Q1 2023 American Outdoor Brands Inc Earnings Call

[music].

Good day, everyone and welcome to American Outdoor brands, Inc. First quarter fiscal 2023 financial results Conference call.

This call is being recorded.

At this time I would like to turn the call over to Liz Sharp Vice President of Investor Relations for some information about today's call.

Thank you and good afternoon, our comments today may contain predictions estimates and other forward looking statements.

Use of words like anticipate project estimate expect intend should indicate suggest believe and other similar expressions is intended to identify those forward looking statements.

We're looking statements also include statements regarding our product development focus objectives strategies and vision, our strategic evolution, our market share and market demand for our products market 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 are subject to various risks and uncertainties risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings you can find those documents as well as a replay of this call on our website at <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 on today's call first we referenced certain non-GAAP financial measures.

Our non-GAAP results exclude amortization of acquired intangible assets stock compensation shareholder cooperation agreement costs technology implementation acquisition costs other cost and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures.

Whether or not they are discussed on today's call can be found in our filings as well as today's earnings press release, which are posted on our website.

Also when we reference EPS, we are always referencing fully diluted EPS.

Joining us on today's call is Brian Murphy, President and CEO , and Andy former CFO and with that I'll turn the call over to Brian .

Thanks, Liz and thanks, everyone for joining us given.

Given recent economic and industry conditions I am pleased with our first quarter results, which reflect our ability to deliver net sales growth of over 31% above our pre pandemic levels, a fiscal 2020, while marking a number of achievements that support our long term strategic priorities.

Our results reflect our dedication to building authentic lifestyle brands that help consumers make the most out of the moments that matter.

During the quarter our E Commerce net sales grew nearly 24% year over year supported by strength in our direct to consumer only business, particularly our meet your maker and Gorilla girls brands.

Together these two brands generated over 15% of our net sales in Q1 and helped our outdoor lifestyle category generate over 53% of total net sales in the quarter.

We consider our direct to consumer sales to be one gauge of how well our brands are resonating with consumers.

Those sales are not impacted by retailer issues, such as inventory levels or limited open to buy.

Net sales in our traditional channel on the other hand decreased by about 48% compared with last year, although they were up slightly versus pre COVID-19 levels.

The year over year decline was due to fewer orders from retailers as they respond to reduced foot traffic and continued to limit their open to buy in order to reduce inventory levels across all of their offerings.

While this dynamic impacted retail sales across our brand portfolio. It was more pronounced in our shooting sports category, which includes personal protection products such as laser sides.

Sales of shooting accessories to firearm Oems dealers and distributors.

It's also important to note our strong net sales growth of over 70% in our traditional channel last year reflected that certain customers have accelerated their purchases to offset potential supply chain disruptions, creating a very tough comp for the current quarter.

P O S, which reflects consumer pull through is another gauge that we use to determine how well our brands are resonating with consumers.

So like the data from the first quarter indicates that P. O S trends across our brand portfolio were generally favorable versus the prior year.

We view this as an important positive since it not only reflects the strong consumer preference for our brands. It also indicates that sustained consumer pull through should continue to draw down retailer inventories on a go forward basis.

We remain excited about growth opportunities within our outdoor lifestyle category, which consists of products related to hunting fishing camping, <unk> outdoor cooking and rugged outdoor activities.

Outdoor lifestyle delivered growth of 26, 5% over the first quarter of fiscal 2021 and growth of 54, 2% over the pre pandemic first quarter of fiscal 2020.

We believe continued growth in this category as a percentage of our total net sales will help mitigate fluctuations in our shooting sports category, which is more susceptible to short term cyclicality.

There is little doubt that consumer spending patterns are uncertain in the near term given the current environment and the extremely high inflation rates, we're seeing lately.

Despite these factors.

We remain excited by the fact that consumer participation in the outdoors is at its highest level in years.

In fact, the outdoor industry Association published its newest state of the outdoor market.

Report, just two weeks ago and in it they delivered some impressive numbers.

