Vista Outdoor Inc (VSTO) 2017 Q2 法說會逐字稿

Good day and welcome to the Vista Outdoor Q2 FY17 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Michael Pici, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning and thank you for joining us for our second quarter of FY17 earnings call. With me this morning are Mark DeYoung, Vista Outdoor Chairman and Chief Executive Officer, and Stephen Nolan, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that during today's call, we will be making several 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.

Please also note that we've posted presentation materials on our website at vistaoutdoor.com which supplement our comments this morning, and include a reconciliation of non-GAAP financial measures. With that said, I'll turn the call over to you Mark.

Okay, Mike, thank you very much. Good morning, everyone. Thank you for joining us today on our call.

Vista Outdoor delivered a solid second quarter. With organic sales growth in both Outdoor Products' and the Shooting Sports' segments, and completed an exciting acquisition that gives us a meaningful presence in the camping segment in the outdoor recreation market. In total, the Company recorded a year-over-year increase of 24% in both sales and gross profit over the prior-year quarter.

In the face of continuing retail softness and a competitive landscape in a number of our accessories categories, we continued to see positive point-of-sale data trends. That said, we expect the soft retail environment to continue now for the balance of the fiscal year, and therefore anticipate continuing with focused promotional incentives that will help us to take and protect market share and deliver sales in the second half of our fiscal year.

As previously discussed, have launched a strategic ammunition capacity expansion program. During the quarter, we concluded that this expansion project should be executed at our existing ammunition facilities in Lewiston, Idaho and Anoka, Minnesota, and we were successful in attracting local tax incentives that supported expansion at both locations.

We anticipate the initial tranche of new capacity will come online next year, benefiting our FY18. We will also continue to invest in factory of the future initiatives to support our competitive position, and our commitment to continuous improvement in cost management in the efficient manufacturing and delivery of quality products to our customers.

Developing new and innovative products is a vital to our future, and Vista Outdoor had a strong quarter delivering new and exciting solutions to our consumers. During the Outdoor Retailer show in August, CamelBak launched the new Crux Reservoir, which received rave reviews from media, including an editor's choice selection in Men's Health and a feature article in Bicycle Retailer Magazine.

Also in August, CamelBak sponsored the Ultra-Trail Mont Blanc, the world's most prestigious endurance trail running event. The Company debuted its new quick stow soft flask bottle at the event, and CamelBak-sponsored runner, Xavier Threvenard, made history by becoming the first person ever to win all individual races within the event.

Our brands had an exciting summer and early fall. At the Olympic Games in Rio de Janeiro, 124 athletes relied upon Vista Outdoor products. Including Giro, Bell, bolle, and Bee Stinger, and they won a total of 17 medals.

At an international media event during the Crank Works Festival in Whistler, British Columbia, Giro introduced the new switch blade MIPS helmet that offers improved protection and performance for cyclists. Giro also introduced the factor tech lace cycling shoe at an international media event held just prior to the Euro Bike Trade Show in Germany. The factor tech lace shoe won a Euro Bike gold award, recognizing its potential to quote, redefine the state of the industry, end quote.

And finally, the Giro advanced MIPS helmet was featured in Popular Science magazine who said this, quote, Giro's advanced does more than any other helmet to protect your gray matter, end quote. Bell introduced the Zephyr, a new state-of-the-art road cycling helmet to a group of international journalists just prior to the Euro Bike Trade Show. The day after the press launch, a Bell rider won the most prestigious stage of the Tour of Spain wearing a Zephyr.

A few weeks later, Outside Magazine named the Zephyr one of the 10-best products at the Interbike Trade Show. Additional new product awards and recognitions include: Field and Stream naming the Bushnell Aggressor Trail Camera as the number one trail camera. Outdoor life, granting its Editor's Choice to Bushnell, [amptry] most for trail cameras, following side-by-side tests of over 34 different and competitor cameras.

The National Taxable Officers Association rewarded Blackhawk's TecGrip Holster the Product-of-the-Year Award. Gun Digest honored multiple Vista Outdoor products with its Gear-of-the-Year Award. Vista products receiving this prestigious Gear-of-the-Year Award included Hoppe's new gun medic cleaner, American Eagle's new syntec pistol ammunition, Federal Premium's new third-degree 20-gauge shot shell ammunition, Federal Premium's new 9-millimeter micro HST pistol ammunition, Blackhawk's new TecGrip Holster. Blackhawk's full line of new suppressors, and Champion Target's new work horse electronic clay pigeon track.

