Good day, and welcome to the Vista Outdoor Fourth Quarter Fiscal Year 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Kelly Reisdorf. Please go ahead..

Thank you. Good morning, everyone, and welcome to the Vista Outdoor fourth quarter and full year fiscal 2020 earnings call. I'm Kelly Reisdorf, Head of Investor Relations and Communications.

Joining me today are Chris Metz, Chief Executive Officer; and Sudhanshu Priyadarshi, our new Senior Vice President and Chief Financial Officer; and Andy Keegan, Vice President of FP&A. Sudhanshu is a global retail finance and operations leader with more than 20 years of experience. He most recently worked as CFO of Flexport.

And before that, he was VP of Finance for Walmart's e-commerce business. Earlier this morning, we issued a news release announcing our fourth quarter and full year results. If you've not yet received a copy of the release, you can access it on our website at vistaoutdoor.com.

We refer to some non-GAAP financial measures in our comments today and have posted presentation materials and include a reconciliation of these non-GAAP financial measures to their GAAP comparable measures. The call today is being webcast on our website and will be archived along with the transcript of the call shortly after the event.

I'd like to bring your attention to a few changes we've made in our materials to provide investors with greater insight into our business. The first is the disclosure of EBIT by reporting segment. This change is reflected in our quarterly management presentation, and we also have provided you with historical reconciliation in the appendix.

You will find further details in our 10-K to be filed later this month. We've also modified our reporting segments to reflect the strategic focus on true customer segmentation and growth potential.

The Shooting Sports reporting segment reflects the combination of ammunition and hunting and shooting accessories, which have similar customers, channels and supply chain. The Outdoor Products reporting segment reflects the combination of action sports and outdoor recreation, which also share similar customers, channels and supply chain.

Our Bushnell Golf brand is now aggregated within Outdoor Recreation. The numbers you will see today reflect this new structure. We are appreciative of our investors' feedback and remain committed to enhancing our disclosure.

Before I turn the call over to Chris and Sudhanshu, I'd like to remind listeners that during today's call, we will be making forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act.

These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate.

We encourage you to review today's press release and Vista Outdoor's SEC filings for more information on these risk factors and uncertainties. I'm now pleased to turn the call over to Chris Metz..

Good morning, and thank you, Kelly. Today's call marks the official end of Vista Outdoor's fiscal year 2020. Traditionally, this call serves to close out the fiscal year and set the stage for the new year.

But due to the uncertainty created by the external environment, today, we're going to spend a little extra time updating you on COVID-19-related efforts with trends we are seeing and what the situation means for Vista over the next couple of quarters.

Fiscal year 2020 was a momentous year for Vista Outdoor and the most transformative since our company was founded in 2015. We strengthened our team, filled leadership positions across the business with highly capable and effective people.

We completed the planned divestiture of our Firearms business, which was the biggest piece of our strategic portfolio reshaping. Our Shooting Sports segment managed diversity when the world's largest retailer of ammunition shifted their strategy and dropped major categories from their shelves.

Our Outdoor Products segment battled tariffs and then pandemic-induced supply chain disruptions. Despite all of these changes and headwinds, we exited fiscal year 2020 stronger, more nimble and more profitable than we have been since I've joined the company in 2018.

I'm proud to report that Vista Outdoor performed well in fiscal year 2020 and delivered on our commitments to our shareholders. On the financial front, we reduced our leverage ratio and improved our adjusted organic EBIT by more than 40% year-over-year.

In e-commerce, we increased overall site traffic and are continuing to improve conversion rates and our average return on advertising spend. In our operations, we met high standards across employee safety and environmental compliance metrics. Our team answered the call and delivered positive change.

While much more work remains, we are pleased that our efforts are moving us forward. Before we get started, I would like to first acknowledge our employees who time after time have risen to the challenge.

The COVID-19 pandemic has been the most recent challenge for our company and for our country, and our team has responded with rigor and perseverance. In January, we formed a dedicated COVID-19 response team to assist in managing the supply chain impacts as a result of the coronavirus outbreak in China.

As the virus spread closer to our employees and facilities, we expanded this group to work daily with our executive team, ensuring our operations remain safe and effective through the many shelter-in-place restrictions.

During this time, we've implemented enhanced operating protocols to ensure the safety and well-being of our employees, their families and our stakeholders. For our employees whose essential functions are performed on-site and in person, we're consistently following CDC and World Health Organization guidelines at all local mandates.

We're taking appropriate precautions at the sites that remain open, including imposing travel and visitor restrictions, instituting new cleaning procedures and mandating the use of personal protective equipment. We've also enhanced shift leaves and other health care benefits for our employees to help mitigate financial hardship during difficult time.

Employees are the lifeblood of Vista Outdoor, and we are committed to keeping them safe. Despite the economic shutdowns that have persisted throughout the world, nearly all of our distribution and manufacturing operations are up and running.