Consider that since March of 2020, the outdoor participant base has grown nearly 7%.

More than 10 million, new participants enjoyed some sort of outdoor recreation.

And there has been growth of 26% and new or returning outdoor participants.

The new O I, a report shows that roughly 54% of the U S population participated in at least one outdoor activity in 2021 and that remote work opportunities are allowing many people to enjoy the outdoors for the first time.

Often during hours when they would've been in an office or commuting.

Importantly, the report states something we believe for quite some time participation in outdoor recreation is sticky.

Once someone's begins to participate they are likely to continue.

We remain excited about the growth opportunities these trends present for our brands in the long term.

Investing capital inorganic growth remains a top priority and our strategic plan and our dock and unlock process continues to fuel the innovation pipeline that will support our long term growth plans to become a 400 million dollar company and beyond.

We continue to leverage our dock and unlock strategy to deliver a steady flow of organically developed exciting new products that generated nearly 26% of our first quarter revenue.

We attended outcast 2022 the fishing industry's premier Tradeshow, where our Bubba fishing lifestyle brand received the award for best Cutlery hand, pliers and tools for our innovative proprietary multiplex interchangeable knife sets.

This marks the third consecutive year, probably has taken home the award in this category.

We also displayed the Bubba Voyager gearbox, our first entry into waterproof storage.

And we unveiled and previewed our proprietary Bubba electric fish scale, an exciting new product that truly energized and excited our core fishing retailers distributors and consumers ahead of the full launch and initial shipping next spring.

We think this new product is a game changer for tournament and recreational fishing, allowing anglers around the world to compete and track their catches in real time.

In fact, we heard several people refer to it as the strava for fishing.

Our other brands were busy as well our U S. T line of premium camping equipment and survival gear introduced a double wide version of our popular self inflating film attic sleeping map.

And in innovative waterproof durable cam blanket.

Our who he man brand of land management tools prepared for the launch of some exciting new manual and lithium powered material spreaders for.

Easily spreading seed salt or fertilizer. These products are loaded with patent pending features that I'll talk about next quarter.

We have a number of very exciting new products in the hopper across our other brands as well and I look forward to sharing more in the next couple of quarters.

A key part of our long term strategy includes growing the brands in our portfolio by plugging them into our doctrine of Mark process, and our new product launches demonstrate that approach, but our strategy also includes utilizing our leverages our business model as we grow.

In keeping with that strategy during the first quarter, we amended our Columbia, Missouri facility lease agreement to add 35000 square feet of space that provides us the opportunity to increase our operational efficiency and leverage our Missouri facility.

While lowering our costs.

Immediately following the lease amendment, we began plans to consolidate our Crimson trace operations in Wilsonville, Oregon, as well as our gorilla operations in Dallas, Texas in Holland, Michigan into the Missouri facility.

We expect to complete these consolidations in the next three months and estimate they will yield a combined net cost savings of approximately $1 $5 million per year, beginning in our fourth fiscal quarter.

These actions will bring our teams together and help us move closer to our long term profitability objectives.

As we look out across the balance of the year, we suspect that current inflationary pressure on consumers may be with us for a while.

Therefore, our focus will remain on executing our long term strategic plan, while carefully managing the elements within our control.

And there are several.

First we have a very strong portfolio of authentic brands that is capable of delivering healthy organic growth.

Second our docking unlock process yields results, providing a strong pipeline for innovative new products.

And lastly, our direct to consumer business provides a direct link to the consumer no noise or interference and our recent success in D to C demonstrates that we know how to build brands that meet our consumers' expectations.

Importantly, our dock and unlock process allows us the ability to edit and amplify our new product pipeline managing velocity and focusing on products that are more likely to transcend short term consumer spending trends as well as products that better align with retailers efforts to closely manage their inventories.

While we manage these elements, we will seek further opportunities to lower costs, while ensuring we remain well positioned to capitalize on the growth opportunities that can help us achieve our long term plan to reach $400 million in net sales and EBITDA margins in the mid to high teens.

