Q2 2025 American Outdoor Brands Inc Earnings Call
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Speaker Change: Good afternoon and welcome to the American Outdoor Brand's second quarter fiscal 2025 earnings conference call.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Liz Sharp, Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon.
Speaker Change: Our comments today may contain predictions, estimates, and other forward-looking statements.
Speaker Change: and in our industry in general, and growth opportunities and trends.
Speaker Change: Our forward-looking statements represent our current judgment about the future, and they 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.
Speaker Change: You can find those documents, as well as a replay of this call, on our website at AOB.com.
Speaker Change: 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.
Speaker Change: I have a few important items to note about our comments on today's call. First, we referenced certain non-GAAP financial measures.
Speaker Change: Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, technology implementation, non-recurring inventory reserve adjustments, other costs, and income tax adjustments.
Speaker Change: The reconciliation of GAAP financial measures to non-GAAP financial measures, whether 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.
Speaker Change: Also, when we reference EPS, we are always referencing fully diluted EPS.
Speaker Change: Joining us on today's call is Brian Murphy, President and CEO, and Andy Fulmer, CFO. And with that, I'll turn the call over to Brian.
Thanks, Liz, and thanks, everyone, for joining us.
Brian Murphy: I'm very pleased to share that our second quarter performance surpassed our expectations showcasing the strength of our strategy
Brian Murphy: More specifically, we believe our results validate the long-term commitment we've made to being an innovation company yielding differentiation in a highly dynamic environment.
Brian Murphy: We believe our ability to innovate year after year has given us a unique and compelling advantage.
Brian Murphy: Our goal is to leverage that innovation advantage to widen our distribution, expand our brand's awareness,
Brian Murphy: and increase our profitability while staying agile and asset-like, allowing us to seize new opportunities while adapting to evolving market conditions.
Brian Murphy: We successfully achieved our objectives in the second quarter. Here are some examples.
Brian Murphy: We delivered net sales of over $60 million, a 4% increase over last year, and higher than our expectations.
Brian Murphy: We grew international net sales by nearly 15% year over year.
Brian Murphy: We achieved our highest single shipping month ever in October out of our Columbia facility.
Brian Murphy: We achieved year-over-year net sales growth in both the outdoor lifestyle and shooting sports categories.
Brian Murphy: Importantly, we deliver positive growth across every single sales channel, including traditional, e-commerce, domestic, and international.
Brian Murphy: And, it is especially notable that our growth in the quarter was driven entirely by in-line products.
Brian Murphy: well ahead of the new product launches that we have planned for the second half of our fiscal year.
Brian Murphy: Our innovation-driven strategy continues to foster new and expanded relationships with our retailers and consumers, strengthening our foundation for future growth.
This innovation advantage comes in three forms.
Our consistent pipeline of new products, our distinctive merchandising solutions,
and our role as a cross-category innovation partner.
Brian Murphy: Let me quickly touch on these advantages, each of which serves as a part of a mosaic that we envisioned years ago, and which together represents strategic investments over time, which are now coming to fruition.
First, new products.
Brian Murphy: A steady stream of new breakthrough products not only excites consumers but also offers a solution to retailers demand for traffic driving products.
Brian Murphy: Our new product pipeline is Evergreen, keeping our retail partners and their customers engaged with our brands.
Second, distinctive merchandising solutions that tell our brand story.
Brian Murphy: We've modernized and rebranded all of our key brands, such as Bubba, Caldwell, and BOG.
Brian Murphy: With updated logos, modern and sleek packaging, and impactful displays, our brands stand out on shelves and command attention, making it easier for retailers to present them prominently.
and third, a cross-category innovation partner.
Brian Murphy: Our ability to offer retailers a diverse menu of brands, made relevant by high quality and innovative products, makes us a single, reliable, turnkey partner of choice.
Brian Murphy: We can deliver a steady stream of exciting new products across multiple categories on a consistent basis.
Brian Murphy: What we hear from our retail partners is that while some providers can occasionally deliver on one or another of these forms of innovation.
Brian Murphy: It's extremely rare to see one vendor partner who can consistently deliver on all three.
Brian Murphy: I guess you could say we're sort of a shortcut for retailers who want immediate and ongoing access to a suite of high-quality, in-demand brands known for innovation.
