Vista Outdoor Inc. Q4 2023 Earnings Call
Coordinating the call today.
If you would like to ask a question during the presentation. You may do so by pressing star led by one kind of thing can you Pat.
I will now hand, you over to Todd and integral Vice President Investor Relations to begin titled Please go ahead, when you're ready.
Okay.
Thank you operator, and good morning to everyone joining us for our fourth quarter fiscal year 2023 earnings call.
With me. This morning is Gary Mcarthur interim Chief Executive Officer, Jason Vanderbeek, CEO Sporting products, Jeff Mclean, President of action Sports and Andy Keegan, Vice President and interim Chief Financial Officer.
Before we begin.
To remind everyone that during today's call, we will be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act.
These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
These forward looking statements are subject to the risks and uncertainties that face Vista outdoor and the industries in which we operate we encourage you to review today's press release and Vista outdoors SEC filings for more information on these risk factors and uncertainties.
Please also note that we have posted presentation materials on our website at investors Dot Vista outdoor dot com, which supplement our comments. This morning and include a reconciliation of non-GAAP financial measures.
Gary I'll turn it over to you.
Thank you Tyler and thank you all for joining US this morning, as we discuss our fourth quarter and fiscal year 2023 result.
This is my second earnings call as Vista outdoors interim CEO .
And I am excited to share with you. The strides we have made since we last spoke in early February .
Let me begin by thanking all of this to outdoor employees for their hard work during the quarter and year.
As a result of the worsening economic environment with increasing inflation decreasing consumer demand and increasing federal fund rates.
Which resulted in reduced forecast and increased discount rates.
During the fourth quarter as part of our annual impairment testing, we took a noncash goodwill and indefinite lived trade name impairment of $374 million.
My remarks for the remainder of this call exclude that impairment.
Or the call. There are five core themes I will highlight one our financial performance continues to be solid in these challenging times.
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Fourth quarter cost and earnings improvement actions better position the company for fiscal year 2024.
Three outdoor products is expecting a challenging first half of fiscal year 2024.
With an improving back half while supporting products is expecting a more normalized purchasing cycle throughout the fiscal year.
Or we are committed to and working hard to be ready to spend later this calendar year and five our future is bright.
Let me first turn to our financial performance.
For the fiscal year topped $3 billion with both segments increasing year over year.
Our adjusted EBITDA margins were 20% a solid performance as we navigated a market.
Has seen multiple inflationary pressures and higher input costs.
We also generated strong adjusted free cash flow of $493 million during the year.
Our leverage ratio is now one six times.
Well within our long term target of 1% to two times and we will continue to prioritize maintaining a strong balance sheet.
Organic sales for fiscal year.
With $2 7 billion.
And our organic EBITDA was $574 million.
Sales for the fourth quarter were $741 million down eight 4%.
And adjusted EBITDA was $120 million.
And adjusted EBITDA margin was down 618 basis points.
Organic sales were $654 million down 19, 1%.
And organic EBITDA was $180 million organic EBITDA margin was down 438 basis points.
<unk> products are.
<unk> are expected to normalize in the high $300 billion range.
With EBITDA margins of low <unk> near term.
With expectations EBITDA margins will move downward in the back half of the year to the mid twenties. These.
These levels are well above pre pandemic.
Outdoor products faced a very challenging market in the second half of fiscal year 2023.
With expectations. This will continue at least through the first half of fiscal year 2024.
Sales for outdoor products in the fourth quarter were $327 million.
Down 5%.
While organic sales were $241 million down 32%.
EBITDA and organic EBITDA margins were both around 3%.
Adjusted free cash flow in the quarter was very strong at $178 million.
Which included an IRS refund of over $40 million.
Andy will provide additional details on our financial results from our fiscal year and fourth quarter shortly.
Let me now talk about costs and earnings improvement actions.
The macroeconomic headwinds and organic declines experienced in our outdoor products segment.
So more than $50 million cost reduction and earnings improvement program in our fiscal fourth quarter.
Actions included office closures spending cuts operating income improvements head count reductions across our brands and corporate teams and acceleration of the Fox and Bell Giro integration.
These tactical and strategic actions position us to achieve meaningful margin improvement as we head into fiscal year 2024.
After our already solid financial position.
And ensure a compelling financial profile for each segment on a standalone basis post spin.
