Shares of Under Armour surged $1.23, or 19.0 percent, to $7.70 on the day.

“I’m pleased that we started the year ahead of expectations and I’m encouraged by the early progress we’re making in executing our Protect This House strategy,” said Under Armour President and CEO Kevin Plank, on a call with analysts. “Our renewed energy and alignment are proving to be critical enablers as we work to deliver superior products and storytelling while driving efficiencies, reducing promotional activity and complexity.”

In the fiscal first quarter ended June 30, sales fell 10.1 percent to $1.18 billion, slightly ahead of analysts’ consensus estimate of $1.15 billion. Revenues on a constant-currency (cc) basis were down 10 percent.

Under Armour posted a net loss of $305.4 million, or 70 cents a share, in the quarter after charges of $274 million related to litigation reserve expense. On June 21, Under Armour announced that it had agreed to pay $434 million to settle a 2017 class action lawsuit accusing the sports apparel maker of defrauding shareholders about its revenue growth to meet Wall Street forecasts.

The loss also reflects the recognition of $25 million of restructuring and impairment charges and $9 million of other related transformational expenses related to a Protect This House restructuring program announced this past May.

Excluding these charges, earnings reached $3.7 million, or 1 cent a share, surpassing analysts’ consensus target calling for a loss of 8 cents and company guidance of a loss between 10 cents to 8 cents. The beat was attributed to the North America revenue and gross margins outperformance as well as better SG&A expense control. In the 2023 first quarter, net income was $10.1 million, or 2 cents a share.

North American Q1 Sales Drop 14 Percent
By region, North America still delivered the worst performance despite exceeding plan with sales down 14.2 percent to $709.3 million. On the call, CFO Dave Bergman said the North American decline was due to softer full-price wholesale demand and lower sales to the off-price channel. The North America DTC business was also down during the quarter, driven mainly by efforts to reduce promotional activity within the e-commerce channel as well as a decline in brick & mortar retail sales.

In EMEA, sales inched up 0.1 percent to $226.9 million and were flat on a currency-neutral basis. Strength in EMEA’s DTC business offset a slight decline in wholesale. APAC revenue declined 10.1 percent to $181.8 million and was off 7 percent on a currency-neutral basis, driven by declines in wholesale and DTC businesses amid a softening macro that impacted consumer traffic and a highly competitive and promotional environment in the region.

The best-performing region was Latin America, with sales up 15.6 percent to $64.4 million, or 12 percent on a currency-neutral basis, with solid growth among regional distributors.

From a channel perspective, first-quarter wholesale revenue was down 8.3 percent to $68.5 million, driven by softer demand in its full-price and distributor businesses along with lower sales to the off-price channel. DTC revenue declined 11.8 percent to $480.2 million with a 25 percent decline in e-commerce the channel due to efforts to reduce promotions. Sales at owned stores were down 3 percent. Licensing sales declined 13.6 percent to $21.7 million due to weakness in North America and Japan.

By product type, apparel revenue was down 8.1 percent to $757.8 million with declines across most categories partially offset by relative strength in golf. Footwear was down 14.7 percent to $310.4 million with declines across most categories, partially offset by relative strength in outdoor and golf. Accessories sales declined 5.4 percent to $92.5 million.

Gross Margins Benefits from Reduced Promotions
Gross margins were up 110 basis points to 47.5 percent, exceeding Under Armour’s forecast calling for gross margins to be down 20 to 30 basis points.

This increase was driven by 170 basis points of pricing benefits due to lower levels of discounting and promotions, mainly in its direct-to-consumer business because of actions taken to reduce promotions as well as 40 basis points of supply-chain benefits related to lower product costs and lower inventory reserves. These benefits were partially offset by 60 basis points of headwinds from unfavorable regional and channel mix shifts and 50 basis points of unfavorable foreign currency impacts.

Bergman said the margin outperformance was because promotions came in less than planned in its DTC business as strategies to reduce promotional activity in the factory outlet stores not contemplated in the prior outlook, including less depth in discounts, proved effective. Inventory reserve needs were also lower than planned given a lower inventory balance and healthier overall composition. Finally, the quarter benefited from more year-over-year freight cost improvements compared to anticipations.

Operating Expenses Decline 6 Percent Excluding Litigation Costs
SG&A expenses surged 42 percent to $837 million in the first quarter. Excluding a litigation reserve net of an insurance receivable and transformation expenses, adjusted SG&A expenses were down 6 percent to $555 million, mainly due to ongoing cost management actions including headcount reductions and lower marketing expenses for the quarter. Under Armour has recognized $34 million of the estimated $70 million to $90 million in anticipated charges and expenses under existing restructuring plan announced in May.

Under Armour’s operating loss came to $300 million. Excluding the litigation reserve, transformation expenses and restructuring charges, adjusted operating income was $8.0 million, down 64.3 percent from $22.4 million a year ago.

Inventories were down 15 percent at the quarter’s end, ahead of expectations due to the revenue outperformance in the quarter and effective inventory management. Inventories at year-end are still expected to be in line with year-ago levels.

Restructuring Update
On the call, Plank provide a lengthy update on the brand’s turnaround efforts. He listed Under Armour’s progress since he returned to the CEO role four months ago:

• Implementing a nine-month go-to-market process to complement its 18-month calendar with the StealthForm Uncrushable Hat being the first delivered product and now available and in stock online;
• Beginning work to reduce its SKU style count by 25 percent over the next 18 months;
• Implementing a category management structure;
• Rightsizing the organization with a headcount reduction “that, while painful, is now complete.”

Plank also noted that Under Armour continues to invest in its management team with the announcement earlier this week that 26-year Adidas veteran Eric Liedtke joined the company as brand president and executive board member. Said Plank, “Complimenting one of the strongest product teams we’ve had in nearly a decade, Eric’s proven track record of transformational brand growth and strategy will be an incredible asset to our product and regional leaders and our broader executive leadership team at this crucial time. As EVP of brand strategy, Eric will oversee our brand marketing, corporate strategy, consumer insights, sports marketing, creative and loyalty functions. In addition, Eric will be tasked with building out our marketing organization, including its go-forward leadership, that will report to him.”

He highlighted a number of opportunities Under Armour’s team is working on, including “being faster in bringing products to market, more intentional and committed storytelling for our launches, serving as a better business partner and driving deeper connections with athletes to ignite brand love.”

He also believes while there’s many fashion houses, “less than five brands” can be considered sports-first brands, including Under Armour. Among other benefits, the sports positioning gives Under Armour the opportunity to segment across, good, better and best pricing ranges. Plank said, “This is probably the most significant business advantage of being a sports house and why we believe we can drive a more premium positioning while not abandoning good level altogether.”

Plank highlighted progress on the three elements of the Protect This House restructuring effort, beginning with steps to build better products and storytelling. The effort is being led by Yassine Saidi, who was hired as chief product officer in January. Plank said, “By order of operations, product was the most immediate fix and frankly longest lead time UA needed to address. I’m very confident in the work this team is executing, including a more centralized vision across product merchandise and marketing that will enable us to correct our past inconsistencies, always editing and innovating to drive our brands forward.”

The brand is elevating its sportswear offering to provide wearing occasions for the 16-year-old to 24-year-old varsity team sport athlete the brand targets. Plank said, “This includes the launch of high-performance streetwear in Unstoppable, versatile style and athletic performance in Meridian, elevated warmups and sport-inspired looks in our Icon Fleece collection, Infinite and Phantom running launches. And finally in basketball, the Curry 12, along with the first signature shoe for De’Aaron Fox of the Sacramento Kings.”

The brand is also focused on improving its “demand creation ecosystem” with better storytelling aligned with merchandise. For instance, he said two-thirds of e-mails sent to North American customers last year were about discounts or promotions and one-third were focused on full-price selling and storytelling. He added, “This year, that ratio is now inverted, which, although early, is showing signs of positive traction and perception.”

In marketing, the brand is also increasing investments in paid social media influencers, extended its partnership with the University of Maryland, and announced a new partnership with USA Football to capitalize on growing interest in flag football.

In its quest to reduce complexity, Planks noted that making “frankly too many products that, without proper segmentation and marketplace differentiation, have challenged brand affinity.” In reducing SKUs, the brand “is being surgical in this effort, distorting toward areas of opportunity with the highest returns both financially and strategically from a brand-building perspective, and purposefully over-indexing towards better and best level products as we elevate our brand positioning.”

The third priority, elevating consumer experiences, includes a push toward more premium positioning across DTC channels while also working on improving storytelling and segmenting with wholesale partners. Plank said, “We’re changing the script on what it means to be a UA partner and are committed to strengthening our crucial account relationships in each distribution tier.”

He concluded, “Though early in our journey to reconstitute Under Armour’s brand strength, we’re making tangible progress in building a more premium product offering. We’re running smarter plays by tightening up our SG&A, reducing SKUs and materials and beginning to elevate consumer shopping experiences. Amid the early progress we’re making and Eric coming on board to fill a critical missing piece of our puzzle through the marketing lens, we’ll continue to empower and evolve our culture to reduce complexity and be more deliberate in everything we do. I have every confidence that our improving level of execution will result in a better presentation of the Under Armour brand through building this sports house. There’s much to do, but we’re undeniably back on offense.”

Outlook
Under Armour updated its outlook for the year:

• Sales are still expected to decline at a low double-digit percentage rate. Sales in North America are now expected to decline in the range of 14 percent to 16 percent (previously a 15 percent to 17 percent decline). However, the North American improvement is expected to be offset by increasing market pressures expected in the APAC region for the balance of the year. International is expected to see a low single-digit percentage decline with APAC down at a high single-digit rate and flat revenues in EMEA.
• Gross margin is still expected to be up 75 to 100 basis points compared to the prior year. The better-than-expected margins in the quarter are expected to be offset by emerging ocean freight cost headwinds, developing negative foreign currency impacts, and a more unfavorable channel mix due to lower licensing sales and challenged margins in the off-price channel.
• Excluding the litigation reserve expense and the midpoint of total estimated charges and related expenses of our restructuring plan, adjusted SG&A are expected to decline at a low-to-mid single-digit percentage rate. Previous guidance called SG&A to be down 2 to 4 percent.
• Adjusted operating income is now anticipated to reach $140 million to $160 million versus the previous expectation of $130 million to $150 million.
• Adjusted EPS is expected in the range of 19 cents to 22 cents compared to previous guidance between 18 cents and 21 cents.

In the second quarter, sales are expected to be down approximately 12 percent, assuming continued wholesale softness and proactive strategies to reduce promotional activities in its DTC business, particularly in North American e-commerce.

Gross margin is anticipated to be up 20 basis points to 30 basis points due to benefits from lower product costing and less DTC discounting, partially offset by more expensive ocean freight and unfavorable foreign currency impacts. Adjusted SG&A is expected to decline at a high single-digit rate, partially driven by approximately 4 percentage points to 5 percentage points from an anticipated insurance recovery related to litigation expenses paid in prior periods. Additionally, this decline includes lower expenses related to headcount reductions and a shift in the timing of marketing expenses, which will be considerably higher in our third quarter. Q2 adjusted operating income is projected between $110 million to $120 million against $146 million a year ago; and adjusted EPS between 18 cents to 20 cents versus 24 cents a year ago.

Image courtesy Under Armour

Earnings rose 0.5 percent to R$139.7 million on a reported basis. Recurring income rose 4.4 percent to R$139.7 million, with a recurring net margin of 18.4 percent.

Gross margins in the quarter were 42.5 percent, an increase of 110 basis points.

Revenue from the athletic footwear category was R$644.6 million, growing 6.0 percent year-over-year and representing 84 percent of the company’s total revenue. This was due to the increased sales of its three brands, driven by growth in the domestic market and partially overshadowed by the reduction in sales in the foreign market.

Vulcabras said Olympikus, its flagship brand, “continues to expand strongly, with growth in average price driven by Corre Family products, which democratizes high performance with innovations and technology 100 percent Made in Brazil.”

The company continued, “This quarter, the Corre Supra, the super shoe Made in Brazil, won 12 podiums in its official debut at the São Paulo International Marathon. With the QU4DRA BR1, shoes co-created with the Brazilian volleyball team’s setter, Bruninho, the brand returns to the volleyball courts and is present on the athlete’s feet during this year’s Olympics.”

The licensed Mizuno range expanded into performance running with the Mizuno Neo Vista, a new shoe category focused on speed training.

The Under Armour range continues to expand in basketball and training, with three new drops from the Curry Brand and UA Wish. In training, the UA Tribase Lift continues to gain space inside and outside gyms.

Other Footwear and Others category decreased by 2.6 percent to R$52.6 million due to a drop in the professional boots category, mitigated by the flip-flops category growth.

Apparel and Accessories category sales increased 3.1 percent to R$63.8 million. Vulcabras stated, “The category continues to face a challenging retail scenario, especially in specialized distribution. The growth of this category was predominantly due to the greater penetration of online sales.”