Brian Murphy: The advantage is fueling our expansion into new accounts and deepening our reach with existing customers.
Brian Murphy: This is a fundamental driver for this quarter's outperformance and what gives us a higher degree of visibility into the future.
which I'll discuss in a bit.
Brian Murphy: All three elements of our innovation advantage will be on full display in January at the world's largest B2B trade show focused on shooting, hunting, and outdoor products, otherwise known as SHOT Show.
Brian Murphy: Imagine a show that spans not one, but two convention centers.
Brian Murphy: Well, many of the exhibitors often seem to be fitting in.
Brian Murphy: with more of the same products year after year. We actually see the show as an opportunity to stand out.
Brian Murphy: I can't tell you how many times retailers have come into our booth and instead of sitting down right away to review performance, they're giddy to see our brands in one place and immediately ask, can we go walk the booth and see everything that's new?
But there's something really interesting that happens on these walks.
Brian Murphy: We're not just showcasing new shooting and hunting products, it's an opportunity for our retail partners to be introduced to new brands altogether.
Brian Murphy: Last year, we introduced two new brands that were previously available direct-to-consumer only.
Brian Murphy: Meet Your Maker, a groundbreaking line of meat processing equipment. And Grilla, a first-of-its-kind provider of modular outdoor kitchens and cooking solutions.
Brian Murphy: While these products are unconventional for the show, having them on display opened doors to an entirely new audience, while presenting retailers with an opportunity to bundle together cross-category innovation for their customers with our growing portfolio of brands.
Brian Murphy: Now, Meteor Maker products are beginning to pop up at several large retailers across the US and Canada, and Gorilla products are right behind them.
Brian Murphy: As we have indicated previously, our new product pipeline is extremely robust, and our teams have finalized plans for a significant number of very exciting new products from a number of our brands that we will begin introducing next month.
Brian Murphy: I can't wait for everyone to see one particularly, quite revolutionary, new product from our Caldwell brand. It's truly a new spin on shotgun sports.
Brian Murphy: From meaningful updates to existing lines, to revolutionary new products, we're confident these launches will deliver significant value for our retail partners.
Brian Murphy: In fact, we had the opportunity to preview many of these upcoming new products with our retailers during the second quarter, a time when many of them are planning their assortments for the coming year.
The reception was overwhelmingly positive.
Brian Murphy: And retailers provided us with strong early order indications and commitments for expanded shelf space.
Brian Murphy: These indications give us a degree of visibility that extends beyond Fiscal 2025.
Brian Murphy: Because of that, we're increasing our guidance for FY25 and providing our initial net sales outlook for FY26.
Brian Murphy: Looking ahead, the enthusiastic reception from retailers underscores the strength of our strategy.
Brian Murphy: In addition, our results in the current quarter demonstrate the discipline, patience, and execution that we believe is required to build a company ready for the future.
expand our brand's awareness and enhance profitability.
Brian Murphy: Doing so in this dynamic and ever-changing environment will require us to remain agile.
Brian Murphy: This means keeping things simple with a flexible, asset-light platform and maintaining a strong balance sheet.
We have both of these things today.
Brian Murphy: With that said, I'm excited about what lies ahead and look forward to sharing more. With that, I'll turn it over to Andy to discuss our financial results.
Andy Fulmer: Thanks, Brian. As Brian mentioned, we're very pleased with our results for the second quarter with net sales and profitability coming in above our expectations.
Andy Fulmer: We maintained a strong balance sheet and continue to return capital to shareholders with our share repurchase program. Let me walk you through the details.
Andy Fulmer: Net sales for Q2 were $60.2 million, a 4% increase over the $57.9 million in Q2 last year.
Speaker Change: As Brian shared, we achieved our highest ever shipping month in October from our Columbia, Missouri facility.
Speaker Change: Our ability to ship to this unprecedented level was made possible, in part, by efficiencies we gained by expanding our facility lease in January 2024.
Speaker Change: By controlling 100% of our Missouri facility, we've been able to optimize our floor plans, workflow, and shipping logistics.
All of which combine to make October's record-level shipments possible.
Great job to the distribution team.
