Bear Of The Day: Vista Outdoor Inc. (VSTO)

Vista Outdoor Inc. (VSTO) has been losing a significant amount of steam on its top-line with year-over-year (YoY) declines the past 9 quarters. Earnings don’t look much better, toeing the line of profitability since 2017. Sell-side analysts have been downwardly adjusting EPS estimates over the past 30 days by a substantial amount, pushing VSTO into a Zacks Rank #5 (Strong Sell).

Vista spun off of Alliant Techsystems and went public in the beginning of 2015. Since their big miss on June quarter results in 2016, the stock has done nothing but tumble. VSTO has lost 84% of its total market value since mid-2016, and this downward momentum doesn’t seem to be slowing as the firm reports more dismal results every quarter.

Over the past 52-weeks, VSTO (blue) has lost investors 50%, way underperforming an already underperforming consumer discretionary industry (red), with the broader consumer discretionary sector losing 21%.

 

Company Overview

Vista Outdoor has a vast portfolio of outdoor and recreational 40 brands, “including sporting ammunition and firearms, golf rangefinders, hydration products, outdoor accessories, outdoor cooking solutions, and protection for certain action sports”, according to their most recent 10-K. Some of the well-known brands under this umbrella are Camelbak and Bushnell.

Shooting Sports and Outdoor Products are the two segments recognized and both are experiencing declining revenues. Shooting sports makes up the majority of Vista’s revenue and was down 8% in fiscal 2018 (ending in March), while the rest of its outdoor products lost 14%.

Vista Outdoors has been experiencing deteriorating margins since the end of 2015. From 33% gross margins in 2015 to the 20% gross margins the firm is experiencing today. This is a horrible sign for a newly established firm that should be doing just the opposite.

Shootings Affecting Business

Being primarily a gun and ammunition manufacturing company they are under a great amount of scrutiny from US policymakers as well as retailers themselves. Following the Stoneman Douglas High School shooting in the February of 2018, activist made it a point to deter the sales of any Vista Outdoor products and brought these complaints to retailers, and they listened.

Many stores have completely stopped selling all Vista Outdoor products, including major sporting retailers like MEC, REI (REI), and Running Room. This has had a large material effect on Vista’s top-line and as more store follow suit, expect revenues to continue to decline.

With the 2020 election fast approaching, gun and ammunition companies are in the crosshairs of a lot of Democratic candidates as they attempt to add more and more regulation to the business, which would further reduce VSTO’s top-line.

Take Away

This company has formed in 2015 and has done nothing but show declining results. There is clearly a systemic issue with management that will not change unless management does. They have made no efforts to appease gun reform activists which have deteriorated their business even further. The upcoming election is likely not going to turn out in their favor, with democratic candidates firmly against companies like this one. I see Vista’s performance continuing its march south into potential bankruptcy if the firm doesn’t make substantial changes.

 

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