American Outdoor Brands Returns to Growth – The Motley Fool

Talk about a rebound: American brands in the open air& # 39; (NASDAQ: AOBC) Earnings in the first quarter of fiscal 2019 resulted in a loss of $ 0.02 per share last year in the form of earnings per share of $ 0.14, the company having obtained solid results at all levels.

Clearly, the improved firearms market has given the Smith & Wesson owner a great advantage because it is his most important segment. But outdoor activities also recorded significant gains with an overall growth of 14.5% driven by an organic sales increase of more than 10%. The Outdoor Products and Accessories division, which includes its electro-optical business (eg laser sights, advanced sights, loupes, scopes and related products), now accounts for 25% of the of total business.

Things improve

Last year, the goal of the reorganization and new image of American Outdoors was to smooth the ups and downs of the firearms industry while entering the much larger industry from the outside. . Management has seen the opportunity to continue to offer investors growth, but with much less volatility.

Business objectives seem to be as expected: American Outdoor Brands shares jumped more than 40% during the trading session following the release of the August 30th results.

This jump was probably a bit exaggerated, even though full-year sales forecasts were revised to well over $ 630 million, compared to $ 600 million forecast at the end of last quarter. Achieving this goal would only represent an increase of 3.8% over the company's performance for the 2018 fiscal year, and would remain well below the $ 903 million recorded the year before. But this indicates that the market believes that American Outdoor Brands is benefiting from a firearms industry that appears to have reached its lowest level.

The revision also contrasts with the darker outlook that CEO James Debney provided after the fourth quarter, as he expected more bankruptcies and industry mergers to lead to uncertainty in the industry. market. At that time, he said he was not expecting a lot of things until next year.

Better products, better pricing

Not that he was exuberant this time, but Debney identified three things that allowed the gunsmith to increase profitability this quarter:

• Best sales of new products.
• Reduced promotions.
• Progress in expenditure reduction initiatives.

New products (those introduced in the last 12 months) accounted for 28.5% of total business revenue for the quarter. They included the M & P 380 Shield EZ, a firearm designed for personal protection, light and, as its name suggests, very easy to use. The receipt of the 380 by consumers has surprised even the management, and the company says that sales continue to gain ground.

Last year, American Outdoor Brands had to launch a number of promotions, especially last summer, when it reduced the price of its original M & P Shield model to inventory for the 2.0 model. This time, she did not need a summer sale and recorded a reduction of $ 10.6 million in promotional rebates to consumers for the quarter, which had the effect 39, increase the average selling price of gunsmiths.

Sturm, Ruger also saw a drop in promotional activity, indicating that gunsmiths are able to take advantage of some price vigor this year that they have not known these past two years.

The bumps on the road

Not everything is as rosy as it looks. Earnings gains, for example, were based on a new accounting standard that, had it been put in place last year, would have resulted in essentially stable revenues for American Outdoor Brands. Despite this, unit shipments in the consumer network for some of the company's handguns were 22% lower from one year to the next.

But this is not necessarily as serious as it seems. Last year, the introduction of M & P Shield 2.0 gave results comparable to those of the gunsmith this year because the gun was so popular at the time.

Shareholders should note a slight further decline. The acquisition by American Outdoor Brands of Survivalist's Ultimate Survival Technologies (UST) group during fiscal 2017 included a contingent liability based on the company's performance valued at $ 1.7 million, that the company would have paid had UST met certain performance targets. However, last year, the fair value of the liability was reduced by $ 1.6 million and the liability is down to $ 60,000.

Although the company does not have to pay the performance premium, this indicates that the acquisition has not reached its full potential, at least in the short term. American Outdoor Brands is also closing a UST factory in Florida and is merging it with its new logistics operation in Missouri, which should save the company money in the long run.

The key to take away

There is much more confidence in the firearms market in recent times, which raises the stocks of all gun makers, but not as much as American Outdoor Brands. Perhaps because Smith & Wesson's sales have fallen the most, the company is rebounding the most. But it is returning to growth, which could encourage investors to review this demolished stock.