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Fox Factory hammered as company navigates economic hurdles

AInvestFriday, Feb 23, 2024 12:57 am ET
1min read

Fox Factory Holding, Inc. (FOXF), renowned for its industry-leading products across biking, vehicles, and off-road applications, unveiled its financial outcomes for the fourth quarter and the fiscal year ending December 29, 2023. Amidst a complex macroeconomic landscape shaped by a UAW strike and escalating interest rates influencing dealer activities, FOXF encountered mixed financial results and forthcoming challenges.

The year witnessed an 8.6% downturn in net sales, settling at $1.46 billion, largely due to a notable dip in Specialty Sports Group (SSG) net sales. This decline was rooted in channel inventory adjustments and diminished end-consumer demand, despite the revenue influx from the Marucci acquisition. Conversely, growth in the Powered Vehicles Group (PVG) and Aftermarket Applications Group (AAG) partially cushioned the overall sales decline. Despite the UAW strike and broader economic factors, PVG's 21% growth underscored robust OEM demand and enhanced production efficiencies.

A shift in product mix and the UAW strike's implications led to a contraction of the gross margin to 27.7% in the fourth quarter, down from the previous year's 32.0%. This contraction highlighted the operational and financial challenges FOXF contended with during the period.

In response to these challenges, FOXF persisted in its strategic pursuit of vertical integration and market diversification, evidenced by acquisitions like Custom Wheel House and Marucci. Such strategic endeavors are pivotal in the Vehicles & Parts industry, where innovation and market expansion are integral to sustained growth. The company's dedication to product development and a strong pipeline of high-performance products are anticipated to bolster its strategic growth objectives.

Financial health indicators showed a decrease in cash and cash equivalents to $83.6 million, attributed to debt repayments and share repurchases, alongside a rise in inventory levels due to recent acquisitions. Total debt escalated to $743.5 million, reflecting increased borrowings for working capital needs and acquisition-related financing.

Looking into fiscal 2024, FOXF projects net sales ranging from $1.53 billion to $1.68 billion and adjusted earnings per diluted share between $2.30 and $2.60. CEO Mike Dennison expressed optimism about FOXF's product leadership and growth strategy, notwithstanding current economic volatilities and the repercussions of rising interest rates.

In summary, Fox Factory Holding, Inc. faces a challenging economic environment, marked by mixed financial results for the fourth quarter and fiscal year 2023. Shares reacted sharply to the downside in after hours action following the company's release.

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