Q2 2024 Vista Outdoor Inc Earnings Call
Thank you all for joining I would like to welcome you over to the.
Second quarter fiscal year 2020 for Vista Outdoor earnings conference call.
My name is brita and I will be your motivate Jeff for today's call.
All lines are on mute.
For the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question at this time I ask that you. Please press star followed by one on your telephone keypad.
I would now like to pass the conference over to your host Tyler <unk> Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning to everyone joining us for our second quarter fiscal year 2024 earnings call with me. This morning is Gary Mcarthur interim Chief Executive Officer.
Jason <unk> CEO of 40 products, Eric Nyman, CEO of Aqua products, and Andy Keegan, Vice President and interim Chief Financial Officer.
Before we begin I'd like to remind everyone that during today's call, we will be making several forward looking statements, reflecting future events and their potential effect on our operating and financial performance 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 and we are under no obligation to provide updates to these forward looking statements.
These forward looking statements are subject to the risks and uncertainties that face Vista outdoor and the industries in which we operate and actual results may differ materially from these forward looking statements. 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 Vista outdoor dot com, which supplement our comments. This morning and include reconciliations of non-GAAP financial measures.
Gary I'll turn it over to you.
Thank you Tyler and good morning, everyone I would like to thank all of you for joining us today as we discuss our second quarter fiscal year 2024 results.
For the next few minutes I'm going to focus my comments on the sale of the sporting products segment.
And then turning the time over to Jason to provide an update on sporting products.
Then Eric to do the same for outdoor products.
Recently rebranded as rebel list.
We trade under the stock ticker gear.
Road by Andy who will provide our Q2 results and guidance.
We are currently at one of the most exciting juncture in our company's history as.
As recently announced we have entered into a definitive agreement to sell our sporting products segment.
Checklist of all bought group or ESG.
Or $1 $91 billion.
We believe that this outcome provides great value is the best strategic alternative for maximizing value to stockholders due to the payment of approximately $750 million of cash consideration.
Walking uncertainty of value for stockholders in the near term.
Long term this outcome jumpstarts, our compelling vision for <unk>.
By capitalizing on its balance sheet with cash to accelerate its capital allocation strategy.
And puts us in a position to hit the ground running as a successful independent company.
The sporting products business will remain headquartered in a Nokia Minnesota.
We will be led by Jason bandwidth <unk> and his team.
And the business will stay true to its longstanding heritage of manufacturing and selling our iconic American brands in America.
Additionally, teaming with ESG sporting products will increase its efforts to market and sell these iconic brands.
Civilian and government customers around the globe.
For every one share of Vista outdoor hill at the time of closing.
A stockholder will receive one share of gravel list and cash consideration of $12 90 per share for a total cash consideration to stockholders of approximately $750 million.
This cash consideration is not a dividend.
And is instead parked.
Part of.
The merger consideration.
Upon closing this transaction will be treated as a taxable sell of stockholders Vista outdoor shares for the revenue shares and cash consideration they receive in the merger.
This to outdoor stockholders will generally recognize gain or loss in the transaction.
Equal to the difference between their tax basis in the Vista outdoor shares they exchange.
And the sum of the cash consideration.
And the fair market value of the rebel this shares they receive with <unk>.
Chairman as of the closing date.
This allows stockholders to recover tax basis, and recognize built in gain and loss in their Vista outdoor shares at the time of closing.
Looking forward, our stockholders, new tax basis, and each share of graphical it's received.
Will equal the fair market value.
Sure determined as of the closing date.
Additionally.
We expect that immediately after closing any cash remaining.
After the payment of taxes transaction costs and other customary closing related payments.
The pay down of all that.
The approximately $750 million payment to stockholders.
And the capitalization of rebel list with cash up to $250 million.
Will be returned to stockholders in brel lifts in the form of a share buyback or a onetime special dividend.
Please refer to slide nine in the slide deck provided.
Prior to the stockholder vote, all free cash flow will be used to pay down debt as we are unable under applicable security laws.
To repurchase shares while the stockholder vote for our sporting product sale was pending.
After the stockholder vote is complete and before closing.
We'll have the option to evaluate whether a share repurchase program would be appropriate.