Speaker Change: In our Outdoor Lifestyle category, which consists of products relating to hunting, fishing, camping, outdoor cooking, and rugged outdoor activities,
Net sales grew by 5.4 percent.
Speaker Change: Products from our Meat, Bog, and Grilla brands delivered strong hunting, meat processing, and outdoor cooking performance.
Speaker Change: In our shooting sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance, and personal protection,
Net sales grew by nearly 2% compared to last year.
Products from our Caldwell Claymore family and our Tipton brand.
Speaker Change: drove strength in shooting accessories that more than offset a slight decline in personal protection products. And here, I'll just add a reminder that while we don't produce firearms, our shooting sports category tends to align with adjusted NICS background check results, which were up by about 1% for the same period.
Turning now to our distribution channels.
Speaker Change: Increased and expanded distribution channel opportunities are one of the avenues that comprise our long-term strategic growth plan.
Speaker Change: As a reminder, our e-commerce channel includes direct-to-consumer sales from our own websites, as well as sales by online retailers that do not have brick-and-mortar stores.
Speaker Change: We continue to expand our presence in the international markets as well.
Speaker Change: Our brands are reaching more Canadian consumers than ever before, helping to deliver international net sales of $3.4 million, which comprise roughly 6% of our total net sales in the quarter, and represented year-over-year growth of nearly 15%.
Speaker Change: Turning to gross margin. Gross margin for Q2 was 48%, a 230 basis point increase from 45.7% in Q2 last year.
Speaker Change: The increase was mainly due to expected favorable inbound freight costs and the timing of some promotional programs that occurred in Q2 last year that did not materialize in Q2 this year.
Turning to operating expenses.
Speaker Change: Gap operating expenses for the quarter were $25.8 million compared to $26.5 million last year.
Speaker Change: The improvement was driven mainly by lower legal and advertising costs, as well as a reduction in intangible asset amortization, offset by an increase in compensation expense.
Speaker Change: Our OPEX reduction this quarter is a great demonstration of the disciplined cost management philosophy we employ in the ordinary course of business.
Speaker Change: It's an approach that helps us maintain a lower level of expense over the long term, allowing us to be agile and asset light when responding to changes in our environment, without resorting to large and sudden cost cuts.
Speaker Change: This approach supports the sustainability of our long-term model and will serve us well as we grow our top line.
Speaker Change: On a non-GAP basis, operating expenses in Q2 were up slightly to $22.7 million compared to $22.3 million in Q2 last year.
Speaker Change: Gap EPS was $0.24 for the second quarter compared to $0.01 for the second quarter last year.
Speaker Change: On a non-GAAP basis, EPS was $0.37 in Q2 this year compared to $0.25 in the prior year.
Speaker Change: Our Q2 figures are based on our fully diluted share count of approximately 13.1 million shares and we expect that share count to remain consistent through year-end outside of any share buybacks that may occur.
Speaker Change: Adjusted EBITDAs for the quarter was $7.5 million compared to $5.2 million last year.
Speaker Change: On a trailing 12-month basis, adjusted EBITDAs was $12.9 million, up from $11.4 million for the trailing 12-month period a year ago.
Turning now to the Balance Sheet and Cash Flow.
We've talked in the past about the
Speaker Change: where our highest quarterly net sales occur in Q2 and Q3.
Speaker Change: followed by operating cash inflow in the second half of the year as we collect those receivables and lower our inventory levels.
Speaker Change: Operating cash outflow for the second quarter was $7.9 million, driven mainly by an increase in accounts receivable of approximately $17 million.
Speaker Change: The increase in AR was partially driven by the sequential increase in net sales in Q2 versus Q1, as well as by timing of shipments, which were higher toward the end of the second quarter.
Speaker Change: Our inventory is increased by 4.9 million dollars in Q2 as expected to support the upcoming holiday season and to replenish levels for expected sales in Q3.
Speaker Change: As Brian mentioned, we are very pleased with the success of our recent line reviews with several key retailers.
Speaker Change: As a result, we expect to receive initial load-in orders for some of our major new products to those retailers beginning in our fourth quarter and continuing into fiscal 2026.
Speaker Change: Accordingly, we would expect inventory to increase slightly in Q3 and then drop back to approximately $110 million by the end of fiscal 2025.
