Vista Outdoor Inc (VSTO) 2018 Q1 法說會逐字稿

Good day, and welcome to the Vista Outdoor Inc. Q1 FY 2018 Earnings Call.

Today's conference is being recorded.

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

Thank you. Good morning. Thank you for joining us for our first quarter fiscal year 2018 earnings call.

With me this morning are Michael Callahan, Vista Outdoor Interim 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 have 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, Mike.

Thanks, Mike. Good morning, and thanks, everyone, for joining us on our earnings call this morning.

Before we get into the results for the quarter, I'd like to begin today's call by sharing with you why I'm so excited to take on the role of Interim CEO of Vista Outdoor. I've been in the industry for more than 40 years, and this is the most unique retail environment I've ever seen. We're seeing unprecedented change, and it's not likely to go back. Despite current market conditions, the board and I are confident that our diversified portfolio of iconic brands, coupled with Vista Outdoor's world-class operations and strong customer relationships, position the company for long-term success. We have talented and dedicated employees who are both outdoor recreation enthusiasts and passionate about their sports and brands. We're innovators investing in and developing new products. We offer some of the industry's most sought-after brands, which we're able to leverage across our strong customer relationships. We have well-established global manufacturing, sourcing and distribution platforms. And we are aggressively adapting our business to continue delivering products to our intensely loyal customer base.

I've been meeting with our investors, employees and customers over the last months and I'm really enthusiastic about our future. We've made significant progress in addressing the internal and external challenges that face our business. As Interim CEO, I intend to continue the company's existing initiatives for driving operational efficiencies, investing in new product development and expanding our e-commerce capabilities. While we build on the progress we've already made in these areas, the Board of Directors has begun a thorough search to find a CEO to lead the company on a permanent basis. As I mentioned previously, we retained a leading national executive search firm, and we are considering both internal and external candidates for the roles. While there is no definitive timetable, the board will move forward thoughtfully to attract and select a best-in-class CEO to lead Vista Outdoor into the future.

Now turning to our results. While Stephen will provide more detail, I'd like to give a high-level overview on the quarter. I'm very pleased with the company's solid performance in the first quarter. The entire company remains focused on several key areas to ensure we provide innovative, high-quality products for our customers. We create rewarding careers for our employees and generate growth in returns for our shareholders. Today, I'd like to address the following: R&D; cash flow and cost structure; employee development and retention; and the work we're doing across all channels to help our customers develop solutions to drive traffic, sales and profit.

First, we continue to invest in R&D to help drive innovation across all of our product lanes. Our calendar year 2018 planning is complete, and our new product pipeline is robust. This summer, we launched approximately 150 new products, 3x more than the prior year period; and we'll continue to introduce additional new products throughout the year. Last month, we held a highly successful hunt/shoot sales conference, and next week, we'll hold our annual customer summit. The rollout of these new products at these events is 4 months earlier in our process, which much better supports our customers as they determine next year's assortment plans and store sets. As we've moved our innovation process forward, we've also held outdoor recreation, cycling and eyewear sales meetings this summer; and the sales team is excited to introduce these new products to our customers. We recently attended the Outdoor Retailer Summer Market, where we unveiled a relaunch of the Jimmy Styks line with new products from end to end. We introduced 2 new inflatable surfboards completely unique in their design. We also have a patent-pending [kelish fin], which simplifies installation and allows the consumer to click and go. Also during Outdoor Retailer, CamelBak launched a number of new products in the running, mountain biking and hiking categories. These include new hydration vests and collapsible flasks for runners; lighter, minimalist hydration packs as well as enhanced rider protection for mountain bikers; and improved cushioning and support within the hiking hydration pack lines. CamelBak also unveiled its new stainless bottle, the Brook, designed with a female athlete in mind.

In the outdoor cooking category, Camp Chef successfully launched its direct-to-consumer campaign for the Woodwind pellet grill. This was done through creative online and video marketing, which has received over 12 million views thus far. Also this summer, Giro is receiving rave reviews on its Prolight Techlace cycling shoe, which provides a comfortable lightweight fit with the feel and performance of laces. Additionally, Bushnell successfully launched its innovative, new Engage optics line, which has received strong customer and media reviews. This sets the tone for a completely refreshed optics line.

