Good day, everyone, and welcome to American Outdoor Brands, Inc. First Quarter Fiscal 2026 Financial Results Conference Call. The call is being recorded. At this time, I would like to turn the call over to Elizabeth A. Sharp, Vice President of Relations, for some information about today's call. Thank you, and good afternoon. Our comments today may contain predictions, estimates, and other forward-looking statements.

Our use of words like anticipate, project, estimate, expect, intend, should, could, indicate, suggest, believe, and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies and vision, our strategic evolution, our market share and market demand for our products, market and inventory conditions related to our products and in our industry in general, and growth opportunities and trends. Our forward-looking statements represent our current judgment about the future and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at aob.com. Today's call contains time-sensitive information that is accurate only as of this time and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today. A few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, emerging growth transition costs, nonrecurring inventory reserve adjustments, other costs, and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Daniel Murphy, President and CEO, and H. Andrew Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Elizabeth A. Sharp, and thanks everyone for joining us today. As we look back on the first quarter, I'm very proud of how our teams delivered in a dynamic environment. Navigating the evolving tariff landscape, leaning into the agility of our supply chain, and continuing to drive excitement with consumers around our brands and new products. This quarter reaffirmed that innovation for us is more than new products. It's a mindset that enabled us to drive stronger point of sale performance versus peers across several strategic product categories, a result that is supported by feedback from key retail partners, and third-party data. Net sales were lower in the quarter, but in many respects, this moment feels much like FY 2023. A period marked by macro uncertainty that I believe ultimately proved that our model works. By staying true to our competitive advantage, repeatable consumer-driven innovation, while controlling what we can control by adapting to a shifting environment, we took share, strengthened our brand equity, and extended our long-term runway for growth. I believe that we'll look back at this current period similarly. A time when our long-term discipline was rewarded with growth. What does the current dynamic environment look like? It's an environment shaped by evolving tariff impacts, shifting retailer order patterns, and broader macroeconomic uncertainty. Like I said, it's important to remember that we've been here before. We know how to adapt, and we know that innovation is what drives consumer demand, retailer partnerships, and ultimately sustained growth and profitability. That is why we remain confident in our long-term strategy. Diving into consumer pull-through and brand momentum, our brands continue to resonate with consumers, fueling point of sale performance across several of our largest traditional retailers. You'll recall that many of these partners accelerated orders late in Q4…

Thanks, Brian. Net sales in Q1 were $29.7 million compared to $41.6 million in Q1 last year. A decrease of 28.7%. As we've outlined, our traditional retailers accelerated about $10 million in orders, originally scheduled for Q1 into the prior quarter. And that acceleration occurred in just the last three weeks of fiscal 2025. Because of that sudden shift in revenue, it's worth noting that on a six-month basis, which we believe provides a more accurate reflection of the trends we're seeing in the business, net sales for Q4 and Q1 combined this year increased 4.2% compared to the same six-month period last year. Turning to our sales channels. Our traditional channel net sales decreased by 24.4% in the first quarter, and our e-commerce net sales decreased 35.2% compared to last year. Without the acceleration of retail orders into the prior year, traditional channel net sales would have increased 15%. As Brian mentioned, the lower e-commerce net sales were driven by a large e-commerce retailer that we believe is adjusting its purchasing patterns to realign with ongoing tariff impacts. On a category basis, in the first quarter, net sales in shooting sports decreased 25.1% while net sales in outdoor lifestyle decreased 31.6% over Q1 last year. Domestic net sales during the quarter decreased by roughly 25% while our international net sales decreased 58.2% or $2.6 million compared to Q1 last year. You'll recall that earlier this summer, there was a heightened level of national concern regarding Canada-US trade relations. And orders coming from Canada were paused for many companies. While it's still a very small portion of our overall business today, our long-term perspective for growth prospects in Canada, along with other international markets, remains unchanged. Turning to gross margin. As Brian indicated, we continued to proactively manage our supply…

Longer term, while we believe it is premature to resume full-year guidance, we remain optimistic about the year on the whole. That optimism is fueled by POS performance which has remained strong into our second quarter, combined with several exciting new products and the launch of ScoreTracker Live later this year. As we continue to invest in our new product pipeline, we remain focused on maintaining gross margins, mitigating the impact of tariffs, and controlling costs. While supporting initiatives that will continue to drive our long-term growth. With that, operator, please open the call for questions from our analysts. Thank you.

We will now begin the question and answer session. To ask a question, you may press 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

And your first question today will come from Doug Lane with Water Tower Research. Please go ahead.

Yes. Hi. Good afternoon, everybody. It sounds like some of that excess retailer inventory you talked about on your last call has been worked off, but maybe not all of it. Is that fair? Do you still have do you think have excess tariff-related inventory at your retail partners? Hi, Doug. This is Andy. I wouldn't call it excess. In our Q4, we that the retail partners pulling in some accelerating some of their orders ahead of those our price adjustments. Those are in key categories. Where those those retailers had open to buy to invest in, you know, kinda key brands from their perspective.