Before I hand, it over to Andy I want to share with you that we released recently published our first ESG report, which marks a significant step forward in our sustainability journey.

The tenants of our sustainable long term strategy include our commitment to the environment, our social impact and our culture of governance.

We believe that the nature of our brand portfolio positions us uniquely to capitalize on some of the challenges and opportunities our world presents.

We are incredibly excited to build upon our momentum as we remain focused on driving recurring sustainable growth.

We have about 300 employees across our company and our commitment to build a diverse and inclusive culture has never been stronger.

This is reflected in our management team.

Which features experienced and diverse members with expertise in a broad set of areas.

Our inaugural ESG report formalizes, our commitment to regularly communicate our ESG actions and performance.

In the coming years, we will remain vigilant to maintain a rigorous ESG standards enhance our sustainability efforts and continue to be keenly focused on implementing a best in class program.

With that I'll turn it over to Andy to discuss our financial results.

Thanks, Brian .

Net sales in Q1 were $43 $7 million, a decrease of 28, 1% compared to the prior year and an increase of 31, 5% over pre Covid Q1 of fiscal 2020.

Our ecommerce channels accounted for 47% of our Q1 net sales while traditional channels were 53% of the total.

Net sales in our ecommerce channels grew by 23, 7% driven by strength in our direct to consumer business.

Our gorilla and meet brands continued to perform very well and on a combined basis. These direct to consumer only brands accounted for over 15% of our total net sales in Q1.

Our traditional channels decreased 47, 6% driven by reduced orders from retailers, which we believe is due to lower foot traffic and retailers efforts to reduce overall inventories.

In addition sales of shooting sports products to OEM dealer and distributor customers declined year over year.

And as Brian noted strong orders in the traditional channel last year reflected that certain customers have accelerated their purchases to offset potential supply chain disruptions, creating a tough comp for the current quarter.

Turning to gross margins.

Gross margins were 43, 6%.

410 basis point decrease over the prior year.

The decrease was mainly driven by lower sales volumes increased inbound freight and a return to more normalized promotions, which we expected.

GAAP operating expenses for the quarter were $24 $6 million down slightly from $24 $8 million in Q1 last year.

Variable selling and distribution costs decreased in terms of dollars due to the overall reduction in net sales, but they increased as a percentage of net sales year over year, mainly due to higher outbound freight.

Other reductions in Opex spending included decreases in advertising head count and other compensation related expenses.

These were offset by increases in planned it costs R&D and increased legal and advisory fees, resulting from a shareholder cooperation agreement.

Excluding technology implementation costs and shareholder cooperation agreement expenses.

<unk> would have been $22 $8 million.

non-GAAP operating expenses in Q1 were $19 million compared to $20 $3 million in Q1 of last year.

non-GAAP operating expenses exclude intangible amortization stock compensation and certain nonrecurring expenses as they occur.

As Brian mentioned earlier in Q1, we announced the consolidations of our Wilsonville, Oregon, Dallas, Texas, and Holland, Michigan operations into our main facility in Columbia, Missouri.

Specifically, we will be consolidating certain operations, primarily assembly and warehousing from these locations.

While these are always difficult decisions to make there consistent with our long term strategy of maximizing efficiency in our operations and leveraging the costs of our Missouri facility.

These consolidations will involve involve adding some headcount in Missouri for assembly and distribution, while eliminating overhead costs, such as operating lease expense utilities and other administrative costs from these three facilities.

We expect the net cost savings from the consolidations will be roughly $1 $5 million on an annual basis, and we'll begin to see savings in our fourth fiscal quarter. This year.

GAAP EPS for Q1 was a loss of 42 as compared with earnings of 24 cents last year and non-GAAP EPS for Q1 was one cent compared to 48 last year.

Our Q1 figures are based on a fully diluted share count of approximately $13 4 million shares.

Adjusted EBITDA for the quarter was $1 4 million compared to $9 $6 million last year.

Turning to the balance sheet and cash flow.

We have continually focused on maintaining a strong balance sheet, which has provided us the resources we need for growth.