We significantly increased R&D across our portfolio of brands in the optics category. And we've revitalized our optics offerings under the Bushnell, Weaver, Simmons and Tasco brands. And these new products will be available in calendar year 2018.

In addition, we are keenly focused on closely managing our cost structure and cash flow. To maintain our focus on providing our employees with market-competitive benefits, we made changes in June to our pension programs and we also enhanced our 401(k) match, and Stephen will provide more detail on these changes in just a minute.

We continue improving our working capital by reducing the excess inventories that were discussed in our last earnings call, and we are on track to deliver our cash target for the year. By the way, in the quarter, you'll notice we had strong cash generation compared to a historical use for this performance period.

We are also particularly focused on employee development and retention. I've had the opportunity to speak with many of our talented employees over the last month, and I'll be spending additional time in our facilities in the coming weeks. We've always been brand-focused at Vista Outdoor, and now more than ever, we are emphatic that these brands stay true to their DNA and that our employees within the brands have the resources and the support to win in their markets.

Finally, while we've seen a net loss in retail square footage since 2015, we do know that outdoor recreation participation rates are up across most areas within our portfolio. And today, we are making sure we offer the right products at the right price regardless of where and how our consumers want to shop. We've renewed our focus on our relationship with independent retailers. We're expanding our e-commerce and online presence. And we are building upon our already-strong relationships with big box retailers and have expanded our merchant sales team for retail support. Looking forward, we've intensified our focus to strengthen brand awareness; to win market share; to deliver innovative, new products; and to generate returns for our shareholders.

I am looking forward to continuing to work closely with the board, the senior leadership team and all of Vista Outdoor's dedicated and hard-working employees. Vista Outdoor is a great company, and I am truly honored to be able to lead it through this interim period.

With that, I'll turn the call over to Stephen to discuss our financial results and outlook.

Thank you, Mike. Good morning, everyone, and thank you for joining our First Quarter Earnings Call.

We've disclosed both as-reported and adjusted results in our press release to assist you in your understanding of the underlying numbers and how they compare to prior periods. Today, I will focus on adjusted results. You will find a more detailed financial presentation of our first quarter fiscal '18 performance on our website.

Before I discuss our results for the company and each of the segments, I want to elaborate on the pension curtailment Mike referenced in his remarks. The curtailment was effective July 31, 2017, with employees receiving a prorated pay credit for calendar '17 with no additional pay credits in calendar '18 and beyond. As a result of the changes, we recognized a onetime pension curtailment pretax gain of $6 million in the first quarter, which given its nonrecurring nature, we have excluded from our adjusted results. However, we also expect to recognize ongoing recurring savings through these changes. These ongoing savings and the costs associated with the enhanced 401(k) match are included in our guidance and will be included in future adjusted results.

Now turning to our first quarter adjusted company results.

The company achieved first quarter sales of $569 million, down 10% from the prior year quarter. The year-over-year decrease was caused by lower sales in both segments, partially offset by sales of $21 million from our Camp Chef business which we acquired in the second quarter last year. Sales were down 13% on an organic basis. First quarter gross profit was $147 million, down 15% from the prior year quarter. Our first quarter results include $7 million of gross profit from the Camp Chef acquisition. Organic gross profit was down 18%, with reductions in both Shooting Sports and Outdoor Products.

Our operating expenses for the first quarter were $112 million compared to $114 million in the prior year quarter. This decrease was due to our disciplined cost-cutting initiatives and some overhead spending timing favorability, partially offset by operating expenses from the acquisition of Camp Chef.

We reported operating profit of $34 million in the quarter, a decrease of 41% from the prior year quarter due to the lower gross profit.

Interest expense for the current and prior year quarter was $12 million, resulting from a higher balance and higher borrowing rate in the current period offset by the absence of a onetime deferred finance charge write-off in the prior year period. With respect to the net leverage covenant in our credit agreement, we finished the first quarter at approximately 3.6 turns. Since the end of the quarter, we have paid down another $20 million of our revolver balance and expect to continue to pay it down during the remainder of the fiscal year. During the quarter, to reduce our exposure to potential interest rate volatility, we also entered into $200 million of fixed-for-floating interest rate swaps, which moved our fixed-to-variable ratio from 30 to -- 30-70 to approximately 50-50. This resulted in a minimal increase in expected interest rate expense for the year, with reduced interest rate risk in future years.