Speaker Change: This is somewhat higher than we discussed last quarter and directly supports the growth outlook for fiscal 2026 net sales that we are providing today.
Turning to capital expenditures.
Speaker Change: Our operating model is designed to require annual CapEx of roughly 2% of net sales for patents, tooling, and maintenance investments, and our expectations for fiscal 2025 are right in line with that model.
Speaker Change: We spent $468,000 on CapEx in the second quarter, mainly for product tooling and patent costs.
Speaker Change: For full year fiscal 2025, we continue to expect to spend $3.5 to $4.5 million.
Speaker Change: This includes a small amount to build out the new factory outlet store in our Missouri facility, which we expect to open in the spring of 2025.
Speaker Change: We've always been very disciplined when it comes to capital allocation and Q2 was no exception.
Speaker Change: We've invested first and foremost in organic growth and the results we are delivering in the current fiscal quarter and year and our outlook for the year ahead Demonstrate the importance of that priority
Speaker Change: Our board approved a new $10 million share repurchase program effective October 2024 through September 2025.
Speaker Change: In Q2, we repurchased roughly 111,000 shares for $1 million at an average price of $9 per share.
Now turning to our Outlook.
Speaker Change: We remain excited about the opportunities that lie ahead for fiscal 2025 and beyond.
Speaker Change: The indications we received from retailers that Brian outlined have allowed us to increase our expectations for growth Not only in the current year, but into fiscal 2026 as well
Speaker Change: driven by a combination of strength and our existing product lines.
Key new product launches and new distribution opportunities
Speaker Change: We are increasing our net sales guidance to a range of 205 million dollars to 210 million dollars for fiscal 2025.
Speaker Change: Net sales at the midpoint of that range would yield growth of 3.2% for the full year.
Speaker Change: This compares to our original framework for net sales growth of up to 2.5% for the year.
Speaker Change: When looking at just Q3, we expect net sales growth of about 5%.
turning to gross margins.
Speaker Change: Our expectations for gross margins have improved, and now we expect gross margins for the full year to be approximately 45.5%, compared to 44% for the prior year.
Speaker Change: As we discussed on our earnings call in early September, we expect gross margins in the second half of fiscal 2025 to be lower than Q1 and Q2.
Speaker Change: due to increased amortization of tariff and freight variances related to higher inventory purchases that occurred in the first half of the year.
Speaker Change: combined with the delayed Q2 promotions I mentioned earlier that are likely to materialize in the second half of the year.
Speaker Change: As a result, we expect Q3 gross margins to be roughly 45%.
with regard to Apernay expense.
Speaker Change: We expect overall OPEX in fiscal 2025 to increase slightly over the prior year due to higher variable selling and distribution costs driven by our higher net sales range.
Speaker Change: We expect Q3 OPEX to be slightly higher than Q3 in the prior year. As a reminder, Q3 OPEX is typically higher than other quarters due to the cost of trade shows like SHOT Show in January.
Speaker Change: Based on all of these factors, we have increased our estimate of adjusted EBITDAs for fiscal 2025.
from a range of 5.5% to 6% of net sales.
Speaker Change: to a range of between 6.6% and 7.1% of net sales, or $13.5 million to $15 million.
Speaker Change: At the midpoint, this would represent year-over-year adjusted EBITDA growth of roughly 46 percent.
Speaker Change: Lastly, while it's a bit early in our cycle to provide an outlook for our next fiscal year, the early order indications we've received from retailers for both our in-line products and our upcoming new products have given us greater visibility into the future.
Speaker Change: Therefore, we are able to share that for Fiscal 2026, we believe our net sales will be between $220 million and $230 million, which would represent growth of 8.4% at the midpoint.
Speaker Change: With respect to profitability in fiscal 26, we don't plan to provide that outlook until we get closer to our new fiscal year, when we may have a bit more clarity around the impact of the new administration, particularly as it relates to tariffs.
Speaker Change: For now, barring any new tariff impacts or other unforeseen changes, we know that our model yields roughly a 30% contribution on incremental net sales over current levels.
Speaker Change: As Brian indicated, our goal will be to leverage our innovation advantage to widen our distribution, expand our brand's awareness, and increase our profitability, while staying agile and asset light, putting us in the best position possible to capitalize on potential opportunities.