Overall, e-commerce recorded revenue of R$98.7 million in the quarter, an expansion of 72.9 percent compared to the same period of the previous year. Digital sales accounted for 13.0 percent of the company’s total net revenue, up 5.1 percentage points compared to the share recorded in 2Q23.

By region, revenue in the domestic (Brazilian) market reached R$723.5 million, an increase of 8.6 percent compared to the same period in the previous year.

The company’s three brands recorded growth in the Brazilian market compared to the same period in 2023. During this quarter, athletic footwear, apparel, and accessories were the positive highlights, with growth in volume and revenue partially reduced by the decline in the professional boots category.

In the foreign market, net revenue reached R$37.5 million, a drop of 35.0 percent against year-ago levels. T

Athletic Footwear revenues incurred a strong impact from the decline in sales in Argentina, the company’s leading export destination. Vulcabras said, “Difficulties in domestic consumption and restrictions on remitting dollars abroad mean that the volume of business with Argentina remains far from its full potential.”

Vulcabras’ subsidiary in Peru also saw a reduction in revenue from continued macroeconomic disruptions in the country.

In the half, Vulcabras’ net revenue amounted to R$1.36 billion, up 4.9 percent year-over-year. Recurring net income reached R$139.7 million, up 4.4 percent year-over-year at a margin of 18.4 percent against 18.5 percent a year ago. Recurring EBITDA grew 4.0 percent to R$175.4 million, with a recurring EBITDA margin at 23.0 percent against 23.3 percent a year ago.

Photo courtesy Olympikus

“We continue to strengthen our brands’ positioning in the marketplace with improved product pipelines, more effective demand creation initiatives and better brand management,” said Chris Hufnagel, president and CEO, Wolverine Worldwide, on an analyst conference call. “While the macro environment remains dynamic and challenges no doubt, remain on the horizon, we’ve seen key elements of our turnaround effort continue to build momentum, and we’re encouraged that our strategies continue to gain traction.”

In the quarter ended June 29, sales on a reported basis fell 23.7 percent, or 24.7 percent in constant currencies (cc), to $527.7 million. Excluding the impact of the divestiture of Sperry, Keds and Wolverine Leathers businesses, sales on an ongoing basis declined 18.4 percent (-18.3 percent cc) to $424.8 million, improving sequentially from a decline of 24.5 percent seen in the first quarter.

“We’re seeing increased demand for our brands and products as we execute our consumer-focused strategy,” said Taryn Miller, the company’s recently hired CFO, on the call.

The sales outperformance, in part, reflects approximately $10 million of over-delivery due to a timing shift between the second and third quarters. The transition of Saucony inventory from its Louisville distribution center to a new California DC was completed with minimal disruption, avoiding a previously expected shift of approximately $5 million to the third quarter. In addition, approximately $5 million of wholesale orders shipped earlier than originally expected to the benefit of the second quarter.

The year-ago quarter also includes more than $55 million of revenue that did not repeat in the second quarter this year, including excess inventory and business model changes. Taking out the $55 million in non-recurring revenues, ongoing sales in the latest quarter were down 8.6 percent.

Segment Highlights

Active Group sales were down 20.2 percent (-20.0 percent cc) to $305.9 million, improving from a decline of 24.9 percent seen in the first quarter. Among the Active Group’s larger brands:

• Merrell’s sales were down 19.2 percent (-18.9 percent cc) to $142.7 million, following a decline of 24.9 percent in the first quarter,
• Saucony’s sales dropped 28.0 percent (-27.6 percent cc) to $102 million after sliding 26.2 percent in Q1, and
• Sweaty Betty’s sales were flat (-0.7 percent cc) at $44 million, down 4.8 percent from the first quarter.

The Active Group also includes Chaco.

Work Group sales declined 10.9 percent (-11.0 percent cc) to $105 million, showing strong sequential improvement against a 21.3 percent decline in the first quarter. Wolverine Brand sales slid 3.1 percent (-3.2 percent cc) following a 20.3 percent decline in the first quarter. The group also includes Cat footwear, Bates uniform footwear, Harley-Davidson footwear, and Hytest safety footwear.

Income Statement Summary
Adjusted gross margin in the quarter jumped 400 basis points to 43.1 percent, which aligns with expectations and reflects a healthier sales mix, lower promotional activity, and the benefit of supply chain cost initiatives.

The adjusted operating margin of 6.3 percent exceeded Wolverine’s outlook for the quarter driven by operating cost leverage on the stronger revenue performance.

Adjusted diluted EPS fell 21.1 percent to 15 cents a share from 19 cents in the year-ago period but showed sequential improvement from 5 cents in the first quarter and topped Wolverine’s forecast of 10 cents a share.

Balance Sheet Summary
Inventories were cut 44 percent by quarter-end due to efforts to optimize inventory levels as well as the benefit of improved planning and execution.

Net debt was slashed by $270 million to $666 million.

Transformation Plan Update
Hufnagel, who took over as CEO at this time last year, detailed WWW’s turnaround efforts that first focused on stabilizing the business before transforming the organization and ultimately returning to growth mode.

Stabilization steps included streamlining its cost structure and significantly reducing debt as both constrained brand investments as well as reducing bloated inventories in the marketplace “that undermined our brand position in the market and impeded our pipeline of new product innovation.”

Transformation steps included creating an internal consumer and trend insight group called The Collective; establishing in-house creative and PR resources; implementing brand protection measures to clean up the marketplace; fostering stronger relationships with wholesale and distribution partners in the U.S. and overseas, and increased investments in brand awareness.

The company is also pushing to fast-track new innovations ahead of traditional development timelines.

Offering some examples of progress at the brand level, Hufnagel said that at Saucony, accelerated product life cycles in the run category drove a 900-basis point increase in revenue contribution year over year in the second quarter from new product introductions.

The successful introduction of the Ride Guide 17 and Endorphin 4 collections earlier this year was followed by the launch of the Triumph 22, which has delivered strong double-digit growth at run specialty and on saucony.com. Last month’s launch of Hurricane 24 also saw sell-throughs. The Endorphin Elite 2, a pinnacle franchise featured at the Paris Olympics, was released a few weeks ago and reportedly sold out in one hour.

On the lifestyle side, Saucony has found success tapping into the retro-tech trend. The ProGrid Omni, ProGrid Triumph, and Ride Millennium have had strong sell-throughs, and the trend is reportedly helping the brand reach new accounts.

In the UK, sales at saucony.com grew 40 percent in the second quarter, benefiting from a “key city” approach that prioritizes activations, including Saucony’s sponsorship of the London 10K. Overall, Saucony.com sales were up 21 percent in the quarter.

Hufnagel said he is encouraged by the sell-throughs and feedback he has heard from run specialty accounts. “No one’s declaring victory. We have to get to a place where we’re stealing share again. But the initial steps we’ve taken there from a brand perspective, and how we thought about that brand, how we want to manage the brand, I think to give us some very early initial stages that we’re on the right path,” he said.

Sweaty Betty found success with a “Just Wear The Damn Shorts” marketing campaign that led shorts sales to “nearly double” in the quarter. Hufnagel said the success is part of Wolverine’s larger push to emphasize brand investments in storytelling to engage consumers.

“I believe brands need to do more than just have great products that perform well to win, they also need to engage consumers with timely stories that only they can tell, leveraging their unique DNA,” said Hufnagel.

Other wins for Sweaty Betty include achieving double-digit growth in its leggings category, driven by its hero franchise, “Power.” The expansion earlier this year of the Explorer collection for warm weather and travel delivered “very strong double-digit” growth and helped diversify Sweaty Betty’s assortments.

Hufnagel said Wolverine’s brands have also benefited from steps to “shut down rogue selling,” optimize distribution, and emphasize a “pull” model over a push model.

“Merrell, for example, has cultivated a much cleaner selling environment this past season and successfully reset several of its key accounts in the U.S. with more modern assortments to position brands more appropriately,” said Hufnagel. “As a result, in the second quarter, Merrell drove growth at retail in hike despite the category headwinds and achieved its third straight quarter of acceleration in market share gains.”

The Moab Speed 2 and Agility Peak 5 were cited as examples of Merrell’s “faster and lighter styles at elevated price points that continue to drive sell-through and create momentum.”

Merrell has also benefited from several collaborations, including one with the Greyson golf brand that “quickly sold out and generated 500 million earned media impressions in the process.”

Hufnagel stressed that he did not “want to underestimate the challenges in the U.S. wholesale landscape, and we don’t necessarily see those abating in the short term.” However, he said consumers are responding to newness from Wolverine’s brands. “There are winners in every market, and where we are bringing innovative products with strong storytelling, we are getting really strong reactions,” he said.

Outlook
Looking ahead, due to the solid first-half results and order patterns so far for its global wholesale and distributor business, Wolverine now expects:

• Revenue from its ongoing business of approximately $1.71 to $1.73 billion, up from prior guidance between $1.68 to $1.73 billion. Sales are expected to decline 7 percent at the mid-point of the range.
• Active group sales are expected to decline in the low teens (declined in the mid-teens previously). Merrell is expected to decline low double-digits (declined low-twenties previously); Saucony is projected to be down low-twenties (unchanged); Sweaty Betty is expected to be flat (unchanged).
• Work Group sales are expected to decline high-single-digits (unchanged). Wolverine Brand is expected to decline mid-single-digits (declined high-single-digits previously)
• Gross margin of approximately 44.5 percent, up 460 basis points compared to 2023, unchanged from the previous outlook.
• Operating margin of approximately 6.0 percent and adjusted operating margin of approximately 7.4 percent, up 350 basis points compared to 2023. Previous guidance called for operating margins of roughly 5.7 percent on a reported basis and 7.0 percent on an adjusted basis.
• The effective tax rate of approximately 18.5 percent, as compared to the previous outlook of 18.0 percent.
• EPS in the range of 53 cents to 63 cents and adjusted EPS in the range of 75 cents to 85 cents, up from previous guidance calling for EPS between 43 cents to 63 cents on a reported basis and 65 cents to 85 cents on an adjusted basis.
• Inventory to decline by at least $75 million at year-end compared to the prior year-end, unchanged from previous guidance.
• Net debt at year-end to be approximately $565 million, a reduction of $175 million from the prior year-end, unchanged from previous guidance.

For the third quarter, revenue is expected to be approximately $420 million, representing a year-over-year decline of approximately 11 percent and continued improvement in the 24.5 percent decline seen in the first quarter and 17.9 percent in last year’s fourth quarter. The sequential improvement is expected to benefit from the company’s brands continuing to build momentum behind new products and strengthening market activations, as well as the reduction in headwinds caused by non-recurring year-ago sales.

The Active Group is expected to see a decline in the low teens, with Merrell down mid-single digits, Saucony off in the low-twenties, and Sweaty Betty growing low-single digits. Work Group sales are expected to decline by high-single digits, with Wolverine Brand down at the same rate.

The third quarter’s gross margin is expected to be approximately 45 percent, an increase of 300 basis points from last year and in line with the first-half performance. With an improvement in operating margin expected, adjusted EPS is expected to reach approximately 20 cents a share, up from earnings of 11 cents a share a year ago.

Image courtesy Saucony

Total sales in the second quarter ended June 29 were $425.2 million, down 27.8 percent on a reported basis and 27.7 percent on a currency-neutral basis. Sales on an ongoing basis, adjusted to exclude the impact of the divestiture of Sperry, Keds and Wolverine Leathers businesses, were $424.8 million, down 18.4 percent on a reported basis and off 18.3 percent on a currency-neutral basis. Results topped analysts’ consensus estimate of $410.8 million.

Earnings on an adjusted basis declined 21.1 percent to 15 cents a share from 19 cents, but exceeded the consensus estimate of $0.11 per share.

“We delivered better-than-expected revenue and earnings in the second quarter while continuing to execute our ambitious turnaround plan,” said Chris Hufnagel, president and chief executive officer of Wolverine Worldwide. “A year ago, we began to take fast and bold actions to build a new and better company—focused squarely on our consumer and our new global brand-building model. Our team has executed with tremendous pace and urgency, driving substantial progress across the business. We’ve significantly lowered our debt and inventory levels while meaningfully expanding our gross margin, and we’re beginning to see proof points of an inflection to growth—driven by stronger product pipelines and improved demand creation. Every day, we’re making progress to position the company for sustained growth in the future and, ultimately, to deliver better performance and greater returns for our shareholders.”

Financial Highlights
Financial results for 2024 and comparable results from 2023, in each case, for its ongoing business exclude the impact of Keds, which was sold in February 2023, the U.S. Wolverine Leathers business, which was sold in August 2023, the non-U.S. Wolverine Leathers business, which was sold in December 2023, and the Sperry business, which was sold in January 2024.

Gross margin improved significantly due to lower supply chain costs, lower sales of end-of-life inventory, fewer promotional eCommerce sales, and a favorable distribution channel mix.

Inventory at the end of the quarter was $297.1 million, down $350.8 million, or approximately 54.1 percent, from the prior year and down $76.5 million from the prior year’s end.