As we enter the show season this fall and early winter, we will launch additional new products in the Shooting Sports, archery, hunting and golf categories. These will include new ammunition solutions, innovative optics and trail cameras, and water foul decoys, to name just a few. We will be expanding our support of modern sporting rifles, or MSRs, with a broader range of optics, on-gun accessories, and tailored ammunition solutions, and we will launch a full line of modern sporting rifles under our Savage Arms brand to expand our long-gun offering and meet consumer demand for these rifles.

The Company has increased its focus and commitment to becoming a leader in outdoor recreation social media engagement. We have redesigned several off our branded websites and social media platforms to better connect with our consumers, and support our customers needs.

In line with our strategy to be a leading provider of sports and outdoor recreation products and deliver long-term shareholder value, Vista Outdoor welcomed Camp Chef to our brand portfolio of outdoor recreation brands. Camp Chef, a market leader in outdoor cooking solutions, provides Vista Outdoor a strong foothold in the camping market, and the growing category of outdoor cooking. While we're just two months into the Camp Chef integration, I'm impressed with its leadership, committed and engaged employees, and its strong brand presence.

Our newly acquired companies complement Vista Outdoor's great products and experienced leaders. We are leveraging this new talent base in our Outdoor Products segment to help us strengthen our [over] sales, marketing, and operations processes, both domestic and internationally.

In addition, we have attracted and hired several new and extremely talented leaders to focus on our supply chain, our procurement processes, IT solutions, and more. Vista is an exciting Company, and our ability to attract top-tier talent in the outdoor recreation market is strengthening our organization. During the quarter, we completed the Company's original $200 million share repurchase program, and we announced a new stock repurchase authorization for up to $100 million of the Company's common stock.

To conclude, I'm pleased with our second-quarter performance and the tremendous progress we continue to make in expanding and strengthening the Company and our product offerings. Adding Camp Chef to the Vista Outdoor portfolio gives us a solid presence in the camping market with a strong and respected brand, and an unrivalled product offering of innovative outdoor cooking solutions.

We will continue to focus on execution excellence across the Company, and we will continue to strategically invest in value creating R&D, marketing, capacity expansion, operational efficiencies, and acquisitions. Stephen, I'll now turn the call over to you to go through the financial results.

Thank you, Mark. Good morning, everyone, and thank you for joining our second quarter earnings call.

We've disclosed both as reported and adjusted numbers in our press release to assist you in your understanding of the underlying numbers, and to assist in comparison to prior periods. You will find a more detailed financial presentation of our second quarter of FY17 performance on our website.

Before we begin the discussion of the adjusted results, I'd like to note that during the quarter we finalized a settlement of claims that we have brought against the previous owner Bushnell Holdings and third-party insurance providers relating to the Bushnell acquisition. This settlement is included in our GAAP results, but is not reflected in the adjusted results that I will discuss today.

With that, I'll now discuss our adjusted results, first for Vista Outdoor overall and then for the segments. As we talked about results and acquisitions, I'd note that we're referring only to the operations of our acquired businesses for periods in which they were not part of Vista Outdoor in the comparable prior-year periods.

The Company achieved second-quarter sales of $684 million, up 24% from the prior-year quarter. The year-over-year increase was due to $106 million of sales from acquisitions, as well as organic growth in both segments.

Second-quarter gross profit was $185 million, up 24% compared to $150 million in the prior-year quarter. Including $32 million of gross profit from our acquisitions, as well as increased gross profit in the Shooting Sports' segment. This increase was partially offset by a decline in the organic Outdoor Products' segment.

Our operating expenses for the second quarter were $109 million, compared to $79 million in the prior-year quarter. The increase reflects additional operating expenses incurred by our acquisition, as well as ongoing selling, marketing and R&D activities as we've discussed in the previous calls.

We reported operating profit of $77 million in the second quarter, an increase of approximately 9% from the prior-year quarter. The increase was driven by the increased gross profit, partially offset by the increased operating costs.

Interest expense for the quarter was $10 million, an increase of $4 million over the prior-year quarter, driven by an increase in the average debt balance due to acquisitions. The tax rate for the quarter was 33.3%, compared to 37.8% in the prior-year quarter. The lower tax rate is driven by a settlement in the current quarter of IRS examinations of FY13 and FY14 tax returns.

