from OEM partners. So when the customer goes into that store.
Theres, a good chance Thursday Crimson trace red dot on that firearm to begin with on that on that handgun.
And if not we're right there at the counter as well so.
The dealer typically we'll try to get a sense for their comfort level and other things that they are interested and purchasing but when it comes to aiming solutions Crimson trace really is right.
Really is the leader in our opinion.
And and then from there.
There are other products that that consumer would look to buy gun cases.
And they're looking to and this is really very relevant for some of the new purchasers, who tend to be a little bit more techforward a.
Our product like the PUC, so they're going to have to go home store that firearm and they want to know that it's going to be safe and secure and have constant connectivity to that so we're.
We're able to sell more product like that.
And then also just as I said like as they go along on this journey. So those are kind of some of the brands that tend to be closer to that the per share purchase itself.
But then as they go along and again go to the range.
When they are looking for ammo day, and ammo, obviously is still very much and.
Shortage at many retailers.
They may turn to things like reloading.
So reloading is.
For those on the call that don't know if that is.
Basically you are creating your own ammunition using different components and so we sell under our Frankfurt Arsenal brand.
We sell different products and accessories that allow the user to essentially make their own ammunition safely.
Ed and so now they're able to make there and ammunition go to the range.
And use our called low products and they get to the range.
On and on and on.
So it's that's kind of part of the part of the process that we look at.
And.
And I think your other question does that answer. Your question then I think your follow up was around and.
Good day, and let me just quickly and and so the idea is that some of that those follow up brands that you spoke to that sort of post purchase do you think we are seeing the full brands from that or is that yet to come.
And you're right. The second part of the question was are there other sort of brand lane and in a similar weighted that whereas there theres sort of X.
Accessorizing as opposed to some.
Some replacement it's years down the line.
Sure Okay.
So I would say.
There.
The brands on the and the marksman defender side.
Certainly there is there is that pathway for the consumer.
From the point of purchase through too.
Continuing to use those those products I think the timing of those is obviously the defender update a defender brand lane is more closely aligned with the initial purchase.
The marksmen Lane.
And is.
If I had to put a best guess out there and we've seen data and different time periods. There was a little bit of a lag. So they typically get that firearm they'll have a gun case that the walk out of the store with.
A lockdown product that will help secure that firearm.
And then if you can get time and the range, which maybe it's a month or two but go to the range and then you will see people wearing hearing protection and eye protection without going and I guess, so unless you get some of that.
And so thats when we make that sales typically and you'll also see a field of green a sea of green when they go to the range and that means that there is a lot of people are using caldwell shooting Ross to help zero and their firearms and and they'll go up and ship.
Probably look into that and then dispose that would make me better and aiming and study and my rifle or Mike My handgun.
So I think Ted to put a book and on the question.
We can see that anywhere from one month to I would say six months and I think thats. Most most of the sweet spot after that first firearm purchase.
And then for the other brand lanes.
Bob Im just I'll, just go adventurer onest silicon and Bubba.
People will be introduced to the brand typically through the fillet knives.
Where it will go out fish come back to the dock and.
We will need a means to flow that fish so bubba.
And my peanut dominates the fillet knife industry.
And but we've taken that brand as part of this niche and into a lifestyle fishing brown.
And and once they use that Bob and nice and has a very distinct texture, we call it our bubba rubber.
And it gets tack here as it gets what well we have that same texture on the other bubble products. So if you're going to go deep sea fishing and you can use a bubba gaffe above and net which now we've done as part of expanding and some of these new product categories. So we see certain products like that really be the entryway.
Into the broader brand portfolio or the sorry, the broader product portfolio within each of those brands U.S.T. and other great. Another Great example, theyve.
By fire starters, and lanterns and NAV good experience with the brand it's very high quality.
And now they start venturing into some of those other products like Tencent sleeping bags.
Or the other way around.
A neighbor of mine. This last summer, we were bit camping and our backyard at the same time with our kids.
And I looked over and.
They had a good debt a U.S.T. tent and.
They they were curious about some of the other products that use TMX. So.
It's kind of across the board.
That's a lot of really good color I appreciate it.
Yes, absolutely.
That concludes our question and answer session for today I'd like to turn the call back to Mr. Murphy for closing remarks.
Thank you operator, and thank you everyone for joining us today.
On behalf of all of US at American outdoor brands, we wish you all a very safe and healthy holiday season, and a prosperous new year. We look forward to speaking with you again next quarter. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
May now disconnect.
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