Speaker Change: With that, Operator, please open the call for questions from our analysts.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah, hey guys, you got Alex Ternix on the line for Mark Smith today. Thanks for taking my questions. First one for me...
Speaker Change: Could you give us more insight into the purchasing timeline for retailers? You noted that you're seeing good reception from retailers.
Speaker Change: But I guess, just curious if there's any other drivers that give you confidence in that longer term sales outlook.
Sure. Hey Alex, it's Brian.
Speaker Change: So you're right, so the purchasing timeline, you know, typically around our second quarter.
Speaker Change: and it even flows all the way through sometimes the first week of February.
Speaker Change: is when we typically have most of our line reviews with our customers.
Speaker Change: and really what they're doing is giving us, you know, they're making some big decisions. They're trying to figure out for the following year what they're going to be adding of our products, which means taking out some of the incumbents.
Speaker Change: and so those decisions are made over that course. I think the interesting thing this year is our inline products, like we said in Q2, are performing very, very well.
Speaker Change: So, resonating with the consumers, and retailers caught note of that. I think they want to bring people into their stores, they want to increase foot traffic.
Speaker Change: and they see AOV as a way to do that. So, excited with the traction of our products, they were excited in our line reviews to see what else we had to offer.
Speaker Change: and when we showed them some of the new products that we're planning to come out with and begin showing next month.
We aren't excited.
Speaker Change: and they see it as another opportunity to just bring more people into their stores. So instead of waiting for some of those load-ins to typically occur a year later,
Speaker Change: which is why we typically give that FY, you know, the following year's guidance, usually in the summertime.
Speaker Change: They actually want load-ins a lot sooner. So, you know, what we saw from that is we're going to have to have inventory coming up a little bit towards the end of the year.
Speaker Change: obviously wanted to put some of those some of those points into context that inventory would be going up towards the end of the year and we're frankly just going to see stronger load-ins about six months earlier than we typically would because the retailers want to get a hold of these products sooner than later.
Speaker Change: So, they've given us great line of sight. It's what has led us to be just as bullish as they are.
Speaker Change: Okay and then given some weakness of the shooting sports industry recently you know you saw some good growth there but could you provide some additional color on how products in that market performed in the quarter?
Sure.
Speaker Change: So yeah, I would say generally, we made the comment that we do tend to track what connects
Speaker Change: is to really expand into the categories and activities that tend to have stronger and more reliable long-term growth and one of those areas is shotgun sports.
Speaker Change: And so we put that into place a few years ago. It came out with our Claymore line to begin with.
Speaker Change: and we've used that as our, you know, we've called it our beach head.
Speaker Change: and then we brought out additional products since then and that line especially, we called out that line in the prepared remarks.
Speaker Change: has done exceptionally well for us in terms of new products and it's really helped diversify our revenue mix in the shooting sports side. So we did see, like we said, a little bit of softness in the personal protection side of our business.
Speaker Change: But what's nice is because of that diversity and because of those initiatives that we put into place several years ago, we're actually seeing great growth into some of those stronger and more reliable growth areas.
Speaker Change: Okay, the last one for me, and you also mentioned it in the prepared remarks a little bit, but...
Speaker Change: In terms of the balance sheet, are there any new changes to your philosophy around the use of capital between investments in the business, buybacks, and then M&A, I guess more so just focused on what are you seeing out there in the M&A market right now?
Andy Fulmer: Yeah, Alex, this is Andy. I'll take the first part and then Brian can talk about M&A. So our capital allocation philosophy has remained unchanged. So we have three priorities. First and foremost is organic growth.
Andy Fulmer: and again that organic growth piece really supports what we've talked about on this call, the new product development, you know, that innovation advantage.
Brian Murphy: M&A is our second priority, so we're always looking for complementary brands.
Brian Murphy: Authentic brands that would fit kind of in in our permission to play, you know in the space we're in
Yeah, and I'll add in on...
kind of to further support the philosophy.
Brian Murphy: You know, we did suspect that coming into, you know, potentially a new administration, we would need to be flexible, you know, and We're not in the business of trying to place our bets before we have facts
Speaker Change: And so, one of the ways that gives us that flexibility and be able to respond appropriately to any changes is really to make sure, what Andy said, to have that strong balance sheet. Because we do. We continue to believe that our greatest opportunity is the one that's in front of us.