For the second quarter, we recorded net income of $44 million, up 12% from $40 million in the prior-year quarter, resulting in EPS of $0.74 compared to $0.63 in the prior-year quarter. Year-to-date free cash flow use was $48 million, compared to free cash flow generation of $5 million in the prior-year period. The year-over-year decrease in free cash flow was driven by an increase in working capital due to the timing of collection and payments, and the increased capital expenditures largely due to our previously announced ammunition capacity expansion project.

The Company repurchased approximately 1.074 million shares for $44 million in the second quarter. Since the end of the second quarter, we've repurchased an additional 724,000 shares for $28 million.

Since the inception of our program, we've repurchased approximately 5.6 million shares for $243 million. The Company will continue to opportunistically repurchase shares under the current authorization.

Now, turning to our business segments where we report sales and gross profit. Second-quarter sales in Outdoor Products were $321 million, up 51% from $213 million in the prior-year quarter, including approximately $106 million of sales from acquisitions.

Organically, the segment was up approximately 1% from the prior-year quarter. The organic increase was driven by increased sales in tactical products, hydration systems, shooting accessories and eye wear, partially offset by a decrease in optics and increased promotional activities across the segment.

Gross profit in the second quarter for Outdoor Products was $84 million, an increase of 45% from $58 million in the prior-year quarter. The increase includes $32 million of gross profit from recent acquisitions. Organic gross profit in the segment was down 10%, primarily as a result of the increased promotional activity.

Shooting Sports recorded second quarter sales of $364 million, up 7% from $338 million in the prior-year quarter. The increase was due to strong sales performance across both our ammunition and firearm portfolios, including an acceleration in some international sales to allied countries.

Second-quarter gross profit in Shooting Sports was $102 million, up 11% from $92 million in the prior-year quarter. The year-over-year increase was driven by volume and product mix.

Turning back to the Company level. Our Q2 results represent a significant recovery from our reported Q1 numbers. Looking forward, we believe that the Q2 results included approximately $20 million of sales pulled forward from Q3.

We do still see a challenging retail environment in the second half, including continued elevated promotional activity which will result in margin performance for both our segments in the back half of FY17 at a level similar to what we delivered in the second quarter. We remain confident in our ongoing strategy, and we have reaffirmed our FY17 guidance range.

Our reaffirmed guidance is as follows. Sales in the range of $2.72 billion to $2.78 billion, interest expense of approximately $45 million, an annual tax rate of approximately 37%, adjusted EPS of the range of $2.65 to $2.85, capital expenditures of approximately $90 million, and free cash flow in a range of $130 million to $160 million.

With that, we will open it up for questions, Savannah over to you.

Thank you.

(Operator Instructions)

We'll take our first question from Gautam Khanna from Cowen and Company.

Yes, thanks. Good morning, guys.

Morning, Gautam.

First, I have just to follow up on Stephen's comments. I wanted to make sure I had this right. Did you say there's $32 million of gross profit at Outdoor Products from the acquisitions on $106 million of sales?

That is correct. And if you'll recall, as I mentioned, that is only for the period where we had acquisitions in our books this year, but did not have them in the prior year.

So for example, CamelBak which we acquired in August of last year, we included in our organic numbers the results for both August and September of this year because they were in our August and September results of last year. And so the acquisition number that $106 million of revenue would have only included the July numbers for CamelBak in our FY17 Q2.

Okay, that's helpful. So you mentioned promotional activity, so the implied gross margin on the legacy or the core business at Outdoor Products was substantially reduced.

I just wondered, you mentioned it's going to continue. Does it get incrementally worse, or how should we think about gross margins at Outdoor Products in the third and fourth quarters?

As I mentioned in my remarks, in the balance of the year, we would expect a continuation in both of our segments of results we delivered here in Q2, which would lead to the lower gross margins we delivered in Outdoor Products as we just discussed. So not a deterioration from the Q2 levels, but a continuation of those levels. But also, we would expect to see a continuation of the very strong gross margins we have seen in the Shooting Sports' segment in Q2, we would expect those to continue through the balance of the year as well.

Okay. And, Mark, since we just had the election and the Republicans swept, I just wonder, what does that confer for demand on the Shooting Sports' side? Presumably, the fear of regulation is going to be far reduced from what it could have been. So what do you anticipate seeing and have you seen any of it yet?