During the fourth quarter, our Eagle facility in Puerto Rico was closed for the last 2 weeks of the fiscal year. Following local guidelines, we have since reopened in the month of April but are operating at partial capacity.

A portion of the selling operations at this facility have been repurposed to produce cloth masks that are in need during the pandemic. In the month of March, we had 2 manufacturing facilities operating under minimal basic operations. This reduced capacity had only a minor impact on our results for the quarter.

Additionally, beginning on the last day of our fiscal year, our CamelBak and Gold Tip facilities in Mexico were shut down. And the shutdown will be in place through the end of May for information available to us today.

In all of these instances, we are closely following all legislative and regulatory updates in each jurisdiction and will comply with local orders governing our return to work. We're taking actions to mitigate supply chain disruptions related to COVID-19.

While our teams are shifting capacities and capabilities to other facilities, we do expect reduced output to create a headwind for our first quarter. Our organization takes pride in serving the needs of all of our customers. That said, COVID-19 pandemic has not impacted all of our channels uniformly.

In the fourth quarter, we saw a dramatic shift to online consumer activity and spending as a result of restriction in place throughout the country.

While this presents a significant opportunity for our direct-to-consumer and e-commerce sales, it will present a headwind for our traditional brick-and-mortar retail accounts as well as our network of independent dealers. The pandemic has also brought out the best in who we are.

We've donating surplus PPE wherever possible, and our Giro brand has repurposed thousands of ski and snowboard goggles for health care workers on the frontlines. We're also standing by our partners in the nonprofit sector, whose missions are getting kids, veterans and the disadvantaged outside.

We believe these nonprofit partners will play a major role in restoring our country. In light of COVID-19, we have taken actions to ensure a strong balance sheet with flexible, cost efficient access to liquidity and a well-managed debt maturity profile.

We currently have access to roughly $190 million of additional liquidity under our $450 million asset-based revolving credit facility. Of note, we were able to further increase our excess capacity on the revolver as a result of cash management and working capital efficiencies in the quarter.

Our revolving credit facility and our $350 million of outstanding senior notes, both do not mature until late in calendar year 2023. We also continue to be vigilant with the retail customer credit worthiness, given the multiple store closures in the last 2 months.

We have established consistent communication with our major channel partners to ensure their continuation of business revenues. While many of our retail partners have closed store locations, many others have been able to maintain operations as essential businesses.

In the fourth quarter, as our company has traditionally planned around Chinese New Year interruptions through strategic investments in inventory, we did experience supply chain impacts from the outbreak of the pandemic in China earlier in the quarter, with a number of our brands.

Currently, most of our suppliers in Asia are back online and producing at near their customary levels. 2 notable exceptions are in select CamelBak and Bushnell Golf suppliers. At this time, we anticipate the supply chain disruption will normalize in our first quarter.

Recognizing the situation presents a fundamental shift in consumer spending behavior, we've responded to this demand by executing a number of initiatives to expedite and/or expand upon existing direct-to-consumer sites, expand dropship capabilities and support customer retailer efforts online in an attempt to mitigate what we are seeing with our brick-and-mortar retail accounts.

A number of our strongest categories, particularly commercial ammunition, outdoor cooking and bicycle helmets and accessories have been in high demand during the pandemic, where consumers cannot purchase the products they need in stores. We've seen that demand move online.

Case in point, we recently expanded dropship capabilities for our key retail account in response to store closings. Where appropriate and possible, we have redirected and rebalanced our inventory to support our direct-to-consumer channel where it would otherwise be stranded in the retail supply chain.

Where we are in our transformation is why we believe we can weather the economic storm brought by COVID-19. The end of our fiscal year 2020 at the beginning of the New Year marks the transition from the early innings to the middle innings of the accelerated transformation plan.

We believe it continues to be the right path at the right time for Vista Outdoor. Our fourth quarter was strong. We met or exceeded our financial expectations. We exceeded our expectations for earnings per share and for free cash flow.

The last 2 years have been laser-focused on stabilizing and repairing our foundation and strategically investing in platforms for growth. This has paid off in a noticeable improvement in our fundamentals. We reduced our net debt leverage ratio to 4.3x, the lowest it has been since 2018.

Our thoughtful and strategic approach to reestablishing a hunter's mentality and instead of business operating from a profitability mindset has yielded tangible results. We delivered a 40% year-over-year organic improvement in adjusted EBIT. In the fourth quarter, we saw demand levels for many of our products increased.

We're seeing consumers engaging in an increased amount of outdoor activities amidst the shelter-in-place orders, and this has benefited many of our categories. We've also seen a significant increase in demand in our ammunition brands.

Building on the consumer trends and personal protection driving crystal ammunition demand that we discussed on third quarter call, we continue to see increases in demand for crystal ammunition. Additionally, we also saw increases in demand for rimfire material lines as well.

