Two sessions removed from the November 2017 NICS background check data, shares of American Outdoor Brands (AOBC 13.10, -1.83 -12.3%) once again take center stage as the stock gives up its November gains, now on worse than two-year lows in reaction to some disappointing guidance.
Taking it back a few sessions to the aforementioned NICS data, the FBI announced total November background checks were up 17.4% month-over-month to 2,382,788 (but down 7.0% year-over-year). In reaction shares of AOBC, paired with gains in the broader market, pushed higher – at one point on Thursday up 6.4% from the close on Tuesday (the day of the NICS data).
Flip back to today and AOBC is being punished for giving some disappointing guidance. The company also reported Q2 earnings and revenues, but since the stock appears to be reacting to the guidance, let’s begin there.
Q3 guidance came in below market expectations on both the bottom and top line at $0.07-0.10 and $170-180 million, respectively.
Equally unimpressive, AOBC slashed FY18 guidance again; in June, management gave initial guidance for FY18 EPS and revenues of $1.42-1.62 and $750-790 million, but that guidance was short-lived as it was cut not three months later in September when the company gave updated guidance for FY18 of $1.04-1.24 and $700-740 million, respectively. Last night’s update to that guidance cut EPS to $0.57-0.67 and lowered revenue guidance to $650-675 million.
Coming back to the Q2 results now, AOBC turned in a beat on the top and bottom lines despite a 36.5% decline in revenues to $148.4 million. Earnings were modestly ahead of expectations at $0.11 per share. Gross margin for the quarter were 34.2% compared with 41.8% a year ago.
Management noted that in Firearms, shipments of the company’s new M&P branded polymer products in full-size, compact, and concealed carry models helped to offset lower orders in other product categories. While the company was pleased that its firearm inventory at distributors declined slightly during the quarter, they believe that orders were negatively impacted by heightened channel inventory from multiple manufacturers at retail. As expected, the company’s internal inventories peaked during the quarter, as they prepared for a number of new firearm product launches. Since then, the company has reduced their internal production output levels and their outsourced capacity to help lower inventories and better balance production to demand.
As firearm companies continue to be pressured by a promotional environment, companies like AOBC will continue to see higher inventory levels and increased levels of competition. Peers RGR -7.78%, VSTO -2.12% both trade lower today in the face of a modestly higher broader market.