Net debt at the end of the quarter was $666 million, down $271 million compared to the prior year and down $75 million from the prior year end.

Full-Year 2024 Outlook
“We are pleased with how we are performing at this stage in our strategic transformation, and our second quarter results reflect the progress and the actions we’ve taken to improve the financial position of the company,” said Taryn Miller, chief financial officer. “While there is more work to do as we advance Wolverine Worldwide’s strategy, we believe the steps we are taking will position the business for long-term growth and value creation for shareholders.”

For Fiscal year 2024, the company currently expects:

• Revenue from its ongoing business of approximately $1.71 to $1.73 billion. This range compares to the previous outlook of approximately $1.68 to $1.73 billion and represents a decline of roughly 14.2 percent to 13.2 percent and a constant-currency decline of approximately 14.1 percent to 13.1 percent compared to 2023.
• Gross margin of approximately 44.5 percent, up 460 basis points compared to 2023, which remains unchanged from the previous outlook.
• Operating margin of approximately 6.0 percent and adjusted operating margin of approximately 7.4 percent, up 350 basis points compared to 2023. This compares to the previous operating margin outlook of roughly 5.7 percent and adjusted operating margin of approximately 7.0 percent.
• The effective tax rate of approximately 18.5 percent, as compared to the previous outlook of 18.0 percent.
• Diluted earnings per share in the range of $0.53 to $0.63 and adjusted diluted earnings per share in the range of $0.75 to $0.85. This compares to the previous outlook for diluted earnings per share in the range of $0.43 to $0.63 and adjusted diluted EPS between $0.65 and $0.85. These full-year EPS expectations continue to include an approximate $0.10 negative impact from foreign currency exchange rate fluctuations.
• Diluted weighted average shares of approximately 80 million, unchanged from previous guidance.
• Inventory to decline by at least $75 million at year end compared to the prior year end, unchanged from previous guidance.
• Net Debt at year-end to be approximately $565 million, a reduction of $175 million from the prior year-end, unchanged from previous guidance.

Image courtesy Merrell

“I feel very good about the progress we’re making,” said Darrell. “It feels very similar to where I was when I was in my last company, and I feel like I can see it, and I feel good about it.”

As CEO from 2013 until he joined VF Corp., Darrell received credit for transforming Logitech from a sleepy keyboard-maker into a fast-growing tech player focused on design. Darrell promised VF would offer guidance on its return to growth and other longer-term targets at a two-part investor conference the company will hold on October 30 in New York City.

First Quarter Sales Decline 9 Percent
VF’s first quarter marked another challenging quarter, with sales down nearly double-digits and losses widening, but the company saw improvement once again compared to the previous quarter. Results also aligned with company expectations, and VF reiterated its outlook for the year.

Sales in the quarter ended June 30 were down 8.6 percent year-over-year to $1.9 billion, ahead of analysts’ consensus target of $1.84 billion. On a constant-currency (c-c) basis, sales were down 8 percent, improving sequentially from being down 13 percent in its fourth quarter and 17 percent in its third quarter.

Darrell said the sales decline was “a little better than expected, demonstrating slight sequential improvement versus Q4 with the trend line improvement across almost all brands.” DTC revenues were flat with year-ago levels, excluding Vans. Vans is closing a number of unprofitable and non-strategic stores.

He noted that the spring quarter represents VF’s smallest quarter of the fiscal year and is largely skewed towards the Americas and wholesale.

Gross margins in the quarter declined 80 basis points for the prior year to 52.0 percent, aligning with guidance. The decline was primarily driven by continued efforts to clear inventories from Vans product as part of the brand’s reset.

SG&A expenses increased 360 basis points as a percent of sales to 57.0 percent, primarily driven by sales deleverage. Overall, SG&A expenses were down 2.1 percent due to its Reinvent restructuring program.

The fiscal 2025 first-quarter loss per share was 67 cents, compared to 15 cents per share for the fiscal 2024 first-quarter loss. The quarter’s adjusted loss per share was 33 cents, compared to 15 cents per share in the prior-year quarter. Results came out just ahead of analyst consensus target of an adjusted loss of 35 cents.

Leadership Changes
In brief remarks before the Q&A session, Darrell highlighted the extensive changes to VF’s leadership team. “On the year-end, we changed eight 11 direct reports, two of those are promotions. As planned, we made 3 of these changes since our last earnings call, including the leaders of our two biggest brands,” said Darrell.

The recent hires include Sun Choe, formerly chief product officer at Lululemon, as global brand president, Vans; Caroline Brown, former CEO of Donna Karan International, as global brand president, The North Face; as global brand president of The North Face, and Paul Vogel, formerly at Spotify, as CFO.

Other newer hires this year include a chief strategy and transformation officer, Abhishek Dalmia and chief design officer, Alastair Curtis. Promotions included Nina Flood, who formerly led the global packs business to run Timberland and Martino Scabbia Guerrini to chief commercial officer and president emerging brands. Said Darrell, “We have a full team now and you can feel the energy.”

Reset Transformation Plan Update
Darrell also provided an update on VF’s Reinvent transformation program, which has four priorities: reducing costs, lowering debt, resetting the U.S. business, and getting Vans back on track.

During the quarter, VF generated a further $50 million in cost savings, which is in line with its target of delivering $300 million in cost savings by the end of the first half of the fiscal year. Darrell said, “And we have no intention of stopping there. As we said from the beginning, we’re reinvesting some of that back into the business in the key areas of product and brand building. And those savings are further offset by rebuilding our annual incentive program and inflation on salaries and other areas. But as I said before, we are absolutely committed to more cost reduction.”

VF reduced inventories at the end of the quarter by 24 percent year-over-year and net debt by $587 million versus last year. He also noted that VF had previously indicated that it had concluded its strategic portfolio review. As part of the process, VF announced in mid-July that it reached an agreement to sell the Supreme business for $1.5 billion to luxury eyewear company EssilorLuxottica. Said Darrell, “To be clear, I love the Supreme Brand, and I love the Supreme team. It’s back to strong, profitable growth. But the lack of synergies with the rest of our organization made it a clear choice for divestiture. This allows us to sharpen focus on the core business and also improve our leverage.”

On reviving growth in the Americas, Darrell noted that VF had established the Americas regional platform, which is in place and operational as part of the company’s global commercial organization. He said the region “continues to perform well below our potential but the decline softened from negative 23 percent last quarter to negative 12 percent in Q1. Almost as important to me near term, we continue to be able to forecast the business. We now have eight consecutive months of accurate forecast.”

Vans Sees “Modest Improvement” in Q1
On Vans, Darrell said VF had indicated that the first quarter would be similar to the fourth quarter, excluding the impact from inventory reset actions. The brand saw “some modest improvement,” with sales down 21 percent in Q1 versus 27 percent in Q4 and 29 percent in last year’s Q3, reflecting an improved trend in its two biggest regions.

By region, cc sales in the Americas dropped 25 percent following declines of 31 percent in both the prior fourth and third quarters. EMEA cc-sales slid 3 percent following declines of 13 percent in the fourth quarter and 23 percent in the third quarter. In the APAC region, sales were off 3 percent compared to declines of 13 percent in the fourth quarter and 27 percent in the third quarter.

“Importantly, while the headline numbers remain weak, several indicators are showing we’re head in the right direction. EMEA is once again the region which is showing clear early encouraging signs with wholesale up in the quarter for the first time in six quarters with particularly positive momentum in key accounts,” said Darrell. “As a result of the inventory reset actions, our markets are clean, and we have space to introduce our new products, which are performing well across regions.”

The Knu Skool is now Vans’ number two franchise globally, performing well across regions. Its skate shoe, AVE 2.0 and UltraRange Neo, introduced recently, are gaining traction.

Vans’ brand elevation strategy showcased a new collaboration with New York-based designer Proenza Schouler around its Off The Wall collections, “showing the depth and breadth of our brand’s potential.”

For the 2024 Paris Olympics, Vans has 20 sponsored athletes across skateboarding and BMX at the games and rolled out several grassroots efforts around the competition. Darrell added, “In fact, just today, we won gold and silver in today’s women’s skate event.”

Many of Vans’ athletes are also driving the brand’s “Always Pushing“ marketing campaign. Darrell said, “These new products and marketing efforts are resonating with consumers and contributing to further progress in Google search trends which continue to move in the right direction across our markets.“

Vans’ sales fell 21.1 percent on a reported basis in the quarter to $581.8 million. On a cc-basis, sales were down 21 percent following declines of 27 percent in the fourth quarter and 29 percent in the third quarter.

The North Face Q1 Sales Slid 3 Percent
Sales at The North Face declined 2.6 percent in the quarter to $524.2 million. On a currency-neutral basis, sales were down 2 percent following declines of 5 percent in its fourth quarter and 11 percent in the third quarter.

By region on a cc basis, sales in the Americas slumped 10 percent in the first quarter but marked improvement over declines of 15 percent in the fourth quarter and 24 percent in the third quarter. EMEA sales, on a currency-neutral basis, were down 6 percent, worsening from a decline of 3 percent in the fourth quarter and 5 percent in the third quarter. In the APAC region, sales on a cc basis jumped 35 percent, following a gain of 15 percent in the fourth quarter and 28 percent in the third quarter.

A bright spot for TNF was DTC, which showed growth of 6 percent (+8 percent cc) year-over-year, inclusive of broad-based DTC growth in all regions.

Darrell said about TNF, “The underlying reality is we continue to have good solid DTC growth around the world, and China continues to just be super strong, which is exciting. Wholesale is relatively weak, both mainly driven by traffic and conservatism, I think, on the retail side, both in the U.S. and, to some extent, Europe too.”

He attributed the weak ordering pattern at wholesale partly to the overall macro environment, but he also believes there is “also a little bit of skittishness just because of the weather last year when it was so warm during the holiday season.”

Darrell added, “So, we’re not guiding TNF going forward, but I feel good about the brand. I feel good about the product initiatives that are coming. And I would say stay tuned. I think TNF going to be just fine.“

Timberland sales reached $229.4 million, down 9.6 percent on a reported basis and 9 percent on a cc basis. By region on a cc basis at Timberland, the Americas showed a gain of 2 percent while sharp declines were seen in EMEA, down 15 percent, and APAC was off 21 percent.

The company did not provide additional details on Timberland’s performance.

Dickies’ sales reached $116.8 million in the quarter, representing a decline of 14.5 percent. On a currency-neutral basis, sales declined 14 percent, with declines of 32 percent in the APAC region, 13 percent in the Americas, and 2 percent in EMEA.

Asked about Dickies during the meeting, Darrell said part of the brand’s challenges is that VF “moved too fast to try to turn it into a pure fashion brand in the U.S., and then we pushed to make it a pure fashion brand outside the U.S. It continues to do that outside the U.S.; it’s doing fine. In the U.S., it struggled because we lost our footing in our core work business, and we’re completely refocused there now. So, I’d say more to come there. I think Dickies is a fantastic brand and a great business, a really good, strong, solid brand, and we’ll get it back on its footing. It will just take a little time.”

Other Brands’ revenues were a bright spot, climbing 8.3 percent to $455.0 million and ahead 10 percent on a cc basis. The segment includes Altra, Eastpak, Icebreaker, JanSport, Kipling, Napapijri, Smartwool, and Supreme.

The company provided no further details on the performance of VF’s Other Brands segment, although Darrell reiterated that VF had completed its portfolio review and does not “have anything specifically contemplated“ regarding asset sales.

Darrell said about the Supreme divestiture, “This puts us in a good position to pay off the next two tranches of debt as we promised. And from there on, it will be about a good strong cash generation unless we decide to divest something else in the future. And I’d say stay tuned on that. The October Investor Day will give you a good sense for how we expect that debt to come down.”

Second-Quarter Guidance
VF has yet to provide full-year guidance since withdrawing it last November when it announced the reset turnaround plan.

In its fiscal second quarter, Darrell forecasted continued “modest improvement“ in sales sequentially against first-quarter results. Darrell said, “Don’t get me wrong, we’re not back in growth yet, but the decline rate should continue to moderate.”

He added, “At Vans, we will see modest sequential improvement as we did this quarter. For the North Face, we expect Q2 revenue to be slightly down relative to Q1 but remember, TNF had 17 percent growth in Q2 of last year.“

Gross margins are expected to be up slightly in Q2 versus last year as “inventory quality has improved, so there is less impact from the flushing of inventory post-Vans reset,“ said Darrell.

SG&A expenses in Q2 are expected to be up slightly year-over-year as incentive compensation, and inflation offset savings from the Reinvent plan.

For the full year, VF reiterated guidance for free cash flow plus the proceeds from non-core physical asset sales of approximately $600 million, excluding the impact of the divestiture of Supreme, which the company anticipates will be completed by the end of calendar year 2024. Supreme is expected to be reported as discontinued operations beginning in fiscal Q2.