As we've discussed before, we tend to see a lag effect in ammunition purchasing driven by background effects volume. This demand is evident both within our retail and our e-commerce channels as well as our direct-to-consumer sites.

As the market share leader and the largest player in rimfire category, the investments and improvements we have made to our manufacturing operations and efficiencies have enabled us to quickly respond to changes in consumer demand. Going forward, we expect gross margins in our Ammunition business to continue to improve.

We will continue to lead the industry on margin improvement, our efficiency efforts and pricing recovery. We expect that the surge in ammunition demand will also provide us an opportunity to drive working capital efficiencies by normalizing payment terms with our customers.

While we're benefiting from the surge in ammunition demand today, it is unclear how long this surge will last.

With demand in our largest product category strong, coupled with low inventory in the channel heading into an election year, we are optimistic about our ammunition business going forward and believe it will offset headwinds based in some of our other categories as a result of economic disruptions from the COVID-19 pandemic.

The most recent federal excise tax available through the fourth quarter calendar year 2019 indicated that domestic commercial ammunition market grew by roughly 11% and our respective market share grew by roughly mid-single digits. This demonstrates the strength of our new product introductions driving demand in the marketplace.

As we look ahead to maximizing growth in this robust demand environment, we are confident that the improvements we have made during the downturn will translate to more growth and profitability expansion going forward.

Our market share leadership in our nation's law enforcement channel and reputation for product performance extends internationally as well. We've seen recent successes in our efforts to secure new contracts with international law enforcement agencies, particularly in our Ammunition business.

For example, our Federal, Speer and Force on Force brand secured a new 5-year contract with the Victoria Police in Australia. This is a key win for a highly competitive award for both training and the prestigious duty ammunition.

We continue to prioritize growth in this channel by placing strategic focus on the pursuit of margin accretive opportunities. We continue to build our brand's presence in e-commerce channels. And we achieved record year-over-year growth in our direct-to-consumer sales during the fourth quarter.

The COVID-19 pandemic and the resulting lockdowns have only accelerated consumers move online. We expect this trend to continue even after the pandemic ends. We will continue to execute on our digital strategy to better serve our end consumers.

In our direct-to-consumer channels, we launched or enhanced 4 new B2C websites during the quarter for CCI, Blazer, Bell helmets, Giro and Speer. Total company site traffic increased in the fourth quarter by roughly 20% year-over-year, and our conversion rate in the quarter increased by roughly 50 basis points over the prior year.

To expand upon the realignment of our reporting segments and better reflect our strategic focus, one area of opportunity is a refinement of our commercial approach for the hunting and shooting markets.

We'll be taking a more coordinated approach between our ammunition and hunting and shooting accessories teams to leverage consumer insights and optimize our brand presence in key channels. We believe the result will be a better experience for our customers and end consumers alike.

Another area where we are creating opportunities for growth and greater synergies is between our CamelBak and Bushnell Golf brands. CamelBak recently entered the vacuum stainless steel drinkware market with the launch of its Horizon drinkware collection.

These 2 brand teams have worked closely together to create unique sales programs for the Pro shops and country clubs that will contribute to organic growth in the new year.

Lastly, earlier this week, we announced the addition of 2 new Board members, Frances Philip and Lynn Utter, who we recently welcomed and look forward to their contributions as we pursue our strategic priorities. Before I get into the results and outlook, I'd like to take a minute and thank Mick Lopez for his outstanding work as CFO.

From his tireless efforts to reduce our leverage through the relentless pursuit of working capital efficiency to the world-class team that he has helped build, this is stronger today because of his successful tenure. I'm grateful for the tremendous contributions he has made in helping us build a foundation for future growth.

Mick has been working with us to ensure a smooth addition, and we wish him well in his future endeavors. With that said, I'd like to formally introduce Sudhanshu Priyadarshi, who joined us on April 27. I'm very excited to add Sudhanshu as a partner at Vista Outdoor. And I'll turn it over to Sudhanshu for a couple of remarks..

Thank you, Chris and Kelly. Happy to be here today. I appreciate your efforts to get me integrated quickly into the organization given the challenges we all face right now.

My excitement for Vista's mission and growth objectives has only increased as I have connected with so many members of organization's leadership team and employees across Vista's brand over the past few weeks.

I look forward to trying on my experience, including in e-commerce opportunity in the weeks and months ahead as our organization respond and adopts to COVID-19..

Thanks Sudhanshu. We're excited to have you on the team. Let's review our results from the quarter and the fiscal year. Our comments today will largely focus on adjusted results. Also, where noted, organic results exclude the results of divested businesses.

From a GAAP standpoint, we incurred a noncash impairment charge in the fourth quarter of $156 million on goodwill and indefinite lived intangibles within our Outdoor Products segment as a result of our annual impairment testing.

