Q1 2020 Earnings Call
Good day, everyone and welcome to American Outdoor brands Corporation first quarter fiscal 2020 financial results Conference call.
This call is being recorded at this time I would like to turn the call over to Liz Sharp Vice President of Investor Relations, who will give us some information about today's call.
Thank you and good afternoon, our comments today may contain predictions estimates and other forward looking statements.
Our use of words like anticipate project estimate expect intend believe and other similar expressions is intended to identify those forward looking statements.
Forward looking statements also include statements regarding revenue earnings per share non-GAAP earnings per share fully diluted share count and tax rate for future periods.
Product development.
Focus objectives strategies and vision, our strategic evolution, our market share and market demand for our products.
Market and inventory conditions related to our products and in our industry in general and growth opportunities and trends.
Our forward looking statements represent our current judgment about the future.
And they are subject to various risks and uncertainties.
Gross factors and other considerations that could cause our actual results to be materially different are described in our securities filings, including our forms 8-K, 10-K and 10-Q.
You can find those documents as well as a replay of this call on our website at <unk> Dot com.
Today's call contains time sensitive information that is accurate only as of this time and we assume no obligation to update any forward looking statements.
Our actual results could differ materially from our statements today.
I have a few important items to note about our comments on today's call.
First we reference certain non-GAAP financial measures on this call our non-GAAP results and guidance exclude acquisition related costs, including amortization recall related expenses onetime transition costs fair value inventory step up and the tax effect related to all those adjustments.
The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call can be found in today's form 8-K filing as well as today's earnings press release, which are posted on our website.
Also when we reference the P.S., we are always referencing fully diluted EPS.
For detailed information on our results. Please refer to our annual report on Form 10-K for the year ended April 32019.
I will now turn the call over to James Debney, President and CEO of American outdoor brands.
Thank you Liz.
Good afternoon, and thanks, everyone for joining us.
With me on today's call is Jeff Buchanan, our Chief Financial Officer.
Later in the call Jack will provide a recap of our financial performance as well as our updated guidance.
Our results for the first quarter reflected our ability to remain focused on executing our strategic plan, while addressing the challenges of ongoing softness in the firearms market.
Today I'll share with you some details of our first quarter, then Jeff will provide information on our financial results and our outlook for the coming fiscal year.
As you know, we transfer firearms only to lower enforcement agencies in federally licensed distributors and retailers.
Not directly to end consumers.
That said adjusted Nics background checks are generally considered to be the best available proxy for consumer demand for firearms at retail.
In our fiscal Q1 background checks for handguns increased 2.1% year over year, while our units shipped to distributors and retailers decreased by 7%.
For the same period background checks for long guns declined by 2.2% year over year, while our units shipped to distributors and retailers declined 8.1%.
This result was expected.
Recall last quarter, when we caution that a Q1 correction relative to adjusted Nics was extremely likely.
Given the success of our year end promotions on all strong outperformance of the market in Q4.
In a more recent update July adjusted Nics were up only slightly year over year and while adjusted Nics appears to be following its typical slow summer seasonality. This was the second largest sequential monthly decline in the past four years, indicating to us that the consumer market for firearms remains very soft.
Distributor inventory of our firearms increased sequentially from 127000 units at the end of Q4 to 178000 units at the end of Q1.
Distributor increases in inventory up very typical this time of year due to the seasonal slowdown in sales velocity in the channel as well as planned inventory build up leading into the fall hunting and holiday shopping seasons.
This year those inventories also reflect the success of our Q1 by one program that patient positioned participating distributors to take full advantage of our full promotions in Q2.
In addition distributor inventory grew in the long gun category as we proactively worked to reduce our inventory of a certain product line with enough time for that inventory to clear out of the channel and advance of an upcoming new product launch.
Since the end of Q1 distributor inventories have increased and remain above our eight week threshold.
Turning to new products.
Innovation to support our organic growth strategy remains the highest priority across our entire business.
Within each of our divisions created new product development teams focused on innovating for the consumer to meet their needs wants and desires.
In firearms, we continue to prepare for several major new product launches scheduled for the current fiscal year.
While I won't share details at this point I can tell you that we look forward to providing consumers with some exciting new products from brands that they know and trust. So please stay tuned.
