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Edited Transcript of AOUT.OQ earnings conference call or presentation 8-Sep-22 9:00pm GMT

·38 min read

Q1 2023 American Outdoor Brands Inc Earnings Call Sep 9, 2022 (Thomson StreetEvents) -- Edited Transcript of American Outdoor Brands Inc earnings conference call or presentation Thursday, September 8, 2022 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brian Daniel Murphy American Outdoor Brands, Inc. - President, CEO & Director * Elizabeth A. Sharp American Outdoor Brands, Inc. - VP of IR * H. Andrew Fulmer American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer ================================================================================ Conference Call Participants ================================================================================ * Connor Jensen;Lake Street Capital Markets, LLC;Equity Research Associate * Eric Christian Wold B. Riley Securities, Inc., Research Division - Senior Equity Analyst * John David Kernan Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Matthew Butler Koranda ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, everyone, and welcome to American Outdoor Brands, Inc. First Quarter Fiscal 2023 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, for some information about today's call. -------------------------------------------------------------------------------- Elizabeth A. Sharp, American Outdoor Brands, Inc. - VP of IR [2] -------------------------------------------------------------------------------- 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, should, indicate, suggest, believe and other similar expressions, is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our 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. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at aob.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. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, shareholder cooperation agreement costs, technology implementation, acquisition costs, other costs and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures, whether or not 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. Also, when we reference EPS, we are always referencing fully diluted EPS. 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. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Liz, and thanks, everyone, for joining us. Given recent economic and industry conditions, I am pleased with our first quarter results, which reflect our ability to deliver net sales growth of over 31% above our pre-pandemic levels of fiscal 2020, while marking a number of achievements that support our long-term strategic priorities. Our results reflect our dedication to building authentic lifestyle brands that help consumers make the most out of the moments that matter. During the quarter, our e-commerce net sales grew nearly 24% year-over-year, supported by strength in our direct-to-consumer only business, particularly our MEAT! Your Maker and Grilla Grills brands. Together, these 2 brands generated over 15% of our net sales in Q1, and helped our Outdoor Lifestyle category generate over 53% of total net sales in the quarter. We consider our direct-to-consumer sales to be one gauge of how well our brands are resonating with consumers since those sales are not impacted by retailer issues such as inventory levels or limited open-to-buy. Net sales in our traditional channel, on the other hand, decreased by about 48% compared with last year, although they were up slightly versus pre-COVID levels. The year-over-year decline was due to fewer orders from retailers, as they responded to reduced foot traffic and continue to limit their open-to-buy in order to reduce inventory levels across all of their offerings. While this dynamic impacted retail sales across our brand portfolio, it was more pronounced in our shooting sports category, which includes personal protection products such as laser sights, and sales of shooting accessories to firearm OEMs, dealers and distributors. It's also important to note that strong net sales growth of over 70% in our traditional channel last year reflected that certain customers had accelerated their purchases to offset potential supply chain disruptions, creating a very tough comp for the current quarter. POS, which reflects consumer pull-through, is another gauge that we use to determine how well our brands are resonating with consumers. Selected data from the first quarter indicates that POS trends across our brand portfolio were generally favorable versus the prior year. We view this as an important positive since it not only reflects the strong consumer preference for our brands, it also indicates that sustained consumer pull-through should continue to draw down retailer inventories on a go-forward basis. We remain excited about growth opportunities within our Outdoor Lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking and rugged outdoor activities. Outdoor Lifestyle delivered growth of 26.5% over the first quarter of fiscal 2021 and growth of 54.2% over the pre-pandemic first quarter of fiscal 2020. We believe continued growth in this category as a percentage of our total net sales will help mitigate fluctuations in our shooting sports category, which is more susceptible to short-term cyclicality. There is little doubt that consumer spending patterns are uncertain in the near term, given the current environment and the extremely high inflation rates we're seeing lately. Despite these factors, we remain excited by the fact that consumer participation in the outdoors is at its highest level in years. In fact, the Outdoor Industry Association published its newest state of the outdoor market report just 2 weeks ago. And in it, they