DULUTH, Ga. (BRAIN) — Fox Factory’s CEO says the mountain bike industry will return to something like normal in the fourth quarter this year and he expects Fox’s bike-product sales to return to a more traditional growth rate following several years of very high growth.
Fox announced its eighth consecutive quarter of record sales in its bicycle product segment, with Q1 sales up over 40% from the same period last year.
CEO Mike Dennison told investors on a conference call he expects demand for Fox bike products to moderate late this year as the market returns to its more traditional seasonality, with demand slowing in the winter months, something he said Fox has not seen in the last two years.
"If you are a mountain biker, you are going to be a mountain biker regardless of what the economy is doing.” — Fox CEO Mike Dennison.
But he said while he expects growth to return to the “mid- to high-single-digit (percentage increase) range,” that growth will be on top of the gains Fox has made in recent years.
“It will be a bigger base of business but a more normalized growth rate,” he said.
Dennison also said Fox is starting to see some normalization in the wholesale inventory levels of bicycles, especially of entry-level models.
But he said he expects consumer demand for Fox products to remain strong, even in the face of inflation or an economic downturn.
“I’m not saying a recession wouldn’t impact us, but our enthusiasts will buy our products before they do something else … if you are a mountain biker, you are going to be a mountain biker regardless of what the economy is doing.”
Sales in Fox Factory’s Specialty Sports category, which includes its bicycle-related brands Fox, Marzocchi, Raceface and Easton, were up 43.4% in the first quarter, to $169.9 million. Company-wide, sales were up 34% and net income was up 26.6% to $48.1 million, compared to the same period last year.
Overall, Fox’s gross margin was 31.8% for the first quarter, a 300 basis point decrease from the gross margin of 34.8% in the first quarter of fiscal 2021. Fox said the decrease was primarily driven by continued increases in supply chain-related costs, including increased prices for raw materials and freight.
Company executives said they expect margins to improve this year as Fox's Georgia factory becomes more efficient. They also noted that a new policy of “dynamic pricing” will mitigate margin erosion due to inflation. Dennison said that while the company previously determined pricing early in the design process, it now will adjust prices mid-model year if necessary.
Fox’s adjusted EPS was $1.32, beating a Zacks Consensus Estimate of $1.13 per share. This compares to earnings of $1.05 per share a year ago.
Dennison opened the investor presentation by noting the conflict in Ukraine. “We are deeply saddened by the unprovoked invasion of Ukraine … our thoughts are with those impacted by this crisis,” he said. “While we have negligible sales in Russia, we have ceased all activities there,“ he added.
Dennison said Fox’s orders for bike products remain “robust” through 2022.
However, he said Fox’s largest concern was the rising COVID rate in Taiwan, which could have some impact on Fox’s production in the second quarter.