This quarter I am pleased to share that we continue to strengthen that balance sheet and demonstrate our efficient use of capital.

We ended the quarter was $17 $5 million of cash generating $5 $1 million from operations that allowed us to pay down $5 million on our line of credit.

After capital expenditures of $1 6 million, our free cash inflow was for Q1 was $3 $5 million. This compares to free cash outflow of $4 $2 million in Q1 last year.

With respect to inventory historically, our inventory levels increased during Q1, each year due to timing of new product introductions and to support the increased seasonal demand starts in Q2.

We implemented targeted inventory reduction initiatives, which helped us reduce inventory by roughly $1 million in Q1, as we more than offset inventory that we built to support new product launches.

Our team is executing against the against the plan to reduce our inventory balance in the coming quarters to drive cash conversion from inventory in the second half of the fiscal year.

In addition, because the majority of retailers are focused on driving down their overall inventories at the moment, we have intentionally delayed certain new product launches to better align with current retail demand patterns.

We believe this strategy will help us launch those products at a time when retailers open to buy dollars have normalized.

In addition, it will allow us to better manage our inventories overtime.

Our outlook for fiscal 'twenty, three capital expenditures remains unchanged.

We expect to spend between five one and $5 $6 million for product tooling and maintenance maintenance capex.

And roughly $2 $4 million to complete the ERP system for.

For total fiscal 2023, capex spend of between $7 5 million and $8 million.

Now, let me provide an update on our Microsoft D 365, ERP implementation, an important strategic initiative that will complete our separation from our former parent company and will provide us with a data driven platform for our future growth.

The project is going well and our multi phased go live approach remains on track.

As I outlined last quarter. The first phase will involve going live with a smaller portion of our business on October one.

With the remainder of our business going live in December .

We believe this phased approach will deliver the most seamless transition possible.

For fiscal 2023.

We anticipate spending a total of $1 $7 million in one time opex for implementation costs as well as $500000 in duplicative costs to operate both our current and new ERP systems in parallel through December .

We will treat both a $1.7 million and a $500000 as nonrecurring transition cost when calculating non-GAAP operating expense and adjusted Ebitdas.

The strength of our balance sheet positions us well for future opportunities. We ended Q1 with $20 million outstanding on our $75 million line of credit, giving us a net debt leverage ratio near zero.

We believe this strength serves us well in the current environment.

Turning now to our outlook.

While we're not giving specific guidance today, we are providing a framework for our revenue outlook for fiscal 2023.

As we've discussed retailers and distributors continue to be extremely cautious with regard to their own inventory levels and consumer spending patterns over the year have yet to be determined.

That said, we believe our brands are performing well and then in alignment with recent consumer outdoor trends that we discussed earlier.

As a result, we believe our revenue for fiscal 2023 could exceed pre pandemic fiscal 2020 levels by as much as 25%.

On our last call, we discussed our expectations for revenue flow by quarter and those expectations remain the same.

To refresh you on that revenue flow, we expect typical seasonality to occur in fiscal 2023, with our highest net sales in Q2, and Q3 and Q1 being lower than Q4.

We expect full year gross margin percentage to decline from fiscal 2022, as we return to a more normalized promotional environment. This is similar to the year over year result in Q1.

With fiscal 'twenty three operating expenses, we expect a decrease from fiscal 'twenty, two with variable distribution costs, increasing as a percentage of net sales, but being more than offset by lower spending in other areas.

On a quarterly breakout, we expect Q2 and Q3 opex to be higher than Q1, due to increased variable selling and distribution costs from higher sales volumes and additional spending for advertising programs and trade shows.

We expect Q4, opex will be slightly higher than Q1 due to the increase in sales volume.

As we move through the balance of fiscal 2023, we intend to be mindful of the current environment.

Focusing on cost containment, where we can but without losing the important perspective of opportunities that exist from long term favorable trends in our industry and our strategic objectives.

Lastly, we expect our fully diluted share count will be about $13 7 million shares.