Our strong adjusted free cash flow in the full year also shows the resiliency of our company and operating model, despite challenging market and macro conditions.
As a Prime example, we paid down $170 million of debt during the fourth quarter.
And $260 million in the back half of fiscal year 2023.
Looking ahead to fiscal 2024.
In outdoor products. This short term market is challenged but as a result of the cost and earnings improvement actions taken.
We are better positioned to capitalize on long term tailwind.
Point of sales continue to exceed all sell in for most of our business units through the fourth quarter we.
We are beginning to see improvement in retail inventory levels from quarter to quarter.
However, retailers have been cautious and open to buy orders and have added additional inventory.
We expect this trend to continue through the first half of the fiscal year for many of our brands.
The record setting snow season in the Western States was a boon for our journals snow business.
History shows that long snow season delayed the start of spring and summer campaign.
And outdoor trips.
This year is expected to be no different.
We see a return to organic growth in the back half of fiscal year 2024.
One point of sale and sell and become more closely aligned.
And longer term, we continue to be bullish about the future of the outdoor recreation industry.
His participation that remains above pre ban demick levels.
Our brand strong positioning in the marketplace.
And supporting products to market is normalizing as we have expected and communicated.
And we anticipate a more normalized purchasing cycle throughout fiscal year 2024, based on stable market pricing and demand.
We expect increasing material costs, and we are seeing certain calibers selling at lower volumes.
Forwarding products EBITDA margin profile.
As expected to bottom at or above the 25% target communicated.
At our Investor day last year.
Driven by more rational pricing and better structural dynamics in the market versus previous cycles year to date mix checks through April are also up 25% compared to the same period in 2019 and remain above 1 million checks per months.
Jason will provide additional detail on sporting products in a few minutes let.
Let me now address the separation.
We continue to believe the spinoff of our outdoor product segment is the best way to unlock shareholder value and we are working hard to be ready to spin later this year.
Completing the spin this calendar year, we will be establishing the outdoor products senior leadership team.
More stable macroeconomic environment, and improving outdoor products financial performance.
Upon completion of the spin there will be two independent publicly traded companies both of which will be two of the largest public traded companies in the outdoor space.
Each company will have a dedicated strategic focus.
Tailored capital allocation approaches.
And its own set of competitive advantages.
Our company currently trades about five times enterprise value to fiscal year 2020 for EBITDA in line with ammunition and supporting company peers.
While peer play outdoor products focused peers tend to trade at double digit enterprise value to EBITDA.
We believe this value is not being reflected in our current trading price and after the spin we expect that our outdoor products segment should move towards trading at similar multiples towards outdoor peers.
We continue to have discussions with the SEC and are in the process of updating our form 10 with our fiscal year 2023 Q4 financials.
We expect the publicly filed the form 10 in advance of the spin.
We will have additional details on timing and the new company names and more in the coming months.
With regards to outdoor products CEO search.
We retained executive search firm continues to interview a strong pipeline of quality internal and external candidates.
Our criteria includes someone who has a proven track record.
As shown the ability to deliver value to shareholders and.
And who can advance our mission of Stewart and great brands and getting more people into the outdoors.
We believe our candidate pool of internal and external candidates will produce the right leader.
For the company's next chapter.
Moving to our future beyond these short term headwinds we are experiencing we are.
We're bullish on long term recreation trends.
Industry participation is baseline well above pre COVID-19 levels.
We have a stable of great brands well positioned to capitalize.
To name a few brand highlights.
And golf recent data shows that there are $3 4 million.
Junior golfers the highest level since 2006.
36% of junior golfers or girls, which is the highest ever.
Leading golf product reviewer my golf's by just published their annual list of the best range Finders Bullshit.
Bushnell golf earn.
The top billing with the all new Pro X three.
And the brand accounted for three out of the top five slots overall.
Selling glaciers dry solus test was recognized by outdoor life is the best time for bad weather.
And still on glaciers expansion into brick and mortar is also accelerating its brand reach.
With one major outdoor retailer delivering 100% year to date point of sale growth.
Damn chef is navigating the difficult grilling market, one that is over inventory and dealing with record setting snowfall.
Tab chefs new smoke box technology has been well received in the market.
Wildcat launched the new lease model, establishing a new category for our leading off road E bikes grant.