The transaction is subject to approval of our stockholders received the necessary regulatory approvals.
Other customary closing conditions.
We expect to hold our stockholder vote in the March April timeframe of calendar year 2024.
If we have not received regulatory approvals prior to the stockholder vote. The timing of closing will depend primarily upon receipt of necessary regulatory approvals.
Under the merger agreement <unk> has committed to take all actions necessary or advisable to obtain the necessary regulatory approvals.
They have to pay a termination fee equal to $114 6 million.
If the transaction does not close due to <unk>.
Failure to obtain the required regulatory approvals.
We are excited about the future opportunities for both the sporting products business under <unk> ownership.
And Rob Molest under Eric's leadership, as we embark on our new strategic journey, including a new transformation program that Eric and Andy will cover in more detail shortly.
I'd like to thank all of our employees for their hard work and shaping our company into what it has become today.
And for giving us confidence in the future success, both businesses will be able to achieve as separate companies. Thank you everyone. I will now hand, the call over to Jason who will discuss sporting products.
Thank you Gary and good morning, everyone.
We are at the mid point of our fiscal year and are pleased with where we are currently standing and we believe there are positive trends on the horizon sales.
Sales for the sporting products segment in the second quarter were $350 million with segment adjusted EBITDA margins of 28%, which shows a strong product mix and is in line with our margin rate expectations.
As Gary mentioned in his opening remarks, we believe the sale of sporting products to CST.
Great outcome for our stockholders, our business our employees and our customers.
Private global strategic order will allow us to grow the reach of our iconic American brands and expand our legacy of U S manufacturing support for the military and law enforcement customers and investments in conservation in our hunting and shooting heritage.
The leadership team is excited for a bright future and I am pleased to welcome Elicker felt as the Chief Financial Officer, Jeff, Eric as our General Counsel and corporate Secretary and Mark Wall Ski as controller and Chief Accounting Officer. This.
This team is eight decades of combined experience and a great working knowledge of our business in the ammunition industry.
While market conditions were more challenging in the second quarter, we see a higher baseline and participation rates remain very strong.
Next data continues to signal a sustained gun purchases with now 50 straight months of firearms checks over $1 million.
In September this was 13% higher than 2019 and continues to show the industry has grown its user base.
We have seen a return to seasonal buying patterns driving the consumer purchase cycle and continued participation from the 19 million new gun owners.
There has also been a significant recent increase in demand across several categories due to global unrest that we are monitoring.
We continue to monitor point of sale and customer level inventory in this dynamic market.
To highlight some recent wins, we secured the department of Homeland security contracts for five years to provide the highest quality duty ammunition for both the U S customs and border patrol and immigration and customs enforcement agencies.
The CBB contract is our second largest ever in both agencies chose federal's tactical bonded ammunition for their duty rifles.
This supports their mission to protect our borders and preserve national security and public safety.
Our law enforcement team also secured a contract win with the Miami Dade Police Department the April or just department in the United States. The 3500 member Police force will use spear nine millimeter gold dot for their duty pistol and federal to 'twenty three tactical bonded ammunition for the department's duty rifle.
We are proud to provide the highest quality duty ammunition to law enforcement and federal agencies in the United States and globally.
Our employees produce excellent products that many law enforcement agencies in the United States Trust to protect and serve our communities.
As we work towards the closing of the sale to <unk>. The team will continue to focus on making the best ammunition in America and delivering on our goals. We believe our diverse customer base, our multi brand strategy will allow us to compete for additional market share expand our presence into new markets improve the financial performance of <unk>.
<unk> and continue to deliver mid 20% segment adjusted EBITDA margins.
I have full confidence that with the best team in the ammunition business. We will continue to perform at the highest level. We look forward to working towards closing the sale to <unk> in the calendar year 2024.
Thank you Eric.
Thanks, Jason and good morning, everyone.
During my first 10 weeks by visited multiple Revelus locations on a look listen learn tour.
Had the chance to meet and hear from a large number of our employees were eager to share their pride and excitement about the future of our company.
Left feeling energized.
I saw a tremendous amount of potential and a lot to be excited about at this company, which we have recently named rebel list.
<unk> list, we are a collective a category defining makeup brands transcending the boundaries of precision performance and protection.