Our adjusted tax rate for the quarter was 38.4% compared to 36.9% in the prior year quarter. The increase in the tax rate was caused by lower deductions from stock-based compensation.

For the first quarter, we recorded net income of $14 million, down 54% from $29 million in the prior year quarter, resulting in EPS of $0.24 compared to $0.48 in the prior year quarter. The reduced EPS was driven by lower net income, partially offset by lower share count.

First quarter free cash flow generation was $23 million compared to free cash flow use of $41 million in the prior year period, an overall favorable change of $64 million. driven primarily by improved inventory management partially offset by the lower net income.

Now turning to our business segments, where we report sales and gross profit. First quarter sales in Outdoor Products were $290 million, up 1% from $287 million in the prior year quarter, including approximately $21 million of sales from the Camp Chef acquisition. Organically, the segment was down approximately 6% from the prior year quarter. The organic decrease was caused by lower sales across most product lanes, including the impact of increased promotional activities across the segment. Gross profit in the first quarter for Outdoor Products was $77 million, a decrease of 6% from $82 million in the prior year quarter. The recent Camp Chef acquisition contributed $7 million of gross profit. Organic gross profit in the segment was down 13% as a result of lower organic sales across most product lanes, increased promotional activity and unfavorable product mix partially offset by cost-reduction initiatives.

Shooting Sports recorded first quarter sales of $279 million, down 19% from $343 million in the prior year quarter as a result of lower demand across all product lanes. First quarter gross profit in Shooting Sports was $70 million, down 23% from $91 million in the prior year quarter. The year-over-year decrease was a result of lower volume, sales programs and product mix.

Returning to the company level. As Mike indicated, the markdowns remain challenging. However, we are seeing promising signs. In the ammunition market, we have largely seen a normalization of inventory levels in the big box retail channel. However, offsetting this has been a lower-than-expected reduction of inventories in the distributor channel, and it is likely that those levels will not normalize until our fiscal fourth quarter. Firearms inventories remain high across all channels.

On the Outdoor Products side, we are entering the fall hunting and holiday seasons and expect to see this result in destocking of hunt/shoot accessories in the channel. In other markets, the favorable winter conditions last year in North America largely depleted channel inventories of winter sports products, and we are seeing strong sell-in to those channels. We are also experiencing encouraging preorders in the cycling market for next year's season.

Across both segments, the impact of promotional programs accelerated in the back end of the first quarter. In particular, we were able to delay until late in the quarter pricing actions in our value brand ammunition, including pistol .223, 5.56 and shotshell. These actions had been planned for earlier in the quarter, and the delay resulted in a benefit to our first quarter gross margins. However, those pricing actions, when they did occur, were more significant than planned. This creates headwinds for future quarters, in particular in the second quarter as we support the fall's hunting season.

These and other promotional actions also resulted in some pull forward of revenue from the second quarter. While it is difficult to precisely quantify the amount of the pull-ahead, we believe it was in the range of $20 million to $30 million.

Given these factors, we are reaffirming our fiscal '18 financial guidance. We continue to expect sales in a range of $2.36 billion to 2.4 billion -- $2.42 billion, interest expense of approximately $50 million, an adjusted tax rate of approximately 37%, adjusted EPS in a range of $1.10 to $1.30, capital expenditures of approximately $70 million and free cash flow in a range of $175 million to $200 million. For the full year, we also expect gross margins consistent with our previous disclosure: Outdoor Products in the mid to high 20s and Shooting Sports in the mid-20s.

We are pleased with our performance in the first quarter and are confident we are on a path to achieve our fiscal '18 financial guidance.

As Mike mentioned, Vista Outdoor continues to make progress on our strategic initiatives, including driving innovation and improving our operational performance, in order to position the company for long-term growth and to generate shareholder returns.

With that, I'll be happy to open it up for questions.

(Operator Instructions) And we'll go first to Greg Konrad with Jefferies.

Just to start. You mentioned the late introduction of the promotional programs within ammunition. Was there a certain market signal that drove the timing of those promotional programs?

Yes. There were a number of competitors who were out there with similar programs, so it really became important for us, Greg, to get out there and just to retain and capture additional market share.

Also, Greg, the inventory in the distributor channel, which I mentioned, has been slow to move, in particular in .223, 5.56. The promotional actions we did take was largely around consumer rebates to pull product through that channel, so they weren't promotional actions directed directly at our immediate customers but rather to the end consumer to try to clear out some of that stubborn product in the distributor channel.