Also note that this is one of the reasons our internal inventory increased in Q1, as we built up inventories of our existing product portfolio in preparation for shifting capacity over to new products when they launch.
And outdoor products and accessories, our decision to organize into brand lanes is yielding exciting results.
H. Lyon consists of a highly agile team that provides dedicated brand management creative design content production product management, new product development and engineering.
These entrepreneurial teams have been very productive over the last few quarters.
During Q1, we attended high cost one of the largest fishing trade shows in the world.
To showcase our new Bubba lifestyle brand and to demonstrate our ever growing portfolio fishing tools, including the new Baba electric Filet knife, which we launched in February .
To say the show was a success is truly an understatement.
Not only was the boot packed nonstop with attendees.
We came home with the best of category, awarding cutlery and Flyers and tools for the Bubba electric for lighting.
I want to commend the team for their success and energizing the new Bubba brands.
While it's still a small product line today above the sales delivered year over year growth of 65% in Q1.
Bubba is a great example of the value that can be quickly created from small tuck in acquisitions.
We also made some exciting developments in our newly rebranded fall lineup shooting rest.
During the quarter, we re engineered the bulk product line with innovation that delivers a variety of solutions for hunters.
Our global E Commerce and Technology Division is at the forefront of our digital innovation, providing best in class sales and marketing technologies that power all online business.
We utilize our newly expanded digital capabilities to harvest the growth potential of our existing brands, we do that by building brand immersive and content rich websites, delivering intelligent targeted and personalized campaigns and providing exceptional customer experiences.
During Q1, we demonstrated these capabilities with the launch of our new brand web sites, but Coldwell Frankfurt Arsenal, we Lat am book.
These new web sites will allow our customers to connect with ASM form deeper emotional relationships with our brands.
We've also made important organizational changes in support of these initiatives combining the customer service functions from our firearms and OTN eight businesses.
Under the focused leadership of the E Commerce and technology Division the customer experience group will have the agility and focus we need to drive the seamless and efficient customer interactions with all of our brands.
Now I want to touch briefly on the topic of terrorists.
Since much of our outdoor products and accessories business in both China manufacturing tariffs to oversee presenting us with an ever changing landscape.
Our team in China has done their best to address this challenging environment.
That said as a tariff situation continues to escalate opportunities to offset that impact have begun to rapidly diminish.
As we continue to navigate this volatile and dynamic environment, we are continually exploring mitigation opportunities such as securing sources and other low cost countries.
However, our supply chain in China is relatively sophisticated compared to those available and other low cost countries. So rapid change is difficult.
In addition, bringing in an entirely new manufacturer online takes time and the duration of the tariff is still very unclear.
Later in the call, Jeff will share a bit more detail regarding the timing and financial impact of the terrorists as they stand today.
During the quarter, we achieved significant milestones that are new Missouri campus, which serves primarily as the centralized logistics warehousing and distribution operation for our entire business.
First we completed the transfer of a higher on for logistics and warehousing operations to the new facility.
This is important since firearms, a highly regulated products and the establishment of the strict control processes have the new facility was a key milestone.
In fact, we just completed yet another full serial number accounts at the facility on Saturday and as we expected we achieved 100% accuracy in that count.
Second, we consolidated and shuttered, our Jacksonville, Florida business during Q1, eliminating 100000 square feet of office and warehouse space.
These significant achievements coincided with a strong quarter and order flow driven by the success of our late summer fire on promotion.
As a result, we were forced to prioritize firearm shipments over who pay any shipments which in turn negatively impacted our opn revenues for the quarter. The vast majority of those delayed opn a shipments were completed at the beginning of Q2.
We don't anticipate a recurrence of this type of conflict since the transfer of the firearms logistics and warehousing operations and the shuttering of the Jacksonville business on now complete.
In addition, the heightened quarter end activity provided us with meaningful impact insights that will be valuable as we grow our Missouri campus in the future.
The next consolidation will be our original 145000 square foot BTI office on warehouse space.
Our Missouri campus is an important strategic initiative, which will ultimately allow us to lower our costs better serve our customers and support the achievement of our objective to be the leading provider of quality products for the shooting hunting and rugged outdoor enthusiasts.
With that I'll ask Jeff to provide more detail on our financial results on our updated guidance Jeff.
Thanks, James revenue for the quarter was $123.7 million, a decrease of 10.9% from the prior year.