At these primo's be senior in our CBS earn best of recognition and their perspective categories for firearm cleaning products.
<unk> stick and ground blinds, stabilizers, and reloading days across a variety of leading publications and reviewers.
Exporting products.
New products from federal and Remington collected prestigious industry Awards American Rifleman presented its golden Bullseye to Remington quarter lock tip.
And shooting illustrated awarded its ammunition of the year to Federal's 30 Super Kerry.
Jeff will cover wins and updates interactions sports business.
Looking ahead, we remain excited about the future our iconic brands strong business unit leadership team talented employees and solid financial foundation position us for success in fiscal year 2024 and beyond.
With that let me turn it over to Jason.
Thank you Gary and good morning, everyone as the sporting products business prepares for its future as a standalone company, we are well positioned as a healthy and robust business that draw strength from these core principles.
<unk> is our number one priority our business model is positioned for sustainable profitability and we never lose sight of the end user and delivering on their needs.
<unk> products had another strong year of financial performance fiscal year 2023 was the second most profitable in the Companys history, and we continued to deliver tremendous free cash flow.
This was a result of an improved product mix to offset higher input cost smart deployment of capital lean operations continued investments in R&D and a sharp focus on delivering better products every day.
As we look ahead and Andy will comment further on financials, we expect a more normalized purchase cycle throughout the year based on stable market pricing and demand for <unk>.
First quarter of FY 'twenty, four will be up against the comp of $511 million in fiscal year 'twenty three and as a result, we anticipate lower overall revenue for the full year.
There are also significant headwinds on material costs, and we are seeing some softness in the rimfire category.
We expect our performance to fall in line with what we communicated at our Investor day, we forecasted a normalization of mid Twenty's EBITDA and that matches, what we're anticipating in fiscal year 2024.
This is a very solid run rate and much higher than pre pandemic levels in terms of sales operating income and free cash flow.
Our strength is derived from consumer demand for our brands and products strong participation and expected post surge market rationalization.
We anticipate seasonal buying will be strong and benefit from positive participation trends industry data suggest more than 17 million new users have entered the market and nix checks confirmed firearm purchases remains very strong.
April data shows 45 straight months of Nix checks over $1 million.
Our factories are positioned for operational efficiency to service a higher consumption baseline.
Our professional teams are lean and focused on best practices to build sell and effectively market, our innovative and industry, leading products, whether it be hunting shooting self defense or law enforcement ammunition.
As pricing stabilizes, our ammunition brands are showing market share growth and profitable categories.
Data from an industry survey conducted by southwest shows consumer purchases of our brands more often across every ammunition category.
Better was the top purchase brand for shot shell and rifle and CCI blazer, leaving the handgun category.
Lastly, as we've seen in other normalization cycles smaller domestic brands in imports that rush to market. During the surge are declining as larger established brands gained shelf space at retail.
This is typical of normalizing and indicates customer preference for consolidating vendors.
In FY2023 we continued to improve our digital presence to ensure our brands are top of mind, no matter where consumers get their information.
We launched a refreshed heavy shop website and added educational content for new gun owners and hunters to help them get started right. We have also grown in the farm <unk> Ranch channel in the past four years significantly expanding our brand and sales reach.
Our commitment to law enforcement and government remains strong and we earned key contracts in fiscal year 'twenty three.
States Army awarded the Federal brand, a five year up to $114 million contract to build <unk> training ammunition, the largest contract in company history.
Internationally, the French police with more than 250000 officers across multiple agencies awarded spear and 124 Gram gold dot with a four year contract and up to 20 million rounds for its duty ammunition.
Spear was also recently awarded the New York Police Department, nine millimeter duty and training and done aviation contract for the sphere of 124 Gram gold dot.
The NYPD is the largest law enforcement agency in the United States and this five year agreement will supply the department with millions of rounds for the best American made ammunition to serve its mission of enforcing the law protecting the people and preserving the peace.
We're collaborating across facilities to make our operations leaner and more efficient and build on our leadership position in 2023.
Federal new nickel plating capacity and a new shot shell whole extrusion lines are installed and operational maneuver.
The new raw raw materials warehouse is complete and the new rifle loading facility is up and running to be fully operational in quarter, one of our new fiscal year.