It's worth noting for our annual impairment testing, our mention in date was January 2 when Vista Outdoor stock price was $7. This lower stock price required us to use higher discount rates and a lower valuation multiple than our goodwill valuation process, which accounted for most of the impairment.

This goodwill impairment will effectively leave us with $83 million of goodwill attributable to our ammunition business. Let's look at the deleveraging progress we have made. Given our commitment to stabilizing and building a resilient balance sheet, we ended the year with a net debt leverage ratio of roughly 4.3x.

And during the fiscal year, we improved net debt by over $200 million. We remain on track to achieve our desired state of being roughly 3x levered. Turning to our consolidated results. Let me first review adjusted results for the total company and then provide highlights within our newly aligned segments.

In the fourth quarter, we recorded sales of $426 million, down 17% compared with the prior year quarter. The sale of our Firearms business in the second quarter this year accounted for the loss of just over $50 million in revenue.

On an organic basis, sales were down 8%, largely reflecting the timing of a large international order that shipped in the fourth quarter the prior year.

Regarding the status of the large international order we discussed on our third quarter earnings call, this order did not impact shipments in the fourth quarter, and we expect it to ship in FY '21 this fiscal year. For the full year, sales were down 15% to $1.76 billion compared with the prior year or down 5% on an organic basis.

The organic decline is largely due to an international order from the prior year quarter, but also the result of lower demand in hunting and shooting accessories in the Outdoor Products segment. Adjusted gross profit for the fourth quarter was $85 million compared with $103 million in the prior year quarter.

Full year adjusted gross profit was $360 million compared with $432 million in the prior year. On an organic basis, gross profit dollars decreased by 2% compared with the prior year, with the rate improved by approximately 62 basis points compared with the prior year.

Adjusted operating expenses for the fourth quarter decreased 19% to $74 million compared with the prior year quarter. On an organic basis, operating expenses were down 12% compared with the prior year. Full year operating expenses decreased 15% to $314 million compared with the prior year.

On an organic basis, operating expenses decreased 6% or $20 million. The year-over-year reduction in fourth quarter and full year operating expenses demonstrates the continued success of our disciplined cost reduction initiatives.

Adjusted EBIT was $11.1 million or up 4% compared with $10.7 million in the prior year quarter and was up 236% on an organic basis, adjusting for the sale of Firearms. This robust profitability improvement is due to our focus on cost savings initiatives and higher efficiencies across all of our brands.

On an adjusted organic basis, EBIT was $45 million or up 41% on a year-over-year basis. Overall improvements were driven by rigorous class controls, positive gross margin improvement favorable commodities and cost-saving initiatives. Adjusted interest expense for the fourth quarter was $7 million, down 38% with the prior year period.

Full year adjusted interest expense was $35 million, down 33% over the prior year. The significant decrease was due to a lower debt balance and a lower cost asset-based credit facility put in place in November of 2018. The adjusted tax rate in the fourth quarter is calculated as negative 56% compared with 170% in the prior year quarter.

The tax rate benefit for the fiscal year was a negative 22% compared with 14% in the prior year. The tax rate was primarily affected by the release of tax reserves and the tax benefit from The Coronavirus Aid, Relief, and Economic Security Act enacted on March 27 of this year and was partially offset by nondeductible expenses incurred over the year.

Any of these fixed amounts have moved the tax rate significantly. We delivered $0.11 of adjusted EPS in the fourth quarter, which is up from $0.01 from the prior year quarter. The company delivered full year adjusted EPS of $0.24, which was roughly 70% over the prior year.

Our strong adjusted EPS was driven primarily by our cost savings initiatives, rigorous product margin improvement in Outdoor Products and strict cost control measures throughout the entire company. The improvement in the overall tax expense also contributed to our results.

Free cash flow for the year was $59 million, which exceeded our guidance of $40 million to $50 million. This was driven by strong collections, total inventory management and reduced capital expenditures compared with the prior year. We delivered full year EBITDA margins of 6.5%, which was slightly better than our expectations of roughly 6%.

This EBITDA improvement was a result of a laser focus on organic growth from new products, SKU rationalization and cost savings initiatives. Turning to Outdoor Products.

In the fourth quarter, our Outdoor Products segment recorded sales of $132 million, down 9% from the prior year quarter, reflecting lower demand for the majority of the quarter and headwinds in the retail channel as a result of COVID-19, offset by increased demand in bicycle helmets and accessories and outdoor cooking gear near the end of the quarter.

Full year sales were $567 million, down 13% compared with the prior year. Adjusting to reflect the sale of Eyewear in the second quarter of fiscal year 2019, the segment was down 5% on a year-over-year basis, reflecting overall lower demand. Gross profit for the quarter was $32 million, down 16% compared with the prior year quarter.