Revenue from our firearms segment was $95.4 million, a decrease of 9.3% and revenue from our Opn a segment was $33.2 million a decrease of 10.8% intercompany eliminations were $5 million.
It should be noted that the decline in our Opn a revenue was as a result of the timing of shipments to a major customer as well as the impact of the shipping conflicts that James outlined for the full year, we expect opn a revenue to be up versus the prior year.
Now turning to gross margin in Q1, the total company gross margin was 38.7% compared to 37.8% in the prior year in the firearm segment.
Gross margin increased to 37.1%.
Although unfavorable product mix and increased promotional costs and higher manufacturing spending negatively impacted gross margin that that impact was more than offset by favorable manufacturing absorption and inventory variance adjustments.
In the outdoor products segment.
Gross margin declined to 42.4%, primarily as a result of tariffs and increased.
Im shipments to larger.
Customers receiving discounted.
On pricing.
In the quarter GAAP operating expenses were $46.7 million compared to $38.9 million in Q1 of last year.
On a non-GAAP basis operating expenses were $41.5 million as compared to $33.5 million in the prior year.
Expenses were higher because of increased compensation advertising and marketing costs. In addition, with the startup of our new Missouri campus operating expenses increased $3.8 million, which includes $1.6 million of depreciation $1.6 million of shipping costs for firearms, which were previously reported in cost of goods sold.
And $600000 of other costs, including compensation and.
Facility related costs eventually the impact of these additional cost will lessen as we consolidate other facilities.
For the first quarter GAAP EPS came in at a four cent losses compared with EPS of 14 cents last year, our non-GAAP EPS was three cents as compared with 21 cents in the year ago quarter note that the non-GAAP tax rate. This quarter was nearly 54% because non deductible items represent a much higher percentage of the low pretax income number.
Adjusted EBITDA loss in the first.
Quarter was $17.5 million.
For a 14.1% EBITDA margin.
As compared with a 20.4% margin in Q1 of last year.
So now the terming.
To the balance sheet.
In Q1 cash used in operating activities was $29.1 million.
Cash flow was primarily impacted by our $31.7 million build in inventories.
As we have noted in the past cash flow in the first half of the year is typically neutral to negative during the summer months when the retail sales cycle is at a low point for firearms and we have our seasonal shutdown, we typically build our inventory levels.
We also had additional inventory this quarter as a result of our our planning for two items.
First safety stock for the ongoing consolidations into the Missouri campus and second.
Inventory built in connection with planned new product launches for the second half of the year.
Capex for the quarter was $3.7 million and we expect to spend a little over $25 million in capex for the full fiscal year, mostly on new projects and maintenance at the end of Q1, we had $30.7 million of cash was $25 million drawn on our line of credit the term loan of $79.8 million and bonds of $75 million. As a result total net borrowings at the end of Q1 were $149.1 million.
Our one year trailing EBITDA is about $100 million. So our net leverage ratio was only about 1.5 to one.
Now I will discuss guidance.
We expect Q2 revenue to be in the range of $140 million to $150 million at that revenue range, we expect GAAP EPS of between a negative four cents and breakeven.
And non-GAAP EPS of between three and seven cents.
The higher sequential revenue in the second quarter is not fully benefiting the bottom line estimate for several reasons, including the absence of favorable inventory variance adjustments the impact of increased.
Tariffs and increased promotional activities.
I'll do although we expect the slowness in firearms that we saw over the summer to continue for the next.
A few months, we are planning some exciting new.
Product introductions for the second half of the fiscal year.
Thus.
For the full year, we are maintaining our expectations. The revenue will be in the range of $630 million to $650 million.
Our profitability, however will be impacted by the tariffs.
Without that impact we believe our EPS would have been within our most recent guidance, but tariffs now make that result unlikely.
As a result, we now expect full year GAAP EPS to be between 41, and 49 cents and non-GAAP EPS to be between 70 and 78 cents.
All these estimates are based on our current fully diluted share count of 55 million shares and a tax rate for the full fiscal year of approximately 30% James.
Thanks, Jeff with that operator, please open up the call for questions from our analysts.
Ladies and gentlemen at this time if you have a question. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. So we ask that you. Please place your line on mute. Once your question has been stated and our first question is from Cai von Rumohr from Cowen. Your line is now open.