With that operator, we're ready to open the call for questions from our analysts.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time in your question, that's been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

And our first crashed and will come from Matt Koranda with Roth capital. Please go ahead.

Hey, guys. Good evening, thanks for taking my questions.

Just wanted to start out with the commentary that Brian made on PFS data in the first quarter and wanted to see if.

We can specify was it actually positive in the first quarter and then maybe just if you could square the commentary with sort of the guidance for the year, which looks like.

Somewhere around down mid teens or so on a year over year basis I assume the easy answer is inventory levels at your retail customers, but maybe just a little bit more data or color on that would be helpful.

Sure.

Hey, Matt it's Brian so.

On the POS side, we did see positive trends, meaning they were actually they were positive year over year.

In the quarter and.

We talked a little bit about inventories, but specifically, we did see our retailer inventories at least the the inventory that we could we could see come.

Come down.

Pretty significantly.

They were they were up quite a bit call. It three four months ago.

And the retailers really had been spending their time driving down inventories in our in our products.

And we've heard very similar across.

You know products that are outside of our company.

So we see that as a very positive sign so positive Pos driving down inventories to a point now where.

Across our channels, they're out are below where they were last year, which was which I think is a good thing.

And and then in regards to your question around guidance and what that and first for guidance.

First we Didnt provide guidance just you know more or less a framework for how we're thinking about the rest of the year. There is a obviously a tremendous amount of <unk>.

Uncertainty out there so we're taking a cautious approach.

But just seeing how Pos has driven down inventories at retail for our products again, that's a positive sign which would lead us to believe.

Based on history that that will start to kick off more consistent replenishment.

The biggest factor that were weighing here is just what the consumer is going to do.

And how are retailers other inventories. They may have that are outside of our categories. There might be some spring large type products at least that I've heard that are out there.

That are taking up their open to buy it and we'd like to see sell through of some of those other types until they begin to open it back up.

But where we can control you know things, which is predominantly on the direct to consumer side, we're seeing tremendous success. So like like you saw in the quarter ecommerce was up.

In excess of 2023, 24%.

Yeah.

Great very helpful. Bryan. Thank you and then.

Curious if you could maybe comment by brand Lane, if theres any dispersion of performance when that'd be less data that you're seeing.

We've heard from industry purchase fence generally consumables have been a little bit stronger than sort of some of the bigger ticket items that maybe people are pushing out a little bit, but maybe just your thoughts on sort of the different categories in the broadband with it.

Okay.

Yeah, it's a it's actually been been pretty positive across the board I actually would've expected that shooting sports would've been not as strong as it has performed but its been up and as high as some of our outdoor lifestyle brands, So really not a divergence between the two.

But strong strong across the board for for those two categories.

Okay, Great and then just a couple more if I could so on.

You mentioned that gorilla and meet your maker were north of 15% of revenue in the quarter. Just curious is it roughly evenly split between the two I just wanted to kind of get a sense for how grill is tracking and then just maybe any thoughts you have since you've now got gorilla.

Under your belt for.

Several months now just wanted get your thoughts on sort of how that is tracking relative to your initial expectations.

Yeah, Matt. This is Andy it's great question, we don't have the breakout between the two but.

We do have a new IR deck that filed today, you'll see a slide in there that shows TTM meet your maker sales at seven 8% I think it's up 164% or so TTM year over year, that's performing really well gorilla again is performing really well as well so.

We're happy with both of those yeah. One one thing to note is the meet your maker with me processing and just how we've traditionally position that brand in the marketplace as.

Because we do see a lot of activity in the fall.

So it is somewhat seasonal but we are seeing again strong year round demand for it like with the numbers that Andy said 160, plus percent just for the quarter year over year.

And then on Gorilla that does tend to be more of a spring summer type product, so youre going to see a little bit more waiting on on that side of the year as well with with some strong like tailgating season, we do see a pickup there as well, but it varies by quarter.

Okay great.

And then just thoughts on inventory levels and sort of the sequential.

Inventory levels as we move through the year I guess the signal that you guys have pretty strongly is that.