And sometimes you give a little bit more detail within Outdoor Products. Was there any difference in performance when I think about kind of the firearm-facing accessories versus the non-firearm portion of that segment?

Sure. As we looked year-over-year, we saw strength in a couple of areas. So there was increased -- we had increased sales in optics products. We -- some increased sales in archery and hunting accessories and some increased sales in eyewear, but most of the remaining business was really down on a year-over-year basis.

And we'll go next to Andrew Burns with D.A. Davidson.

Could you give any commentary in terms of sell-in versus sell-through trends and the progression that we've seen through the quarter and really through the latest data points you have in terms of convergence there across both Shooting Sports and Outdoor Products?

Andrew, thanks for the question. Yes, just a little detail on the market. Certainly we've been dealing with the liquidation of Gander products as they've move forward under new ownership. We've mentioned the distributor inventory buildup that primarily is a function of the existing inventory already in the independent dealers. So as you look at our results, clearly the sell-in has been more difficult than in years past. We anticipate that we will move through those. The Gander liquidation, we're led to believe, is going to be essentially complete sometime in September. As we look into the fall hunting season, we're seeing some encouraging signs there. And we're feeling much better about that. In fact, we continue to believe that both inventories and promotional activity is going to be continued through the holiday selling season and perhaps beyond that. So the -- we have some headwinds. We're going to continue to face challenges, but we're comfortable that -- given where we're at today and our approach to this new market, that we're going to be able to achieve our results.

In most channels, Andrew, sell-through has exceeded sell-in because we have been seeing destocking in the channels, particularly as I mentioned in the big box retail channel on ammunition, which is a major factor for us. We have seen those levels largely normalize as a result of destocking. Even in the distributor channel, there has been destocking but just not to the extent we would have expected or preferred. And we think that will now take a couple of additional quarters to clear the remaining inventory out of that channel.

Great. And just to follow up on the comments I believe you made in terms of in the R&D section. Bushnell has had a pretty competitive brand landscape there. And as I recall, the 2018 SHOT Show was going to be a great unveiling of some internally developed new products there. From the commentary, it sounded like some of that might have pulled forward. Is that fair?

To a point, yes. We have introduced our new Engage line. And part of what we have been doing at the sales conference and with our customer summit next week is unveiling what we're calling internally an optics revolution. And so we have completely new lines of optics that we're going to be introducing at the SHOT Show, obviously focused on trying to clear existing inventory, before we introduce those and go to the market with them. But the R&D effort, I was very pleased. I was there in Overland Park not too long ago and saw the presentation. And I was truly enthused, I have to say. I've been in the business a long time, but what they have done for Bushnell and Tasco and Simmons is truly going to make a big splash at the SHOT Show.

We'll go next to Gautam Khanna with Cowen and Company.

This is Bill Ledley on for Gautam. Just going back to the ammo business, is it possible to quantify the gross profit or gross margin benefit from the delayed promotional activities?

No, we're not breaking that out at this time, Bill, unfortunately, but -- and as I mentioned, we do expect for the full year gross margins in the Shooting Sports segment to be in the mid-20s, consistent what we'd anticipated at the start of the year.

Okay. And then just to unpack your commentary around the channel inventory: It sounds like the big box retailers' inventory is a little better than you thought, distribution is a little worse. How does that play out going forward? It would seem at least on the surface that big box are kind of inventoried correctly and maybe distribution will destock a little faster, so can you just talk about those 2 trends and how that works out with consumer demand as well?

Sure. The big box retailers, just by virtue of, for the most part, their level of sophistication with systems and so on, are in much better shape and have been, frankly. And they have been, let's say, keeping a lot of open-to-buy dollars in their hip pocket. They are not currently out there in the market making big purchases. They've certainly placed their stocking orders, but beyond that they're sitting pat. The smaller dealers and the distributors have struggled a little bit more. So we're, like I say, we're anticipating that we'll see destocking as we move through the fall. We are seeing some encouraging signs at point of sale. The SSI data would indicate that consumers are buying but just not to the extent they normally would this time of year. The -- what's encouraging is hunting products seem to be accelerating a little bit. So we're going to continue to face these headwinds from existing inventory in all of the channels, along with the reticence of the big box retailers to step forward with big purchase orders right now.