Speaker Change: So that's that's one thing we just want to make sure to that. We've got a little buffer And that speaks to sustainability over time as it relates to M&A We we continue to be very very aggressive in looking at M&A targets
Speaker Change: The problem that we have is that Andy and I are very
One were very frugal.
Speaker Change: Secondly, we're looking for the right business and the right brands that can fit within the
Speaker Change: our system, and I think that's a very important word, we certainly have a system and ultimately any new brand or company we want to have the same attributes that we have, which is sustainable innovation.
Speaker Change: and it's hard to find the right vessel for that, the right brand for that.
Speaker Change: I would say that we have seen a little bit of a slowdown in the pipeline for M&A over the last two or so months.
Speaker Change: I'm curious to see if that begins to open up again after the new year. And there could be a variety of reasons for that.
Speaker Change: But overall, you know, we'll continue to look at companies, continue to be very aggressive but our, you know, the list of things that we want to see before we commit our shareholders money is
Pretty extensive.
to be disciplined but also be very open-minded.
Perfect, thank you guys.
Yep, thanks Alex.
Speaker Change: Again, if you have a question, please press star then 1.
Speaker Change: The next question is from Matt Karanda with Roth Capital. Please go ahead
Hey guys, good afternoon. Maybe just...
Speaker Change: With the fiscal 25 outlook, if I combine sort of the full year with the third quarter that you're giving, it suggests that we are seeing an acceleration.
Speaker Change: in sales heading in toward the end of the year here. Just wondering if you could put a finer point on like the items that are driving that acceleration. It sounded like, Brian, you were saying there's some additional willingness to take load in given the innovation product that you're introducing, but is there also some play out here of the sell-in that we get from
Speaker Change: Meat and Grilla, especially Grilla, I guess, entering the traditional channel, maybe just any additional color on what you're seeing, you know, for the rest of the year here in terms of the acceleration and sales.
Yeah, absolutely. So Matt, this is Brian.
Speaker Change: Yeah, I expected a question like that, and I thought long and hard about how I would answer that type of question.
Speaker Change: You would think that there would be one brand or two brands, you know, of our horses that would be leading the charge and Really what we're seeing as an acceleration to your point is across the portfolio
Speaker Change: And I think it really gets back to this idea of retailers seeking innovation right now. They're willing to move off of the status quo in a way that they haven't before.
Speaker Change: and because it's painful for them. It's painful for the retailers oftentimes to change out, you know, planograms and to bring a new product. It's why they only do it once a year for the most part.
you know, in a given...
Speaker Change: So the fact that they're willing to move off of the status quo and take in product earlier because they want innovation
Speaker Change: is really what's leading to that, whether it's in line or at some of the new products. But it's really across the board, across our entire portfolio that we're seeing that. And it gets back to this idea of, if I can make a plug for it again, this is really our advantage when it comes to innovation.
Speaker Change: It's new products. They have access to new products. It's our ability to provide compelling merchandising. When people walk in their stores and they walk by our products, it grabs their attention.
Speaker Change: and then also just being a turnkey provider of truly cross-category innovation. So it's a shortcut, like I said in the prepared remarks.
Speaker Change: So it's those three things that I think are really standing out right now Above some of our some of our peers and so that's what's led to this
across the board willingness to take on more AOV product.
Speaker Change: So it's across the board. I wish I had one or two brands to give you but it's
It's very strong across the board.
Speaker Change: Okay, that's good to hear. Then maybe just the further outlook on fiscal 26 that you're providing, I guess...
Speaker Change: Wanted to get your thoughts on the philosophy of why provide something, I mean it's not so far out I guess, but in you know at least in terms of Wall Street is concerned it's it's pretty far away and I guess the the mid to high single-digit growth outlook that you're giving
Maybe just any additional color on, you know...
Speaker Change: What's driving that? Again, is it, you know, sort of some load in you're seeing on the traditional channel? Is it some demand inflection that you've observed? Maybe just additional sort of rationale for why provide an outlook that's kind of that far out.
Brian Murphy: Yeah, Matt, Brian again. I'll start and then Andy, feel free to jump in.