delivered some impressive numbers. Consider that since March of 2020, the outdoor participant base has grown nearly 7%. More than 10 million new participants enjoyed some sort of outdoor recreation, and there has been growth of 26% in new or returning outdoor participants. The new OIA report shows that roughly 54% of the U.S. population participated in at least 1 outdoor activity in 2021, and that remote work opportunities are allowing many people to enjoy the outdoors for the first time, often during hours when they would have been in an office or a community. Importantly, the report states something we believe for quite some time. Participation in outdoor recreation is sticky. Once someone begins to participate, they are likely to continue. We remain excited about the growth opportunities these trends present for our brands in the long term. Investing capital in organic growth remains the top priority in our strategic plan. And our Dock & Unlock process continues to fuel the innovation pipeline that will support our long-term growth plans to become a $400 million company and beyond. We continue to leverage our Dock & Unlock strategy to deliver a steady flow of organically developed exciting new products that generated nearly 26% of our first quarter revenue. We attended ICAST 2022, the Fishing Industries premier trade show, where our BUBBA fishing lifestyle brand received the award for 'Best Cutlery, Hand Pliers and Tools' for our innovative proprietary Multi-Flex Interchangeable Knife Sets. This marks the third consecutive year BUBBA has taken home the award in this category. We also displayed the BUBBA Voyager Gear Box, our first entry into waterproof storage, and we unveiled and previewed our proprietary BUBBA Electric Fish Scale, an exciting new product that truly energized and excited our core fishing retailers, distributors and consumers, ahead of the full launch and initial shipping next spring. We think this new product is a game changer for tournament and recreational fishing, allowing anglers around the world to compete and track their catches in real time. In fact, we heard several people refer to it as the [strava] for fishing. Our other brands were busy as well. Our UST line of premium camping equipment and survival gear, introduced a double-wide version of our popular self-inflating fillmatic sleeping mat and an innovative, waterproof, durable, camp blanket. Our Hooyman brand of land management tools prepared for the launch of some exciting new manual and lithium-powered material spreaders for easily spreading seed, salt or fertilizer. These products are loaded with patent-pending features that I'll talk about next quarter. We have a number of very exciting new products in the hopper across our other brands as well, and I look forward to sharing more in the next couple of quarters. A key part of our long-term strategy includes growing the brands in our portfolio by plugging them into our Dock & Unlock process, and our new product launches demonstrate that approach. But our strategy also includes utilizing our leverageable business model as we grow. In keeping with that strategy, during the first quarter, we amended our Columbia, Missouri facility lease agreement to add 35,000 square feet of space that provides us the opportunity to increase our operational efficiency and leverage our Missouri facility while lowering our costs. Immediately following the lease amendment, we began plans to consolidate our Crimson Trace operations in Wilsonville, Oregon as well as our Grilla operations in Dallas, Texas and Holland, Michigan, into the Missouri facility. We expect to complete these consolidations in the next 3 months, and estimate they will yield a combined net cost savings of approximately $1.5 million per year beginning in our fourth fiscal quarter. These actions will bring our teams together, and help us move closer to our long-term profitability objectives. As we look out across the balance of the year, we suspect that current inflationary pressure on consumers may be with us for a while. Therefore, our focus will remain on executing our long-term strategic plan, while carefully managing the elements within our control, and there are several. First, we have a very strong portfolio of authentic brands that is capable of delivering healthy organic growth. Second, our Dock & Unlock process yield results, providing a strong pipeline for innovative new products. And lastly, our direct-to-consumer business provides a direct link to the consumer, no noise or interference, and our recent success in D2C demonstrates that we know how to build brands that meet our consumers' expectations. Importantly, our Dock & Unlock process allows us the ability to edit and amplify our new product pipeline, managing velocity and focusing on products that are more likely to transcend short-term consumer spending trends, as well as products that better align with retailers' efforts to closely manage their inventories. While we manage these elements, we will seek further opportunities to lower costs while ensuring we remain well positioned to capitalize on the growth opportunities that can help us achieve our long-term plan to reach $400 million in net sales and EBITDA margins in the mid to high teens. Before I hand it over to Andy, I want to share with you that we recently published our first ESG report, which marks a significant step forward in our sustainability journey. The tenets of our sustainable long-term strategy include our commitment to the environment, our social impact and our culture of governance. We believe that the nature of our brand portfolio positions us uniquely to capitalize on some of the challenges and opportunities our world presents. We are incredibly excited to