Fox Factory Holding Corp (FOXF) Q2 2024 Earnings Call Highlights: Navigating Challenges with Strategic Growth Initiatives

Despite a revenue decline, Fox Factory Holding Corp (FOXF) focuses on diversification and innovation to drive future growth.

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Oct 09, 2024
Summary
  • Revenue: $348.5 million, a decrease of 13% from $400.7 million in Q2 2023.
  • Adjusted Earnings Per Share (EPS): $0.38.
  • Adjusted EBITDA Margin: 12.7%, improved from 12.1% in the prior quarter.
  • Gross Margin: 31.8%, down from 32.9% in Q2 2023.
  • Net Income: $5.4 million or $0.13 per diluted share, compared to $39.7 million or $0.94 per diluted share in Q2 2023.
  • Adjusted Net Income: $15.9 million or $0.38 per diluted share, compared to $51.4 million or $1.21 per diluted share in Q2 2023.
  • Powered Vehicle Group Sales: $118 million, down from $140 million in the prior year.
  • Aftermarket Business: 57% of sales, up from 47% in 2021 through Q2.
  • SSG Net Sales: $124 million, up from $105 million last year.
  • Inventory: Increased by $8.6 million or 2.3% compared to year-end 2023.
  • Net Leverage: 3.46 times as of quarter-end.
  • Guidance for Full Year 2024: Sales expected to be $1.407 billion to $1.477 billion; adjusted EPS of $1.40 to $1.72.
  • Guidance for Q3 2024: Sales expected to be $355 million to $385 million; adjusted EPS of $0.35 to $0.50.
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Release Date: August 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Fox Factory Holding Corp (FOXF, Financial) reported a sequential increase in revenue by 4.5% to $348.5 million for Q2 2024.
  • The company's adjusted EBITDA margin improved to 12.7% from 12.1% in the prior quarter, indicating better expense control and productivity optimization.
  • The aftermarket business now constitutes 57% of sales, up from 47% in 2021, showcasing successful diversification efforts.
  • The bike segment showed a 52% sequential revenue increase, suggesting stabilization and nearing the end of inventory destocking.
  • Marucci, part of the SSG segment, continues to perform strongly, with expectations of double-digit growth for the year and a new exclusive licensing agreement with Major League Baseball starting in 2025.

Negative Points

  • Total consolidated net sales decreased by 13% compared to the same quarter last year, reflecting ongoing macroeconomic challenges.
  • The Powered Vehicle Group (PVG) experienced a decline in net sales to $118 million from $140 million in the prior year, primarily due to lower OEM demand.
  • The Automotive sector faces mixed demand, with issues such as excess inventory and consumer conservatism impacting sales.
  • The company revised its full-year guidance downward, reflecting tempered expectations due to ongoing industry demand and quality challenges.
  • Gross margin decreased to 31.8% from 32.9% in the same quarter last year, driven by shifts in product line mix and reduced operating leverage.

Q & A Highlights

Q: Can you elaborate on the revised outlook and the confidence in recovery through 2025? Do you need improvements in consumer demand and interest rates for growth?
A: The revised outlook is primarily due to challenges in the AAG and PVG segments, particularly with large OEMs facing interest rate impacts and quality issues. For 2025, we focus on product innovation, which we believe will drive sequential growth despite these headwinds. – Michael Dennison, CEO

Q: Regarding the powered vehicle side, how much of the challenges are due to economic factors versus quality issues?
A: For automotive OEMs like Ford and Toyota, demand isn't the issue; it's quality and supply chain challenges. For Stellantis and Jeep, it's more about inventory and interest rates, which are harder to solve. – Michael Dennison, CEO

Q: What cost management initiatives are you implementing, and are you managing headcount?
A: We're focusing on reducing corporate OpEx and have closed a Colorado facility to improve cost efficiency. We're also consolidating manufacturing facilities to save costs. Our ability to flex costs with revenue growth is evident in the bike segment's improved operating leverage. – Dennis Schemm, CFO

Q: Is the implied Q4 revenue guidance a baseline for growth through 2025?
A: While it's too early to guide 2025, we expect sequential growth from the Q4 baseline into next year, supported by product tailwinds like our MLB license agreement. – Michael Dennison, CEO

Q: Can you provide an update on the bike business backlog and order books for Q3 and Q4?
A: Q3 is trending positively, similar to Q2, with limited visibility for Q4. Both the bike and Marucci businesses are on plan for the back half of the year. – Michael Dennison, CEO

Q: What is the expected contribution of Marucci in the back half of the year?
A: Marucci is expected to grow strongly, with a projected 10% year-over-year increase, reaching around $200 million for the full year. – Dennis Schemm, CFO

Q: How does the MLB contract impact Marucci's future growth?
A: The MLB partnership is significant, providing new storefront opportunities and enhancing our relationship with players. It's a key part of our strategy to double Marucci's business in the next three to five years. – Michael Dennison, CEO

Q: What are your priorities for the upfitting business, and how do you plan to grow it?
A: My focus will be on customer engagement, product development, cost management, and leveraging our strong team. We aim to enhance dealer relationships and product offerings to drive growth. – Dennis Schemm, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.