Okay. And then if I could just follow up on that. So the $20 million to $30 million estimated of sales pull forward, even with that, would you still expect Q2 sales to be up sequentially versus Q1, in line with seasonal patterns? Or does the pull forward, when...

Yes, it's -- sorry. Go ahead, Bill.

Or does the pull forward limit the normal seasonal rise?

It -- so the pull forward certainly softens the seasonal rise, but I think we would typically still expect to see Q2 being a bigger quarter than Q1 even in light of the $20 million to $30 million pull forward. Just on that pull forward, it wasn't really a planned pull forward. We engage in promotional programs to remain competitive and to ensure we get our fair share of the space on the shelves. At times, those programs are oversubscribed. And it -- some of our programs were oversubscribed in the last month, which resulted, we think, in some pull forward but it is difficult to quantify precisely. It is not as if a customer comes to us and says, "Here's an order I was planning to place in a month. I'm now placing it now." As we just looked at the patterns, they were higher than we expected. We suspect some of that was pull forward in that range, but overall, yes, I would still expect to see some sequential growth from Q1 to Q2.

And we'll go next to Scott Stember with CL King.

Can you maybe talk about the pull forward of sales related to the promotional activity and the gross margin again? It sounds as if these promotions certainly helped on the top line, but there's -- some of the costs related to the promotions haven't been booked yet. Can you maybe just talk about that, how you got that benefit?

Yes. So for a variety of promotional programs, I mean, unfortunately, we combine them all in a short sentence or 2 in our script. And it doesn't necessarily do justice to the differing impact of each of these. Overall, there are a variety of programs across both segments which we engaged in to remain competitive, which we believe resulted in some pull forward, but probably more in Shooting Sports than Outdoor Products but still across both segments. And separate and distinct from that, some of the direct ammunition price reductions and/or the consumer rebates I previously mentioned in .223, 5.56, they were introduced quite late in the quarter, really right at the very end of the quarter. When we sat here 3 months ago on our Fourth Quarter and Full Year Fiscal '17 Earnings Call, we'd expected that -- to implement those effectively imminently. We were able to delay the introductions as later in the quarter, so the impact of those, as what I'm saying, was really delayed. They didn't directly result in a [full board] because they were late in the quarter. And therefore, we did not see the gross margin impact of those programs in Q1. We'll see it largely in Q2. Our consumer rebate on ammunition right now, our national rebate, runs through the end of August in .223, 5.56, although we always look at whether any program like that might need to be extended. We've clearly been booking a reserve for expected redemptions from those, but we've yet to see a significant amount of those redemptions come in. So our reserve may be a little high or a little low, depending on what the actual redemption level ends up being.

So related to the ammo rebates due, those sales have not been recorded yet.

They -- a small portion of them would have been recorded at the tail end of Q2. The bulk of them, I would expect in Q2 -- sorry, at tail of Q1. The bulk of them I would expect in Q2.

And we'll go next to Dave King with Roth Capital.

I guess, first, on the outdoor side, I just wanted to better understand or reconcile the comments on sell-in versus sell-through. So it sounds like, due to destocking, you're still seeing sell-through on the outdoor side tracking better than the sell-in. Is that fair? But then Mike, it also sounds like you also had some pretty good sell-in to certain channels on the outdoor side, maybe in certain product lines. I guess, can you just talk a little bit about when that sell-in is occurring? Did that, like, happen in the quarter? Or was that post quarter? And then in terms of the encouraging preorders on the cycling side, when should that start to flow through?

Yes, the challenge sometimes, Dave, is talking about the Outdoor Products market overall as it's a collection of smaller markets. And really we're seeing different behavior in each of them. I mentioned that the winter sports channels are largely depleted of inventory. Clearly, right now there's not a lot of sell-through in those markets. It's pretty feasible we'll start to see considerable sell-in to those markets as our customers build up inventory. And similarly, as I mentioned, we're starting to see encouraging preorders in the cycling market. In the various hunt-, shoot-related categories, it's really a mixed bag. There are some areas where inventories remain high in retail and therefore sell-through is higher than sell-in; and -- but there are certain areas such as targets, in particular steel targets, where right now we're seeing very strong sell-in and strong sell-through really in balance as those product categories have been very strong in the last 3 months or so. And so it's I'd hate to point -- paint it with a single broad brush that sell-through is higher than sell-in. It really depends on both the market and also the specific product category.