Speaker Change: You know, it's something that we gave a lot of thought to before getting on this call and whether or not to give that sort of guidance.
Speaker Change: The facts that we have are, you know, two things. One, the traction with our inline products.
Speaker Change: You know like we saw in the second quarter and we're seeing an acceleration to your point of those of those inline products going forward
Speaker Change: coupled with those successful line reviews that we had in the second quarter and then the of course line of sight into not only the rest of this year but the beginning part of next year.
Speaker Change: really gave us that confidence. And if it were one or two, let's say large customers,
Speaker Change: We would be more hesitant or reluctant to give this sort of guidance, and I think you know us, we tend to be pretty conservative, so it's a little out of character for us to provide an outlook that goes out this far.
Speaker Change: But because it was across such a large number of retailers in different channels, whether it's farm-at-home or it's e-commerce or it's, you know, mass retail.
Speaker Change: It really expands across all of those. That diversity gave us the confidence to be able to put forward the range that we set for next year. Andy, anything you'd add to that?
Okay, um
Speaker Change: The other thing I wanted to cover was just on the gross margin front.
Speaker Change: for the third quarter, especially from the tariff amortization that you mentioned. And then just also, I guess, any clarifying thoughts or comments around tariff exposure that we still have left?
with the new regime coming in.
Andy Fulmer: Matt, this is Andy. So, the second half of the year
Andy Fulmer: It's it's pretty much shaping up in the same pattern as what we saw last year
Andy Fulmer: So, the higher inventory purchases we have in the first half of the year are going to, we expect to start to amortize off in the second half.
Andy Fulmer: So, the 45% or so that we said we expect for Q3 is going to be a little bit above last year. I'm showing roughly 43% or so. But it's pretty much a similar story on the amortization of those variances.
Andy Fulmer: The other piece that we talked about in the prepared remarks is Part part of the expected promos that that we had in qt q2 We do believe are going to push into q3 q4. So that's going to kind of play into that
Brian Murphy: And then do you want to talk about tariffs? Yeah, I can talk about tariffs. This is Brian again.
Speaker Change: This is a topic that we've given a lot of thought to and not just here in the last few months. This is something that we've been planning for to the degree that we can. Certainly don't want to place bets that we aren't sure about.
Speaker Change: But realize it's a fluid situation and where things land is really anyone's guess at this point.
Speaker Change: If I may just give you a quick sort of how we think about it from a philosophical standpoint And I'll try to keep it brief, and then I'll shed some light on what that looks like for us today I think that will be really good context especially as we go forward and learn more from the incoming administration, Matt, so
Speaker Change: Ultimately what we what we decided to do going back even years is is we're not going to start making big changes to our business.
Speaker Change: Based on unknowns. That's why you've heard this theme of us controlling what we can control. That's become a big theme of ours It's embedded in our culture
Speaker Change: and so what we do instead is, you know, what can we focus on here, what can we control as much as possible, and that really comes down to, in the context of tariffs, two things. One is leveraging that innovation advantage, and the second
Speaker Change: is staying agile as much as possible. So, real quick on Innovation Advantage, we, depending on what happens with tariffs, you know, if they do continue to increase which...
Speaker Change: We all know this. This isn't the first Rodeo. We have seen this before. But overall, innovation gives us several levers that I think others perhaps don't have.
Speaker Change: For one, we do have some pricing power that we believe.
Speaker Change: largely through our IP protection. We've done, you know, gone through great lengths to make sure that we've got protection for our products and it makes it really difficult for some of our competitors to undercut our prices and to come out with products that are
Really, really tough for them to do that.
Speaker Change: Last time we were able to use that to feather in some of those protective layers of margin and we don't see any difference here so we'll use that strategically. Because we have such a robust pipeline it gives us an arrow in our quiver that I think others just don't have.
and then lastly on the innovation advantage piece.
Speaker Change: is consumer loyalty. You know, we tend to play in a more premium space for our brands.
Speaker Change: and what that is, is it's a more resilient consumer, we believe, the person who is more affluent that can afford those products, and then secondly, it's the, I'll call it the ultimate enthusiast, the person that, you know, they identify with these activities.
Speaker Change: and they're going to continue to go out and buy the best products they can, especially from brands that solve real problems for them. So, I think we're in a great spot there.