build upon our momentum as we remain focused on driving recurring sustainable growth. We have about 300 employees across our company and our commitment to build a diverse and inclusive culture has never been stronger. This is reflected in our management team, which features experienced and diverse members with expertise in a broad set of areas. Our inaugural ESG report formalizes our commitment to regularly communicate our ESG actions and performance. In the coming years, we will remain vigilant to maintain rigorous ESG standards, enhance our sustainability efforts and continue to be keenly focused on implementing a best-in-class program. With that, I'll turn it over to Andy to discuss our financial results. -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- Thanks, Brian. Net sales in Q1 were $43.7 million, a decrease of 28.1% compared to the prior year and an increase of 31.5% over pre-COVID Q1 of fiscal 2020. Our e-commerce channels accounted for 47% of our Q1 net sales, while traditional channels were 53% of the total. Net sales in our e-commerce channels grew by 23.7%, driven by strength in our direct-to-consumer business. Our Grilla and MEAT! brands continue to perform very well. And on a combined basis, these direct-to-consumer only brands accounted for over 15% of our total net sales in Q1. Our traditional channels decreased 47.6%, driven by reduced orders from retailers, which we believe is due to lower foot traffic and retailers' efforts to reduce overall inventories. In addition, sales of shooting sports products to OEM, dealer and distributor customers, declined year-over-year. And, as Brian noted, strong orders in the traditional channel last year reflected that certain customers had accelerated their purchases to offset potential supply chain disruptions, creating a tough comp for the current quarter. Turning to gross margins. Gross margins were 43.6%, a 410 basis point decrease over the prior year. The decrease was mainly driven by lower sales volumes, increased inbound freight and a return to more normalized promotions, which we expected. GAAP operating expenses for the quarter were $24.6 million, down slightly from $24.8 million in Q1 last year. Variable selling and distribution costs decreased in terms of dollars due to the overall reduction in net sales, but they increased as a percentage of net sales year-over-year mainly due to higher outbound freight. Other reductions in OpEx spending included decreases in advertising, headcount and other compensation-related expenses. These were offset by increases in planned IT costs, R&D and increased legal and advisory fees resulting from a shareholder cooperation agreement. Excluding technology implementation costs and shareholder cooperation agreement expenses, OpEx would have been $22.8 million. Non-GAAP operating expenses in Q1 were $19 million compared to $20.3 million in Q1 of last year. Non-GAAP operating expenses exclude intangible amortization, stock compensation and certain nonrecurring expenses as they occur. As Brian mentioned earlier, in Q1, we announced the consolidation of our Wilsonville, Oregon, Dallas, Texas and Holland, Michigan operations into our main facility in Columbia, Missouri. Specifically, we will be consolidating certain operations, primarily assembly and warehousing, from these locations. While these are always difficult decisions to make, they are consistent with our long-term strategy of maximizing efficiency in our operations and leveraging the cost of our Missouri facility. These consolidations will involve adding some headcount in Missouri for assembly and distribution, while eliminating overhead costs such as operating lease expense, utilities and other administrative costs from these 3 facilities. We expect the net cost savings from the consolidations will be roughly $1.5 million on an annual basis, and we'll begin to see savings in our fourth fiscal quarter this year. GAAP EPS for Q1 was a loss of $0.42 as compared with earnings of $0.24 last year, and non-GAAP EPS for Q1 was $0.01 compared to $0.48 last year. Our Q1 figures are based on our fully diluted share count of approximately 13.4 million shares. Adjusted EBITDAS for the quarter was $1.4 million compared to $9.6 million last year. Turning to the balance sheet and cash flow. We have continually focused on maintaining a strong balance sheet, which has provided us the resources we need for growth. This quarter, I'm pleased to share that we continue to strengthen that balance sheet and demonstrate our efficient use of capital. We ended the quarter with $17.5 million of cash, generating $5.1 million from operations that allowed us to pay down $5 million on our line of credit. After capital expenditures of $1.6 million, our free cash inflow was -- for Q1 was $3.5 million. This compares to free cash outflow of $4.2 million in Q1 last year. With respect to inventory, historically, our inventory levels increased during Q1 each year due to timing of new product introductions and to support the increased seasonal demand starts in Q2. We implemented targeted inventory reduction initiatives, which helped us reduce inventory by roughly $1 million in Q1, as we more than offset inventory that we built to support new product launches. Our team is executing against a plan to reduce our inventory balance in the coming quarters to drive cash conversion from inventory in the second half of the fiscal year. In addition, because the majority of retailers are focused on driving down their overall inventories at the moment, we have intentionally delayed certain new product launches to better align with current retail demand patterns. We believe this strategy will help us launch those products at a time when retailers open-to-buy dollars have