Sure. So, Gautam, I think that having the Republican administration on the executive branch and then the Republican presence that we have on the legislative branch is very good for our Company, and I think it's very good for Shooting Sports and outdoor recreation in general. I think that the fear that some people have had about nationwide gun legislation or other restrictions becoming nationwide threats to the Shooting Sports should be alleviated during this administration.

President-elect Trump has been very supportive of sportsman's issues, hunting, shooting, second-amendment rights. So I think the near-term risk that may have concerned some people regarding regulation and restriction should have subsided, and an environment of driving normal growth in outdoor recreation of more normal growth and long-term buying patterns in Shooting Sports is beneficial to our business.

So we know that we've had great increase in the numbers of participants in the Shooting Sports. We know they are consuming a lot of our ammunition, and we think that's good for the Company in the long term.

Mark, can you comment, you have the contract with Orbital ATK for 556223 civilian ammo expiring in February of 2018. I just wonder when do you anticipate having an extension to that agreement?

Is that going to come -- are we going to have to wait till 2018? Is there any risk around that either in terms of pricing or just in terms of a renewal even happening? What should we be looking for with respect to that?

Sure. So as we mentioned on our last call last quarter, we've already engaged with Orbital ATK in the negotiations of an extension of that long-term purchase agreement. We started that process months ago. We are continuing that process as we work in unison with them on that agreement for an extension of our long-term supply agreement. As you said, we've got about 16, 18 months something like that left in that agreement till it expires.

Our goal and our objective will be to renegotiate that agreement and its terms and conditions well in advance of any expiration of that agreement, and that's why we began months ago working with them. So that is our approach and that is our strategy.

We have not finalized terms, conditions and pricing, so I can not comment on that. But we will work in unison with them in ways that both companies can be competitive in a competitive marketplace.

Thanks a lot. Good luck, guys.

Thank you.

We'll take our next question from Greg Konrad from Jefferies.

Good morning, and great quarter.

Thank you, Greg.

Just -- I want to confirm. So I think you'd mentioned you're a launching modern sporting rifle under the Savage name. Just want to make sure that's absorbed under current R&D and initial indications from your customer, and how you view that market size?

Sure. So on this note in terms of modern sporting rifles, as we have seen, that is a growing and consistently growing category within long guns. It's a natural extension of our Savage rifle and long-gun business. Savage is a modern sporting arms Company, and this is a perfect fit for us.

The CapEx and R&D to be able to develop a full line of modern sporting rifles is de minimis. It's immaterial. We did not invest substantial capital or lower R&D to be able to launch a full line of MSR solutions to the market.

So it is an easy way for us to support our customers that are looking for those kinds of long-gun solutions, and do it in a very low investment approach. So that's what we have done, so we're pleased with that.

We'll be launching that full line here in the first quarter of next calendar year, which is a show season where we have the Shot Show and other shows to unveil new products. So we're excited about that, and we will not be just unveiling a need to MSR.

What Savage is known for is accuracy, we're known for innovation and value. And so we have value-enhancing features and benefits and points of difference in our full MSR line launch that we believe will be very attractive to that market, and allow us to carve out a portion of that business and take market share.

That said, it is not going to be the largest portion of our long-gun strategy within Savage. We are still very focused on our rim fire and [center] virus solutions in both semi-automatic and bold-action configurations, but it will be a nice complement to that business.

And we do not disclose our sales or revenue generation by product line, so I won't talk about that today. What I will tell you is we're excited to offer consumers a value-enhanced MSR solution.

Thank you. And then just -- I think last quarter, a couple of firearm manufacturers and I think you mentioned it too, had seen some destocking at the retailer level, and you also mentioned some pull forward in the quarter. Any indication of inventory levels at some of your largest customers in terms of your products?

There is some formation out there regarding inventory levels. I think as we go into this fall sales season and the holidays, what we have seen at retail and in wholesale is people are being very cautious in their inventory management. They are being cautious in how they buy and stock products, so I think you'll see some revenue destocking -- some inventory destocking continue as they pursue revenue in the fall holiday season.

