American Outdoor Brands Corporation (NASDAQ:AOBC) Q2 2020 Earnings Conference Call - Final Transcript

Dec 05, 2019 • 05:00 pm ET

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American Outdoor Brands Corporation (NASDAQ:AOBC) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
James Debney

public companies at the spin-off date, I have organized my comments today to first address our firearms business, which will become Smith & Wesson Brands, Inc. and then our Outdoor Products & Accessories business, which will become American Outdoor Brands, Inc.

After my comments, Jeff will discuss our financial results and our outlook, which will now include revenue guidance for each business for the balance of the year as we work to provide stockholders with enhanced visibility as we approach the spin-off date. With that, I will first address our firearms business.

As you know, we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers, not directly to end consumers. That said, adjusted NICS background checks are generally considered to be the best available proxy for consumer demand for firearms at retail. In our fiscal Q2, background checks for handguns increased 14.8% year-over-year, while our units shipped to distributors and retailers increased by 14.2%. For the same period, background checks for long guns grew 7.8% year-over-year, while our units shipped to distributors and retailers declined by 30.3%.

This decline occurred for two reasons: First, you will remember that on our last call, I indicated we have proactively worked to reduce our inventory of a certain family of hunting rifles, with enough time for that inventory to clear out of the channel in advance of an upcoming major product launch. As a result, we believe consumer demand for our hunting rifles in Q2 was addressed with the inventory that we effectively moved into the channel during Q1. The balance of our long gun decline relative to adjusted NICS is due to lower sales of modern sporting rifles versus last year.

In a more recent update, November adjusted NICS increased 2.1% versus a year ago, following the expected seasonal trend line. Within that result, unadjusted background checks of Black Friday were brisk, delivering the second-highest Black Friday on record and indicating that the consumer is willing to wait for a great deal on their next firearm purchase. Distributor inventory of our firearms decreased sequentially from 178,000 units at the end of Q1 to 153,000 units at the end of Q2. This sequential decline is normal as Q2 takes us into the beginning of the fall hunting and holiday shopping season.

Since the end of Q2, distributor inventories have further declined, but remain above our eight week threshold. New product introductions in Q2 included the Smith & Wesson Model 648 revolver, featuring an 8-round capacity and chambered in 22 magnum, ideal for target shooting and small game hunting, as well as the new M&P M2.0 Subcompact, the newest addition to our popular M2.0 family of pistols and ideal for concealed carry and personal protection.

During the quarter, we also prepared for an exciting new upcoming major product launch. We seeded the channel with this new product late in Q2 in preparation for the official launch that will occur on December 12. The team also continued preparations for several exciting