That Remington, we are nearing the midpoint of a multiyear modernization of the manufacturing footprint, including upgrading our board Assembly machine, serving the flagship core lock technology.
On our modernization is complete we fully expect the loan facility to be on par with the profitability demonstrated at the legacy factories in Lewiston, Idaho, and an open Minnesota.
In Lewiston spear in CCI ammunition, we will be producing the catalyst primer, our lead free primer and select products originally introduced at federal.
This technology allows us to have our two largest factories producing the cleanest most consistent ignition possible and primers.
Our competitive advantage as a house of brands ammunition company is our ability to share and implement best practices leveraged strengths and work together for cost saving solutions to return to shareholders employees and customer value.
For the quarter, the fourth quarter closed out a successful year and extended a solid history of free cash flow generation that will continue as we become our own company.
These results are attributable to key drivers mentioned earlier that include a favorable mix pricing rationalization in the market, including targeted price increases from our brands that have been accepted by the market lean operations and new products that are driving higher profitability.
For fiscal year 'twenty four as we have said from previous quarters the market remains strong.
Our multi brand strategy is a tremendous strength in this market.
Owning Remington and heavy shop has added more revenue and significant operating income improvements from our previous Lake say commitment.
With all of these changes it is why we are confident in our guidance and why we feel the animal market in particular, the sporting products team is much better than five years ago.
We expect to continue to take market share expand our presence into new markets make remington more profitable than it is today, all while delivering mid 20% EBITDA margins and generating healthy free cash flow.
As we have now demonstrated for four straight quarters of sporting products segment is structurally better than pre pandemic levels.
I have full confidence that with the best team in the ammunition business, we will continue to perform at the highest level and deliver on shareholder expectations.
Thank you Jeff.
Thank you Jason.
Morning, My name is Geoff Mcguane I was recently promoted to president of Vista outdoors newly restructured action sports business unit, which includes seven iconic brands Bell Blackburn Copilot Fox racing zero crash and radicals.
I've spent more than 30 years and operating roles for performance brands and the sports and outdoor industry across Asia, Europe , and North America.
In that time.
Focus on our goal of creating differentiated experiences that inspire consumers and grow brands.
As the CEO of Fox since 2019, I have worked closely with our team to elevate and expand the most authentic and renowned brand and motocross and mountain biking.
And now I am excited to lead this expanded team and portfolio of distinguished France.
I want to leave you with three key takeaways from my comments today, one the market conditions in our categories have been challenging as of late and we see an opportunity to enact change and reposition our platform for growth and profitability.
The merger of Fox with the rest of the action sports platform is well underway and we have renewed our commitment to putting our rider one.
Driving results. So we can reinvest in the business.
Three we have a powerful family of brands with a combined number one market share in many categories and with the actions. We're taking we believe the future is bright and we are better positioned than ever to win with our riders and our customers in our marketplaces.
As of late.
Cycling industry has experienced pressures.
Exacerbated by lower consumer spending flat retail sales growth higher input costs and elevated inventory levels at distributors and retailers, which has resulted in increased promotional activity.
This environment has lowered our near term outlook, but also provides us an opportunity to reposition our platform for expanded growth.
At the same time, the banking industry is showing signs of relief in certain areas. For example, the inventory supply situation has been improving over the course of the last 90 days <unk>.
Retailers are still sitting on elevated levels relative to historical norms, but conditions are improving as the excess inventory continues to sell through.
We have decisively begun to strengthen the bottom line and foster growth through the acceleration of our merger between Fox and vis vis existing action sports brands.
We've already achieved meaningful synergies by developing economies of scale.
Building, a stronger and more strategic relationships with our suppliers.
Using our facility footprint consolidating contracts.
And beginning to combine our back office.
We are still in the early innings and expect more synergies and process improvements as we continue to unite the teams at the current Fox headquarters, which will become a shared brand and design center is the hub of culture creativity and inspiration to spark innovation and drive the next chapter of our story.
They're one roof, we will better connect our teammate and together its ninth creativity to build and enhance collaboration culture and platform.
Long term, our restructuring will enable us to enhance our investments and strategic imperatives, including investing to strengthen our brands for more impact.
<unk> go to market capabilities to better support our brands in international markets.
To accelerate new product technology across equipment apparel and footwear.
And a concentrated emphasis on digital.