normalized. In addition, it will allow us to better manage our inventories over time. Our outlook for fiscal '23 capital expenditures remains unchanged. We expect to spend between $5.1 million and $5.6 million for product tooling and maintenance CapEx, and roughly $2.4 million to complete the ERP system, for total fiscal 2023 CapEx spend of between $7.5 million and $8 million. Now let me provide an update on our Microsoft D365 ERP implementation, an important strategic initiative that will complete our separation from our former parent company and will provide us with a data-driven platform for our future growth. The project is going well, and our multi-phased go-live approach remains on track. As I outlined last quarter, the first phase will involve going live with a smaller portion of our business on October 1, with the remainder of our business going live in December. We believe this phased approach will deliver the most seamless transition possible. For fiscal 2023, we anticipate spending a total of $1.7 million in onetime OpEx for implementation costs as well as $500,000 in duplicative costs to operate both our current and new ERP systems in parallel through December. We will treat both the $1.7 million and the $500,000 as nonrecurring transition costs when calculating non-GAAP operating expense and adjusted EBITDA. The strength of our balance sheet positions us well for future opportunities. We ended Q1 with $20 million outstanding on our $75 million line of credit, giving us a net debt leverage ratio near 0. We believe this strength serves us well in the current environment. Turning now to our outlook. While we are not giving specific guidance today, we are providing a framework for our revenue outlook for fiscal 2023. As we've discussed, retailers and distributors continue to be extremely cautious with regard to their own inventory levels, and consumer spending patterns over the year have yet to be determined. That said, we believe our brands are performing well and in alignment with recent consumer outdoor trends that we discussed earlier. As a result, we believe our revenue for fiscal 2023 could exceed pre-pandemic fiscal 2020 level by as much as 25%. On our last call, we discussed our expectations for revenue flow by quarter, and those expectations remain the same. To refresh you on that revenue flow, we expect typical seasonality to occur in fiscal 2023 with our highest net sales in Q2 and Q3 and Q1 being lower than Q4. We expect full year gross margin percentage to decline from fiscal 2022, as we return to a more normalized promotional environment. This is similar to the year-over-year result in Q1. With fiscal '23 operating expenses, we expect a decrease from fiscal '22 with variable distribution costs increasing as a percentage of net sales, but being more than offset by lower spending in other areas. On a quarterly breakout, we expect Q2 and Q3 OpEx to be higher than Q1 due to increased variable selling and distribution costs from higher sales volumes and additional spending for advertising programs and trade shows. We expect Q4 OpEx will be slightly higher than Q1 due to the increase in sales volume. As we move through the balance of fiscal 2023, we intend to be mindful of the current environment, focusing on cost containment where we can, but without losing the important perspective of opportunities that exist from long-term favorable trends in our industry and our strategic objectives. Lastly, we expect our fully diluted share count will be about 13.7 million shares. With that, operator, we're ready to open the call for questions from our analysts. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question will come from Matt Koranda with ROTH Capital. -------------------------------------------------------------------------------- Matthew Butler Koranda, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Just wanted to start off with the commentary that Brian made on POS data in the first quarter and wanted to see if we could specify, was it actually positive in the first quarter? And then maybe just if you could square the POS commentary with sort of the guidance for the year, which looks like somewhere around down mid-teens or so on a year-over-year basis. I assume the easy answer is inventory levels at your retail customers, but maybe just a little bit more data or color on that would be helpful. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Matt, it's Brian. Sure. So, on the POS side, we did see positive trends, meaning they're actually -- they're positive year-over-year in the quarter. And we talked a little bit about inventories. But specifically, we did see our retailer inventories, at least the inventory that we could see come down pretty significantly. They were up quite a bit, call it, 3, 4 months ago, and the retailers really have been spending their time, driving down inventories in our products. And we've heard very similar across products that are outside of our company. So we see that as a very positive sign. So positive POS, driving down inventories to a point now where across our channels, they're at or below where they were last year, which I think is a good thing. And then in regards to your question around guidance and what that infers for guidance, first, we didn't provide guidance, just more or less a framework for how we're thinking about the rest of the year. There is obviously a tremendous amount of uncertainty out there. So we're taking a cautious approach. But just seeing how POS has driven down inventories at retail for our products, again, that's a positive sign, which would lead us to believe -- it's based on history that, that will start to kick off more consistent replenishment. I think the biggest factor that we're weighing here