We exist to inspire and equip the ambitious to achieve their greatest experiences in the places they love.
We are excited for you all to join us in our pursuit to redefine what is humanly possible outdoors.
As I mentioned I was thrilled to meet so many of the proud and talented employees, we have to lead us into the future.
As previously announced Andy Keegan currently Vice President and interim CFO of Vista outdoor plans to join <unk> as CFO.
Andy its work as interim CFO has given me and the board high confidence in his ability to serve in this position.
In addition, we announced the hiring of our General Counsel John Choi.
John has over 15 years of diverse legal experience and expertise most recently, serving as general counsel and corporate Secretary for box, a publicly traded e-commerce grocery platform.
I am eager to partner with Andy John and the rest of the leadership team and leading rebels. During this transformational period in our company's history and support the work that we're doing to advance our mission of creating the best and largest house of outdoor brands.
As I was able to reflect on what I saw and learned from my tour a few things became very clear to me.
We have one of the most passionate workforces in the industry.
Second a big part of the reason for their passion is that our company is comprised of a collection of many of the world's most iconic outdoor brands.
Third what I observed and heard in several ways from our team was at these powerful brands and assets have not yet been harnessed and elevated to achieve their true potential.
While our fully formed strategy for rebel list will evolve and expand over the coming months a few key pillars of that game plan are already clear and we will act on them with urgency.
As such we are kicking off a new program today called the gear up inspired by our future stock ticker gear.
This transformation program will focus on three elements.
Those elements are simplifying the business model.
Delivering increased efficiency and profitability from that simplified structure.
And reinvesting in our highest potential brands to accelerate their growth and transformation.
In the current structure the business has become increasingly complex over time with multiple acquisitions, causing brands to become independent of one another and creating inefficiencies across the entire company.
Through a simplified structure <unk> can become an integrated house of iconic high performing outdoor brands that work together as one cohesive unit to form a globally branded company.
We will leverage shared learnings and centers of empowerment across the company to drive efficiency through strong execution, while embarking on a global omnichannel growth strategy that marries our imagination with innovation to create products that unlock wildly human experiences.
Our first action toward achieving our goal of simplification within the gear up initiative is to reorganize the business to create three distinct platforms and drive success. The platforms will be one precision sports and technology, which will consist of fore sight sports and Bushnell golf, our highest EBITDA margin in <unk>.
<unk> growth potential business, which will be led by John waters, and Scott Berg low co presidents of precision sports and technology.
Adventure sports, which will be comprised of Fox Bill zero, Camelback, quiet cat and more or less.
Largest segment with the most well renowned brands, which will be led by Jeff <unk> President of adventure sports and three outdoor performance, which will include Bushnell pretty most Sims camp Chef Stone Glacier and more a group with market leadership, and hiking camping fishing and hunting.
In addition, with our Blackhawk brand. We also serve our military first responders and law enforcement professionals around the world with Pride. This.
This group will be led by Jordan Judd President of outdoor performance.
This simplified structure will allow us to kick off a significant efficiency program within the gear up framework that is being actions immediately.
We expect that this effort will streamline our operations and unlock profitability improvements and cost savings beginning in Q4 fiscal year 2024, with an estimated $100 million of realized annual cost savings by fiscal year 2027.
These net savings are in addition to the $50 million cost restructuring program announced in April 2023, with about $25 million of those early savings specifically related to rebel list.
For a total of $125 million in cost improvements on a run rate basis.
Enabled by a simplified structure and powered by our recently signed deal with a leading consulting partner. This new initiative will maximize efficiency through consolidation of our current real estate footprint as well as within our back office technology stack supply chain and organizational structure.
And the next several weeks and months, we will start our investor Roadshows attend conferences and hosted an investor day in the spring of 2024 to provide more details on our strategic plan.
We are taking decisive action at this time to position us well ahead of the separation.
Set us up for a strong start to fiscal year 2025.
As reflected in our guidance, we are working hard to clear high priced inventory to ensure that our products are front and center with our channel partners during the holiday season, we.
We intend to utilize strategic promotions to work through the high priced inventory and continue driving market share gains across categories, regardless of external market factors.
