Release Date: October 31, 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 revenue increase of 3.1% from the second quarter and an 8.5% increase compared to the prior year.
- The bike business showed strong performance with a 22% sequential growth, following a 52% increase in the previous quarter.
- The acquisition of Marucci contributed positively to the company's growth, with Marucci achieving another record quarter.
- Fox Factory Holding Corp (FOXF) is implementing strategic initiatives to optimize costs, including plant closures and efficiency improvements.
- The company is focusing on diversification and expansion within the aftermarket, which has shown resilience and growth potential.
Negative Points
- Fox Factory Holding Corp (FOXF) faced challenges with OEM partners reducing their demand forecasts, impacting revenue.
- Ongoing quality issues and model year changeovers at automotive OEM partners affected chassis mix and availability.
- The company's gross margin decreased to 29.9% from 32.4% in the same quarter last year, driven by shifts in product line mix and reduced operating leverage.
- Net income significantly decreased to $4.8 million from $35.3 million in the same quarter last year.
- The company anticipates continued pressure on demand in 2025, with a challenging retail environment expected to persist.
Q & A Highlights
Q: Mike, it seems like demand and quality issues are the main obstacles. Is demand the greater issue that might persist into 2025?
A: Yes, demand is the primary concern. The quality issues are at the automotive OEMs, not within Fox. We're seeing improvements with model year '25 vehicles, but consumer demand is crucial for a rebound.
Q: Regarding the bike segment, it looks like you're expecting a sequential decline in Q4. Is the outlook for 2025 still below historical levels?
A: Yes, Q4 is expected to be seasonally slower with some softness. We're being conservative about 2025, as not all OEMs have resolved inventory issues. We anticipate being up year-on-year in Q4 and Q1.
Q: Can you explain the SSG margin performance despite the year-over-year sales increase?
A: The margin pressure in SSG was mainly due to Marucci's spending ahead for the MLB launch and softball-related launches, which impacted margins.
Q: How are you balancing cost management with maintaining the brand's growth and innovation?
A: We're focusing on cost efficiencies without compromising innovation. Simplifying our footprint and reducing nonperforming products will help us maintain margins and invest in growth, like Marucci's MLB preparations.
Q: Can you clarify the bike and Marucci guidance for Q4?
A: We expect bike sales to be relatively flat with the prior year, around $78 million to $80 million. Marucci is also expected to be flat, around $45 million.
Q: How is the upfitting business performing, and what's the strategy for product offerings?
A: Dealer inventories vary by brand, with GM and Ford being healthier. We're focusing on new model year vehicles. We're also developing a strategy to offer products at different price points to appeal to more consumers.
Q: Are OEMs requesting better pricing terms in the current environment?
A: It's mixed. Some requests are specific to product launches, but widespread pricing pressure isn't significant. We continue to drive pricing through innovation.
Q: How is the MLB relationship with Marucci structured, and could it impact margins if consumer demand softens?
A: The MLB agreement is structured favorably, with low minimum commitments. We see it as a net positive, even if there's softness in big box retailers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