That said, as you know and I mentioned last quarter, we monitor point-of-sales trends for our products and categories across top retailers around the country. And what I can tell you is those sales trends for POS, as we call it, point of sale, continued to be positive for us. So we're seeing that in both trailing four weeks, the trailing 13 weeks and frankly year-to-date in most of our product categories, so we think that bodes well for inventory management and continued destocking.

Thank you.

We'll take our next question from Dave King of Roth Capital Partners.

Thanks, morning, guys.

Good morning.

I guess first off, maybe to follow up on one of the earlier questions in terms of Tuesday's results. Obviously, the Republican sweep you talked about, but any, Mark, high-level thoughts in terms of some of the state ballot initiatives?

The one that comes to mind here I think I guess is California's Prop 63 impact on what do you think the impact on -- from that would be for ammo sales? Assuming, I guess I'd assume there would be an acceleration ahead of that, but then maybe that would slow it down in the future. I guess just any high-level thoughts there and some of the other states would be helpful. Thank you.

Great question. As we've mentioned in the past, we've talked about this a little bit in the past and that's that some of the battleground issues in terms of gun control or other legislative restrictions are moving to the states. I think the election we just witnessed on Tuesday, again as I said, will take any pressure and should take a major concern off of any national restrictions, gun legislation, reinstatement of the assault weapons ban. All of those things at the national level, I think now those risks have largely been taken off our plate which we think is a very good thing.

I think in terms of states, we've seen this in the past with some state action on high-capacity magazines for example, or their definitions of features on particular firearms that classified them in different areas that created restrictions. I think California's issue on ammunition has been in the works for a while. As you recall, about a year ago, they came out with legislation in the State of California regarding lead-based ammunition and began to push more non-lead solutions through legislation in that state for hunting and recreational shooting in the outdoors.

So we have seen some of these trends continuing at the state level. I think your assessment is probably right. It will probably drive near-term demand for additional ammunition purchases, and thereafter, we will continue to sell products in that state and comply with whatever those laws are as will their citizenry. And I do not see any state initiatives that I saw on the recent ballot that cause any material concerns to our performance or to our strategies going forward.

Okay, that's great color. Thank you. And then is it -- obviously you don't assume or I assume you don't want to break out how big California is in terms of your ammo business. But is it fair to assume that it's similar to what we see in terms of percentage of nix checks, high single-digit percentage of the overall background checks that are out there on the gun side, is that a similar number?

No, I don't think I can really answer that question. Because as you know, those correlations don't exist one for one, so if I affirmed your question that way I probably would be misleading. It's not that closely associated.

California compared to some other states, of course it's a large state in terms of population. So it does follow some of those general trends, but the State of California to us is not something we would view as a major geographic customer where we are concerned about these risks. Let me just say that.

Perfect, no that's very helpful. And then maybe switching gears on Camp Chef, any thoughts, Stephen, in terms of what margins you expect that business to generate? And I guess similarly, in maintaining the annual guide, what does that assume for the seven months of revenue, or what's baked into that from Camp Chef? Thanks.

Sure. In terms of Camp Chef margins, we aren't going to disclose them for competitive reasons. Assume that what we've seen with other small businesses like when we bought Jimmy Sticks a little over a year ago. And when you've got a very limited product range dealing with a limited set of customers, we don't think it's appropriate to disclose margins that would guide both our customers and competitors towards a profitability for that business.

In terms of our guidance for the year, these are the off-season quarters for Camp Chef obviously as an outdoor cooking Company. So our primary quarters are in the late spring and summer months, and so this is really off seasons.

So it's a relatively immaterial impact on our results for the last two quarters, which is why we just combined it within the guidance range we've previously issued. It would not have had a material impact on that guidance range.

Fantastic. Thanks for the color guys.

The only thing I would add to Stephen's answer on Camp Chef is as we've said in the past, we've issued long-term EBITDA objectives. Camp Chef more than supports our long term EBITDA objectives in terms of margin.

Thank you. We'll take our next question from Jay Sole of Morgan Stanley.

Great, thank you. Mark, you discussed some of your CapEx plans. And originally when you gave the CapEx guidance for this year, you talked about how there's decision points along the way where you could choose to adjust the CapEx one way or the other.

Have you come to any of those decision points yet, and how have you evaluated it? And then what can you say about the competitive environment out there for ammo work in terms of potential capacity expansion?