We are building momentum from the ground up and expect sequential margin improvement from Q3 to Q4, finishing the fiscal year strong.
Through our efforts in the back half of fiscal year 2024, our inventory will be right sized our restructuring program will begin taking hold and other strategic growth initiatives across the company will fuel organic topline growth reversing the declines experienced over the past few quarters carrying us into fiscal year 2025.
With momentum.
Lastly, in the near term I am excited to announce the first ever Revelus list that showcases select great products that our teams have built in time for the holidays. These products range across our brands.
From foresight sports, we have the all new fore sight Falcon to shave strokes off your game with the best launch monitor and simulator technology on the market.
Our Busch now live camera with true target and on X integration, let you see live video of the Wildlife you manage the spots you scale and the property you protect.
From a quiet cat electric bikes, we offer the all new quiet cat links to take you from the trails to around the town.
From Simms fishing products, we have the all new challenger seven inch deck boot.
Purpose built fishing footwear, that's extremely versatile.
Around and off the water.
And from zero just in time for the skiing season, we offer the all new Owens spherical helmet built for moments on the mountain with modern styling premium innovations and all day comfort.
This is just a short list highlighting the culture of innovation we have.
Youll be able to find the full rebalances lift across all of our social channels and our web site <unk> Dot com along with the unique stories behind each product.
In closing our future at <unk> is right.
While we have hard work to do our future value creation will come from streamlining and efficiency savings brand building.
Incredible consumer focused innovation and.
And expanded international footprint.
Doubling down on our own DTC business and.
And expanding our technology and gaming investments, particularly within the precision sports and technology area.
We look forward to sharing more of those plans in the months ahead as we work towards our Investor day being rescheduled for spring 2024.
I'll now hand, it over to Andy to provide a financial update for the quarter Andy over to you.
Thank you, Eric and Hello, everyone.
My comments today will focus on adjusted results compared to the prior year period, unless otherwise noted.
Which I presented using non-GAAP financial measures and.
In the appendix to the slide presentation. We've included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures for.
For additional information regarding forward looking statements and non-GAAP financial measures. Please refer to page 30 of the slide presentation.
Further as a result of correspondence with FCC staff in connection with the separation of our outdoor products and supporting products businesses.
Adjusted results reflected slightly different preparation than what was done previously and do not have an adjustment for certain retention payments.
Turning to slide 22.
For the second quarter total sales decreased 13, 4% to $677 million.
In line with our recent earnings press release.
Organic sales for the quarter were $646 million down 17, 4% driven by lower shipments across nearly all categories in flooring products.
And lower volume as channel partners continue to be cautious purchasing due to inventory levels and short term consumer pressures in the outdoor products businesses.
Gross profit was $209 million and gross margin decreased 270 basis points to 39%.
The decline was primarily due to lower volume and price in our sporting products segment and decreased volumes in the organic outdoor products businesses, partially offset by acquisition.
EBITDA in the quarter decreased 27, 6% to $116 million and EBIT margin was 17, 2% down 370 basis points.
<unk> EBITDA for the quarter was $114 million a decrease of 29, 2%.
Organic EBITDA margin in Q2 was 17, 6% down 292 basis points.
The decline was driven by lower gross profit in both segments, partially offset by decreased selling cost and supporting products and decreased selling general and administrative expenses related to the organic businesses and outdoor products.
Second quarter EPS decreased 42, 5% to 96.
Turning to slide 23, our balance sheet remains healthy year.
Year to date free cash flow was $116 million.
Net debt decreased $27 million sequentially to $905 million and our net debt leverage ratio is now at one eight times.
Turning to our segment results on slide 24 within outdoor products sales decreased six 3% in Q2 to $327 million.
Organic sales were down 15, 2% to $296 million in Q2, driven primarily by lower volumes as channel partners continue to be cautious with purchasing due to inventory levels and as consumers are pressured by higher interest rates and other short term factors affecting their purchases of consumer durable goods.
Yeah.
Gross profit decreased 12% in Q2 to $94 million due.
Due to lower volume from organic businesses, partially offset by acquisition.
Gross margin decreased 197 basis points to 28, 6%.
EBITDA in Q2 was $30 million down, 33% with an EBITDA margin of nine 3% down 370 basis points.