Speaker Change: and then real quick on agility, we talked about innovation advantage and agility, is just staying asset light and maintaining a strong balance sheet so that whatever comes our way we can...
Speaker Change: But ultimately we have, and I want to make this point very clear, we've gone through great lengths over the years to continue to strengthen our relationships with our suppliers. They're true partners of ours.
Speaker Change: and what's great about our partners today is they themselves have a vast network built within their businesses.
Speaker Change: Such that, you know, should anything change for us, you know, it becomes clear that it makes more sense for us to move outside of China.
Speaker Change: We feel like we're in a great spot to be able to do that, and with existing partners who we've built trust with over the years.
Speaker Change: But ultimately, we're going to seek to optimize for value, capacity, and quality while maintaining those partnerships that have been built over several years.
Speaker Change: You know, with that said, though, we also, because we come out with so many new products at the risk of being even more long-winded here, but perhaps can answer three questions or four questions in one.
Speaker Change: is the fact that we always quote our products not only with our existing suppliers in China but also if they have a footprint outside of China and with other partners as well. So for the last call it five or six years
that we have, you know, started doing business with.
or we have at least established contact.
Speaker Change: So we just want to make sure that we're not moving too quickly and that we're we're not placing our bets on a Certain area of the world because we think that's where it might be most optimal I think I think we've seen others that have done that and maybe you've regretted it We want to have as much optionality as possible. And we believe that we do have that so to answer your question
Speaker Change: Look, the majority of our products are made overseas, and many of those are made in China. And today, that's what makes the most sense for us, to achieve that value, the capacity and the quality that I talked about.
Speaker Change: But we feel like we're in a great spot Should things change and if they do change?
Speaker Change: for us to be able to be agile enough and move that accordingly.
Speaker Change: I don't mind long-winded answers. Okay and then maybe just lastly could you guys touch on, you briefly did, but I wanted to see if you could expound upon
Speaker Change: the M&A funnel, what opportunities you're seeing. It sounds like you've seen a bit of a pause.
Speaker Change: at least in Deal Activity, Deal Flow, but what types of activity are you seeing? What types of opportunities are you getting looks at? Maybe more on the outdoor product side versus shooting sports, just any way you can characterize the funnel and the activity that you've seen, I guess, over the last few months.
Yeah, great question, Brian again here.
Speaker Change: I'll first I'll break it down by chance by category. Okay, so on the shooting sports side We're not seeing a whole lot. We're really not seeing many many companies coming to market
Speaker Change: I think the main reason for that is because that market just has continued to be pretty soft So there aren't great run rate numbers for sellers to work off of
Speaker Change: On the outdoor lifestyle side, and there's obviously a variety of activities there, we are seeing many more opportunities on that side.
Speaker Change: I would say it's it's a little spotty. We're seeing companies that are either doing really really well or doing terribly.
Speaker Change: It was really difficult to see the winners and the losers.
Speaker Change: Now it's very clear, and it's very clear there are very few winners in this environment, or have been able to honestly adequately protect themselves and really rally around a core competency of theirs.
Speaker Change: So, we're seeing less there. I would say, you know, we're probably exploring, just because of that, we're exploring a few more businesses and brands that are, I'll call it, outdoor adjacent for us.
Speaker Change: Those could be areas like in the backyard, you know certainly we play there today with Gorilla.
Speaker Change: But there are some really interesting opportunities and some pretty innovative brands that play in spaces like that
Even things perhaps like the pet space, you know.
Very cautious in entering that space
Speaker Change: But there are some some really neat brands again. Well, I'll use the word vessel
Speaker Change: Where can we find those brands and then plug in some of those ideas that we already have? Which which which just further adds to to upside for those businesses, so
Speaker Change: A range of things, some outside adjacencies, but we're able to see more of the winners and losers at this point.
Speaker Change: Okay, super thorough. I'll take the rest of mine offline. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.
Brian Murphy: Thanks, Operator. So, as we head into the holidays, I'd like to give a special thanks to our employees whose loyalty, hard work, and dedication continue to move our company forward on the path towards an exciting, long-term future.
Brian Murphy: To those employees and to everyone else who joined us today, we wish you a happy and healthy holiday season and we look forward to speaking with you again next quarter.