American Outdoor Brands Corp’s (NASDAQ:AOBC) rebranding efforts are now in full swing. Fourth-quarter and full fiscal 2017 financial results on Thursday after market close will give investors a roundup for what turned out to be a transformative year, and hopefully will spark AOBC stock past its market-matching 2017 returns.
Goodbye, Smith & Wesson Holding Corporation. Hello, American Outdoor Brands Corporation.
The result is an integrated outdoors company with a strong history rooted in firearms. The future looks bright as AOBC expands into adjacent segments within accessories and electro-optics, diversifying away from firearms, which accounted for 82% of total sales as of the end of last year and boasted a 42% gross margin.
Despite having such a strong brand in Smith & Wesson, a top performer within the industry, AOBC management has not been content to sit on their laurels. The diversification and acquisitions indicate as much.
Just how transformative will have to be measured in numbers.
AOBC Q4 Earnings Preview
AOBC is riding the tail of a strong third quarter during which growth was still seen in spite of declines in both NICS background checks and firearm product shipments.
While the stock is merely matching the S&P 500 year-to-date, it has cruised 24% higher over the past three months to sprint past the broader index’s 4% gains.
If earnings show that the rebranding moves are positively impacting cross-selling sales efforts and that strategic initiatives in the supply chain are yielding results, there is room for the stock to continue upward.
M&A Progress
As AOBC executes on its new strategy to diversify revenue streams, mergers and acquisitions have become a point of focus.
American Outdoor undertook a few acquisitions last year, including Taylor Brands and Crimson Trace last August and UST Brands in November. Updates on integration progress and further granularity on synergies from these transactions will also be a source of potential post-earnings upside.
The Accessories Division has been very active, adding knife brands to the portfolio and establishing a separate Electro-Optics Division — a leader in laser sighting and tactical lighting.
Outperformance in these categories driven by additional revenues via acquisition are a distinct possibility that the market may not be giving AOBC credit for.
The company’s strong balance sheet, even post-acquisitions, will continue to allow American Outdoor the flexibility to allocate capital in the most advantageous way for shareholders, including additional strategic acquisitions.
A Few More Things
New Products (Firearms): Customer responses to the new T/C Compass, M&P Shield Pistol, and SW1911 Pistol will be important in gauging revenue growth in the Firearms division. In particular, if sales of the SW1911 are doing well, with an indicated MSRP of $1,219, it would provide a boost to margins.
Share Repurchases: In March, the board of directors already authorized $50 million for stock repurchases through March 28, 2019. There may be no update here. Still, pay attention to how many shares were retired and at what price to have a sense of the pace of repurchases moving forward. With a renewed focus on growth, a dividend on AOBC stock is unlikely.
New Logistics & Customer Service Division: In keeping with the new strategic initiatives, AOBC announced the creation of a “newly created strategic division that will support future growth for all of our American Outdoor Brands.” The distribution center will be completed next year and located in Missouri. While it does not appear to be a direct revenue driver, I could see cost synergies and efficiencies, translating to a more attractive bottom line and enhanced customer loyalty as a result of this initiative.
All the arrows point favorably up for AOBC stock. If they keep executing on the game plan with the numbers to back it up, the stock will keep firing away.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