Darrell concluded in his prepared statements, “We continue to make progress. The quarter improved sequentially relative to Q4 across almost all our brands. We’re advancing on Reinvent. Cost savings are on track, and we’re committed to more cost reduction. We’re addressing the balance sheet leverage ratio with the first sale of spring. The new platform in the Americas is moving strongly in the right direction and advance we’re seeing progress we expected. My level of confidence has never been higher. We have an incredible leadership team and dedicated talent at VF. So together, we will make the continued progress on our path to deliver strong, sustainable growth and value creation at VF.”

Image courtesy VF Corp.

Nyman said sales shortfalls in the fiscal first quarter, which ended June 30, as warned in pre-released guidance on July 22, were primarily due to the delayed launch of a new Bushnell product and supply chain issues.

Nyman added that Revelyst’s “Gear Up transformation” contributed cost savings of $5 million in the first quarter and was on a path to deliver savings of $25 million to $30 million in FY25 and $100 million on an annual run rate by FY27.

“I am energized by the roadmap we have in front of us at Revelyst,” said Nyman. “Teams across our business are executing on our transformation to the GEAR Up program and our value-creating dragon flywheel to unlock growth and margin expansion through game-changing innovation, exceptional licensing partnerships and enhanced direct-to-consumer and international channel strategy and digital-first thinking to create engaging content and gaming opportunities. We are relentless in our pursuit of excellence, and that drives my belief in our strategy and confidence in our financial targets and our ability to double our standalone adjusted EBITDA in fiscal year 2025.”

Nyman’s confidence in Revelyst’s progress comes as several companies with equity stakes in Vista Outdoor, including Gamco Asset Management, Gates Capital Management and TIG Advisors, had issued statements in recent weeks opposing a deal to sell The Kinetic Group, Vista’s ammunition business, to the Czechoslovak Group (CSG), in large part due to doubts about Revelyst’s prospects as a standalone, publicly held company.

On July 30, Vista adjourned its shareholder vote on the sale of The Kinetic Group to pursue a more extensive review of additional “strategic alternatives,“ including selling its Revelyst business and selling the company outright to MNC Capital.

On the call, Nyman said Vista had already engaged with MNC “to see if they can deliver superior value“ in an offer to acquire the company and also “reached out to several parties“ about a sale of the Revelyst business.

CSG also remains committed to acquiring The Kinetic Group and is now exploring the acquisition of Revelyst with potential partners.

“The Board continues to recommend Vista Outdoor stockholders vote in favor of the proposal to adopt the merger agreement with CSG,“ said Nyman. “We look forward to evaluating all strategic alternatives that would maximize value for stockholders, and we remain as focused as ever on delivering high-quality, innovative products for our consumers around the world.“

Results for the fiscal first quarter ended June 30 were in line with updated guidance given on July 22 when Vista forecasted first-quarter results that were generally in line with expectations although the Revelyst business came in below expectations and The Kinetic Group topped expectations. At the time, Vista reiterated its guidance for its fiscal year ended March 2025.

Vista’s Companywide Q1 Sales Decline 7.1 Percent
Companywide sales in the quarter declined 7.1 percent to $644 million driven primarily by lower volume at The Kinetic Group and Revelyst, partially offset by increased government sales at Revelyst and increased price at The Kinetic Group.

Gross profit decreased 6.9 percent to $211 million due to decreased volume and increased inflationary costs, including for copper and powder at The Kinetic Group and lower volume at Revelyst, partially offset by increased price at The Kinetic Group.

Operating expenses slid 3.3 percent driven primarily by a gain on divestiture of RCBS and Fiber Energy Products, lower transition costs for prior acquisitions and cost savings from Revelyst’s GEAR Up program, partially offset by increased SG&A costs at The Kinetic Group, increased planned separation costs, an asset impairment related to the sale of Fiber Energy and GEAR Up restructuring costs.

Operating income declined 12.1 percent to $81 million, while adjusted operating income was down 13.1 percent to $86 million.

Net income decreased to $57.1 million, or 97 cents a share, from $58.1 million, or 99 cents, a year ago. Adjusted EPS declined to $1.01, or down 6.5 percent, compared with $1.08 in the prior fiscal year.

Adjusted EBITDA declined 11.3 percent to $110 million, with the Adjusted EBITDA margin decreased 80 basis points to 17.1 percent.

Revelyst’s Q1 Sales Slump 13.6 Percent
Sales at the Revelyst segment declined 13.6 percent to $274 million, reportedly driven by:

• Pre-order delivery timing delays, unfavorable product mix toward lower price point channels and lower royalty revenues within Revelyst Adventure Sports (Fox Racing, Bell, Giro, CamelBak, QuietKat, and Blackburn);
• Lower wholesale volume and order timing within Revelyst Outdoor Performance (Simms, Bushnell, Blackhawk, Stone Glacier, Camp Chef, and Primos); and
• Lower volume from new product introductions in the prior year for Bushnell Golf and order timing within Revelyst Precision Sports Technology (Foresight Sports, Bushnell Golf, and Pinseeker).

The decline was partially offset by increased government sales at Outdoor Performance and growth at Foresight, which was driven by new product introductions at Revelyst Precision Sports Technology.

Gross profit at the Revelyst segment decreased 14.2 percent in $81.4 million, with gross margin decreasing 21 basis points to 29.7 percent due to the lower sales, partially offset by lower freight costs at Adventure Sports, lower discounting at Outdoor Performance and favorable product mix at Precision Sports Technology.

Adjusted EBITDA decreased 35.2 percent to $16 million, with adjusted EBITDA margin sliding 190 basis points to 5.7 percent due to lower gross profit at all three Revelyst segments, partially offset by decreased SG&A costs related to Gear Up initiatives.

Revelyst Gaining Market Share in Tough Market
Nyman said many of Revelyst’s brands have gained market share. He said, “Despite challenges related to market softness, order timing and divestitures, we remain focused on growth gains, no matter the market conditions, and are poised to revolutionize our future through innovative brand-led and consumer-led product offerings.”

In the Adventure Sports segment, Nyman said Revelyst is capturing market share across several categories, including helmets, mountain bike protection and bike hydration in a declining market environment. He said, “Newness is gaining traction with our customers,” noting that Fox Racing’s V3 RS and Pure View models were sold out. He said, “We intend to further capitalize on these trends with upcoming product launches.”

In Revelyst’s Outdoor Performance segment, Simms continues to grow its market share with its dominant position in waders and fishing sportswear. The launch of the Camp Chef Gridiron drove 8 percent growth in the flat-top grill category, “outpacing the market in a category that has been a bright spot within the broader outdoor cooking market,“ said Nyman.

In Revelyst’s Precision Sports Technology segment, Foresight has had multiple consecutive quarters of growth from the Quad Max and Falcon product launches. The delayed launch of the Phantom 3 GPS drove Bushnell Golf sales lower than anticipated in the quarter, though this product is still expected to capture additional sales for the rest of FY25. A product collaboration between Foresight and Bushnell Golf will come out this fall, which Nyman forecasted “will change the way golfers capture and utilize information from launch monitors and laser range finders.”

In licensing, Nyman announced that Camp Chef would be forming Vista’s “biggest partnership“ with celebrity chef and restauranteur Guy Fieri to develop several co-branded cooking equipment pieces.

The Kinetic Group’s Q1 Sales Slide 1.6 Percent
Sales at The Kinetic Group, which includes the Federal, Remington, CCI, Hevi-Shot, and Speer ammunition brands, were down 1.6 percent to $370 million in the quarter due to lower shipments across nearly all categories, partially offset by increased price.

Gross profit declined 1.6 percent to $130 million driven primarily by decreased volume and increased input costs primarily for copper and powder, partially offset by increased price.

Operating income decreased 3.8 percent to $104 million due to lower gross profit and increased selling, general and administrative costs. Operating income margin decreased 62 basis points to 28.2 percent.

Adjusted EBITDA decreased 3.2 percent to $111 million. Adjusted EBITDA margin decreased 49 basis points to 30.0 percent.

On the call, Jason Vanderbrink, co-CEO of Vista and CEO of The Kinetic Group, said earnings were better than expected in the quarter. “Our team has stayed focused while facing economic headwinds and inflationary pressures with rising commodity prices and successfully navigating a global powder shortage. As history has shown us several times, if the market starts to slow, we expect to gain market share due to vendor consolidation as our customers and consumers generally will purchase the brands they trust.”

Vanderbrink said that as hunting season approaches, The Kinetic Group’s finished goods inventory is “well-positioned to fill consumer demand in all hunting loads in every category.“

Hevi-Shot is expected to continue since Vista acquired the business, while Remington Core-Lockt’s “inventory and demand are in the best shape it has been in several years.” He added, “Our seasonal build program has produced many calibers that the consumer has not been able to purchase in many years, which also brings higher margins with it. We continue to try to meet the demand we have seen with the CCI uppercut product, which has exceeded our forecast when we introduced this game-changing product.“

Vanderbrink noted that June NICS data surpassed over one million background checks for the 59th straight month to support a “healthy and higher baseline of shooting and hunting participants.“

He added that while the market remains “volatile,” including the global powder shortage, increasing input costs for copper and powder, and competitive market pricing, he expects The Kinetic Group to continue gaining share. Vanderbrink said, “With a diverse customer base and multi-brand strategy, The Kinetic Group is poised to continue to be the leader in ammunition technology, and we are planning to release the most exciting product we have ever developed in our history in our third quarter.  I have full confidence that with the best team in the ammunition business, we will continue to perform at the highest level.”

Outlook
Vista reaffirmed its FY25 guidance and expects:

• Sales in the range of $2.665 billion to $2.775 billion.
  • The Kinetic Group Sales are expected to be approximately $1.425 billion to $1.475 billion, and
  • Revelyst Sales are expected to be roughly $1.240 billion to $1.300 billion.
• Adjusted EBITDA in the range of $410 million to $490 million
  • The Kinetic Group’s adjusted EBITDA is expected to be approximately $350 million to $400 million, and
  • Revelyst adjusted EBITDA is expected to be roughly $130 million to $160 million.
• EPS in the range of $3.56 to $4.46; Adjusted EPS in the range of $3.60 to $4.50.

Image courtesy Simms

The purchase price wasn’t disclosed.

Together, S&S Activewear, based in Bolingbrook, IL and Alphabroder, based in Trevose, PA is expected to provide customers with greater choice of products and access to an enhanced portfolio of premium brands across apparel and branded product categories. As part of the transaction, S&S Activewear intends to make significant investments in technology, the integration and expansion of its sales force, its supply chain and distribution capabilities, and the employee experience. For customers, the combination is expected to lead to faster, more accurate order fulfillment and increased inventory across in-demand categories, while improved delivery and transportation logistics support significant savings in carbon emissions.

Both businesses support apparel decorators, promotional product distributors, online retailers, team dealers and lifestyle brands.

“We are pleased to reach an agreement that unites two great companies and positions the S&S Activewear and Alphabroder family of employees, customers, and vendors for long-term growth,” said Frank Myers, S&S Activewear CEO. “With the addition of Alphabroder’s dedicated and experienced employee base, strong portfolio of brands and distribution capabilities, we will not only expand our product offering, but will also accelerate our investment in the customer experience, including our marketing, technology and supply-chain capabilities. Building on S&S Activewear’s 35-year track record of growth, we look forward to welcoming Alphabroder to the organization while continuing to strengthen our win-win relationships with our industry partners.”

“We are thrilled to have found a partner in S&S Activewear that shares our customer-centric approach and commitment to investing in the brands, infrastructure and teams needed to build and strengthen successful long-term relationships,” said Dan Pantano, Alphabroder CEO. “Alphabroder has created one of the industry’s leading brand portfolios, and together with S&S Activewear, will benefit from an even stronger and deeper supply-chain network backed by integrated marketing and order fulfillment capabilities.”

S&S Activewear’s acquisition of Alphabroder will build on its significant investments in its North American network and footprint. Since 2015, S&S Activewear has established twelve distribution centers, creating a nationwide coverage network to serve 99 percent of the United States, Canada and Puerto Rico within two days. As a combined business, S&S Activewear will focus on advancing its sustainability efforts, which has included the adoption of solar energy technology, high-efficiency LED lighting, water efficiency, and recycled packaging across the organization.

S&S Activewear and Alphabroder have satisfied the regulatory review needed to complete the transaction. Upon completion of the transaction, which is expected to occur later this year, S&S Activewear and Alphabroder will continue to go to market under their respective brands and existing distribution channels. S&S Activewear CEO Frank Myers and Alphabroder CEO Dan Pantano will lead a disciplined, multi-year integration process designed to maintain the sales momentum for each business and position the combined company for long-term growth.

UBS Investment Bank, Barclays, Deutsche Bank Securities Inc., TD Securities, BMO Capital Markets, BNP Paribas, Societe Generale, Citizens Bank N.A., Natixis, RBC Capital Markets LLC and Truist Securities provided financing and served as financial advisors to Clayton Dubilier & Rice (CD&R), S&S Activewear’s majority owner. Solomon Partners and SG Americas Securities LLC also served as financial advisors to CD&R. Debevoise & Plimpton LLP served as legal advisor to CD&R. Harris Williams served as exclusive financial advisor and Sheppa.