Connecting commerce, and creating a more seamless rider purchase journey.
Completing the merger will enhance how we focus adapt and thrive in the post pandemic marketplace, we plan to expand cooperation across our brands, while maintaining distinct positions in the eyes of the consumer.
Our transformation plan as thoughtfully crafted so we can realize and maximize opportunities achieved meaningful scale and accelerate the development of the business globally.
Together, our brands deliver a combined number one market share across many of our channels customers and product categories.
Fox Mountain bike helmets grew 25% year over year and the brand recently entered the mountain bike shoe category completing its head to toe offerings.
<unk> performed well in the quarter selling out both online and in store and gyro launched the Aaron's spherical the high end road cycling helmet recorded the best ever for a new premium product in its first week of availability in stores and on <unk> Dot com.
In my short time as President I've become increasingly excited about the opportunity with <unk> and believe there is tangible opportunity to regain our leadership position in power sports and accelerate growth in Europe for all brands.
Lastly on most excited about the people I have the pleasure to lead our teammates are the most capable technical creative and passionate in the industry I'm encouraged about our future and the opportunities for each of our seven brands to thrive.
And with that I'll hand, it over to Eddie.
Thank you, Jeff and Hello, everyone.
Today, we will focus on adjusted results compared to the prior year period, unless otherwise noted.
Both as reported and adjusted results are included in our earnings release and website and can be found on our website.
We posted another year of solid results on page 17 of the web site, you will see our sales topped $3 billion.
As our teams continued navigating a challenging.
Adjusted free cash flow was a record $493 million for.
For the year, and we have started to monetize our excess inventory position.
Our balance sheet remains strong and that data continues to be our primary capital allocation priority.
For the fourth quarter total sales decreased eight 4% to $741 million.
Organic sales for the quarter were $654 million down 19, 1%.
For the fiscal year total sales increased one 2% to $3 1 billion.
Organic sales were $2 7 billion.
Down nine 7% on reduced purchasing across nearly all channels in outdoor products.
Partially offset by improved pricing and higher exported product volumes and select calibers.
Q4, gross margin contracted 362 basis points to 38%.
Fiscal year gross margin contracted 273 basis points to 33, 8%.
These reductions were driven by increased commodity a breakup along with organic volume declines.
We offset by improved pricing and.
And volume from acquired businesses.
EBITDA in Q4 decreased 33, 7% to $120 million in.
And EBITDA margin of 16, 2%.
<unk> 618 basis points.
Organic EBITDA for the quarter was $118 million or <unk>.
Decrease of 34, 9% and organic margin in Q4 was 18%.
For FY 'twenty, three EBITDA dropped to 15, 9% to $622 million and.
And EBITDA margin contracted 490 basis points to 22%.
Organic EBITDA for the year was 574 million a day.
High of 22, 4% and organic margin was 29% a decline of 340 basis points.
The decline in organic EBITDA was primarily driven by decreases in gross profit.
Q4, EPS decreased 47, 1% to $1 8 billion.
And full year EPS dropped 22, 8% to $6 40.
Turning to slide 18, our balance sheet remains strong.
Generated healthy adjusted free cash flow of $178 million during the fourth quarter.
Our full year total to $493 million.
Net debt decreased 15, 5% Q3 to $934 million as we prioritize the use of our strong free cash flow to pay down $170 million in the quarter.
This equates to a net debt leverage ratio of one six times.
We will continue to prioritize debt paydown as our primary use of capital leading up to our spin.
Turning to our segment results on slides 19 and 20.
Within our outdoor product sales decreased 5% in Q4 and increased four 2% in FY2023.
Organic sales were down 32% in Q4 were down 24, 2% in FY 'twenty, three primarily driven by reduced purchasing across most channels and all of our businesses.
Led by the outdoor accessories and action sports.
This was partially offset by a slight growth in our direct to consumer channel.
Gross profit decreased 19, 3% in Q4 at 31% in FY2023.
Q4, FY 'twenty through gross margin decreased to 26% and 28, 3%, respectively, driven primarily by organic business volume to buy it and increased product and breakup.
Partially offset by the volume from acquired businesses and pricing.
Q4, EBITDA was $9 million.
That was 88% and EBITDA margin for the quarter was two 9%.
FY2023 EBITDA decreased 39, 4% to $125 million.