Sure, great. So we did put together what we called very deliberate gated process, so that we could invest that capital in tranches which would allow us to have gates of decision for follow-on phases of our capital expansion projects. So we are following that plan. It does mitigate our risk, so we aren't doing a bold throw up to $100 million CapEx project, we're able to take it in smaller bites than that.

We have not reached the next decision gate. What we have done is we've begun the execution of the first tranche, so we have placed orders for long-term purchase equipment that have long lead times. We have been hiring and staffing engineers and others who will be necessary to help us execute that.

We have worked with locations in both Anoka and Lewiston to secure tax benefits in support of the additional hiring and business we will bring to those communities. So we are pleased with their support, and with some economic incentives we've been able to put in place. So I would comment that we are on track with the execution of the first phase, and we have not reached another phase gate.

I think in terms of general competitive environment for ammunition, I think a couple of things will likely happen as we go forward. There have been announcements by smaller companies, upstart companies, entrepreneurial companies who have entered the ammunition market because they could. And they've entered the ammunition market because capacity was outstripped by demand.

Our strategy with this investment is to allow ourself to have the capacity to get that market share back, and leverage our sales, marketing distribution and branding. So that we are not losing market share to importers or smaller companies who are taking advantage in the market because of the capacity constraints, and we still feel very good about that strategy going forward.

Got it, thank you. And then just one quick one for me. Stephen, you mentioned that with the shift from 3Q into 2Q meant to the top line. Was there a shift from 1Q into 2Q, we talked about -- I think the press release mentioned the international sales, was there anything to call out from that standpoint?

No, other than the international ones which we had discussed at the time, was that most material shift. There was no other meaningful -- with the exception that there are always minor shifts towards the beginning or end of any given quarter where a delivery may move in or out of the given quarter, even in businesses like our ammunition business where we deliver regularly but obviously not by the individual pallet. You could have it [lower] to slip in or out at the end of the quarter.

So we always see some of those timing issues. But the most significant one and only material one in the first quarter was the international shipment which we discussed in our last quarter.

Thank you so much.

We'll take our next question from Andrew Burns of D.A. Davidson.

Thanks, good morning.

Morning.

Couple questions. Just on the promotional environment, when you look at it, what do you think the underlying drivers are? Is it the tough retail environment overall, a more competitive landscape in outdoor categories or the substantial retail changes we've seen recently? I'm just trying to figure out the underlying causes and what will ultimately drive a return to a more normal promotional environment as we move forward.

Sure. So when you have a portfolio which is as broad and deep as Vista Outdoors, the answer to your question could be yes. So within the product categories and within the brands, we see different kinds of pressure. So let me just try and give you some overall color for the Company.

As we mentioned last quarter, the retail pressures and softness and some of the retail consolidation which has gone on in the outdoor recreation market has caused ripples and some waves I think in purchasing strategies and inventory management by some retailers and wholesalers. And that has slowed down what otherwise would have been purchases that we see this time of year. I think they are just cautious.

I think also the retail environment in general is sluggish, and has been slow. Consumer spending, as we know, for some time has been slow, and retail has been impacted by that. So I think that does continue.

Last quarter, we said that we believed we would see a stronger back half of the year because we would get into the holiday season, we would get into the hunting season, and typically we also just see an increase with some seasonality in third and fourth quarter. We still believe that will materialize in the back half of the year, and the back half will be stronger than the first half.

I think Stephen gave you very good color on what we expect from margins in the back half as we continue promotional activity. But one of our keys, I think when we look at promotional activity is, we are maintaining across the board for the most part our pricing strategies.

So I want to make sure people understand, we are not dropping price on ammunition. We are not dropping price on firearms. We have not done wholesale price reduction.

What we have done is what we've described to many of you in the past over the last 18 months. And that is we've engaged in our partnerships with wholesalers and retailers to create programs which will pull through our product, and create point-of-sale trends going through cash registers. And we do that through focused incentives and promotional activity.

So that's what we have been doing, and that's what we believe we will continue to do through the holiday season and through the winter months. And we're confident that will continue to allow us to place great products into the channel, and have those products sell through. Again, our point-of-sale data is confirming our products are selling through at the register.

So I think it's a combination of a variety of factors in retail. I think the key for us is we have a strategy and approach to continue to fight in that market, to maintain and grow market share, and deliver our back half of the year. And the forecast we had today and the internal planning we are doing today supports that, and that's why we maintained our guidance.

