SCOTTS VALLEY, Calif. (BRAIN) — Fox Factory Holding Corp. said its sales increased 2.7 percent to $109 million in the third quarter, compared with $106.2 million in the same period last fiscal year.
In a conference call with investors on Wednesday, company executives said they see the bike inventory landscape improving worldwide and said they are satisfied with the launch of Fox's entry-level Rhythm product line.
"We see things probably a little bit better now in terms of the inventory that's out there," said Larry L. Enterline, Fox's CEO. "The high-end mountain bike market where we primarily participate is holding up a bit better ... in terms of markets, Europe had some weather issues early in the year that turned around … inventories have come back into line (in Europe). The U.S. is going OK. From an OEM standpoint we think it's pretty solid and the aftermarket has been pretty good," Enterline said.
Enterline said that broadly speaking the bike market has been the weakest in China and Asia, where Fox has not had many sales. "We did see some good growth there (in prior years) which we've seen turn flat," he said.
Fox's president, Mario Galasso, said the company is satisfied with its integration of the Race Face and Easton brands within its portfolio. He noted that the three brands were displayed together at Sea Otter and Eurobike this year and that similar colorways and graphics are now available across grips, cranks, suspension and other products from the brands.
Galasso said the new Fox Rhythm product introduction is "performing on track. That gives us confidence going into model year '18, including expanding the product offering in Rhythm."
Galasso said Marzocchi-branded products will be positioned at prices below Rhythm. But Fox CFO Zvi Glasman emphasized that Fox does not expect Marzocchi sales to be significant for several years.
Gross margin was 32 percent for the third quarter of fiscal 2016, an 80-basis-point decrease from gross margin of 32.8 percent in the third quarter of fiscal 2015.
The company did say it spent about $800,000 in the quarter "associated with continuing patent litigation activities involving a bike industry competitor." Fox did not identify the competitor in its statement but said it "remains confident in its position in these matters."
According to court records and a Fox document filed with the SEC in September, SRAM is suing a Fox-owned company, RFE Canada, alleging infringement on SRAM's chain-retention chainring technology. Meanwhile, Fox is suing SRAM alleging infringement on Fox's thru-axle retention system.
For the fourth quarter of fiscal 2016, the company expects sales in the range of $104 million to $110 million.
For the full fiscal year 2016, the company is raising its previous guidance and now expects sales in the range of $395.5 million to $401.5 million and non-GAAP adjusted earnings per diluted share in the range of $1.19 to $1.23.