We're going to see some reduction in inventory and you've kind of slowed in terms of intake of.

Better inventory wanted to get a sense for just maybe how much inventory you can see flaws for the rest of this year.

And then I got one more follow up then I'll leave it.

Yeah, Matt This is Andy we havent quantified that we definitely expect.

Second half of the year cash conversion from that decline.

Like we said in the comments, we have multiple initiatives going on now there are already underway they kind of helped us in Q1.

So most of the benefit we will see is going to be in the second half of our year.

Okay, Great and then just any updated thinking around cash flow priorities. It seems like just given the working capital plus in the back half of the areas are going to be generating some decent cash.

Why not hold on another buyback program kind of at these levels or their priorities like in the funnel in terms of M&A that are more attractive in terms of rate of return maybe just.

Latest updated thinking there would be really helpful.

Yeah.

Alright. This is Bret this is Bryan so we are.

We've lifted out the three priorities and I'm sure you know them very well map, but for those that don't organic growth M&A and then returning capital to shareholders.

So again, our priority is organic growth we do have.

A very strong pipeline of new products that Andy mentioned, we're strategically placing in the remainder part of this year and then likely some will move into next year, because we want to get the most eyeballs on those new products when people aren't focused on or.

Older products that are that are being discounted at retail from other brands.

So we went out we want to optimize that as much as possible. So we're focused on that.

And is M&A you know we have nearly zero net debt and we are actively continue to look at M&A targets continue to talk to founders in particular.

We would love to find more grillos more bubbas et cetera.

But so we're continuing to look at that and you know it's.

Some get close in and others aren't so it's just a constant dynamic you know fluid situation around M&A and then returning capital to shareholders. Here you hear you loud and clear. This is something that we have is an ongoing discussion with our board of directors and as we think about the three priorities and we don't have want to report today, but I can assure you. It's a it's a no.

Ongoing topic for us as we look at you know our own value relative to some of the other opportunities.

Okay, great guys I'll jump back in queue here. Thank you.

Thanks, Matt next question.

Our next question will come from Eric Wold with B Riley Securities. Please go ahead.

Thank you.

A couple of questions.

Follow up on the guidance question from before.

Or just trying out guidance kind of the framework.

As mentioned, 25% growth over fiscal 'twenty.

What could that number be if we were in a in kind of a normal retailer open to buy stocking environment trying to get a sense of kind of B C.

Sumption there in terms of kind of normalized demand growth.

Eric This is Andy.

That's a that's a tough question to answer just based on kind of the what we're seeing in the marketplace right now consumer buying trends the inventory reduction that we're seeing at our retailers.

So I'm not really not too sure how to answer that one.

Okay. That's.

That's fair and then on the the.

Same store sales or the e-commerce revenue growth in.

In the quarter of <unk>.

You know with 24% do you have kind of what that would be on a same store sales basis. If you took out guerrilla girls acquisition from the mix.

Okay.

Hey, Eric This is Bryan Unfortunately, where we didn't break that out so we're.

I'm not going to be able to give that to you today. We did breakout meet your maker. So meet your maker was up 164% or so it was that Andy yes.

On the quarter year over year.

Yeah.

But embedded in that ecommerce number as well just to I'm sure you already know this but it includes all online retailers and our direct to consumer business.

Yes.

Okay, and then final question for me.

Point of sale pause in the quarter.

Solid e-commerce purchasing trends.

To drill down beneath the surface with the data you have what are you seeing if anything in terms of.

You know basket size trading down from higher planes went to lower price points or anything that would get us.

Maybe not be as positive in those numbers or in terms of that.

Still showing up in kind of a stronger U you reported.

Yeah.

This is Bryan I think we're seeing a few different ring a few different things happening at retail you know we've talked about are our retailers and their open to buy but we also need to consider that our consumers have limited open to buy as well.

And I do think that they are being presented with a lot of deals right now for lots of different products, whether its grills or patio furniture or different things that didn't sell.

We're over inventoried in the spring.