Organic EBITDA decreased 38, 4% to $28 million.
Inorganic EBITDA margin decreased to nine 4% down 354 basis points.
The decline in the quarter was primarily driven by decreased gross profit, partially offset by reduced selling general and administrative costs related to organic business.
Responding products sales in Q2 decreased 19, 2% to $350 million driven by lower shipments across nearly all categories as channel inventory has normalized lower pricing.
The previously announced termination of the Lake City contract at the beginning of the third fiscal quarter in the prior year.
Gross profit decreased 27, 6% in Q2 to $115 million driven by a decreased volume and price.
Margin decreased 382 basis points to 33%.
EBITDA was $99 million down 29, 4%, primarily due to decreased gross profit, partially offset by lower selling cost.
EBIT margin was 28, 3% a decrease of 490 basis points.
As Eric mentioned, our gear up transformation program for Revlon as being Ashton immediately.
As we work to simplify and streamline our operations.
Currently expect gear up to start contributing limited cost savings in Q4 fiscal 2024.
<unk> contributed approximately $25 million to $30 million and realized cost savings in fiscal 2025, and we expect to unlock an estimated $100 million and realized annual cost savings in fiscal year 2027.
As a result of this program.
These savings are in addition to the $25 million related specifically to <unk> as part of our $50 million cost restructuring program announced in April 2023.
Great total an estimated $125 million of cost savings related to <unk> on a run rate basis.
In fiscal year 2025, we anticipate that the $25 million to $30 million of cost savings related to our gear up program.
Contributions from our previously announced April 2023 cost restructuring program as well as our previously communicated improvements in supply chain freight and lower expected promotions will help as we aim to bring our outdoor products segment EBITDA margins to low double digit levels or said differently our <unk>.
Sand alone Revlon business, including estimated stand alone cost to high single digit adjusted EBITDA margin.
This would be approximately a 400 basis point improvement from fiscal year 2024.
We expect that <unk> adjusted EBITDA margin will be in the mid teens, including estimated standalone path.
By our fiscal year, 2027, and estimated 1000 basis point improvement over Standalone fiscal 2024, with the $125 million of.
Realized run rate cost savings being the primary driver of the increase from today's levels.
We are reaffirming the full year 2020 forward guidance discussed on our conference call a few weeks ago.
For the full fiscal year 2024, we expect sales of $2 75 billion to $2 85 billion.
<unk> product sales of $1 45 billion to $1 5 billion.
And outdoor product sales of $1 $2 75 billion to $1 32 5 billion.
Adjusted EBITDA margins between 15, 5% and $16 two 5%.
Turning products EBITDA margin range of 26, 5% to 27, 5%.
And outdoor products EBITDA margin range of seven 7% to $8 two 5%.
Adjusted EPS in the range of $3 65 to $4 59.
And effective tax rate of approximately 19, 5%.
Interest expense in the range of $55 million to $65 million in.
And adjusted free cash flow between $265 million and $315 million.
Diving deeper, although we do not provide quarterly guidance, we thought it would be prudent to give more color on our expectations for the remainder of the year.
And the sporting products segment Q2 sales were pressured by the market softening across categories. We believe that the current increased global unrest along with the strong hunting season in Q3 and the start of an election season. In Q4 will result in more favorable performance than in Q2.
We see segment adjusted EBITDA margins in the mid 20% range for the rest of our fiscal year.
In outdoor products as previously mentioned.
High interest rates and other short term factors have impacted consumer demand.
We expect consumer demand to be slower for the rest of the calendar year 2023.
Resulting in channel partners remaining cautious and not increasing their purchasing behavior until calendar year 2024.
This dynamic is causing slower than expected inventory sell in which coupled with promotional pressures as we worked itself through our high priced inventory positions. During the holiday season is driving down profitability in Q3.
We expect sales to decline in the high single digit range in Q3 versus the prior year period.
Turning to low single digit growth in Q4 versus the prior year period.
The year over year growth in Q4 will be driven by exciting new product introductions in our golf business as well as more favorable purchasing patterns in our action sports businesses versus the prior year.
Due to the increased promotional environment of the holiday season, and moving through the higher priced inventory in Q3, we expect segment adjusted EBITDA margin to be in mid single digits.