Gross profit for the full year was $149 million compared with $180 million in the prior year, reflecting the sale of Eyewear. On an organic basis, gross profit was down 5%, driven by sales volumes and product mix. In the quarter, the segment generated $4 million of EBIT compared with $8 million in the prior year quarter.

On an organic basis, for the full year, the segment generated $30 million of EBIT, which is a 5% increase over the prior year as a result of SKU rationalization efforts and cost savings initiatives.

This EBIT improvement despite continued market headwinds affecting our top line reflects our continued success in improving the underlying profitability of our business units. Now turning to Shooting Sports. Sales for the fourth quarter were $295 million, down 21% compared with the prior year quarter due to the sale of Firearms.

Organically, this segment was down 5%, reflecting the timing of a large international order that shipped in the fourth quarter of the last fiscal year. Ammunition sales were down 10% and Hunting and Shooting accessories were down 3% when compared with the prior year quarter.

The decline in Ammunition sales during the quarter was due to a large international order that shift in the fourth quarter of our fiscal year 2019, partially offset by an increased demand in commercial ammunition in the latter part of the quarter.

Were it not for the shipment delay in this large order, ammunition would have been up by high single digits. For the full year, the segment reported sales of $1.189 billion, down 16% compared with the prior year, primarily due to the sale of Firearms.

On an organic basis, the segment was down 5% due to a large international order in the prior year, lower demand in hunting and shooting accessories, partially offset by organic growth driven by new products and higher e-commerce-related sales.

Fourth quarter gross profit was $54 million or down 17% when compared with the prior year quarter due to the sale of Firearms. On an organic basis, gross profit was up 8% nearly 300 basis point increase to the rate.

This gross profit expansion is the result of new product introductions at higher margins, disciplined sales execution in the face of a higher demand and continued favorable commodity pricing. Full year gross profit was $211 million, down 16% when compared with the prior year, but was up 1%, adjusting for the sale of Firearms.

The full year rate saw an expansion of roughly 100 basis points. The segment generated $22 million of EBIT in the quarter, which is a 26% increase over the prior year quarter and 116% increase adjusting for the sale of Firearms.

For the full year, the segment generated $80 million in EBIT, which is down 12% over the prior year, but up 16% on an organic basis.

During the most recent Ammunition downturn, we have been laser-focused on cost savings and efficiency initiatives to make us stronger, better, fitter and able to react faster to shifts in consumer demand as we're seeing now. The improvements we have made during the past 2 years will enable us to continue to grow more profitably and gain share.

Overall, we are pleased with the full year mid-single and high digit - high teens improvements to even across the Outdoor Products and Shooting Sports segments, respectively.

These profitability improvements were achieved in a challenging market for much of the fiscal year and is a testament to our founder's mentality, our team's dedication and passion for our objectives and a proof point that our strategic initiatives are generating tangible results.

Given the many uncertainties around the health pandemic and timeliness around the economic recovery, we have limited visibility beyond our first quarter. However, given our strong current ammunition ordering patterns, we are able to provide guidance for the first quarter of fiscal year '21.

In setting this guidance, our assumptions include continuation of the current strength of the commercial ammunition market and e-commerce market. And our status as essential business allowing us to keep our manufacturing and distribution facilities open.

We have, however, factored in declines at our retailer channel partners whose stores have been closed due to the COVID-19 pandemic. Therefore, our guidance for the first quarter is, we expect sales in the first quarter in the range of $370 million to $400 million compared with $435 million in the prior fiscal year, which excludes divested businesses.

We expect first quarter adjusted earnings per share in the range of a loss of $0.05 to breakeven compared with a loss of $0.08 in the prior year quarter. Our assumptions include benefits from cost savings initiatives, continued tailwinds from commodity costs and improvements in pricing.

In addition, to support transparency and your modeling assumptions, we expect overall annual capital expenditures generally in line with our fiscal year '20 results. We expect full year interest expense annualized using fourth quarter FY '20 results.

We anticipate free cash flow in the first quarter to be stronger than free cash flow in the previous year quarter. Based on historical profiles, our strongest cash flows typically occur in the back half of the year due to seasonal sales. We continue to proactively plan for a variety of scenarios that could play out over the next 12 months.

We anticipate that the effects of this pandemic will accelerate change for our customers, suppliers and channel partners.

For the past two years of our transformation, we have been focused on streamlining our cost structure, reducing financial debt, improving operating leverage, increasing the resiliency of our supply chain creating channel harmony and accelerating the expansion of our e-commerce capabilities.

We believe these efforts will make us stronger in the years to come. As we move ahead and eventually emerge from the pandemic, we believe that Vista Outdoor, our employees and our outdoor mission are well positioned for the positive and natural shift from shelter-in-place to the outdoors. The world has experienced life without everyday essentials.

Yet a variety of metrics, surveys and walks around the neighborhood are showing that the outdoors has been a source of comfort, healing and enjoyment for millions of people around the world.