Yes. Thank you very much so could you give us a little more color on the Chinese terrorists issue.
Both in terms of the incremental impact youre, assuming and what that assumes regarding how long. The terrace is is in place you also mentioned I think.
Last quarter that you would try to secure.
Price concessions from your suppliers and implement price hikes of your own maybe discuss those issues.
Right.
Hi Chi.
It's Jeff.
So.
I mean.
Yes, we said that the guidance.
S.
Like for the year the.
The amount that we it.
Had lowered it by was just a little over $5 million and it was attributed almost entirely too im tariffs so thats.
Like sort of the number its the impact is mainly in the second half of the year because we.
Currently have.
Have inventory, but basically what happened you know lists one through.
Three.
Whit.
From 25% to 30% so it's as 5% higher than we thought and then of course you have the new list for.
That was a 10%.
So a lot of people talked about the deferral of list for but list for really was.
For a and D.
And most of our products were on for a bit and that was not delayed until.
On December .
Yes starts on September one and the course and that was raised from 10% to 15%. So.
Yes, thats that.
Those but the tariff impacts.
Yes.
It's obviously the the map that we are estimated in guidance.
It's not the full amount of the of the tariff impact we are assuming.
That weve successfully undertaking some mitigation efforts like price increases.
We're sort of reaching the end of <unk>.
Vendor concessions because we've already.
We've been negotiating that.
Vast upper while but we'll we'll continue to work on that we will continue to work on.
I'm getting vendor is outside of China, but as James mentioned in his his his prepared remarks.
The other Asian companies don't have as sophisticated supply chains can acquire procure all the material and components that we need and it takes a long time and we don't know how long it's going to last we don't we don't know how long the terrace and we've got to be really careful Cai, we're taking price increases because we can if went all capital we will just become uncompetitive.
So I will keep a close eye on what's happening at retail.
Got it so if I just sort of simplified this the terrorists impact predominantly hits in the second half because you entered the year with some buffer inventory. Therefore, those powers persist at that level the amount probably would be larger next year is that a fair assumption or.
A larger end 20, I'm 21, yes.
Yes, yes.
Got it okay, and what are we going back to our expected impact for the second half of 20 on on the tariffs as they stand right. Now is is in our guidance.
Got it Thats, yes.
And what you describe that Chi is the tariffs are here to stay on that is a lot of uncertainty about the timing of terrorists, whether they had to stay on all so if they did stay then obviously I think you could go back to taking some price increases because the market will be able to stand at.
Got it last one maybe give us sort of what are we looking for for cash flow for the year a rough range.
Well.
We are looking for.
Positive cash flow and.
Like neutral to positive cash flow in quarter, two we typically first half of year is.
Like neutral to negative.
And second half of the year, we're looking for really strong.
On cash flow.
On par with the prior year.
Because.
We will be.
Quarter one was.
Was a.
Eight.
A cash outflow because of the of the build in inventory, yes, absolutely. We've invested a significant amount of inventory as you can see on the balance sheet.
That's for a number of reasons one we've spoken about a lot before which was the transfer of the firearms business in terms of logistics and warehousing to the new DC, Missouri across we're in as I mentioned in the prepared remarks during the summer period, which is extremely slow we always build inventory and then we have major new product launches coming down the pipe as well, which we built inventory for that as well as our existing portfolio because we're going to have to dedicate a large portion of our capacity to building the new products.
Prior to launch and then obviously off the launch to satisfy the demand.
Yeah and Kai also the.
Yes. The numbers that we are are are giving for guidance.
It's a roughly the same as last year, except last year, we spent a lot on our our our logistics.
Our building, our our logistics Operation Center, our Missouri campus.
And we don't have that on this year. So we do think that the cash flow is going to be.
Quite good for the year.
Excellent. Thank you so much thanks Chi.
Thank you and our next question is from James Hardiman from Wedbush Securities. Your line is now fan.
Hi, good afternoon, Thanks, John the call.
So I guess first question just on the quarter.
I think people care more about the outlook in the quarter, but.
You came in at the low end of the earnings range.
You've come in towards the high end or better for for it seems like a while.
Maybe talk a little bit about what in the quarter wasn't wasn't quite as good as you had hoped.
It doesn't seem like the tariff issue really pinched you it seems like Thats more of a later year.