Image courtesy S&S Activewear

Helen Johnson-Leipold, chairman and CEO, told analysts that retailers remain “very conservative” in placing orders. “Continued tough marketplace conditions significantly impacted our results through the quarter,” said Johnson-Leipold on the quarterly call. “Consumer demand for outdoor recreation products remains depressed across all of our categories through the peak season. The down market and soft demand require us to significantly increase our investment in promotional activity as we continue to operate in this challenging environment.”

The CEO said the company believes the outdoor recreation marketplace “is resilient and attractive over the long term and that our brands will be well-positioned once conditions start to even out.” However, the company is evaluating all aspects of the business to improve its financial results and redeploying resources to enable future growth, improve profitability and strengthen business operations.

“We’ve been working hard to reduce inventory to more normal levels, although progress has been limited by the lower consumer demand,” said Johnson-Leipold. “We are expanding our cost savings actions and evaluating our cost structure for additional efficiency opportunities. While we have seen some progress from these efforts, we have a lot more work to do to boost our margins and improve our financial performance.”

When an analyst on the call asked about the health of inventory levels across the retail marketplace and replenishment opportunities, Johnson-Leipold said, “The retail inventory situation is getting better, but we still see our retailers being very conservative on the purchasing end of things and trying to maintain a pretty conservative level of inventory going forward.”

In the company’s fiscal third quarter ended June 28, net profits fell 89.2 percent to $1.6 million, or 16 cents a share, from $14.8 million, or $1.44, the prior year. Sales declined 7.8 percent to $172.5 million.

The company’s operating loss in the period came to $506,000 versus an operating profit of $17.4 million in the prior year’s third quarter.

Gross margin eroded 570 basis points to 35.8 percent, primarily reflecting sales deleverage and changes in the company’s product mix toward lower-margin products. 

Operating expenses increased 3.6 percent to $62.3 million due to increased advertising and promotional spending. As a percent of sales, operating expenses grew to 36.1 percent from 32.1 percent.

Inventories ended the quarter at $223 million, down about $12 million from last year’s quarter and $26 million from its March 2024 quarter. Dave Johnson, VP and CFO, said, “We expect some inventory reductions in the balance of the fiscal year.”

Segment Highlights

Fishing segment (Minn Kota Cannon, Humminbird) sales slid 5.0 percent in the quarter to $130.5 million, while operating profits in the segment tumbled 71.8 percent to $5.3 million.

Camping segment (Jetboil, Eureka!), sales were down 6.3 percent to $10.9 million while operating profits declined 27.7 percent to $1.47 million.

Watercraft Recreation segment (Old Town, Carlisle) fell 29.6 percent to $11.1 million; operating income slumped 62.4 percent to $557,000.

Diving segment (ScubaPro), sales declined 10.6 percent to $19.9 million while operating earnings were down 67.1 percent to $898,000.

Johnson-Leipold did not provide further details on the analyst call on each segment’s sales trends. Looking ahead, she stated that beyond reducing costs and increasing efficiencies, enhancing its digital and e-commerce capability remained a “key priority.” She said, “Our online presence provides key consumer touch points for our brand, from product research to purchase and post-purchase support.”

“Profits remain impacted by lower sales volumes and our ongoing investment in promotional activity. Additionally, while we’ve been improving our inventory levels, progress has been slowed by the decreased demand,” said David W. Johnson, VP and CFO of Johnson Outdoors, Inc. “As we execute against both short-term and long-term cost savings opportunities for the Company, we remain confident in our ability and plans to create long-term value and consistently pay dividends to shareholders.”

Year-to-Date Highlights

• Fiscal 2024 year-to-date (YTD) net sales were $487.0 million, a 14 percent decrease year-over-year;
• Gross margin decreased 20 basis points to 36.2 percent in the YTD period;
• YTD operating expenses were $176.8 million, a decrease of $4.6 million year-over-year;
• The 2024 YTD operating loss was $0.7 million compared to a profit of $34.3 million in the 2023 YTD period;
• YTD Other income decreased by $3.5 million year-over-year due primarily to the sale of the company’s Military and Commercial Tents business;
• Profit before income taxes for the YTD period was $9.8 million versus $47.9 million in the prior YTD period; and
• Net income was $7.7 million, or 75 cents per diluted share, versus $35.5 million, or $3.47 per diluted share, in the prior YTD period.

Balance Sheet and Cash Management

• Cash and short-term investments were $148.4 million as of June 28, 2024.
• Depreciation and amortization were $14.8 million in the YTD period, compared to $11.8 million in the 2023 YTD period.
• Capital spending totaled $16.4 million in the YTD period, compared with $19.4 million in the prior YTD period.

The company is also continuing its investments, driving innovation to stimulate demand. Johnson-Leipold said innovation “has always been key to our success and continues to be imperative to winning in an outdoor recreation marketplace that has been changing at a rapid pace.”

The company has a pipeline of new product introductions planned across its brands.

“The whole area of innovation is going to keep being a focus, and it’s our lever to differentiate ourselves,” the CEO said. “I think the market has changed, and that’s a positive. I think the consumer has some different needs and different motivations, which opens up the door for innovation. So, all I can say is that’s been our key to leadership in the past, and it’s going to be our key going forward. And we feel good about the long term and feel good about our ability to understand the consumer and to be there with the right new products.”

Image courtesy Johnson Outdoors

Sales in Fox Factory’s Specialty Sports Group (SSG), which features the brands Fox Factory, Marucci, Easton cycling, and Race Face, climbed 17.8 percent in the quarter to $123.6 million from $104.9 million a year ago.  The gains reflect the inclusion of $41.6 million in net sales from the Marucci business, partially offset by a reduction in bike sales of $22.9 million due to the ongoing channel inventory recalibration and, to a lesser extent, lower-end consumer demand.

In the bike category, Dennison said the company sees “positive signals” that the OEM inventory destocking phase “is nearing its conclusion.” The bike category has faced a lengthy destocking period after a significant build-up during the pandemic.

“We were pleased to deliver a 52 percent sequential increase in bike revenue, which is a positive sign of both significance and predictability,” said Dennison. “In addition, our move into the entry premium space has been very well received and is helping offset broader sluggishness.”

He said that although the U.S. market remains in a state of transition toward stabilization, the European market continues to improve on a relative basis due to its lower exposure to excess inventory. Dennison added, “I am particularly excited about our multiple new product launches scheduled throughout the year. These innovations are already generating incremental demand and are expected to drive growth in the coming quarters.”

Dennison said the e-bike category “continues to exceed our expectations and is an important avenue for our expanding addressable market.”

Meanwhile, Dennison said Marucci “continues to be a standout performer,” noting that over 10,000 fans, players, coaches, and families recently attended the Marucci World Series in Baton Rouge, LA.

“While the highlight was watching young players compete for the championship, the excitement for me was seeing the potential for our combined businesses,” said Dennison. “Our Hitter’s House-associated pop-up stores were essentially sold out. Marucci and Victus bats were literally everywhere, as thousands of players guided to the swing of things. And parking lots were filled with trucks boasting Fox shocks, including our latest vehicles, such as the Fox Factory Truck and upfitted UTVs, which generated tons of interest. It was a reminder that Marucci and Fox customers are one and the same, united by two aspirational brands and a combined vision to make high-performance products for our enthusiasts.”

Marucci’s underlying growth comes from its strength across its product portfolio, including the Victus and Marucci brands in baseball and softball, Lizard Skins accessories, apparel, and international growth. Marucci’s Hitter’s House platform “also continues to gain traction,“ with the opening of a location in Tokyo.

Victus and Marucci brands were “very well represented“ at MLB’s recent All-Star game, with both finalists of the Home Run Derby swinging Marucci bats.

Marucci also recently announced it had signed an exclusive license agreement with Major League Baseball, designating Marucci and Victus as MLB’s official bats starting January 1, 2025. Louisville Slugger has long held the title.

“This four-year agreement not only underscores our brand’s leadership in professional baseball but also provides exclusive rights for our products. This partnership, combined with Lizard Skins’ position as the official bat grip of MLB, further cement our status as a premier choice for players at all levels,“ said Dennison said. “With this new MLB agreement on the horizon, we’re even more excited about Marucci’s future growth potential and congratulate the team for achieving this distinction.”

Looking ahead, Dennison said the company is “optimistic“ about SSG’s trajectory. “The anticipated recovery in the bike segment, coupled with Marucci’s consistent strong performance and our exciting product pipeline, positions us well for continued growth through the second half of this year,” said Dennison.

Companywide sales declined 13.0 percent to $348.5 million, compared to net sales of $400.7 million in the second quarter last year.

In other segments, sales in the AAG (Aftermarket Applications Group) fell from $155.6 million to $107.1 million, driven by lower upfitting sales due to product mix and higher interest rates impacting dealers and consumer. Sales in the PVG (Powered Vehicles Group) dropped from $140.2 million to $117.8 million, said to be primarily due to lower industry demand in Power Sports because of higher interest rates.

Net income in the second quarter was $5.4 million, or 13 cents per share, compared to net income of $39.7 million, or 94 cents, in the second quarter last year. Adjusted net income in Q2 was $15.9 million, or 38 cents, compared to adjusted net income of $51.4 million, or $1.21, in the prior-year quarter. Adjusted EBITDA in the second quarter was $44.1 million, compared to $79.4 million in the second quarter of fiscal 2023.

For the third quarter of fiscal 2024, the company expects net sales in the range of $355 million to $385 million and adjusted EPS earnings per diluted share in the range of 35 cents to 50 cents per diluted share.

For the fiscal year 2024, the company now expects net sales in the range of $1.41 billion to $1.48 billion and adjusted EPS in the range of $1.40 to $1.72. Previously, guidance called for net sales in the range of $1.53 billion to $1.61 billion and adjusted EPS in the range of $2.30 to $2.55.

“While we continue to see encouraging signs of stabilization in bike, we must be prudent and responsible in aligning our guidance with revised expectations of our large OEM customers,“ said Dennison. “As a result, we are adjusting our full year guidance to reflect a more tempered sequential revenue lift in the second half of the year.“

Dennison said the adjustment is directly driven by ongoing industry demand and quality challenges, which are leading to reduced orders.

“Despite these near-term challenges, we maintain a positive outlook,“ said Dennison. “We still expect sequential growth throughout the second half of the year, albeit at a more moderate pace than initially projected. Furthermore, we anticipate this trend of sequential improvement to continue through 2025. Our revised assumptions for the second half of the year include gradual improvement in bike channel inventory and the impact of OE’s model year ’25 releases, Marucci’s continued growth across its diversified portfolio and new product launches, slow but steady improvement in power sports dealer inventory, ongoing progress in upfit chassis availability and mix, and new product launches within our lift kit and wheel business.”

Image courtesy Marucci

Black Diamond is the primary brand in Clarus’ Outdoor segment. The segment also includes the Pieps snow safety brand, which the company announced will be undergoing a strategic review to explore a sale.

Warren Kanders, executive chairman, said on an analyst conference call, “At Outdoor in the face of strong market headwinds, the team continued to execute initiatives focused on simplification and right-sizing of the inventory. Importantly, inventory levels were down 17 percent year over year, and we’ve improved the quality and composition of the inventory to focus on our A-styles across categories.”

He added, “From an operational standpoint, we identified several opportunities that may drive efficiencies in the business, and we’ve been pleased with our progress, both reducing operating costs and solidifying the core.”

Sales in the Outdoor segment declined 9.7 percent in the quarter ended June 30 to $36.2 million, following declines of 11 percent in the first quarter and 8.0 percent overall in 2023. The quarterly decrease was primarily driven by softness in the European wholesale and North American direct-to-consumer (DTC.) channels.

Neil Fiske, president, Black Diamond Equipment, said on the call that overall revenues in the Outdoor segment were still in line with expectations “in the context of a market that is still adjusting to the post-pandemic demand levels.”

He added, “We were pleased with our progress in the face of some strong market headwinds.”

 In North America, wholesale revenues in the Outdoor segment were down 4.7 percent on a comparable basis, falling into negative territory after showing a sales jump of 10 percent in the first quarter. Fiske said the North America quarterly wholesale decline in part reflects “significantly less promotional activity and one fewer map pricing breaks this year.”

For the first half of the year, North American wholesale was also still up 1 percent year over year. Fiske added, “We’ve rebuilt the sales team in North America and are very pleased with the results that we are seeing.”

North America digital DTC was down 15.7 percent for the quarter, due also in large part to less promotional activity and not repeating a “huge” June clearance event from last year. The digital channel represented 20.5 percent of the region’s revenue in the latest period compared to 22.2 percent last year while retail stores accounted for 4.4 percent of the total, down from 5.8 percent last year.