We believe the effects should be long-lasting and serve as a major shift for individuals and society to live healthier, more meaningful lives, helping us to fulfill our mission of bringing the world outside. Now we will take your questions..

[Operator Instructions] We'll now take our first question from Jim Chartier. Your line is now open..

Chris, I was wondering if you could first kind of quantify the impact of the supply chain disruptions for Outdoor Products on first quarter sales..

Yes. So Jim, that's - it's obviously, a very good question. And it's something that when we look at certain categories that we know are going to continue to perform well given the pandemic crisis. We know that's going to be offset by the retailers that are still closed in the categories that are affected as other consumer products are.

So we haven't quantified in our guidance and broken out Shooting Sports from Outdoor Products. But you can see in the guidance, even taking the midpoint of our sales guidance for Q1 versus previous year adjusted for Savage, it's still down.

And we think in a best view on Outdoor Products that we think will be offset to a degree by what we're seeing in Shooting Sports. And so that's the way we're calling it. I will say this on Outdoor Products though. We've exited the year with an awful lot of new products.

We're introducing in golf and our drinkware line and CamelBak that hasn't really seen the light of day yet. So we are optimistic that as the shelter-in-place gets lifted, people will start to seek those products out. That is not built into our guidance.

Our guidance, as you can imagine, given what we've seen over the past 30 to 60 days reflects a down Outdoor Products business on the top line..

Okay. And then can you give us a sense on the Ammunition business, what your commercial backlog is looking for? And then I know the shift into large international orders an excellent fourth quarter.

Are there any restrictions on exports for ammunition in the current environment?.

Sure. So Jim, first of all, in terms of the backlog, we don't discuss backlog. But as you can imagine, in this environment, it's extremely healthy. And across the retail channels, wholesale channels, everywhere, inventories are very lean, and our factories are running full out and just to supply that demand. So we don't see that subsiding anytime soon.

And we're optimistic as we go forward through the first quarter and frankly beyond. In terms of the restrictions, we don't see issues in being able to ship the large international order this fiscal year. We won't ship in the first quarter, but we anticipate that it will ship during the fiscal year.

There has been some changes in the restrictions and that played a part in the - our ability to be able to ship it in the fourth quarter. But frankly, it was more due to the fact of travel restrictions and some of the requirements that were required to be able to inspect the product before it left the courts.

We think that will be lifted in - shelter in places are lifted, and we don't anticipate any issues regaining that contract to ship..

We'll now take our next question from Eric Wold. Your line is now open..

A couple of questions to dive a little bit more into the previous questions.

I guess on the supply chain issues impacting Q1, any way to you maybe provide more details around kind of what percentage of those kind of supply chain issues have already been corrected but just obviously are still going to impact the results, which you have less visibility on in terms of when plants reopen.

Just trying to get a sense of based on what we currently know, how much of that supply chain issues would linger in the second quarter?.

So Eric and the rest of the group, in terms of supply chain disruption, our team did a remarkable job of handling it. It feels like the coronavirus outbreak in China was ages ago. But I'll restate that the Chinese New Year saw the workers go home, shelter-in-place was put in place.

It did not come back to work in large part, which resulted in some supply chain disruptions. Our team worked fast and remarkably well to get the supply chain systems back up and running. And we don't see any disruption as we move forward in our supply chain channels as they sit today. So we largely corrected that during the quarter.

As I mentioned, we had some new products, particularly in Golf and CamelBak that have shifted into our fiscal year this year but know that the supply chain should not be any disruption for us. We're in good, healthy position, and we anticipate that to continue to go forward..

Okay.

Maybe a - I was adding the - [indiscernible] noted the original comments on the CamelBak plant and Mexico expects to open towards the end of May, based on what you currently know? I guess I'm trying to get sense of where there isn't complete visibility into plants reopening and supply even back out there, how much of that is an impact in the quarter guidance versus kind of what's already been happening and what's been corrected as you stated a while before..

Yes. Eric, very little. Very little. So the supply chain disruptions that we still have, we've got - without getting into too much detail, they affect a couple of our brands and business units. But frankly, it's immaterial versus the rest of our Outdoor Products business.

So I don't want anybody to walk away thinking of supply chain disruption as a big issue for us. It's more the retail environment. So if you look across our products, across the world, 40% to 50% to 60% of golf green grass locations are closed. You look at some of our major retailers, they're closed.

That is the issue that our businesses are facing, and we view it very much as a short-term issue. Our direct-to-consumer was just - has gone really, really well in the month of March as these store closures have been enacted. We've seen our retailers who are very nimble online, their growth as well.

But you've also got a couple of very big retail partners of ours that do a lot of e-commerce business that frankly shifted their buy dollars and their shipping capacities to essential items. So like a lot of other consumer products businesses, our issue is simply the retail closures and not being able to overcome that in the short term.