Later portion of the year issue, but just maybe talk about.
Sure came in versus your expectations.
Okay.
As far as the topline is concerned.
The entire miss from our I'd, the midpoint of our guidance and actually a bit more was almost entirely related to the shipping constraints that James mentioned.
Alright.
And so at the end of the quarter when you're trying to.
You win.
Your.
You are limited by manpower and you're trying to prioritize what what goes outs were we prioritized.
Like firearms, because the higher ASP based on.
The ability to go ahead and ship. So that is most of it and then from an earnings is I'm standpoint, if we had had done that then we knew we would have been probably spot on on the earnings number another bit of a difference.
As compared to the prior comparable quarter is that our earnings tax rate our tax rate was above 50%.
Mainly because of some non deductible items that impact you more when you're.
Your taxable income is lower so those two items alone it basically accounts for everything.
Okay. That's helpful and then as I think about the the.
Full year guidance and the second quarter guidance I mean, if we hit the mid point of the second quarter, you're basically going to do.
Eight cents in the first half of the year, which would mean you'd have to do 64 cents in the back half I know there are some things with Missouri, but but walk us through why it's going to be such a dramatic uptick in earnings it seems like it's probably more margin.
Then it is sales, but again given the fact that tariffs are the big issue in the back half how are you going to accomplish that that big ramp.
Well.
I mean basically the earnings.
The EPS.
He is as a result of the strong topline in the second half of the year.
The.
When you have is you know as you know you've been an analysts here for several years.
When when firearms is putting out.
That much product than we really.
We get a lot of efficiencies and hi.
We have a lot of we have a cup a lot of new product introductions in firearms for the second half the year that were really quite.
Bullish on so those new products are accounting for a large portion of the sales the second half of the year. In fact, those those new products are are part of the reason that we have a lot of inventory now because we're we're shifting the lines manufacturer and we had to build certain products. The won't we won't we won't be able to manufacture in the second half of the year, so that sort of had a dual impact on the quarter on.
Outdoor products.
Yes, a lot of the timing and pacing of the quarter and outdoor and products is dependent on large customers.
Especially like one or two large customers that we have we have a lot of new products and again fairly.
Bullish on the second half of the year and outdoor outdoor products as I as we do believe that so outdoor.
Products was down this quarter, but we think for the whole year is going to be up now.
By single digits, probably like like mid to upper single digits. So again.
We think there is strong growth in outdoor outdoor products.
That's helpful. And then one last question if I may along with say the same line. So obviously there is the expectation that new products are really going to drive shipments in the back half I guess with that in mind.
Why should not be concerned about the inventory the distributor inventory numbers here.
178, I think that number was more like 145, a year ago at one point at what point do we need to be concerned that distributors are going to be less willing to to buy that new product.
But you are going to try to ship in the back half.
Well I would start off or sign James I'm, not concerned about the level of inventory with our two step distribution partners when moving towards the busy season. As you know I will will soon be in the full hunting season will quickly transition into the holiday season, those off peak periods at retail as will now adjusted Nics checks for those months tells us that.
And even moving through into the new year. The first three months I would actually have to take out January but certainly.
February March on somewhat April all strong months as well and that typically that's why as a firearms business. We've always ended.
With the second half of the year much stronger than the first half of the year. So well have a normal cadence of promotions in place, we'll be doing by bundled promotions will be doing our typical.
Show specials spring volume promotions describe those before where it's by six get one free for example, it's not always that number thats a typical number.
Those promotions will be adequately strong as in to match the market. So I will hit the market strong then we'll dial those back if it's weak if it weakens mall will dial them up and we'll be aggressive.
Okay, we have plenty of inventory to allow us to do that and we have plenty of capacity. So I think you survive in this market, which is a soft market I think we can all agree on that is unique you both need to be aggressive in the new product development on aggressive any promotional activity and we are doing both buyers and we have proven and demonstrated over the past few years that we have very good at both of them.
Yes, I just wanted to add that.
And I've mentioned this.
Each year, but.
The promotional activity that we do.
We measure the cost of the.
The promotional activity against the benefit of the absorption in the factory.
And.
Generally have found that we are ahead, even when we strongly.
Promote.
Yes, I am.
You can draw a direct comparison with one of our primary competitor says in terms of margin as well, but also going back to the subject of inventory, we still have less inventory in terms of units with our two step distribution partners.