EBITDA margin contracted to nine 5%.
Organic EBITDA decreased $7 million in Q4, and EBITDA margin for the quarter contracted to 3%.
For the year organic EBITDA declined to $77 million.
And EBITDA margin of seven 8%.
The decrease in the quarter and the year are due to lower gross profit across all business.
Moving to the sporting products.
Sales decreased 10, 9% in Q4 and increased one 2% in the fiscal year, driven by improved pricing and higher volume and primarily one player partially offset by the termination of the Lake City contract in Q3 and volume declines in pixel.
Gross profit decreased 16, 7% in Q4 and eight 2% in FY2023.
<unk> and FY 'twenty eight gross margin decreased to 36, 8% and 37, 2% respectively.
Driven by increased commodity costs and lower volumes.
We offset by improved pricing.
Okay.
Our EBITDA was $171 million.
That was 16, 7% and EBITDA margin was 31, 6%.
A decrease of 220 basis points.
That's why 23, EBITDA decreased seven 8% to $577 million.
EBIT margin contracted to 32, 8% in the year due to lower gross profit, partially offset by decreased incentive compensation and market.
As we look forward to the spin as part of our announced restructuring we have significantly decreased by a corporate costs for fiscal 2024.
What does this restructuring and the expected dis synergies of $10 million to $15 million. We currently expect the total corporate cost between the two standalone companies to be approximately 65 million to $70 million post spin.
Majority of these costs at the outdoor products due to the best segment being more complex rate than our explore exotic segment.
Given our robust.
Adjusted free cash flow during the quarter and our adjusted free cash flow forecast for fiscal year 'twenty four.
He expects 40 product will have less than $1 billion in debt post spin, which will include the $500 million.
And senior notes in their current state and less than $500 million of an asset backed loan and fixed asset turnover.
At the time of spin, Florida product leverage ratio will be approximately two times.
Long term, we expect leverage of this business to be within the one to two times.
Our alco by saying that we will have no or minimal debt as Tyler said and one to two times leverage long term.
As Jerry mentioned during the quarter, we recorded an impairment of goodwill and indefinite lived trade name of $374 million.
Due to economic uncertainty in the near term, which reduced forecast.
Increased discount rate and the stock price that does not reflect a higher multiple businesses and the outdoor product segment.
That being said we.
We have strong brands and then the long term we believe these businesses will grow meaningfully.
In the near term, we are responding to the economic headwinds and preparing for the spin.
We have achieved cost savings through significant improvements in our ocean and domestic freight contracts.
Higher cost production.
More favorable foreign exchange and accelerating integration synergies with our Fox and <unk> business is being consolidated.
Additionally.
We initiated a more than $50 million cost reduction and earnings improvement program, which included closing facilities workforce reduction and other operating income improvement.
We have already begun realizing cost savings from this restructuring.
Savings across these items plus our cost savings and earnings improvement program are included in our guidance for the year.
Yes.
As we look to fiscal year 2024, we see our outdoor products segment, returning to organic growth as we head into the second half.
<unk> channels are able to clear through high inventory levels.
We expect margins to be increasing as a result of the cost reductions I had mentioned.
And our <unk> segment, we have reached normalization of sales and our pistol and rimfire category, while a rifle shot show and private category continue to see demand exceeds supply.
Margins will come down slightly from the prior year as a result of raw material cost pressures and previous price actions and categories that normalized.
Moving on to page 21 for the full fiscal year 2024, we expect sales of.
$2 85 billion to $2 95 billion.
Floating product sales of 147 5 billion to $1 525 billion.
Outdoor product sales of $1 37, 5 billion to worldwide 45 billion.
EBITDA margins between $17 75, and $18 seven 5%.
Coating product EBITDA margins.
26, 75% to 27, 5%.
And outdoor products EBITA margin of 12% to 13%.
EPS between $4 50 and $5.
And free cash flow between $290 million and $340 million.
We are not providing specific quarterly guidance for the coming year.
What I will say is we expect total outdoor product sales to grow at a consistent rate each quarter of the fiscal year compared to the applicable prior year quarter.
Note that this growth rate includes inorganic growth in the first half an organic decline in the same period due to the challenges previously outlined.