is just what the consumer is going to do and how our retailers' other inventories they may have that are outside of our categories. There might be some spring large type products, at least that I've heard that are out there that are taking up their open-to-buy and would like to see sell-through of some of those other types until they begin to open it back up. But where we can control things, which is predominantly on the direct-to-consumer side, we're seeing tremendous success. So like you saw in the quarter, e-commerce was up in excess of 23%, 24%. -------------------------------------------------------------------------------- Matthew Butler Koranda, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- And then curious if you could maybe comment by brand lane. If there's any dispersion of performance in that POS data that you're seeing, we've heard from industry participants, generally, consumables have been a little bit stronger than sort of some of the bigger ticket items that maybe people are pushing out a little bit. But maybe just your thoughts on sort of the different categories and the brand names within [pay up]? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. It's actually been pretty positive across the board. I actually would have expected that shooting sports would have been not as strong as it has performed, but it's been up and as high as some of our outdoor lifestyle brands. So really not a divergence between the 2, but strong across the board for those 2 categories. -------------------------------------------------------------------------------- Matthew Butler Koranda, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- And then just a couple more, if I could. So on -- you mentioned that Grilla and MEAT! Your Maker were north of 15% of revenue in the quarter. Just curious, is it roughly evenly split between the 2? Just wanted to kind of get a sense for how Grilla is tracking? And then just maybe any thoughts you have since you've now got Grilla under your belt for several months now. Just want to get your thoughts on sort of how that is tracking relative to your initial expectations? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [7] -------------------------------------------------------------------------------- Yes. It's a great question. We don't have the breakout between the 2, but we do have a new IR deck to file today. You'll see a slide in there that shows TTM MEAT! Your Maker sales at 7.8%. I think it's up 164% or so TTM year-over-year. That's performing really well. Grilla, again, is performing really well as well. So we're happy with both of those. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [8] -------------------------------------------------------------------------------- Yes. One thing to note is that MEAT! Your Maker with me processing and just how we traditionally positioned that brand in the marketplace is we do see a lot of activity in the fall. So it is somewhat seasonal, but we are seeing, again, strong year-round demand for it, like with the numbers that Andy said, 160-plus percent just for the quarter year-over-year. And then on Grilla, that does tend to be more of a spring summer type product. So you're going to see a little bit more weighting on that side of the year as well. With some strong like tail getting season, we do see a pickup there as well, but it varies by quarter. -------------------------------------------------------------------------------- Matthew Butler Koranda, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [9] -------------------------------------------------------------------------------- And then just thoughts on inventory levels and sort of the sequential inventory levels as we move through the year. I guess the signal that you guys said pretty strongly is that we're going to see some reduction in inventory and you kind of slowed in terms of intake of vendor inventory. I wanted to get a sense for just maybe how much inventory we can see flush for the rest of this year? And then I've got one more follow-up then I'll leave it. -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [10] -------------------------------------------------------------------------------- Matt, it's Andy. Yes. We haven't quantified that. We definitely expect second half of the year cash conversion from that decline. Like we said in the comments, we have multiple initiatives going on now. They're already underway. They kind of helped us in Q1. So most of the benefit we'll see is going to be in the second half of our year. -------------------------------------------------------------------------------- Matthew Butler Koranda, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [11] -------------------------------------------------------------------------------- And then just any updated thinking around cash flow priorities? It seems like just given the working capital flush in the back half of the year, you guys are going to be generating some decent cash. Why not implement another buyback program kind of at these levels? Are there priorities like in the funnel in terms of M&A that are more attractive in terms of rate of return? Maybe just the latest update of thinking there would be really helpful. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [12] -------------------------------------------------------------------------------- Yes. So we are -- we've listed out the 3 priorities, and I'm sure you know them very well now, but for those that don't -- organic growth, M&A and then we're returning capital to shareholders. So again, our priority is organic growth. We do have a very strong pipeline of new products that Andy mentioned, we're strategically placing in the remainder part of this year and then likely some will move into next year because we want to get the most eyeballs on those new products when people aren't focused on older products that are being discounted at retail from other brands. So we want to optimize that as much as possible. So we're focused on that. Second is M&A. We have nearly 0 net debt, and we are actively continuing to look at M&A targets, continue to talk to founders in particular. We would love to find more Grillas, more BUBBAs, et cetera. But -- so we're continuing to look at that. And some get close and others aren't. So it's just a constant dynamic fluid situation around M&A. And then returning capital to shareholders, hear it loud and clear. This is something that we have as an ongoing discussion with our Board of Directors as we think about the 3 priorities. And we don't have one to report today, but I can assure you it's an ongoing topic for us as we look at our own value relative to some of the other opportunities. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question will come from Eric Wold with B. Riley Securities. -------------------------------------------------------------------------------- Eric Christian Wold, B. Riley Securities, Inc., Research Division - Senior Equity Analyst [14] -------------------------------------------------------------------------------- A couple of questions. Kind of a follow-up on the guidance question from before or starting on guidance kind of the framework about as much as 25% growth for fiscal '20. What could that number be if we were in kind of a normal retailer open-to-buy stocking environment? So if I could get a sense of kind of the assumption there in terms of normalized demand growth? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [15] -------------------------------------------------------------------------------- That's a tough question to answer just based on kind of the -- what we're seeing in the marketplace right now, consumer buying trends, the inventory reduction that we're seeing at our retailers. So I'm not really -- not too sure how to answer that one. -------------------------------------------------------------------------------- Eric Christian Wold, B. Riley Securities, Inc., Research Division - Senior Equity Analyst [16] -------------------------------------------------------------------------------- And then on the same-store sales -- or sorry, the e-commerce revenue growth in the quarter of 24%, do you know kind of what that would be kind of on a same-store sales basis if you took out Grilla Grills acquisition on the mix? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [17] -------------------------------------------------------------------------------- Unfortunately, we're -- we didn't break that out. So we're not going to be able to give that to you today. We did break out MEAT! Your Maker. So MEAT! Your Maker was up 164% or so. Was that, Andy? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [18] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- On the quarter year-over-year. But embedded in that e-commerce number as well, just to -- I'm sure you already know this, but it includes all online retailers and our direct-to-consumer business. -------------------------------------------------------------------------------- Eric Christian Wold, B. Riley Securities, Inc., Research Division - Senior Equity Analyst [20] -------------------------------------------------------------------------------- And then a final question for me. Your point-of-sale positive in the quarter, solid e-commerce purchasing trends. If you're going to drill down beneath the service with the data you have. What are you seeing, if anything, in terms of basket size trading down from higher price points to lower price points? Anything that would kind of maybe not be as positive in those numbers? Or is it kind of -- is it still showing up as kind of as strong as you reported? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Yes. I think we're seeing a few different things happening at retail. We've talked about our retailers, and they're open to buy, but we also need to consider that our consumers have limited open-to-buy as well. And I do think that they are being presented with a lot of deals right now for lots of different products, whether it's grills or patio furniture or different things that didn't sell or were over inventoried in the spring. And so, they're being confronted with some of those opportunities at a discounted price. And so, I think you've got some of that happening right now, just a -- I'll call it a distraction from a normalized environment or normalized selling period. And then I think you also have folks that -- some of the higher earners that are spending money, continue to spend money and might be looking to trade up into something if they've tried an activity last year. Looking to get into that mid, maybe high price point, maybe by a BUBBA product, they're still going to buy it regardless if it's on sale or not. So we are seeing strong sustained demand for those types of purchases as well. And we really see that, too again. We see POS data that really our direct-to-consumer. I mean we're -- people are still going out and spending money for a high-quality commercial grade grinder that's $500 to $600. So we're not seeing a slowdown there. -------------------------------------------------------------------------------- Eric Christian Wold, B. Riley Securities, Inc., Research Division - Senior Equity Analyst [22] -------------------------------------------------------------------------------- And then maybe just a final question, if I may, just to kind of parse out the language a bit, kind of the framework of 25% net sales growth over fiscal '20 as much as -- is that kind of a little bit more cautious imputed there? Or is that more of a base case, worst-case scenario? Maybe just kind of help us understand kind of the language in the nuance of where that could land? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [23] -------------------------------------------------------------------------------- Yes. Eric, I think that the word you hit on was cautious. So when we're looking the consumer demand trends, the retail inventory trends, we want to be cautious in that framework that we gave. So that's why we kind of use that 25%. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [24] -------------------------------------------------------------------------------- Yes, I think -- too. We see the -- like the trends that I mentioned around POS. Again, we can see about 50% of our total POS sales. We view that as a positive, right? I think if inventories were higher than prior year, we would have -- even be more cautious. So the trends seem to be moving in the right direction, but the -- in conversations with retailers where they are -- continue to be over-inventoried in other product categories that are outside of our control or outside of our space altogether, that's where their focus lies right now in trying to drive those down headed into the kind of holiday selling season, and try to clear the decks so that next year can be a more normalized year. I think you're going to see more of that. So, we're just trying to, again, be cautious. We are very optimistic in our business. We are continuing to plan towards that $400 million long term, and we see this as a temporary period of time. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- (Operator Instructions) Our next question will come from Connor Jensen with Lake Street Capital. -------------------------------------------------------------------------------- Connor Jensen;Lake Street Capital Markets, LLC;Equity Research Associate, [26] -------------------------------------------------------------------------------- I was just wondering in relation to the Defender, Marksman, Harvester Adventure brands, is there a specific area you're kind of the most optimistic about going forward or something that you think may perform better than others during an economic downturn? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [27] -------------------------------------------------------------------------------- Yes. So we had talked about the shooting sports side being down relative to outdoor lifestyle, up slightly over pre-COVID levels. I do think that, that will normalize over time and continue to grow. But in terms of product categories and brands that I think are longer term, we've positioned all of our brands, probably it's the simple answer, but we positioned a lot of our brands to expand into larger addressable spaces. And while we've pivoted on the launch timing for some of our new products, new product development is incredibly important for us and our brands as they grow. This last quarter being about 25% of our total net sales. And in the -- like in the investor materials, and I made mention to it in my prepared remarks, that we teased out a new product under BUBBA called the Electric Fish Scale, the EFS, which is, in our opinion -- we're not -- it's not out there for consumers yet. You can go buy it, but we believe it's going to be a complete game changer when you think about competitive tournament fishing, just got a huge overwhelming reaction at ICAST. And those are the types of products that I think consumers want to get past this, I'll call it, kind of hangover of products that are getting into the market is they're going to be looking for new innovative products, and that's what we do best. So I think it's going to be across the board, but we've got lots of really neat examples in the pipeline and more of this fall as well. -------------------------------------------------------------------------------- Connor Jensen;Lake Street Capital Markets, LLC;Equity Research Associate, [28] -------------------------------------------------------------------------------- And then kind of going a little more off of that. It sounds like you're trying to focus a little more on organic growth over the M&A. Do you think you might try and push back M&A a little further out? Or is it still kind of both those things go hand in hand? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [29] -------------------------------------------------------------------------------- Yes. They definitely go hand in hand. And the reason for that is we've taken the time to understand where our company -- where American Outdoor Brands has permission to play, which product categories and then where each of our brands have permission to play. So we're executing on the organic growth side of things on making that a reality. We know exactly what the next 3, 5-plus years looks like on the organic side. And on the M&A side, it's really where our brands don't have permission to play, but where we as a company have permission, and that has narrowed the focus very clearly for us. That's why we were chasing after outdoor cooking pretty aggressively, in particular, really like the brand that was doing direct-to-consumer, because with that infrastructure in place now, we can more easily integrate that type of a business and drive it from day 1. And so, there are other areas as well that we just haven't publicly stated, but are still within our wheelhouse as a company that we'll continue to look at. So, they do go hand in hand. -------------------------------------------------------------------------------- Connor Jensen;Lake Street Capital Markets, LLC;Equity Research Associate, [30] -------------------------------------------------------------------------------- Got you. It's helpful. And then last, I know you said you aren't giving formal guidance, but do you think there's maybe a ceiling for revenue around $210 million this year. Are we thinking about that correctly? Or is that conservative? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [31] -------------------------------------------------------------------------------- Yes. I think if you do the math based on what we said in the comments, I think you're in the ballpark. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Our next question will come from John Kernan with Cowen. -------------------------------------------------------------------------------- John David Kernan, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [33] -------------------------------------------------------------------------------- Andy, what do you think is a normalized amount of inventory days on hand in fiscal '21, inventory turns, ramp as -- inventory days on hand came down? Inventory got a little backed up at the end of last year, and like you're going to continue into the first half of this year. How much inventory -- and how should we be modeling inventory turn in days on hand as we think about the cash conversion cycle? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [34] -------------------------------------------------------------------------------- Yes, it's a great question. And it also -- it depends on the quarter as well. As you know, John, we're -- we have seasonality, especially Q2, Q3, usually our highest quarters. So we typically ramp up inventory a bit in Q1 to be ready for those quarters. Now if you rewind back to last year, we have the strategy in place to build inventory, to offset some supply chain issues. So, we feel like we're in a great spot. We have great initiatives to drive down that inventory in the second half of the year. So, it's a little tricky when you start to break it down by DSO because of that cyclicality, and the fact that we did build inventory to reduce that -- the supply chain risk last year. -------------------------------------------------------------------------------- John David Kernan, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [35] -------------------------------------------------------------------------------- When we think about a normalized EBITDA margin structure for the business -- gross margin obviously is going to be down this year. OpEx rates are going to be up. How do we think about a normalized EBITDA margin as sales starts to recover? There's clearly a lot of operating leverage in the business given the incremental margins we saw in fiscal '20 and '21 and now in fiscal '22 and '23. So can you help us think about multiyear margin potential for the business? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [36] -------------------------------------------------------------------------------- Yes. So we've set out there achieving mid- to high-teens EBITDA's margins, and that's still our plan. So the way that we've geared this business as we continue to grow would be certainly to achieve those levels. And then, as we look at acquisitions, we're looking for accretive acquisitions. Grilla is a great example of that. It's accretive across all measures to kind of help either get there or help us even exceed those numbers in the future. But today, once we see things normalizing, certainly, we feel that's achievable. -------------------------------------------------------------------------------- John David Kernan, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [37] -------------------------------------------------------------------------------- And then any commentary on which categories are declining the most within the traditional channels of retail? -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [38] -------------------------------------------------------------------------------- Sure. The one that really stands out, I'd say, relative to the pack are personal protection related. So last year, we talked about traditional channels saw growth of 70% year-over-year in our first quarter. And a big driver there, well, is 2 things. One, retailers pulling forward inventory, and the second is there was still heightened demand, pretty significant demand around personal protection. And when you look across our brands, it's the types of products that are really associated with that personal protection. Still have good demand, it's just down relative to the rest of the pack. Andy, anything else you'd add to that? -------------------------------------------------------------------------------- H. Andrew Fulmer, American Outdoor Brands, Inc. - Executive VP, CFO & Treasurer [39] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back to Brian Murphy for any closing remarks. -------------------------------------------------------------------------------- Brian Daniel Murphy, American Outdoor Brands, Inc. - President, CEO & Director [41] -------------------------------------------------------------------------------- Thank you, operator. Before we close, I want to make -- want to let everyone know that we'll be participating in 2 conferences next week, the CL King Best Ideas Conference, which is a virtual event on Monday, September 12th. Then we'll be in person at the Lake Street Best Ideas Growth Conference in New York on Wednesday, September 14th. We hope to see some of you there. In closing, I want to acknowledge the loyalty, hard work and dedication of our employees who continue to move American Outdoor Brands forward on the path towards an exciting long-term future. Thank you, everyone, for joining us today. We look forward to speaking with you again next quarter. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.