Turning to high single digits in the fourth quarter as we reduced promotion and start to see the impact of our gear up program read through.
With the expected improvement in outdoor products to end fiscal year 2024, which includes returning to organic growth and generated segment adjusted EBITDA margin in the high single digits in Q4, combined with our Europe profitability improvement program, we seek rebel as adjusted EBIT dollars on a standalone basis to double in fiscal <unk>.
Year 2025.
Also still gaining market share in key categories, which positions us well for a strong start to fiscal year 2025, as we expect demand to return and channel partners to begin purchasing at normal rates again.
Thank you everyone. Operator, please open up the line for questions.
Thank you.
To ask a question. Please press Star then one on your telephone keypad.
If you change your mind any time, please press star.
We now have Matt Koranda with Roth and Ken Your line is open.
Yeah.
Hey, guys. Good morning, Thanks for taking the questions.
Just first on the higher level of sale dynamics.
Bulk.
<unk> business.
Any potential for another buyer to emerge now that that transaction is public and then just could you maybe help us understand the next steps.
<unk> approval as it pertains to the transaction.
Sure Matt This is Gary as to speculating, whether another buyer will come forward that would be.
Just speculation it's always possible.
We as a board and the company are not allowed to go solicit.
Buyers, but.
If a qualified bid comes forward, we do have the ability to evaluate such.
With regards to <unk> and other regulatory approvals, we expect to have all of those filed in the coming weeks and <unk>.
From there obviously it will just proceed as they typically do through that process. We do have a shareholder vote is required that we will anticipate in that March April timeframe, and thats kind of the process for the next steps.
Okay I appreciate that Gary. Thank you and then maybe just for Jason can you talk about the dynamic that's happening.
And the retail and distribution channels as it pertains to two to three and $5 six I guess, we've been seeing some of that inventory clearing in recent weeks.
What are you seeing in terms of inventory and pricing and how does that feed into the commentary that you guys provided in terms of the more favorable performance for the next couple of quarters.
Yes. Good question, Matt So on the two to $3 six specifically, we don't do a whole lot of that commercially anymore. Most of ours is tied to law enforcement government contracts, what we've seen recently and we'll say in the last four weeks, we've certainly seen.
Pos upticks significantly across broader categories.
And we watch that daily literally daily with our customers and then our wholesale partners, we watch their inventory daily, but we certainly have seen an uptick in.
In the last four weeks across pretty much all categories.
Got it and then as it pertains to the near term sort of guidance commentary. They provided the more favorable performance I guess, just help us unpack what that means it sounds like.
Higher revenue and then you alluded to sort of mid 20% EBITDA margin in that segment, I guess that might be a little lower than where you were in the second quarter. So just help us kind of square those.
Yes, I think I think on the EBITDA front, we like what we see on the EBITDA front, we've always guided towards mid <unk> in the back half of the year, there could be some favorability to that.
And the third and fourth quarter, if we see what market trends are and if we can control mix.
A little bit and get more profitable items out there than we had assumed so I think on the revenue side.
Don't guide quarterly I think it is going to look very similar to the first half. The second half will look very similar and there is a chance that we don't see the degradation of the profitability that we had predicted in the first part of the year.
Okay got it that's clear.
Then.
<unk>.
For Eric maybe.
Just curious are we committing to mid teens standalone EBITDA margins for <unk> still.
And then as the Euro program enough to get you there I guess I'm curious how much of the $100 million of incremental cost savings in that program are related to sort of segment cost improvements versus corporate costs. If you could maybe just help us understand and unpack that program a bit in a bit more detail on how it pretty.
The long term targets that would be great.
Sure Hey, Matt its Eric I'll provide some color and then I'll turn it over to Andy to give a little bit of additional detail, but first and foremost is to your first question you asked about our long term guidance and we do feel like the mid teens long term guidance is something that we are still committing to and will continue to provide.
More detail on that over the coming months with regards to the gear up program. It's obviously something that we're very excited and committed to doing.
It's a program that drives profitability improvements along with organic growth for <unk> and.
Everything does ladder back to that $100 million in new cost savings and $25 million in cost savings from the March 2023 initiative. So we just wanted to make sure. It's clear that that's how we get to the $125 million in cost savings by fiscal year 2007.
