• Revenue: $359.1 million, an 8.5% increase from the prior year.
• Gross Margin: 29.9%, down from 32.4% last year.
• Net Income: $4.8 million, or $0.11 per diluted share, compared to $35.3 million, or $0.83 per diluted share, last year.
• Adjusted Net Income: $14.8 million, or $0.35 per diluted share, compared to $44.8 million, or $1.05 per diluted share, last year.
• Adjusted EBITDA: $42 million, compared to $63.7 million last year.
• Adjusted EBITDA Margin: 11.7%, down from 19.2% last year.
• Operating Expenses: $88.7 million, or 24.7% of net sales, compared to $65.9 million, or 19.9% of net sales, last year.
• Inventory: Increased by $29.5 million or 7.9% compared to year-end 2023.
• Debt: Revolver balance of $210 million, term loan balance of approximately $558 million.
• Guidance for Q4 2024: Sales expected between $300 million to $340 million, adjusted earnings per diluted share of $0.25 to $0.40.

• Warning! GuruFocus has detected 8 Warning Signs with FOXF.

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 (NASDAQ:FOXF) 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 (NASDAQ: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 (NASDAQ: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.