And so they are being confronted with some of those opportunities at a at a discounted price.

And so I think you've got some of that happening right now just a I'll call. It a disc.

Distraction from a normalized environment for normalized selling period.

And then I think you also have folks that some of the higher earners that are spending money continue to spend money and might be looking to trade up into something if they've tried and activity last year looking to get into that mid maybe high price point, maybe by a bubba product, they're still going to buy it regardless, if it's on sale or not.

We are seeing strong sustained demand for those types of purchases as well.

And and we really see that too again are we see Pos data, but really our direct to consumer I mean were people are still going out and and spending money for a high quality commercial grade grinder, that's five $600. So.

We're not seeing a slowdown there.

Got it and then just maybe a final question if I may just to kind of.

Of course that the language.

The framework of.

25% net sales growth of our fiscal 'twenty.

As much as it is.

That kind of a little bit more cautious imputed in there is that more of a day.

Base case worst case scenario, maybe you kind of help us understand kind of the language the nuance of where that could land.

Yeah, Eric I think the word you hit on with cautious so.

When we're looking.

The.

The consumer demand trends the retail inventory trends.

We want to be cautious in that that framework that we gave.

So that's why we kind of use that that 25% yeah. They visit Brian too, we see that like the trends that I mentioned around POS again, we can see about 50% of our total.

Pos sales.

We view that as a as a positive right I think if inventories were higher than prior year. We would we would have even be more cautious.

So the trends seem to be moving in the right direction, but be in conversations with retailers, where they are continued to be over inventoried in other product categories that are outside of our control are outside of our space altogether.

Thats, where their focus lies right now and trying to drive those down headed into the cell.

Kind of holiday selling season and try to clear the decks. So that next year. It can be a more normalized year I think youre going to see more of that so.

We're just trying to you know again be cautious.

We are very optimistic in our business you know we are continuing to plan towards that $400 million long term.

We see this as a temporary.

You know a period of time.

Perfect helpful. Both of you. Thank you.

Yep. Thank you.

Again, if you have a question. Please press Star then one our next question will come from Connor Jensen with Lake Street Capital. Please go ahead.

Hey, guys. Thanks for taking my call. This evening.

I was just wondering in relation to the defend your marksman Harvester adventure brands is there a specific area kind of the most optimistic about going forward or something that you think may perform better than others during an economic downturn.

Yeah, Matt.

This is Brian Conor.

So you know we had talked about the shooting sports side being down.

Relative to outdoor lifestyle up slightly over pre COVID-19 levels.

I do think that that will normalize over time and continue to grow.

But in terms of product categories and brands that I think are you know longer term, we positioned all of our brands probably the simple answer but.

In addition to all of our brands to expand into larger addressable spaces and.

And while we've pivoted on the launch timing for some of our new products.

New product development is incredibly important for us and our brands as they grow you know this last quarter being about 25% of our total net sales.

And in the like and the Investor materials, and I made mention to it in my prepared remarks, but we teased out a new product under Bubba called the electric fish scale DFS.

Which is in our opinion, we're not it's not out there for consumers yet and can't go by it but we believe it's going to be a complete game changer. When you think about competitive tournament fishing.

Just got a huge overwhelming.

Reaction at I cast and those are the types of products that I think consumers once they get past. This I'll call. It kind of hangover of our products are getting into the market.

Is there going to be looking for new innovative products and that's what we do best.

So I think it's going to be across the board, but we've got lots of.

Really need examples in the pipeline and more of this fall as well.

Gotcha, and then kind of go in a little more off of that sounds like you're trying to focus a little more on organic growth over the M&A do you think you might try and push back M&A, a little farther out or is it still kind of both those things go hand in hand.

Yeah. This is Brian again, they they definitely go hand in hand, and the reason for that is we've taken taking the time to understand where our company where American outdoor brand has permission to play which product categories.

And then where each of our brands have permission to play so we're executing on the organic growth.

Side of things on on making that a reality, we know exactly what the next three five plus years looks like on the organic side.