Makes sense thanks, guys.
Thanks James.
Thank you and our next question is from Scott Stember from C.L. King Your line is now open.
Good evening and thanks for taking my questions Hi, Scott.
Hey, good question on the second quarter guidance.
Yes, assuming.
I guess.
A modestly up mixed environment, you talked about how.
There was a little bit of payback in the first quarter because it was the fourth quarter promotions, assuming thats gone it assuming that some of these constraints on the outdoor product side are gone.
My thinking at this wrong.
It should you be predicting to be maybe would be up a little bit of flat in the second quarter or is there something else, where my off with my timing.
For some of those things to go with.
You know I, just it's a soft market out there.
And so we're our guidance is based on our our view of the market out there.
We also had an outdoor.
Products, we are also forecasting.
That the increase that I talked about comes almost entirely in the second half of the year.
Hi, again, because of the pacing of the orders from a major customer and outdoor.
Products.
So it's the combination of the soft firearms.
Environment and the.
The.
The customer.
Order pacing of outdoor.
Our products has led us to the guidance that we're giving.
Got it and just a question on the operating expense is a little bit you talked about I guess and priority of.
Hi, guys impact compensation expense and marketing and advertising.
Is it fair to assume that the the order and then.
Also just trying to get a sense of.
What you would expect for the entire year for operating expenses.
So I.
Our first quarter is usually our lowest I do think operating expenses are going to kind of go up.
Our tour.
Two or $3 million, and then sort of plateau out the rest of the year.
Just remember a couple of things on operating expenses. One is that we have moved.
Some.
Im shipping costs from.
Cost of goods sold down to the Opex also like remember that we are still in the build mode.
Like for the DC.
And so we are still operating duplicate facilities just.
I for example, we have like too.
Facilities operating in Missouri, right now the new Missouri campus as well as the old.
Im campus that that was was there when we bought Battenfeld, which is about a 150000 square foot warehouse.
Most of those duplicate cost will have been.
Okay.
It will be gone by the third and fourth.
A quarter and then we actually expect additional savings in 2021 as we move.
Other areas as we as we close down other areas and kind of like finished the move.
Into the DC.
Got it yes, I guess I'm just trying to figure out I know you haven't given guidance, obviously for 2021, and we're a little ways out, but I'm just trying to look at.
Where you would look or how much eventually.
Comes out of the equation here related to the new DC. So we can get an idea.
You know what kind of leverage you could get beyond this year because this year has been obviously going to be a challenge in and some of the numbers on the Opex line are going to be.
But last year.
Well you know.
Like last time, we said.
About.
Seven cents.
Were the expenses that we had this year that won't be repeated next year and those were all almost all be in opex.
And then.
So.
I would probably just use that as as as your number.
Of comparing Opex in this year to next year.
And just one last follow up on that and the marketing and advertising I guess just.
Be safe to assume in this tough environment that it probably will stay at these elevated levels for.
Yeah sure.
Yes actually.
Yes, and then of course, if you are launching a new do.
Our products in the back half of the year, there's more advertising associated with these.
These new products launch costs.
In other words.
Got it that's all I have thank you.
Thank you.
And our next question is from Steve Dyer from Craig Hallum. Your line is now open.
Thank you good afternoon.
Hi, Dave.
Just want to drill down a little bit more on on second quarter guidance. So we've had.
Three straight months of positive mix August should be up pretty significantly according to our checks.
And again, the down 10% revenue at the mid range, which would imply I think a little bit better than that and outdoor products a little bit worse than that in firearms. It seems like a large delta vis-a-vis. How you guys have been running what's the mix sort of over time. This would be the second consecutive quarter of a fairly big.
Deviation to the downside is there any sort of additional color you can give timing wise or why that would be I'm, assuming you don't feel like you're losing share.
No I mean.
You said, it's a big deviation.
What's the downside based but thats just based on your assumption on Nicks I'm you know.
So I I don't think I don't think we really know what's going to happen on mix, but.
No.
Like a distributor inventory is a little bit elevated.
As as James said, we're comfortable with it but it's higher than it was last quarter. So I would say I can add anything more than I had told.
That I had mentioned earlier on on the call that such that.
That that midpoint is what we have.
I come out at.