In addition, due to the phasing of the restructuring costs outlined and as we move to much of the higher priced inventory on hand in the first half, we see sequential incremental improvement and outdoor product margins each quarter of FY 'twenty four for current level to a margin above the guidance range by Q4.
And supporting products, we expect sales to be roughly consistent each quarter and believe that profitability will be stronger than the front half of fiscal year 'twenty 'twenty, four and move downwards to mid 'twenty by the back half of the year.
We expect free cash flow for the first half to be slightly better than breakeven in cash flows in the back half of the year will be very strong.
So interest expense will be front end weighted as we pay down our term loan over the fiscal year.
Thank you everyone. Operator, please open the line for questions.
Thank you.
To ask a question please press <unk>.
One thank.
<unk> background.
Change your mind, Please press star can make my team.
So ask your question. Please ensure that your line is on mute.
Our first question today comes from Eric <unk> from <unk> Securities. Please go ahead, Eric Your line is now open.
Thank you.
Morning.
A couple of questions just for Jason around the.
Just wondering quarter segment within the fiscal.
Fiscal 'twenty revenue guidance can you give us a sense of what percentage of that you expect to be consumer versus.
Government law enforcement and how does that play into your ability to schedule production more efficiently I will follow up on the consumer side.
Good morning.
We don't we don't guide to channels, but I can tell you for fiscal year 'twenty four we expect the channel mix to be almost.
The equity the same as its been for previous decade.
Our percentage of that business goes the D&B, along Portsmouth and that mix won't change.
Got it okay.
On the consumer side.
Yes.
Assumptions around kind of purchasing behavior playing into.
Your revenue guidance I guess, we're simply it was supposed to go to what Youre hearing from your retailers around purchasing behavior versus the elevated pricing that we're seeing in the market is still that you kind of have to maintain good.
Commodity prices et cetera, I guess, how is it impacting your thoughts around <unk>.
How often consumers purchase and then how do you balance that need.
Need to maintain higher prices would potentially.
Wanting to drive more volume and inventory turns in this environment.
Yes, as far as purchase behavior, we watch weeks of supply on hand at wholesale and at retail and we obviously watch point of sale.
Very very close so what what we love that we're seeing right now is the purchase behavior on as we had mentioned on primers on shot shell and center fire rifle I'm not sure we'll be able to meet the demand that is going to be out there.
In 'twenty four for us so that purchase behavior going to be very very high ratings very profitable categories for us and again I don't think were going to catch that demand as far as the <unk>.
<unk> ammunition category as we talked about last quarter, we did take some pricing actions, there which gets us.
Shelf space for the remainder of the calendar year and what we did is we just.
We thought it was the right time to address that so we could get that replenishment orders for the rest of the year and take market share and then as we mentioned in the script. We're obviously taken market share as vendors as customers want to vendor consolidate and as we see the import numbers continue that downward trend. So that's why we're pretty bullish on that.
Rest of the year.
Helpful. Thanks, Jason.
Thank you. The next question comes from Matt Koranda from Roth and Ken. Please go ahead. Your line is now open.
Hey, guys. Good morning, just wanted to follow up on the scoring product segment as well. So these are probably for Jason but.
The outlook down 15 on revenue.
At a higher level, just curious how youre thinking about volume versus price in the outlook. It sounds like you are alluding to maybe you did drop price a little bit are we assuming some volume back fills that.
Just any color on sort of how youre thinking about volume price and the outlook.
Yes. So we expect volume May go down a little bit Matt and as we annualize what we did.
Last quarter.
Going to go down a little bit, but I think it's very important as we as we look at fiscal year 'twenty for our input costs are going to go up that's why we're guiding to the mid <unk> by the end of the year when the role of <unk> in the beginning of the year. So it's really a mixture of price and volume, but we.
We're very very confident we're going to we're going to gain some pretty good market share and the normalized market. That's why we think that normalized EBITDA is going to be in the mid <unk>.
Yes, just following up on that the mid <unk> EBITDA.
Jason maybe just speak to.
It sounds like most of the factors are kind of going against you on that front, so lower volume.
The pricing is probably a bad guy this year higher material costs I guess what are the what are the critical assumptions that are in that margin outlook that need to hold to achieve the mid twenty's target and where do we bottom in the back half you mentioned sort of bottom probably in the.
Mid Twenty's look more 25, or maybe even below but maybe just speak to that.