In the European wholesale channel, sequential improvement was seen with the Outdoor segment showing a 5 percent decline versus a 17 percent drop in Q1. The performance was also in line with expectations and continued improvement is expected in the second half with flat to up slightly growth. Fiske added, “That said, many accounts in Europe have bought conservatively for the fall/winter season and are counting on fill-in orders if the weather is normal to favorable.”

Europe digital DTC grew 7.4 percent in the quarter and “some modest acceleration” is expected in the second half, although the channel represents only 7.6 percent of the region’s revenue.

In international distributor markets, the Outdoor segment also saw sequential improvement with a decline of 7.8 percent after a 44.1 percent tumble in the first quarter. Fiske still expects 2024 to be a “reset year” for most distributor markets. He said, “Our regions are at varying stages of recovery, but signals point to them all heading in the right direction.”

Gross margins for the Outdoor segment in the quarter were down 180 basis points, primarily due to channel and product mix. For the first half of the year, margins were flat.

Operating costs, excluding restructuring charges, were down 9.3 percent year over year on a comparable basis. Fiske said, “We continue to drive efficiencies in the business and reshape the organization to be leaner and more agile. We expect to see additional cost savings materialize in H2 and continue to grow into 2025.”

The inventory reduction of 17.1 percent reflects a reduction in non-core products. Inventory in A-styles, which drives 80 percent of Black Diamond’s sales, accounted for 68 percent of Black Diamond’s inventory mix at the quarter’s close, up from 59 percent last quarter and 45 percent a year ago. Fiske said, “Our simplification work continues to improve the quality and composition of the inventory.”

Importantly, apparel inventory ended the quarter down 19.8 percent year over year. Fiske also noted that fill-in rates on wholesale orders improved to over 95 percent, reflecting stronger inventory management and improvement in sales and operation planning processes.

Regarding Pieps, Clarus has initiated a review and evaluation of strategic options with the intention of soliciting interest from potential acquirers. No timetable has been set to complete the review. Fiske said the exploration is also part of Black Diamond’s moves to rationalize and simplify its business. Fiske said, “The goal of this review is to assess whether the value of this business can best be unlocked by Black Diamond or another owner.”

Clarus acquired Pieps, a maker of avalanche beacons and other snow safety products founded in Austria, in 2012.

Outdoor’s Retail Marketplace Continues To Stabalize
Asked in the Q&A session about market conditions, Fiske remained cautiously optimistic but doesn’t see the retail marketplace fully recovering until 2025.  He said, “We see the market continuing to stabilize with inventories coming more back in line with demand. But having said that, I don’t think we’re through it yet. We’ve still got another good six months, I think, before retailers are at the inventory levels they want with the right composition of inventory that they’re after. And so that’s a little bit of a drag and still a little bit of a headwind on the market overall.”

Among channels, he said the specialty retail segment is “holding its own” and showing improvement sequentially with sales he estimates running down collectively around low-single digits. However, open-to-buy ordering remains conservative. Fiske said, “Our retailers are still cautious about what the outlook is and making sure not to get over-inventoried and overbought. So, they’re being quite tight on their purse strings and forward orders. But I think as I look at the specialty business, the core of it seems in pretty good shape.”

Fiske does expect “a little bit of shakeout of small accounts in the market with the kind of multi-year pressure that’s been in the market,” but most have seen their business stabilize. Fiske said, “Overall, we’ve seen specialty coming back and becoming healthy and that remains a super important part for the industry and for our strategy as well. It’s very much the top of our distribution pyramid.”

He said national accounts, citing REI, are seeing “a little bit of the same story” with results improving sequentially and inventories continuing to be rebalanced.

On the positive side, Fiske believes Black Diamond is outperforming competitors in its categories and gaining market share. He said, “It’s hard to get the data, but from what we hear from our buyers, Black Diamond continues to be a brand by virtue of its equity and leadership positions in core categories that those big retailers count on. When things get a little rocky, one of the good things about being one of the market leaders is you tend to get a little bit more of that open-to-buy because you’re more of a sure bet. And I think we’re seeing as a brand, we’re seeing some of that pickup.”

Clarus Companywide EPS Miss Plan Due To Adventure Segment Shortfall
Overall, Clarus’ sales declined 2.4 percent in the quarter to $56.5 million, missing guidance in the range of $58 million to $62 million. Adjusted EBITDA from continuing operations totaled a loss of $1.9 million, also below guidance in the range between zero and positive $0.5 million.

The shortfall was due to an underperformance the Adventure segment, which includes the Rhino-Rack, Maxtrax and Tred Outdoors brands, in the U.S. and rest of world operations, said Mike Yates, CFO.

Sales in the Adventure segment increased 13.6 percent in the quarter to $20.3 million, reflecting higher demand from OEM customers and an increase from the acquisition of Tred Outdoors in October 2023.

Mathew Hayward, managing director of Clarus’ Adventure segment, said results in the segment’s core Australian/New Zealand markets “were solid” as strong demand by OEM customers and specific key accounts offset softness in certain retail accounts that are managing inventory levels “tighter” than prior years.

However, sales in the U.S. and rest of world “lagged behind” with sales skewed more towards OEM products rather than higher-margin, foreign distribution revenue depressing margins. Hayward said, “Simply put, the U.S. market has not delivered to plan, and that weakness hampered our results. While we underperformed in terms of second quarter net sales, gross profit and EBITDA, we believe our key investments made in the first half of the year should pay expected dividends moving forward.”

The investments include the hiring of Tripp Wyckoff to the role of general manager of the Americas. Hayward said Wyckoff previously worked for Thule in the U.S. “where he grew the brand significantly in their peak periods, and was primarily responsible for bringing to market global initiatives, building one on one customer relationships  and integrating key acquisitions.”

In other regions, Daniel Bruntsch, formerly at Australia’s Bromic Group, was appointed head of the EMEA region while Chris Radford was promoted to head of the APAC region.

“We now have three clearly defined regions, each with proper management structures incentivized to drive profitable growth supported by our shared services in our HQ in Sydney,” said Hayward. “We believe these steps will go a long way towards improving overall profitability as we allocate resources to drive performance outside of our home market.”

The Adventure segment overall added 15 new employees across the three key regions and is also investing in marketing, technology and supply chain areas. Hayward noted that the Adventure segment has engaged an outside firm to explore global sourcing and supply chain initiatives “that we believe could deliver meaningful margin improvement across ‘25 and beyond.”

Clarus’ companywide loss from continuing operations in the quarter of 2024 was $5.5 million, or 14 cents a share, compared to loss of $4.3 million, or 12 cents, a year ago. The latest loss included $0.4 million of charges relating to legal cost and regulatory matter expenses and $0.7 million of PFAS inventory reserve.

The adjusted loss from continuing operations was $1.2 million, or 3 cents a share, compared to adjusted loss $0.1 million, or break even per share, in the year-ago quarter.

Outlook
Looking ahead, Clarus continues to expect fiscal year 2024 sales to range between $270 million to $280 million. Outdoor segment revenue is still expected to be approximately $180.5 million while Adventure segment sales are still projected to be $90 million for the full year.

The Outdoor business is also still expected to generate $14.5 million in adjusted EBITDA, representing a nearly 8 percent margin.

However, Clarus now expects the Adventure segment to only generate a 10 percent EBITDA margin in the year compared to guidance of 15 percent margin shared earlier in the year. As a result, companywide adjusted EBITDA is now expected to be in the range of approximately $11 million to $14 million, or 4.5 percent at the mid-point of revenue and adjusted EBITDA. Under previous guidance, adjusted EBITDA was expected between $16 million to $18 million, or 6.2 percent at the mid-point.

Yates said the reduced expectations for Adventure’s margin contribution largely reflects the planned investments to support the segment’s growth opportunity. The CFO said, “We believe we have a tremendous strategic plan to take an iconic market-leading Australian, New Zealand roof rack brand and turn it into a global brand. And in order to do that, we need to make investments to scale the business. We are continuing to make these investments here in 2024 despite challenging market conditions.”

Image courtesy Black Diamond

Meanwhile, the Hey Dude brand, which the leadership team is repositioning, saw sales decline 17.5 percent to $198 million in the second quarter but is expected to resume growth by the fourth quarter against easy comparisons.

Sales for the Crocs Brand in North America increased 3.0 percent in the second quarter to $489 million, or 3.2 percent on a constant currency basis. Results exceeded management’s expectations.

Andrew Rees, CEO, said the Crocs Brand revenues gained market share in the North American region in the quarter, with the gains driven by “better-advanced demand from our retail partners and solid DTC channel growth.”

Direct-to-consumer (DTC) was up 7 percent in the region while wholesale was down 4 percent. Crocs Brand’s underlying North American brick-and-mortar growth was up mid-single digits.

For the first six months of the year, Crocs Brand sales in North America expanded 6 percent against “a broader market that was essentially flat,” added Rees. However, he said the company expects the Crocs Brand to post “approximately flat” sales in the second half due to signs of consumer caution in the NA marketplace. He said, “We definitely see the U.S. consumer behaving cautiously. We think our brand is well-positioned relative to a cautious consumer environment. We excel at exceptional value.”

For the third quarter, Crocs Brand’s global sales are expected to significantly decelerate to a gain in the range of 3 percent to 5 percent

In the second quarter, global sales for the Crocs Brand climbed 9.7 percent to $914 million, or 11.2 percent on a constant currency basis. The growth topped Crocs’ expectations calling for reported growth between 7 percent to 9 percent.

Crocs Brand Q2 Sales Expand 22 Percent Internationally
The gains for the Crocs Brand in the quarter, driven by an 18.7 percent hike in international revenues to $425 million, or 22.0 percent on a constant currency basis. International sales grew 28 percent within the DTC channel and 18 percent at wholesale.

The international gains were supported by “exceptional growth” in China and Australia. Rees said China grew over 70 percent on top of triple-digit growth last year. A highlight in China was the Crocs Brand ranking as a Top 10 overall fashion brand on Tmall during the Midsummer Festival for the first time. Rees said, “While there is evidence in the market that the Chinese consumer is becoming more cautious, we see our accessible, authentic and personalizable brand position as a clear competitive advantage.”

Crocs Brand’s European direct markets registered double-digit growth, led by the U.K. and Germany. And the company “continues to see ample opportunity for growth in the future.”

By channel, DTC revenues for the Crocs Brand increased 12.5 percent to $479 million, or 13.8 percent on a constant currency basis. Wholesale revenues advanced 6.9 percent to $435 million, or 8.6 percent on a constant currency basis.

By product category, the gains were once again led by the Crocs classic clog. Rees said the clog’s growth was helped by developing “several successful franchises” that address new usage collections. Helping build brand heat for the clog was introducing a limited-edition style celebrating SpongeBob SquarePants’ 25th anniversary and collaborations with Pringles, Minions, Naruto and Treasure, a K-pop band.

The Crocs Brand sandal category “strengthened” in the second quarter versus the first quarter with fashion-oriented sandals, including the new Getaway and Miami models, as well as established franchises, like the Brooklyn, performing well. The Jibbitz business saw growth in the quarter, led by strong double-digit growth in Asia, Jibbitz’s highest penetration by geography.

HeyDude Continues Reset
HeyDude’s 17.5 percent tumble in the second quarter was in line with a forecast calling for a decline in the range of 19 percent to 17 percent. DTC revenues decreased 7.6 percent to $84 million. Wholesale revenues decreased 23.5 percent to $114 million.

On August 29, Terence Reilly, most recently president of the Stanley Brand and formerly Crocs’ chief marketing officer, joined the company as president of HeyDude to speed the turnaround.

“We all loved working with him when he was here initially, and we’re all very impressed by the trajectory he was able to drive at Stanley, where he was, for a period of time, while he was not with us,” said Rees. “So, we’re thrilled to have him back.”

Among the steps Reilly is taking is sharpening HeyDude’s focus on its two core franchises, Wendy and Wally, reestablishing demand in North America, its largest market, and narrowing its marketing focus to emphasize reaching female consumers. Rees said, “We believe the younger female consumer drives youth culture. If we can engage and energize a female, younger female consumer, we know that’s going to spread passion for the brand to a much broader range of consumers and drive the brand overall.”

According to Rees, HeyDude will also see a “substantial” increase in marketing investment to help regain brand heat.

In the second quarter, progress on HeyDude’s turnaround efforts was found in improved pricing, supporting a “solid recovery” in gross margins. Inventories at HeyDude also turned in excess of four turns. Rees said, “Our wholesale business for HeyDude remains challenging, and we expect that to continue through the second half of the year. As we shared in the first quarter earnings call, sell-in and sell-out are down versus last year, and we’re focused on energizing the brand through improved marketing effectiveness and new product introductions.”

The company formed marketing collaborations for HeyDude in the quarter with Corona beer and Lee jeans. The increasing focus on Wendy and Wally is focused on three primary offerings: Stretch Subs, Stretch Canvas and Funk Mono. Rees said,” While leading from the core is our focus, we’ll make calculated bets with key sneaker and boot styles that the brand is also known for.”