And presumably because I don't think you have in the past I mean, presumably youre not until August comes out in this final I mean, you're not including any point of sale data that you're seeing month to date I mean, our checks are suggesting up on the order of 20% year over year in August .
Yes, I mean, obviously this is.
The one quarter.
That we release earnings without having the next of the.
In essence, the first first quarter of <unk>.
The next or the first month of the next quarter. So.
I guess, we'll just have to wait and see what.
What happens.
So presumably anything more than call it flattish for.
Our August and September would be I guess upside to your sort of base assumptions going in.
Yeah, I, probably I don't think we what I think we have a.
Policy of not commenting on our.
Our degree of certainty of our guidance or any.
Like any.
Potential.
Im changes I I can say this is like that's that's great on your on your checks, but it.
Yes, Steve I Love. Your next number yeah, I have I have that commentary, but was at 20% will take just one of the highest in the last five years.
Well if there are three weeks and it's through one state so anyway I'll I'll move on.
So obviously of a bankruptcy.
Thats supplier went bankrupt or distributor went bankrupt in the quarter did that have any material impact on you guys or the channel period I guess.
No. The it hasn't had an impact because that was a long time in the making.
Probably.
Haddon on chip.
For for quite a while.
Like what we have.
Reserved.
With respect to that that distributor happened last quarter yeah.
I think probably there is some dumping of inventory as a result of it.
But.
Yes, I think we covered that lost last time as well and we said they had ceased to become really relevant and I for the last 18 months, let's say price of that bankruptcy.
Alright got it last one for me. So you guys have a couple of $75 million notes due on June 2021 in August .
Any commentary on plans for that your ability to re Fi et cetera.
Yes, we've already spoken with our banks.
I don't think theres going to be any problem on.
Refinancing those.
We'll probably.
Undertake that effort.
Early autumn.
And.
Interest rates are actually down from the last time that we.
Engaged in these kinds of negotiations and the outlook obviously is fairly.
Flat yield curve so.
I think that the negotiations should be.
Good with respect to like what we want to do.
All right got it thanks guys.
Thanks, Dave.
Thank you and our next question is from Mark Smith from Lake Street. Your line is now open.
Hi, guys.
First first off can you just walk through how much new products typically mix in sales.
Well it typically is it it's typically is not.
Typical but I would say that a range as it was like.
15% this quarter, it's been as high as 20, 528%. So I think it ranges.
From let's say 30% to.
But.
12, or 15% I sort of depending on.
On.
On that.
What's happened in the last.
Im several quarters open days is is 20% this quarter.
That's probably.
Like more of a constant because lpa has a very.
Sort of.
Formalized process of.
Of introducing new products every year, whereas in firearms, it's it's not as.
As as regular yes, a steady stream of new products come out of keeping an eye development times tend to be a little shorter.
Development times for firearms tend to be extremely long.
Pretty intensive in terms of consuming resources.
Can be capital intensive as well depending on tooling requirements and so on so that's why.
We talk about major product launches rather than line extensions and so on.
And were very excited about the major product launch that we have coming up.
This fiscal year.
Okay, and then can you talk a little bit about the cadence of sales primarily in firearms throughout the quarter.
The the in quarter, one you mean.
Yes.
Yeah I was back loaded.
So so heavily back loaded not unusual.
And in the summer months.
Maybe this quarter was a bit more back loaded because of bringing up the DC. So we had a situation, which you had to move a lot of inventory.
On him to the DC in the past with the Springfield facility being shut down for a couple of months towards the end of the.
A quarter.
We probably shifted a little earlier than we did this quarter, but the like the Missouri campus is not shut down and and so the combination of everything made it probably more back ended than it typically is I think another big influence on firearms in terms of ever would have patents for the quarter was.
In Q1, so there's no doubt in my mind in the first two months of the quarter.
Distributors and retailers alike took a bit of a break because we've taken in some inventory at the end of Q4 before starting ordering again late in Q1 and Thats one of the thing reasons that we got so compressed at the end of the quarter and had that capacity constraint at the DC.
Okay and then this question has been asked a little bit, but but just to ask it directly what are you seeing and kind of current firearm demand and as you look into your crystal ball here.
What you see from the customers out there today that gives you.
That leads to your guidance here in Q2 and heavily backend loaded.
Year, excluding kind of new products.