We're on that with a great team and a.
World Class consulting organization and just to give you some color before I pass it over to Andy.
There's a lot of significant detail there that I think will build confidence for all of our stakeholders. When we look at simplifying the business model, we do feel really good about the three platforms that we announced this morning and we've been working on now for the past several weeks.
Really going to that precision sports technology platform, which will be driven by fore sight and Bushnell golf the adventure sports platform, which will be driven by Fox Bell Giro quiet cat and camelback and our outdoor performance grew which will be driven by <unk> and camp chef Bushnell Blackhawk.
Pre most and more.
And Theres a lot of it.
Assignment about being able to really focus on those brands to grow.
And then secondly, we feel really good about delivering increased efficiency and profitability.
There's some color to that initiative called gear up.
Really the entirety of the transformation.
With supply chain today, we have nine Dcs and domestic warehouses, and we see significant consolidation opportunity in the future.
Today, we have eight USA manufacturing sites, and we see opportunity for consolidation in the future, which will lead to cost savings there.
On the real estate front, we have over 21 domestic locations today, and we expect some significant real estate consolidation. So that's just a little bit of color for how we're going to get there, but yes, we do feel good that those programs will lead to those.
Improvement improved margins overtime, and do you want to add any more to that.
I think Florida is a great one.
We want to be clear the $100 million Europe program is going to be fully related to red list. So there isn't going to be only a part of that actually goes railroads. Unlike the previous program, which was split between the two this is going to be completely related to revenue so that will get us.
A fairly significant way towards that mid teens once fully implemented there will be a little bit more we need to do and I think some of that is going to be a lot of what Eric talked about is the growth in some of these very high profit areas of Gulf and other areas with new products that are going to generate additional revenue will help close that gap as well.
But this is going to be a significant component of us getting at which is why we're confident in the mid teens.
One of them.
Got it I'll leave it there guys appreciate it.
Thank you.
I will have Mark Smith of Lake Street Capital markets. Please go ahead, when you're ready.
Hey, guys Bill extending on the line for Mark Smith This morning.
Sure.
For my first question for the <unk> business, you guys mentioned simplifying the business model reinvesting in high potential brands.
Are there any consideration or discussion about the possibility of divesting certain brands within that level its portfolio.
Hey, Alex it's Eric.
Thanks for the question the answer is yes.
Think about focus we're going to continue to give.
Give more information about how we're looking at our brands over the months ahead, but at a high level, we look at our power brands being things like foresight and Bushnell golf.
Fox spells euro.
Sims.
And Bush now and we're going to really focus a lot of our efforts on those things and as we focus intensely on our power brands that will also mean that we're taking a look at all of the brands in our portfolio and I would say that we are evaluating all of our assets and we are open to licensing.
Or divesting from non core assets and brands in the future and as we make more progress on that we'll certainly be updating all stakeholders in our community.
That's great.
And then for my second question here could.
Could you give your thoughts around the promotional environment as we enter this holiday season, you guys being a little more promotional than traditional levels. And then are you guys seeing retail partners getting overly promotional.
Yes, so I mean, as we mentioned the promotional level, it's going to be let's say more than historical as we are moving through inventory and the retailers are moving through inventory. This time periods of the high priced inventory that we have on our balance sheet, we have made progress our outdoor.
<unk> business was down about $20 million little bit over that in inventory here in the in the quarter, but we need to move through more of that so youre going to see promotional environment.
More than typical in the third quarter, which is why we are expecting EBITDA margins to be a little bit lower in Q3 for the rebels.
Rebel aside and then that will return because those promotions will not continue past the holiday season, so ill.
It will come back in Q4, which is the which is a little bit of a dip and bring it up but it will move through the inventories and the retailers will have moved through it because we're partnering with them as well and that will be will not continue into next year is the expectation. It will return more to historic normal levels.
Well, that's great Hey, Thanks for taking my question today.
You bet. Thanks, Alex.
Thank you.
I'll have Jim Chartier of my last question.
Okay.
Good morning, Thanks for taking my question.
Can you just tell us what your expectation for Standalone EBITDA for <unk> this year.