Okay, thanks for the color. And on guidance, Stephen, you mentioned margins at similar levels to 2Q. Were you referring to gross margins or operating margins from an absolute level or from a year-over-year change that would be similar? Just looking at the previous year, there was certainly some variance between 3Q and 4Q margin performance when you look at the segments.

I was really simply referring to gross margin performance at the segment level for both Outdoor Products and Shooting Sports, and talking about that remaining similar to our Q2 FY17 level. It's not a year-over-year comparison. We expect margins in that range, there's always a little obviously shift within margins based on mix in any given quarter, and but the general level we've seen here in Q2 we would expect to continue for the balance of the year.

Great, thanks, and good luck.

Thank you.

Thank you.

(Operator Instructions)

We'll take our next question from Rommel Dionisio from Wunderlich Securities.

Thank you. Good morning. Just wanted to talk through what impact you might expect in terms of the second-half performance.

From some of the retail consolidation, we're seeing Bass Pro Shops and Cabela's, that transaction. And then I know this is a small product line, but your golf range finders Golfsmith stores are liquidating, so what impact you might see in terms of that inventory consolidation there?

And lastly, Mark, I know you never blame the weather for anything. But obviously it's been a warm autumn as it was last year, so to what degree do you think that might be impacting some of the hunting related categories near term? Obviously, you have no control over that, thank you.

Yes, thank you. I appreciate your acknowledgment, I never blame the weather. (Inaudible) and after a wreck he never talks to you about blaming the weather, so I think it's a good question though.

We all know that weather does impact. I think our job is to overcome those external environments, so whether it be regulatory pressures, whether it be elections, or whether it be weather. So but for us, of course hunting seasons are impacted by warm weather, as you mentioned, we've had unseasonably warm weather.

It has impacted and slowed down the hunting segment in general. The reason for that is game move and game become much more visible in the hunting seasons when it's cold, because they are foraging more for food or they're migrating. For example, in water foul migrations.

All of that has really been very slow this fall, so we are experiencing some impacts from that and we're working through strategies to overcome those impacts. So indeed weather has been a bit of a challenge this year for us.

I think the second part of your three part question that you asked was about the golf, and of course we are mindful of those bankruptcies and consolidation that are going on in the golf market. It has impacted our range-finder business, our Bushnell range-finder business, as you know, is a leader in golf range finders. Some really cool technologies for serious golfers who use that product.

So we have seen some declines, and there will be some rationalization of inventories and purchasing through that bankruptcy and consolidation. I guess the blessing in that is, it was largely after the season. So it occurred in the fall instead of the summer, so I think that's mitigated the risk and it has not been a major material issue for the Company. And we're positioning going forward as we get to the spring season with great products, great distribution, and our goal is to continue to drive our business and growth in golf.

In terms of Bass Pro and Cabela's impact, we have met with the executive leadership teams of both of those companies in the last probably 30 to 45 days. I've met personally with them and had conversations about that go-forward strategy. So we're very much in touch with both companies and supporting both companies in this interim period in advance of the potential merger.

Now right now, in terms of the question you ask about impacts, we see no impact at either Bass Pro or Cabela's. And in fact, we have been very much business as usual, and they have engaged with us very much business as usual from both companies in laying out our strategies for next year, laying out our new product introductions with both companies for next year.

And we have got some really innovative merchandising solutions which we've offered to those companies which actually are increasing our store presence and increasing our share of shelf with both of those key retailers. So we aren't at this point at all concerned nor do we have any indication of challenges with either Cabela's or Bass Pro from that transaction.

Great, thanks very much, Mark.

You bet.

(Operator Instructions)

It appears we have no further questions at this time. I'll turn it back over to our speakers for any additional or closing remarks.

Well I would like to thank you all for joining us today. We think we had a great Q2.

We're very excited with the momentum what's rebuilding across the Company. Our acquisition focus continues to yield assets, we're excited about which will create long-term value, and I think that we're very excited about our ability to deliver on the back half of the year as well.

And we do look forward to seeing some of you next week. We have our Investor Day next week in New York City, hopefully many of you will be able attend that. For those of you who have not yet signed up for that, obviously the details are on our website. We look forward to seeing you there next week.

Thank you very much.

This does conclude today's Vista Outdoor Q2 FY17 earnings conference call. Thank you for your participation. You may disconnect at any time, and have a great day.