But I will say that what we're seeing in our bicycle business, our helmet business, our outdoor cooking business and what have you, as shelters-in-places are lifted, we think that we are in categories and activities that are going to be in higher demand than other consumer products businesses.

People like cabin fever, shelter-in-places are lifted, and they're going to recreate in manners that we think our products play well to..

That's helpful. I guess last question then. With the strength we've seen in consumer ammo demand and firearms demand recently, maybe give an update from your end in terms of what you're seeing in terms of dealer inventory levels in the channel.

And maybe update us on how much of the kind of the previous Walmart buy you essentially shift over to other buyers..

Yes. So our team, immediately following the Walmart announcement, did a remarkable job of partnering with our other key customers to ensure that the product was in locations, geographies that Walmart shoppers like to shop and were accustomed to shopping. So we quickly filled a lot of that void.

And as we moved into this year, I'm happy to say that we're going to make up for all of that Walmart volume faster than we thought we would. In terms of the current environment and the supply chain inventory levels. Honestly, they couldn't be healthier.

I mean, I wish there was more in stock in some of our customers as our customers wish the same thing. We're producing as much as we can. And in the current environment, we're not able to supply all the demand that is out there. So it's a good situation for us right now. And again, we don't see that subsiding anytime soon..

We'll now take our next question from Brett Andress. Please go ahead..

Kind of building off that question, if you could help us frame up a little bit more what the retail inventories maybe look like on a year-over-year basis on the Ammunition side.

And then how much visibility do you have into maybe some longer lead time orders as retailers, I would imagine, are looking to read back here in the coming months?.

Yes. So Brett, year-over-year, unlike the firearms industry that measures exact inventory and their product is all serialized, and they know exactly what's moving in and out, we don't have it down to an exact science. But I can tell you, inventory levels last year at this time were healthy. This year, they're leaner, which is a good thing.

So our retailers feel to a customer very good about their inventory positions. In fact, we're going to have to continue to run our facilities all out to be able to fill the shelves even as the demand continues. And whenever it does start to taper off, if it does, we still have to continue to fill those channels.

So we're working our organization extremely hard. We've shifted our capacities and our capabilities to calibers and products that are in most demand. As an example, 9-millimeter is one of the hottest calibers right now. So we've shifted more and more capacity to that so that we could take our lead times to your question down.

We've done the same thing with rimfire, where we've seen an increase in rimfire that's been down over 2 years now, and we shifted some of our capabilities to there as well. So over the past couple of years, as the - as we've looked to lean out our facilities and become more efficient, our lead times have come down.

And so we're much - we're in a much, much better position to be able to be responsive to our customers' increases in demand. But this is an unusual time, and we're working as hard as we can to fill all those orders..

Got it. And then a bigger picture question here. I know we've talked in the past how the retailers are just structurally as far as to take down ammunition inventory levels.

But do you think that this ammunition demand shock has the potential for retailers to rethink their prior ammunition stocking levels I mean especially in to an election year?.

Brett, it's a really good question. I think there's absolutely no question that coming out of the 2016 general election, wholesalers by group retailers were stung a bit. And 4 years, 3.5 years later, they worked their inventories down to a level that I think they'd all say is probably too lean in many respects.

But I don't want to speak for our customers in terms of their stocking levels. I can just tell you, the conversations we're having with them is we need to partner with them to get them in healthier, larger stock positions..

We'll now take our next question from Gautam Khanna. Please go ahead. Your line is now open..

This is Dan on for Gautam. I hope you're all well. So you guys talked about a large international order last quarter. I think maybe you alluded to it in the prepared remarks briefly.

But what's the deal with that? Has that been put on hold? Or did that happen already?.

No. So Dan, that was an order that we anticipated being able to ship in the fourth quarter. For a variety of reasons, it got delayed, and it will ship this coming fiscal year.

So a bit of a double whammy for us because not only were we expecting that to shift, but we're also comping off of a prior year fourth quarter where we had a similar shipment go out. So comping off of a tougher comp and an order that didn't go through.

But we're - there's always a silver lining, and the silver lining is it's going to shipped this year..

Got it. Got it. Okay.

And what was the size of that?.

We don't size that up for confidential reasons as part of the contract with our customer..

Okay. No problem. Understood. And then just - so obviously, demand is surging right now, and we don't know exactly how long that's going to last. Could you kind of just discuss how you're responding on the supply side if you're scaling up production, extra ships, what the deal is with that? And any modifications on the supply side would be helpful..

Yes. So Dan and for the rest of the group, I think it's important to note that the surge we're seeing in Ammunition is not just an overnight surge, and it just didn't happen 30 days ago. As most of you know, one of the large leading indicators for us is NICS checks.

And we typically lag NICS checks by a number of months or a quarter to, and we started to see NICS checks really start to increase in the middle of last year. So true to form, our Ammunition business started increasing months ago. And so what we've seen recently from the COVID-19 pandemic is just an increase in the general order demand.