Yeah Standalone EBITDA.
So based on our 8% midpoint for what we're guiding for the segment with just over 50 million of expected Standalone cost, it's going to be in that $4. Five ish percent range is what we what you would expect for FY 'twenty four.
Okay, and then you mentioned the press release.
Thought so maybe double that next year whats kind of the constantino ability.
That.
In addition to the cost saving plan outlines what would be the drivers behind that some excellent growth.
Yes.
Few things I think that we are we said it though are certainly confident that we can accomplish the accomplish this bill I think youre right that 25% to 30 is a big component of that or what we're doing with the project savings promotions that we just talked about as well not having those repeat it because we do expect promotions, but theyre going to be at more.
Political normal levels and with inventory that is at the lower price that we expected. So those items between the promotions coming down to more normal and the supply that we are already expected with great reductions in the.
Those high priced inventory items that we have moved through will get us the remaining amount of that difference.
From the 25% to 32, the doubling that were talked about.
Okay. So you don't need any meaningful revenue growth next year to achieve that.
Revenue growth would not be the necessary. This is going to be more on the cost to get to that level. We do it we will we will evaluate the revenue and where we expect to grow but given the new innovations and whatnot that we're working through and the fact that Q4 is going to start the organic growth that will be that will be.
<unk> on the top basically of that.
Okay and then.
Any plans to reinvest any.
You have to gear up savings in key parts of the business.
The $100 million is the net debt.
Would expect EBITDA to move by we are fully expecting that we're going to be reinvesting. So there will be portions of the savings that will be going into reinvestment, but that is a net number that we would expect our EBITDA, which is going to get us to that mid teens long term, but the reinvestment is a very important aspect for our business between marketing.
And the innovation of R&D to really grow these businesses.
See that organic growth that we're fully expecting that is going to be a key component of it but we just wanted they are communicating the net to make it as easy as possible.
Okay, great. Thank you.
Thank you as a reminder, if you'd like to ask any further question. Please press Star then one on your telephone keypad now.
We now have William Reuter with Bank of America.
Okay.
Hi, I just have two.
The first is now that you've had a little more time since the announcement of the divestiture has there been any change.
Change in the plans with regard to repaying the bonds do you still plan to repay them before closing and do you know if this is planned to be a call or the seasons.
If you could give them given that any more thoughts.
Thanks Bill.
So we have a little time as we said the vote would be in March it kind of end of March April time period.
Lee will be a redemption of the bonds in our call.
The make whole premium so that that is still the expectation until then.
Haven't had any other discussions on anything earlier than that.
Being done at this point.
Great and then in terms of the commentary about what's going on with Rev listen.
Inventory levels in your different channels.
Is it just elevated inventory and Destocking thats going on with regard to the kind of soft environment or how is sell through of those products.
Yes.
No Pls is down as well so it isn't just that inventory is.
Is down.
But the what we're seeing is beyond the appeal is being down.
Sell in isn't even keeping up with the pls. So there is still a gap between those those items that pls.
Is it down but it is slowing on how compared year over year that isn't as down as it previously was that more of that it started last year at this point in time. So we're just seeing that it's kind of stabilized that's helpful levels, though so.
So it is continuing to be down.
Which is why part of what promotional is going to be for Q3 to push through the inventory we need to increase some of that pls, which is why the promotions a little bit higher than they would be normally to drive that here in the holiday season.
I guess, one follow up on that the Pos being down how much of that do you think is being driven just by constrained consumer budgets versus changes in behavior that maybe causing people to participate less in some of these activities post COVID-19.
<unk>.
I think it's a mix and it certainly is a mix that there aren't constrained budgets, but the consumer in.
And these discretionary type of activities is a little bit lighter, but I think they're making some decisions to do other items the participation in general in the outdoors. It's still there's still high we are still seeing solid participation in elevated levels above the pandemic time.
Frequent endemic period. So long term, we still are confident that this is going to return to growth over from where they were they have been here over the last few months or even year, but it is right now constrained on that and its a mix its hard to point exactly what is what's driving wide, but there certainly isn't.
Of that.
Yeah understood. Okay cool that's all from me. Thank you.
Thank you.
Got to ask any further question.
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