Yes, I think I think it's really important as we have as we've tried to convey over the last year or so why we're structurally different.
Why we're confident that we're going to normalize in that mid 20 is if you look at five years ago.
When we had the lake city commitment that was 20% of our business.
Really essentially zero margin or below margin, so 20% of our business we've replaced with Remington in heavy shot at very heavy.
Not heavy margins, but very favorable margins and again, we took the most irrational pricing competitor. We took we acquired Remington and so we have rational pricing in the market today and then we run a much leaner operation, while we expanded capacity.
The surge, we only expanded capacity to take cost out of the operation. So when you put all of those factors together, we love, where we think normalized EBITDA in the mid Twenty's, there's been a land.
Yeah.
Okay, Great and then maybe one for Andy as well.
Sorry go ahead.
So I was just going to add to Jason and your comments on volume that we have.
Remember in FY2023 the first quarter.
It was a very large quarter with.
Above that we had some inventory that we were able to push into the market at that point in time. Since then the actual reduction for FY 'twenty compared to FY2023 isn't as significant so those volumes are going to be down slightly but it's not going to be meaningful as you look at the margin profile.
Okay. That's helpful. And then just maybe a broader one for you Andy just on the.
How the restructuring plan is built into the guide how much of the plan has been actions.
How much is yet to be I'm, just curious it sounded like the corporate expense for the year. There were a couple of different comments made in the prepared remarks, but it looks like implied in the guide I think there was a 55 million corporate expense in the fiscal 'twenty Four guide, but then you said later in the prepared remarks.
Something to the effect of I think 65% to 70 in total corporate expense post spin. So just wanted to see if you can kind of clarify that commentary.
Yes of course, absolutely.
So to your point on the <unk>.
Restructuring.
We've implemented the majority of this action has been executed at this point of time.
It will be coming through through the year some of it will come a little bit more in the back half as it relates to businesses, where we're executing on cost.
That are more in the cost of sales action, but India SG&A expense line those will be coming through starting in Q1, we start we've seen that actually starting to come through in April .
Corporate costs the difference.
That we're talking about is post spin, we will have dis synergies of $10 million to $15 million.
Operating two different incentive businesses. So the 55 billion you've commented plus the 10 to 15 gets up to what we think post spin total corporate costs between the two companies will be.
Okay, Great I'll leave it there thanks guys.
Thank you as a reminder, if you would like to ask a question. Please press star followed by one on your tie Thank you Pat.
Our next question comes from Mark Smith from Lake Street Capital Markets. Please go ahead Mark Your line is now open.
Hi, guys.
Jason I, just wanted to follow up a little bit on input costs coming into supporting products can you talk about maybe where you're seeing some pressure there where maybe you expect more pressure here in fiscal 'twenty four.
Good morning first off.
We're not going to break that out as far as where we see cost increases. We know we have some pretty substantial cost increases going to hit the P&L.
In the back half of the year.
We're going to we're going to leave it at that.
Okay, that's fair.
That's one.
One piece that we don't talk about that often within outdoor products is really the accessories business and I realize it's a smaller piece of that side of the business.
<unk> seen fairly.
Declines here in the last four quarters.
Any update on kind of plans and thoughts around that business.
Any innovation anything you can talk to regarding kind of plans for that business and how to get that business to turn more positive.
This is Gary.
We definitely look hard at that business and where its position of all of our businesses, it's probably lower than our premium brands with regards to where it did.
And so it's been hit harder by the economy and consumer demand declining and so as the economy improves we do expect that business to improve maybe.
Maybe even somewhat faster than some of the other businesses, but right now it's been hit really hard from the impacts of consumer spend and.
And we have done a pretty good job, we can always do better of introducing new products into this space.
We're looking hard at what we can do on the marketing front, but.
It has been probably hit harder than our other businesses in our portfolio.
Okay.
Thank you guys.
Thank you. This concludes our Q&A session. So I'll hand back over to Gary Mcarthur, taking them out.
Thanks to everyone. This morning I appreciate you joining us let me just close again by saying that we are really excited about the future. We have great employees, great business unit leaders, we have great brands.
It's unfortunate that we are seeing the headwinds that we are but we think those headwinds will pass and we have positioned the company to be successful and we're looking forward to the future. Let me just close with that and thank you.
Okay.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.