Looking to 2025, Rees foresees opportunities for HeyDude to streamline its SKU count further while continuing to optimize channel segmentation and bring innovations to market.

A total of 13 new HeyDude outlet locations opened in the quarter, bringing the brand’s year-to-date openings to 19. Thirty openings are planned for the full year. Rees said, “We are pleased with our new stores and see growing consumer engagement and shopping across genders and ages as consumers can experience the full breadth of the line.”

Crocs Companywide Results
Companywide, consolidated revenues increased 3.6 percent to $1.11 billion or 4.8 percent on a constant currency basis. Results topped guidance calling for revenues to be up 1 percent to 3 percent. DTC revenues grew 8.9 percent, or 10.0 percent, on a constant currency basis. Wholesale revenues contracted 1.3 percent, flat on a constant currency basis.

Consolidated adjusted gross margin for the quarter was 61.4 percent, up 330 basis points from last year.

Crocs Brand adjusted gross margin was 64.1 percent, or 210 basis points higher than the prior year. The primary drivers of the expansion were favorable product costs, lower freight costs, and higher international pricing. HeyDude’s gross margin was 49.1 percent, up 200 basis points due to lower freight costs, channel mix, and higher ASPs (average selling prices), partially offset by investments in infrastructure.

Adjusted SG&A expenses increased 19 percent the prior year and increased 420 basis points as a percent of sales to 32.0 percent, driven by continued investment in talent, marketing, and DTC to support growth plans.

Net earnings grew 7.8 percent to $228.9 million, or $3.77 a share, from $212.4 million, or $3.39, a year ago. On an adjusted basis largely reflecting the exclusion of investments in distribution centers, earnings improved 8.4 percent to $243.6 million, or $4.01, from $224.7 million, or $3.59. EPS came in well above Crocs’ guidance in the range of $3.40 to $3.55.

Outlook
Looking ahead, Crocs reaffirmed its full-year top-line guidance range despite the quarter beat amid an expectation of $11 million of incremental FX headwind and signs of a softening in spending in North America. Revenues are expected to increase in the range of 3 percent to 5 percent compared to 2023.

For the Crocs brand, revenue growth is still expected between 7 percent and 9 percent, led by international. For HeyDude, revenues are still expected to contract between 8 percent to 10 percent.

Adjusted EPS is now expected in the range of $12.45 to $12.90, up from $12.25 to $12.73 previously. Susan Healy, Croc’s newly hired CFO said on her first analyst call with the company, “Our updated full-year range balances the strength we saw on 2Q along with appropriate caution around consumer spending trend and the geopolitical landscape as well as the timing of our SG&A investments.”

For the third quarter, consolidated revenues are projected in the range of down 1.5 percent to up 0.5 percent. Crocs’ growth expectation in the range of 3 percent to 5 percent is expected to be offset by a decline between 14 percent to 16 percent at HeyDude in the quarter.

HeyDude is expected to show modest sequential improvement in the third quarter with the brand while lapping significant discounting for most of Q3 last year and the timing of wholesale orders. Adjusted EPS for the company is expected to be between $2.95 and $3.10, down from $3.33 reported a year ago and below analysts’ consensus target of $3.25.

Healy noted that HeyDude is expected to show revenue growth in the fourth quarter, supported by easing comparisons, the timing of wholesale shipments, the contribution from new retail stores, sell-in to new international distributors, and lapping last year’s pricing reset on digital late in the third quarter.

Shares of Crocs were down Thursday, August 1, by $3.56, or 2.7 percent, to $130.81.

Image courtesy Crocs

“As we predicted in Q1, inventory destocking headwinds subsided this past, BOA had another great quarter and PrimaLoft returned to double-digit growth,” said Elias Sabo, CODI’s CEO, on a call with analysts. “We believe both businesses are positioned for a strong back half of the year.”

Among other businesses owned by CODI in the active lifestyle space, 5.11’s sales slid 2.2 percent to $123.2 million. Velocity Outdoor’s sales tumbled 50.6 percent to $18.7 million due to the divestiture of Crosman Corporation, the air gun division of the subsidiary.

BOA’s Q2 Sales Surge 42.1 Percent
BOA’s sales in the quarter soared 42.1 percent to $54.2 million. The shoe-lacing technology brand had returned to growth in the first quarter with an 11 percent gain. CODI Partner and COO Pat Maciariello said on the analyst call, “The BOA brands saw growth in each of its industry verticals.

The hike, according to CODI’s 10Q filing, was reflected across key industries including cycling, athletic, workwear and snow sports. The increase reflected improved end-market inventory levels, coupled with market share gains in many of BOA’s key industries.

BOA’s operating income vaulted 103.7 percent in the quarter to $16.5 million from $8.1 million for the same period in 2023, according to the 10Q. Gross margins improved to 62.9 percent from 59.8 percent, driven by manufacturing overhead leverage as well as product mix. SG&A expense climbed 26.4 percent to $13.4 million due to increased employee costs related to BOA’s bonus plan and equity program but was reduced as a percent of sales to 24.7 percent from 27.7 percent a year ago.

In the first six months of the year, BOA’s sales climbed 27.5 percent to $97.1 million. Operating profit jumped 63.1 percent to $26.1 million.

PrimaLoft Returns to Double-Digit Growth
PrimaLoft’s sales advanced 14.0 percent in the quarter to $25.3 million.  Maciariello said “inventory headwinds in many of its apparel categories continue to abate as expected. We are encouraged by the performance of both PrimaLoft and BOA this quarter and by their prospects for the rest of the year.”

PrimaLoft’s gains, according to CODI’s 10Q filing, were attributable to the shift by brand partners shipping product later in the production cycle in 2024 compared to the prior year. CODI said in its 10Q, “The excess inventory in the retail market became apparent in second quarter of 2023, which impacted orders during the same period last year.”

Operating income leaped 103.7 percent to $5.5 million from $2.8 million. Gross margins were slightly up to 63.4 percent from 63.1 percent due to product mix shift. The improved earnings reflect a reduction in SG&A expenses to 20.1 percent of sales from 25.7 percent a year ago due to sales leverage.

In the half, sales nudged up 2.4 percent to $47.8 million. Operating profit improved to $8.8 million from $7.8 million the prior year.

5.11’s Q2 Revenues Dip 2.2 Percent
5.11’s sales slid 2.2 percent, or $2.8 million, in the second quarter to $123.2 million.

Maciariello said 2024 is “somewhat of a transition year” for 5.11 given previously announced leadership changes, lingering inventory-related issues in its DTC channels and a “challenging” phase out of PFAS (per- and polyfluoroalkyl substances) that’s often used in waterproof gear. He said, “As a result, financial performance was somewhat muted in both the quarter and year-to-date period. However, demand for the brand this year, particularly in the professional side, remains robust. While we see financial performance in the remainder of 2024, looking similar to performance in the year ago period, we continue to expect strong growth in 2025 and beyond, following resolution of these exogenous issues facing the business.”

5.11’s revenue decrease in the quarter, according to CODI’s 10Q filing, was driven by a $3.8 million decrease in direct-to-consumer sales due to lower off price selling and an approximately $200,000 decline in domestic wholesale sales due to decreased inventory availability, which were offset by an approximately $500,000 increase in international sales growth from strong demand.

5.11’s operating income was about flat at $10.7 million against $10.6 million a year ago. Gross margins improved 90 basis points to 54.8 percent due to reduced off-price selling. SG&A expenses increased to 44.1 percent of sales from 43.5 percent a year ago due to the sales deleverage as well as a slight increase in the costs associated with additional retail stores and higher headcount year over year.

In the half, 5.11’s sales inched up 0.9 percent to $248.2 million. Operating earnings increased slightly to $18.9 million from $18.3 million a year ago.

Velocity Outdoor’s Underlying Q2 Sales Expand 5 Percent
Velocity Outdoor’s revenues declined 50.6 percent to $18.7 million due to the divestiture of Crosman. As reported, CODI said on April 30 that it sold Crosman, the air gun division of its Velocity Outdoor subsidiary, to Daisy Manufacturing Company. According to CODI’s 10Q filing, Daisy paid $63 million for Crosman.

CODI said in 10Q filing that it recorded a loss of $24.6 million on the sale of Crosman in the latest quarter. Velocity received net proceeds of approximately $58.5 million related to the sale, which was used to repay amounts outstanding under its intercompany credit agreement.

Velocity Outdoor’s remaining product categories, which consist of the archery and hunting apparel product categories, decreased 5 percent due to softness in the overall hunting and fishing market.  The segment’s other brands are Benjamin, Ravin, LaserMax, CenterPoint, and King’s Camo.

Velocity Outdoor showed an operating loss of $1.9 million in the period against an operating loss of $1.6 million for the same period a year ago. Gross margins improved to 30.1 percent from 26.4 percent a year ago due to the divestiture of Crosman as the archery and hunting apparel product categories have higher margins than airgun products. SG&A expense jumped to 31.3 percent of sales from 24.0 percent due to sale deleverage.

CODI officials didn’t comment further on Velocity Outdoor’s performance on the analyst call.

CODI’s Second-Quarter Performance
CODI’s consolidated net sales were up 11 percent to $542.6 million. Adjusted to include the impact of The Honey Pot Co., which the company acquired in 2023, in both periods, sales were up 6 percent on a pro-forma basis.

CODI’s Branded Consumer segment rose 11 percent pro-forma to $373.5 million, led by gains by BOA, PrimaLoft and Lugano. The segment also includes 5.11, Velocity Outdoor, Ergobaby and The Honey Pot Co. Industrial segment net sales were down 4 percent to $169.1 million. Companies in the Industrial segment include Altor Solutions, Arnold Magnetics and Sterno.

The loss from continuing operations was $13.7 million, compared with income from continuing operations of $10.1 million. The net loss was $13.7 million, compared with net income of $17.1 million, primarily due to the loss of $24.6 million from the divestiture of Crosman. On an adjusted basis, earnings were up 36 percent to $39.8 million from $29.2 million a year ago. Adjusted EBITDA increased 27 percent to $105.4 million.

Based on CODI’s financial performance in the second quarter, its expectations for the remainder of 2024, and its current view of the economy, the company is maintaining its 2024 outlook.

Given the outperformance of its Branded Consumer companies, CODI increased the subsidiary adjusted EBITDA range for its Branded Consumer vertical by $10 million to $365 million to $395 million. However, it also reduced the subsidiary adjusted EBITDA range for our Industrial vertical also by the same $10 million to $115 million to $125 million. As a result, CODI continues to expect full year 2024 adjusted EBITDA to be between $390 million and $430 million, consistent with prior guidance.

Sabo said on the call, “We still anticipate we will hit the high end of our consolidated guidance ranges. However, we are not raising our guidance range at this point out of an abundance of caution regarding the weakening economy and a concern for the short-term performance of our three industrial businesses while overall we remain really positive about the rest of the year.”

Image courtesy BOA

Higher gross margins and lower expenses helped lower the loss in the quarter ended June 30.

“Our second quarter results modestly exceeded our expectations as we continue to effectively navigate an unprecedented consumer environment,” said Rocky Brands Chairman, President and CEO Jason Brooks on an analyst call.

In the quarter, sales decreased 1.6 percent to $98.3 million. Excluding certain non-recurring sales related to the manufacturing of Servus products following the divestiture of the Servus brand, the change to a distributor model in Canada in November 2023, and temporarily elevated commercial military footwear sales to a single customer throughout 2023, sales increased 6.1 percent.

Wholesale sales were $68.3 million, down 4.5 percent year over year, or up 2.3 percent, excluding non-recurring sales. Retail increased by 4.1 percent, or 6.1 percent, excluding the non-recurring sales related to the change in the Canada distribution model, to $26.1 million. Contract manufacturing sales, including contract military sales and private label programs, were $3.9 million compared to $3.3 million in the prior year, or up $2.6 million excluding non-recurring sales.

Gross margin improved 110 basis points to 38.7 percent due to an increase of 200 basis points in wholesale gross margins and a higher percentage of retail net sales, which carry higher gross margins than the company’s wholesale and contract manufacturing segments.

Operating expenses were reduced to $33.5 million, or 34.1 percent of sales, from $35.4 million, or 35.4 percent, for the same period a year ago.

Income from operations was $4.5 million, up from $2.2 million a year ago. Adjusted operating income was $5.2 million, down from $5.7 million a year ago.

The company reported a second-quarter net loss of $1.2 million, or 17 cents per share, compared to a net loss of $2.7 million, or 37 cents, a year ago. Adjusted net income was $1.3 million, or 17 cents, compared to break-even results in the year-ago period.

Brand Performance
Brooks said the Durango western boot brand delivered strong double-digit sales gains this quarter. He said, “We experienced continued strength in bookings across key accounts and Farm & Ranch partners, along with an acceleration in at-once business. The team is working to supply chain with more of the brand’s core in-demand products, which along with a positive response to the fall 2024 line, sets Durango up to build upon its strong first half over the remainder of the year.”