And then the M&A side, it's really where our brands don't have permission to play, but where are we as a company have permission.

And that has narrowed the focus very clearly for us. That's why we were chasing after outdoor cooking pretty aggressively in particular.

Really like the brand that was doing direct to consumer because with.

With that infrastructure in place now we can more easily integrate that type of a business and drive it from day one.

And so there are other areas as well that we just haven't publicly stated.

But are still within our wheelhouse as a company that will continue to look at so they do go hand in hand.

Gotcha. That's helpful. And then last I know you said you aren't giving formal guidance, but do you think there's maybe a ceiling for revenue around $210 million. This year are we thinking about that correctly or is that conservative.

Yes. This is Andy I think if you do the math based on what we said in the comments. Thank you are in the ballpark.

Okay perfect. That's all I have for knowledge him back in the queue. Thanks.

Yes. Thank you.

Yeah.

Once again, if you have a question. Please press Star then one our next question will come from John Kernan with Cowen. Please go ahead.

Excellent. Thanks for taking my question guys. Good afternoon.

Hey, John .

And what do you think is a normalized amount of inventory days on hand.

In fiscal 'twenty, one inventory turns ramp days inventory days on hand came down inventory.

Inventory got a little backed up at the end of last year, and you know like Youre going to continue into the first half of this year how.

How much inventory and how should we be modeling inventory turn to Dave Haki and so we think about the cash conversion cycle.

Yes, it's a great question and it also it depends on the quarter as well.

As you know John where we have seasonality, especially Q2 Q3, usually our highest quarters. So we typically ramp up inventory a bit in Q1 to be ready for those quarters. Now if you rewind back to last year, we had that strategy in place to build inventory to <unk>.

Offset some supply chain issues.

So we feel like we're in a great spot, we have great initiatives to drive down that inventory in the second half of the year.

So it's a little tricky when you when you start to break it down by DSO because of that cyclicality and the fact that we did build inventory to reduce that the supply chain risk last year.

Understood.

Do you think about.

Our normalized.

EBITDA margin structure for that business you know gross margin, obviously is going to be down this year opex rates or are going to be up high.

How do we think about a normalized EBITDA margin as sales start to recover there's clearly a lot of operating leverage in the business given the incremental margins, we saw in fiscal 2020, one and now in fiscal 'twenty two 'twenty three so.

Can you help us.

Think about multiyear margin potential for the business.

Yeah, Hey, John this is Bryan.

So we've set out there achieving mid to high teens EBITDA margins and that's still our plan.

So the way that we've geared this business as we continue to grow would be certainly to achieve those levels.

And then as we look at acquisitions you know, we're looking for accretive acquisitions Gorilla is a great example of that is accretive across all measures.

To protect kind of help either get there or help us even exceed those numbers in the future but.

Once we see things normalizing certainly we feel that's achievable.

Got it and then any commentary on which categories are declining the most within the traditional channels of retail.

Sure. This is Bryan again.

The one that really stands out I'd say relative to the pack or personal protection related.

So last year.

We talked about traditional channels saw growth of 70% year over year in our first quarter.

And a big driver there well its two things one our retailers pulling forward inventory and.

And a second is there was still heightened demand pretty significant demand around personal protection.

And and so when you look across our brands. It's the types of products that are really associated with that personal protection still.

We still have good demand its just a down relative to the rest of the pack.

Andy anything else you'd add to that.

Yeah.

Got it thanks guys.

Yes, Thanks, Sean.

This concludes our question and answer session I would like to turn the conference back to Brian Murphy for any closing remarks.

Thank you operator before we close I want to make sure want to let everyone know there'll be participating in two conferences next week. The CL King Best ideas conference, which is a virtual event on Monday September 12.

Then we'll be in person at the Lake Street Best ideas growth Conference in New York on Wednesday September 14th we hope to see some of you there.

In closing I want to acknowledge the loyalty hard work and dedication of our employees, who continue to move American outdoor brands forward on the path towards an exciting long term future.

Thank you everyone for joining us today, we look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.