Fox Factory Holding Corp. today reported its financial results for the third quarter of 2024, showing steady growth despite market headwinds.
Revenue growth coincides with market challenges.
In the third quarter, revenue from the Focus plant increased 3.1% sequentially and 8.5% year-over-year to $359.1 million. It is worth noting that the company's bicycle business revenue increased significantly by 21.9% quarter-on-quarter, and soared by 38.7% year-on-year. However, this overall revenue growth is still at the low end of the company's guidance range.
The company's management attributed this to the macroeconomic environment affecting consumer discretionary spending, which created challenges for its OEM (original equipment manufacturer) customers. Despite this, products from the Focus plant remain in strong demand in the aftermarket channel.
Profitability and margin compression
In the third quarter of 2024, the gross margin at the Fox Factory declined 250 basis points to 29.9% year-over-year. The reasons for the decrease were changes in product mix and operating leverage reduction due to lower sales volumes. Adjusted gross margin also declined 330 basis points to 29.9%, which excludes specific restructuring charges in the prior year.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $42 million, a decrease of 37.1% year-over-year, and adjusted EBITDA margin decreased from 19.2% to 11.7%.
Strategic initiatives to address macroeconomic challenges
In response to the challenging macroeconomic environment, Fox Factory initiated strategic actions within its Aftermarket Applications Group (AAG) segment during the third quarter, focusing on improving inventory. In addition, the company announced broader cost optimization measures to achieve more than $25 million in annual cost reductions.
The moves aim to restore profit margins and seize market opportunities when consumer demand picks up.
Departmental performance and key drivers
Professional Sports Group (SSG)
The SSG segment, which includes the acquired Marucci brand, had a strong performance, with net sales increasing from $72 million to $149.5 million. This significant increase was attributed to the merger of the Marucci brand and the surge in bicycle sales.
Aftermarket Application Group (AAG)
Net sales for the AAG segment decreased to $100.3 million from $136 million due to lower retrofit sales, the impact of higher interest rates on dealers and consumers, and high inventory levels at dealers.
Power Vehicle Group (PVG)
PVG segment net sales decreased to $109.3 million from $123.1 million, primarily due to weak demand in the power sports and automotive industries, which were also impacted by higher interest rates.
Financial position and outlook
The Fox Factory ended the quarter with $89.2 million in cash and cash equivalents, up from $83.6 million at the beginning of the year. At the same time, inventory levels also rose from $371.8 million to $401.4 million.
The company provides a guide to the fourth quarter and fiscal year of 2024 and expects net sales for the fourth quarter to be in the range of $300 million to $340 million, and full-year net sales to be in the range of $1,341 million to $1,381 million. Adjusted diluted earnings per share are expected to be in the range of $0.25 to $0.40, and full-year adjusted diluted earnings per share are expected to be in the range of $1.27 to $1.42.
Overall, Fox's third-quarter results reflect the company's steady progress in a complex economic environment. While revenue growth shows the underlying strength of its brands and products, margin compression highlights the impact of external factors and the need for strategic adjustments. The company's aggressive initiatives in cost optimization and inventory management demonstrate its commitment to strengthening financial performance and capturing future growth opportunities.
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