Yes. And then if I could add to that. Point-of-sale data indicates that the recreational shooter -- or suggests that the recreational shooter is out and active. As Stephen mentioned, sales of targets are up, hearing protection, gun cleaning. And so the kinds of consumable accessories are doing very well, which indicates that people are out shooting.

Okay, okay, that helps. And then switching gears a bit on gross margin in -- I guess, across both segments. I guess, how should we be thinking about the impact the cost savings had on the costs of goods sold both on the outdoor side and then on the Shooting Sports side, if you can provide some color there?

On the Shooting Sports side, we had significant cost savings initiatives that we enacted over the last really couple of quarters because they started in our fourth quarter of our fiscal '17. They have largely been offset, though, by some of the factors which we discussed earlier in the year, with the headwinds to margins in Shooting Sports such as the loss of fixed cost absorption as we produced at a lower rate within our factories; such as some of the pricing pressures we expect to see and are seeing; and also the commodity price pressure that, while it is hitting us less severely now than will later because of our approach of buying product forward rather than always buying at current spot price, we are still -- we are seeing some headwinds from gross margin. So they are largely offsetting the cost savings in Shooting Sports, which is why you're seeing some depressed margins in Shooting Sports [versus] what we delivered in fiscal '17. The Outdoor Products side, we had some great cost savings initiatives across all phases of the business both from supplier pricing for our sourced finished goods, right through our distribution network and through our overhead within the segment. And I think you'll see that bear fruit this year as we start to deliver higher gross margins than we saw certainly in the back half of fiscal '17.

And we'll go next to Jim Chartier with Monness, Crespi, Hardt & Co.

You guys mentioned that the pricing action on the promotional programs, once you put them in place, was more significant than you'd previously expected. And it sounds like the inventory cleanup is taking longer than expected at your customer, so just curious what -- how you're maintaining kind of your gross margin expectation for the year, particularly in Shooting Sports; and if there are any offsets to kind of the increased promotional activity that you've seen.

Yes, so first off, on the pricing actions, they're more significant than we anticipated, but I don't want to overstate that. The impact of the higher pricing actions on the full year will only be in the -- a few million dollars and mid-single-digit millions likely for the full year. But more significantly, they'll hit just over 3 quarters rather than over the 3.5 quarters we expected to hit. So there'll be a more significant impact in quarters 2, 3, 4 than we had anticipated at the start of the year. In addition to that, we have various cost-reduction initiatives, as we discussed earlier, that we're still undertaking to drive down our cost of goods sold. So net-net, we still see a solid path to deliver the gross margin expectations for Shooting Sports in that mid-20s.

Okay. And then you mentioned in the script that you're reaching out to work more with independent retailers and reestablish some of those relationships. How does that -- is it a different relationship than you selling through the distributor? Are you circumventing the distributor? Just some more color on that, please.

Yes. Even today, the small independent retailers do about 70% of the business in the hunt/shoot category, so they're an important outlet for us. And even though some of them are overstocked, as we consider for instance the Gander-Camping World acquisition. The dealers in those markets where the stores are closing are the ones who are going to be the beneficiaries of the closed Gander Mountain stores. So supporting them, working with them and then giving them more tools to help sell-through is where our focus is.

Yes. And as you look traditionally, we have been disproportionately strong in the big box channels. And so while, as Mike mentioned, overall -- in the market grid large, the independent dealer accounts for about 70% of the business. It's accounted for a lower percentage of our revenue. And we have significant opportunity there to reengage with those independent dealers and increase our share of spending at those dealers to get it back on par with where we stand in our -- both the big box retail channels or our law enforcement channel -- both areas where we have very high market share.

(Operator Instructions) We'll go next to Jay Sole with Morgan Stanley.

Great. My question is just about -- I think you alluded to it a bit in your prepared comments, but just on the company's initiative to kind of maybe do more business through its own e-commerce websites. I mean, given we're in a little bit of transition, Michael, have you done any work to kind of further that effort and to maybe try to do some things to help adapt to some of the ways that retail are changing?