I think.
Yeah, It's really what we said is the firearms part of the business is just following normal seasonality. So were slow right now we expect it to be slightly expected start pick up at the back end.
Well this month, even but more so or will accelerate as we go into September and October and then into the gift giving season. So we think just normal seasonality is at play we talk to our retail partners on our two step distribution partners. All the time, everybody is optimistic but I will say cautiously optimistic in terms of a crystal ball its offline right now nobody knows.
There are lots of macro influences that can start to really kick into gear.
I'm, sorry, but I think I just come back to it. It's one of those years, where it's flattish again I view that time before we'll use it again.
Okay.
And then anything happening for end users here in the U.S firearm market that is may be skewing nics data away from what were seeing from you guys.
Nothing that we picked up on a we monitor that we do.
A monthly market share analysis and components of that is used firearm sales they seem to be fairly consistent.
Some retailers are better asset than other retailers.
But nothing nothing out of the.
Okay, and then last one for me just a housekeeping item.
The kind of guidance that you gave on on tax I believe it was 30% for the full year I assume that's on a GAAP basis.
Yeah, that's exactly and that is for the full year, but thats, because we had up over 50% rate.
In Q1, we saw the rest of <unk>.
The quarters.
We'll probably be around 27 or 28%.
Okay, great. Thank you.
Thanks Mark.
Thank you. Our next question is from Maxine Cho from next financial services. Your line is now open.
Hey, good afternoon, guys. So my macaroni and you've already addressed all of my financial analysts said question filling out the couple of gun Guy question.
About a quarter or two ago, you have them reorganized crimson trace in electro optics.
So I played a lot of the opposite spoke at shot show in reality I Love them can you talk about possibly with industry acceptance is of the brands, particularly at Crimson trace is moving from the traditional lasers to now being an optics company.
Sure and that's it's slow progress.
It's going well Crimson trace is an incredibly strong brand, but as you are quite rightly say to focus very much just on lasers. So moving into the optics, we knew it would be slow to begin with but I have to say that we are getting some good traction. We think this is a great growth potential over the long term so I don't see any.
Favorable step change in terms of revenue and taking market share in the near term, but I'm very confident over the next five years.
Awesome moving along the product line. So one of the ones. We haven't heard much about recently was gemtek. So any thoughts on this depressed market and as it relates to Gemtek I mean do you foresee.
Making future investments into it to try to steal market share from your larger competitors or is it more or less hey, lets maintain what we can do with it and then just wait for something big to happen in a depressed market and a follow up to that is is jumping to be rolled into the unified distribution center, where that's all going to be separate.
Okay. So starting with the first part Gemtek another great brand very strong got great consumer awareness. So we're very happy with value in that brand as well suppressor market pretty soft right now I think as we're all aware that.
If I had been a change in legislation.
Then it would be a different picture legislation change did not take place.
So for US right now, it's just steady away, let's keep our market share will start to invest slowly and that over the next few years in terms of new product introductions, we have some new products in the pipeline.
So again stay tuned on those but other than that.
It's really a soft market.
Okay and I guess last question is so guess today and yesterday, there's the new gun legislation builds being heard in Massachusetts, any thoughts or comments to it as potential impact that would impact you as a local manufacturer.
No no the proposed laws would impact us as a manufacturer.
And.
They otherwise would have.
Regardless of what what Massachusetts.
Does the laws would have little impact on us because.
Because massachusetts in terms of the volume of firearms that it it consumes is very low.
Okay, and but as far as you know there was nothing that was going specific there none of the proposals were going after manufacturer specifically.
No no.
Okay, and I guess my last question, if I can sneak that one in so going through the 10-Q. There was a couple of new litigation note. So want to think of on the PCR 22, and then another frivolous lawsuit.
Any commentary or any color you can make on that.
Oh no.
No other than what we I specify in.
In the queue I think you also right.
Well the now none of them certainly excited about all the new product innovations that are coming out later this year wondering what those are [laughter], we're excited about them too.
Awesome. Thank you very much.
Thanks, Max Tidy cat.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Mr., James Debney, President and CEO for closing remarks.
Thank you operator.
I want to thank the American outdoor brands team for their commitment and dedication to excellence great job everybody. Thanks, everyone for joining us today, and we look forward to speaking with you next quarter.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program you may now disconnect.