And what we anticipate is that continuing as we move into a general election year. But we've been saying for a long time, the underlying health of Shooting Sports and the participation that we're seeing in some of the hunting categories is really good, is very, very encouraging.

And I think some of the innovation that we've seen from our brethren in the firearms industry, whether it be 9-millimeter compact or 9-millimeter subcompact and seal carry, what have you, has really increased the demand for our product.

So we've shifted our production capacities to calibers that we feel like are going to be in most demand, which is different than we've done in the past. We're being much more judicious and selective in terms of the way we lay our capacity out.

And because of the initiatives we've taken over the past 2 years when things have been a bit quieter, we're able to really jump on that and be a lot more responsive, but also a lot more efficient. So we're in a good spot..

We'll now take our next question from Ryan Meyers. Your line is now open..

First one for me is just kind of a follow-up with previous questions. So given what we've seen in consumer ammunition market and your guys' comments on healthy backlog, we're a little surprised that guidance for Q1 sales aren't a bit higher.

Are you guys just expecting the Outdoor Products in retail environment to just be really, really weak?.

Yes. So Ryan, as you can imagine, like any consumer products company out there, we're a little gun shy, right? This is unprecedented times. It's not the time to lean out there and set guidance that we think is unrealistic in the environment that we're in right now. We've called it the best we think we can call it.

But I think this is probably a good opportunity for me to kind of share why we're really, really optimistic about the current environment. There's three reasons that I feel very good about the prospects for Vista Outdoor going forward. One is we've got a battle-hardened team. What we're seeing here in this coronavirus is new for a lot of companies.

Now I've talked to a lot of my colleagues and my peers at different consumer products companies. And they're faced with taking action that we took 2 years ago. We've taken a lot of cost out of the system. We spent a lot of time leaning our facilities out. We got a group that is hungry to win.

And you can see in our inventory numbers, our debt levels, our SG&A, the expansion of our gross margin line. And we said that the next phase is organic growth, and we promised that we'd get it in the back half.

Well, we got it in the third quarter and we would have gotten it in the fourth quarter, but for the international shipment and the COVID crisis. We've got more new products coming than we've had in the company's history. We feel really good about when things get back to a more normal environment.

And if they don't, and we're not planning them to, and that's what our guidance reflects is that we're going to continue to grow our B2C channel. We're going to continue to do the best we can do to control our destiny. And then lastly, as I mentioned before, we're - listen, we're in product categories that should rebound well.

So as much as we're trying to be cautionary on our Outdoor Products business, we're optimistic that this is going to bounce back. And with our Ammunition business, again, we're trying to be cautious in our guidance. We didn't lean out more than a quarter.

And we're trying to guide it as thoughtfully as we can to help you all build your models and understand where we're going. So the improvements we made to our gross margin line and our costs, you see that in the increase year-over-year EPS and to the extent that we can get a little bit more lift in sales, you'll see a drop-through at a nice rate..

Yes, that's definitely helpful. I think any guidance in this environment is sort of a good thing. With that being said, you guys done a lot of cutting up operating expenses here in 2020.

How should we think about your operating expenses in 2021?.

Yes. So we don't anticipate cutting more. We don't - certainly don't anticipate adding more. Like most companies, we are very mindful of the environment. So because of the actions we've taken, we gated expenses. We have our hands on the levers that we can pull if necessary.

But we've done - and this is what I'd like to - the image I'd like to project here is a lot of companies are putting both feet on the brake. We're tapping the break and we've got our foot on the accelerator. You can see with the amount of investments we've made in D2C despite the cost reductions. We've put online over 20 websites.

We're starting to tie these together with consumer insights and some other things that we think will help accelerate it. We're partnering with our customers on dropship capability and we've reduced our lead times. We've increased our service levels despite taking inventory out of the system.

So we are going to hold our costs relatively flat as a percent to sales. And we're going to continue to invest in the areas as we do that to make sure that as things get lifted, we take our fair share and more..

Okay. That's helpful. And then last one for me. So you said you guys launched 4 new websites.

Currently, how many brands do not have a website?.

Well, so all of our brands have e-commerce - have sites online, but not all of our sites have e-commerce end-to-end capabilities. And so what we're doing is we're just we're going through systematically and taking our brands, and we're making them fully capable. And so suffice it to say, our largest brands are fully capable right now. Yes.

I certainly want to be mindful of everyone's time here. We're at the end of our allotted time, and we're certainly available to answer any and all questions as we go forward out of the call. But I just want to thank everybody for joining us today. And we hope you and your families are all safe and healthy.

While the future is unknown, I believe that our mission, our strong brands and our employees have a very bright future and our principal actions will serve us well for the long term. I'm proud of the staff, our people and the performance levels we've achieved. We'll speak again next quarter. Thank you..