Yes. Jay, certainly. It is a major initiative for us. And as we mentioned, last quarter, we've hired a VP who has actually done this before, who is driving the process. So yes, we're keenly focused on building out our e-commerce side of the business. And we're doing it in a -- to address all of our channels, so it's not just direct to consumer. It's an opportunity for us to help drive business to our independent retailers, to the big boxes, which in turn will also drive business to the wholesalers. So we're very focused on that and moving forward quickly.

Okay, that's super helpful. Can you give us an idea maybe on, like, what to expect going forward in terms of timing? Do you think you can do all the different brands, like, in the Outdoor Products category online on separate websites? Or would you sort of attack the biggest ones first? How do you think about those things?

Yes, I -- because we are so brand-focused and clearly our consumers understand brand, we're going to be conducting most of this through the brands. And they'll be having their own websites and driving e-commerce through that. So we're developing that road map and we'll continue to update you as we go along, but where you're most likely to see the results is new, enhanced websites that will help drive this.

And we'll go next to William Reuter with Bank of America.

So I have a question following up a little bit on you were talking about the importance of the independents in your chain, in the independent chains. And I guess, how is the health of those? And if you could talk a little bit about the number of doors that you might be in across your product portfolio and how that's changed over the last year and, I guess, in the context of what percentage of your sales are done online at this point.

In terms of the independent dealers, I don't know of anybody who has an accurate count of those. Particularly, we can tell you how many federal firearms license holders there are out there, roughly 56,000, but we don't -- and roughly 3,700 independent bike dealers and Lord knows how many camping outlets there are. In terms of the hunt/shoot side and I mean -- and across all categories, we've lost 45 million square feet of retail space since 2015. I haven't gone through, we haven't gone through and quantified how much of an increase there has been, but that's a huge amount of doors. With the independent retailers, a lot of them, because they're small, are fairly healthy. They -- many of them own all of their inventory. Even though they stocked up, many of them, just because they're so focused on cash and paying bills, are relatively healthy, but because they have so much inventory, they can't spend anymore. And that's -- what's bothering the wholesalers is that they just can't sell-in because they're the ones who service them primarily. So it is an upset, disrupted market right now, but we see a real opportunity to service those independents.

As we look within the Shooting Sports channel just narrowly for a moment and we look at the importance of the independent dealers to our revenue, they represent -- while we've not disclosed an exact number -- certainly other channels, in particular the big box retailer, plus our military law enforcement channel, represent the majority of our revenue. So less than 50% of our Shooting Sports revenue comes from that independent dealer channel.

Okay. And then just one follow-up, if I can. You guys talk about 150 product introductions, which is 3x more than, I guess, you did last year. Can you talk about what percentage of your sales might be coming from new products this year and how that would compare to the store close? And I recognize that you've been acquiring companies, so that's a little bit challenging to quantify exactly since the mix has been changing, but just kind of give us a sense for that. That's all for me.

Yes. So we set an internal target of generating 20% for our revenue from what we consider new products, which are products introduced in the last few years. It's somewhat lower for 1/3 of our businesses, than many other consumer products business. And particularly as you look at the ammunition market, while we continue to always introduce new solutions in ammunitions such as our Syntech pistol ammunition we -- for ranges that we brought out last year and also Syntech ammunition for Action Sports, there are a lot of categories of ammunition which have been selling for many, many, many decades. And so the -- that market is slower to evolve. And therefore, our percentage is probably lower than it would be for many other consumer products companies. We have not disclosed and are not prepared to disclose this time our exact percentage this year, but certainly our target on a typical year is 20% of revenue.

And we'll go next to Gautam Khanna with Cowen and Company.

I just wanted to follow up just on another question. And I think you mentioned some of the commodity headwinds you guys will see. Was that a big driver of the Q1 gross profit? i.e. you -- the inventory liquidation was pretty good from a cash flow perspective, so were you just selling inventory that had a lower cost basis than the inventory you'll be producing and selling going forward?

I don't think that was a major factor one way or the other on our Q1 margins. Our -- we said we have a LIFO approach on inventory, and so we don't really get to take advantage of low-cost inventory to generate higher gross margins.

And that concludes our question-and-answer session. I would like to turn things back to our speakers for any closing remarks.

Well, thank you, operator.

Before we close, I would certainly like to thank all of our employees for their contributions this past quarter. They're the ones who do the work.

So thank you for joining the call, and we will visit again next quarter.

Thank you, everyone. That does conclude today's conference. We thank you for your participation. You may now disconnect.