Xtratuf maintained its strong momentum from early in the year with strong demand for its legacy outdoor products and again outperformed expectations with a strong double-digit gain in the second quarter. Brooks said, “Deliveries for spring 2024 were very healthy, and we also filled numerous replenishment orders for existing products as customers’ appetite for Xtratuf continues to expand rapidly.”

Xtratuf also saw a positive reception for new colors and collaborations with the launch of its 2024 spring line. Brooks said, “The brand continues to see strong demand across a number of niche outdoor verticals, such as sport fishing and outdoor recreation that are leading not only in increased sales but increased distribution with large retailers that position Xtratuf for continued success. Moving forward, the team remains focused on securing new bookings for its upcoming spring 2025 line and filling in replenishment aggressively this year while maintaining efforts to source sufficient inventory to fulfill the strong and growing demand for the brand.”

Muck saw unfavorable spring weather patterns in several areas of the country lead to slower retail turns, resulting in slower-than-anticipated restocks late in the quarter. Brooks said, “Retail partners are making progress in working through the inventory, and we anticipate getting back into a more normal restock cadence. Even with the lack of adequate weather to drive demand, we continue to see strong engagement with customers throughout our new website, enhanced marketing campaign, highlighting the brand’s heritage and influencer partnerships that are amplifying visibility. As a result, we continue to add to Muck’s account base and anticipate a rebound heading into the important fall season.”

Brooks said the company’s work footwear brands faced a “challenging” quarter. Georgia Boot continued to see more over-inventory pressure from smaller accounts, although the brand managed mid-single-digit increases with its key accounts business, which has largely resumed its normal order cadence following pandemic-related supply chain disruptions.

Similarly, Rocky Work regained momentum in the latter part of the quarter.

Brooks said, “Following a difficult April and May, we saw a notable uptick with June, up nicely versus a year ago period. The late quarter rebound fueled by new and innovative product introductions in the last 12 months, leaves us optimistic that Rocky Work can continue to trend positively in the second half of the year. In fact, the brand continued to expand distribution with key national suppliers as well as with catalog and direct-to-consumer sites this quarter, positioning the brand for a stronger reach going forward.”

At the Rocky brand’s Western business, the repositioning to more of a value-driven product at more competitive price points continues but it has taken longer than planned to move sell-through higher-priced inventory in the channel, impacting sell-in. Brooks said, “That said, we are encouraged by the initial reception of our new, more affordable product and remain confident that our current strategy for Rocky Western will continue to gain traction with consumers and retailers over the coming quarters.”

At the Rocky Outdoor Hunting Boot business, last year’s poor hunting season is limiting the typical bulk shipments that typically occur in the second quarter, ahead of the start to the new season this fall. Brooks said, “While the hunting market overall remains challenging, we saw our nonhunting footwear led by rugged casual styles trend positively this quarter. This is helping to expand the brand’s retail partner base and reach a broader consumer audience.”

The company’s Commercial Military and Duty segment was down in line with expectations, as it completed the 2023 military blanket purchase agreement in the first quarter. A delay in the military budget release for 2024 is also impacting sales cadence versus last year. Brooks said, “Solid gains in our duty fire collection and our postal business helped to partially offset the current military headwinds.”

In retail, the company’s branded e-commerce sites “continue to trend nicely positive,” led by double-digit revenue gains from its Xtratuf, Durango, Georgia and Rocky e-commerce sites. The company used its websites to clear some inventories in the quarter ahead of restocking large wholesale channels with many of each brand’s bestsellers.

The B2B Lehigh business was flat compared to the second quarter of 2023, although key customer account spending improved for Q1, and an improved sales pipeline, are expected to help Lehigh return to growth in the second half.

Inventories at the end of the quarter were $175 million, up slightly compared to $169.2 million at the end of 2023 and down 20 percent compared to $218.3 million a year ago.

Outlook
Looking ahead, Rocky Brands still expects sales to be toward the high end of its initial range of $450 million to $460 million for the year.  Gross margins, however, are now expected to be to be slightly less than last year’s 38.9 percent adjusted gross margin versus its prior guidance of a slight improvement due to rising ocean freight rates and increased volumes shipped within its wholesale channel to more larger key accounts.

Brooks concluded, “While the operating environment remains a challenge, I am pleased to see our efforts with top-line expansion and expense management, along with our improved balance sheet, deliver positive results and begin to translate into value for our shareholders. As we look to the second half of 2024, I am cautiously optimistic that we can continue to build on our momentum and drive continued success.”

Image courtesy Durango

After announcing a cost-savings plan in December 2023, Nike announced in February 2024 that it would lay off 2 percent of its workforce, representing over 1,600 employees, due to a sales slowdown. CEO John Donahoe wrote in an internal e-mail at the time, “We are not currently performing at our best, and I ultimately hold myself and my leadership team accountable.”

The e-mail noted that cutbacks would not affect store employees or distribution center workers. Nike indicated it would redirect its resources toward investing in its most important categories and growth opportunities, including running, women’s and Jordan brand.

In the company’s fiscal third quarter ended February 28, Nike absorbed a pre-tax charge of $443 million related to its cost-cutting plan, primarily associated with employee severance costs and accelerated stock-based compensation expense. Nike aims to cut up to $2 billion in costs over the next three years, with the savings reinvested to drive growth, innovation and profitability.

In reporting fiscal fourth-quarter results on July 27, Nike reduced its sales forecast for its current fiscal year ended May 31, 2025, now expecting a decline in the mid-single-digits, including a high-single-digit drop in the first half.

Nike’s employee headcount at its Beaverton, OR campus at the close of fiscal 2023 was approximately 11,400 employees. Beaverton’s employee count peaked at approximately 12,800 employees in fiscal year 2020. A decade age in fiscal year 2014, Beaverton’s employee account was listed as “more than 8,500 employees.”

The fiscal 2024 10-K shows Nike’s overall worldwide employee count, which includes retail, warehouse and part-time workers, fell 5.1 percent to about 79,400 employees from approximately 83,700 at the same time a year ago.

In a note, Jonathan Komp, an analyst at Baird, noted that Nike’s overall workforce cut was the largest annual percentage reduction since FY19. “NKE’s revenue and EBIT per employee remain well above F2019 levels, suggesting other pressures/inefficiencies have weighed on profitability,” said Komp.

Komp also noted that the higher-than-6 percent corporate headcount reduction was likewise seen at Adidas, Under Armour and Puma over the past four years and compares to the 260 percent corporate hiring hike at On Holding, “highlighting a challenge as new brands attract talent.”

Jim Duffy, managing director at Stifel, wrote in a note that the 10-K “reveals a shift in expense towards endorsement commitments and away from employee headcount, suggesting an emphasis on amplifying marketing.”

According to Nike’s 10-K, endorsement contract obligations due within one year surged 31 percent year-over-year to $1.7 billion from $1.4 billion last year. The near-term endorsement spend, which represents approximate amounts of base compensation and minimum guaranteed royalty fees Nike is obligated to pay athlete, public figure, sport team and league endorsers of the brand’s products, increased to 3.3 percent of revenue versus 2.5 percent in fiscal 2023.

Nike’s World Headquarters, owned by Nike and located near Beaverton, spans approximately 400 acres and consists of over 40 buildings. Overseas, Nike leases a similar, but smaller, administrative facility in Hilversum, the Netherlands, which serves as its headquarters for EMEA and management of certain brand functions for non-U.S. operations. Nike also leases an office complex in Shanghai for its Greater China headquarters.

Other findings from the 10-K include:

• Nike’s ROIC (return on invested capital) in FY24 improved to 34.9 percent from 31.5 percent in FY23 but remained below 46.5 percent in FY22. Komp stated in Baird’s update, “We note a stronger historical correlation between NKE’s forward growth expectations and valuation, and we are hopeful growth expectations can bottom in the near term (perhaps providing relative value support).”
• In North America, Nike Brand’s wholesale revenues decreased 2.4 percent in FY24 to $11 billion, primarily reflecting the liquidation of excess inventory in the prior year. Nike Brand Direct revenues increased 0.6 percent to $10.4 billion, primarily driven by the addition of new stores, partially offset by a decline in digital sales of 1 percent. Comparable store sales for fiscal 2024 were flat. Overall sales in North America were down 1.0 percent to $21.4 billion.
• Inventories in North America at the close of FY24 were down 17.7 percent year-over-year to $3.1 billion. Global inventories dropped 11.1 percent to $5 billion with all regions showing declines except Greater China.

Image courtesy Nike

This latest delay marks the fourth time the company has adjourned the vote process.

Stockholders had been scheduled to vote on Tuesday, July 30, on the $2.15 billion deal to sell Vista’s The Kinetic Group, which includes the Federal, Remington, CCI, Hevi-Shot, and Speer ammunition brands to CSG. As part of the CSG transaction, Vista shareholders would receive $24 in cash consideration for each Vista share they hold, plus a share of Revelyst, which includes 15 outdoor and golf brands (Bushnell, CamelBak, Bushnell Golf, Foresight Sports, Fox Racing, Bell Helmets, Camp Chef, Giro, Simms Fishing, QuietKat and Stone Glacier).

Several companies with equity stakes in Vista, including Gamco Asset Management, Gates Capital Management, and TIG Advisors, had issued statements in recent weeks opposing the CSG deal due, in large part, to doubts about Revelyst’s prospects as a stand-alone, publicly held company, increasing the likelihood that shareholders would have voted against the CSG sale.

See below for additional SGB Media coverage of the back and forth on support for the CSG deal.

In a statement issued on Tuesday morning, July 30, Vista said the strategic alternatives it is exploring include the following:

• There are a wide range of other options for the Revelyst business, including a potential sale. CSG is also considering acquiring Revelyst with potential partners in addition to its proposed acquisition of The Kinetic Group.
• Engagement with MNC and its private equity partner concerning its proposal to acquire Vista Outdoor to see if it can deliver value for the company’s stockholders. This follows MNC’s recent public statement on July 26 that “if there were a reason or basis to increase our offer, including Vista engaging with us and providing one, we would increase our offer price.” In light of this recent statement, the Board determined that MNC’s proposal would reasonably be expected to lead to a “superior proposal” and would meet the standard for engagement under the terms of the CSG merger agreement. Considering the “extensive diligence” conducted by MNC and its private equity partner to date, Vista Outdoor expects MNC to be able to confirm an increased proposal for the acquisition of Vista Outdoor shortly.
• Vista’s continued consideration of separating the Revelyst business and The Kinetic Group through a spin-off.

Vista said its Board remains committed to acting in the company’s and its stockholders’ best interests.

“We recognize the continuing support received from many of our stockholders for the CSG transaction and the feedback from some of our stockholders with respect to other strategic alternatives,” said Mike Callahan, chairman of the Board of Directors. “We take the views of our stockholders very seriously and believe it is prudent to evaluate all strategic alternatives. In addition to engaging with CSG and MNC and its private equity partner, we also look forward to reviewing any other strategic alternative for Vista Outdoor that would maximize value for stockholders. While we conduct this strategic review, we remain as focused as ever on delivering high-quality, innovative products for our consumers around the world.”

Vista Outdoor will adjourn the special meeting of stockholders scheduled for July 30 at 9:00 a.m. CST to September 13 at 9:00 a.m. CST. Vista said, “The Board continues to recommend that Vista Outdoor stockholders vote in favor of the proposal to adopt the merger agreement with CSG at the Special Meeting.”

CSG made its initial offer to acquire Kinetic last October and has raised its bid four times under pressure from the arrival of higher offers from MNC. With CSG’s last move on July 22 to increase its offer, Vista noted that CSG had increased its bid by $430 million, or $7.25 per share, since its original offer, and the deal “enables stockholders to receive 100 percent of the cash that the company has generated in the interim period plus retain the upside in Revelyst.”

Although the business continues to struggle, Vista has also forecasted Revelyst’s EBITDA would double by fiscal 2025 with the support of a “Gear Up” cost-improvement plan. In mid-July, Vista forecasted Revelyst sales would decline 14 percent in its fiscal first quarter ended July 30.

In early March, MNC submitted its first proposal to acquire Vista in its entirety for $35 a share and has since increased its offer three times. Its latest bid was $3.2 billion, or $42 per share.

Morgan Stanley & Co., LLC is acting as Vista Outdoor’s sole financial adviser, and Cravath, Swaine & Moore LLP is acting as its legal adviser. Moelis & Company, LLC is acting as sole financial adviser to the independent directors of Vista Outdoor and Gibson, Dunn & Crutcher LLP is acting as their legal adviser.

Image courtesy Vista Outdoor

Read more SGB Media coverage of the ongoing Vista Outdoor saga below:

EXEC: Investor Pressure Builds on Vista Outdoor Ahead of Ammo Sale Vote

Vista Outdoor Delays Stockholder Vote Again as CSG Raises Bid for Ammo Unit

Vista Outdoor Again Postpones Shareholder Vote on CSG Transaction