Okay. And and also in managing the impact of tariffs you talked about pricing. Can you elaborate a little bit more on that? How much pricing have you taken so far? How much do you expect to? And and and the timing on that, is this gonna be, like, a one and done deal this quarter, or are we gonna see some pricing being layered in as the year progresses?

Yeah. Hey, Doug. This is Brian. So it really just goes beyond pricing. So, you know, clearly, we're operating in a higher cost environment. But, you know, what we're what we're doing that gives us the confidence in our ability to offset the increase in price are a few different things. Right? You've got supplier concessions, product redesigns, we mentioned, the pricing adjustments, which you just referenced, and especially where the consumer sees value. And then lastly is is maintaining the velocity of of new product launches, which for us, is a great, consistent, reliable way for us to feather in higher margin products. So, you know, we're we're we're continuing to calibrate the price side of things, but that's real really also just a function of how well those other levers that I mentioned are taking hold and how effective they are. I suspect you know, as we go throughout the year, and as we keep a close eye on the health of the consumer, how our retailers are trying to calibrate their own strategies, It'll be different levers at different times, and, of course, pricing is one of the

Got it. That's helpful. And just that and that comes back to the iteration of as you talked about. And I guess I'm trying to figure out in my mind, does product innovation become more important or less important given the uncertain consumer environment? I mean, how much do have money Are you getting a return on versus how much of it is important to get through, the higher margin product?

Yeah. Brian again here. So, yeah, innovation is critical. And I would underline that. And when it comes to innovations, we have a steady stream, the steady pipeline that's that's always being worked against. And we have at times actually paused or pulled it back from certain launches. We haven't stopped you know, working on those products, but we've paused And the times where we paused, similar to FY '23, is usually during times of of I'll call it, a little bit more chaotic, right, where retailers given some of their own situations, may need to discount products. Things like that. We don't wanna compete with noise in the market. And so we found that we have the the biggest impact when we have more clear line of sight in having that conversation with the consumer. So throughout the rest of this year so, yes, new products are very important to us. And to be able to get feathered in those higher margin products. But we're gonna do it at times where we have the loudest voice and the largest share of mind with the consumer. And and when we do that, marketing dollars go much further, and we've got a much better opportunity with that consumer longer term. And you can see it with one, you know, the chart we have in our investor deck where we show the stacking of innovation over time And you look at FY '23 and we said back then, hey. We're gonna be really careful about when we launch some of these new products. We're not competing for airtime. And that year, we had we had less fewer sales from new products. But then you look at the next two years, and that vintage, grew significantly. Because we were able to introduce them at the right time.

Alright. That makes sense. Thank you.

Yep. Thank you, Doug.

If you have a question, please press star and then 1. And your next question today will come from Matthew Butler Koranda with ROTH Capital Partners. Please go ahead.

Apologies if I'm retreading on stuff here, but I'm jumping between a few calls here. I guess the the main question I had for you around the quarter was when does the order choppiness sort of settle down in your view? I know that there's a lot of crosscurrents right now with supply chain management from your retail and wholesale customers. How long do we think it takes to settle to kinda get back to a normal cadence of order flow? Yeah. Hey, Matt. It's Brian. So I would say just in general, retailers are certainly ordering more cautious than the POS would suggest. And like we said, they're managing working capital and balancing the tariff uncertainty. And so while this creates some short-term volatility for us, the the POS for us is the truest indicator of consumer demand. So as inventory positions begin to normalize, I think the big question there is how that relates to the tariff uncertainty, But as they as that begins to normalize, just given that strong POS, you know, we think that the two will better align in the future. When that date is, I'm not sure. But at some point, they do need to replenish that inventory if they if they wanna keep up that strong POS that they've experienced with us. So as we move forward, I do expect that it will begin to normalize. Know, which should support improved visibility as we move through the rest of FY '26.

Okay. In which brands are you seeing the strongest POS Are you positive in certain areas that you can highlight for us? Let me just quickly touch on where POS trends are are most positive and then maybe where they're they're struggling a little bit more.

Yeah. Great question. I would say that in general, our growth, brands that we've called our horse brands or growth brands have have certainly done very, very well when it comes to the POS data. So those would be brands like Caldwell, especially with the launch of the Claycopter last quarter, Bubba continues to perform very, very well. Especially with the launch of the SmartFifth Scale Lite. And then also seeing increases in that subscription revenue. Which we'd like to at a future date once it becomes a more meaningful share of our business. To to share those numbers. Bog continues to do very well. I think that will do very well in the hunting and holiday season. You know, gorilla and and, frankly, meet your maker. So those are the kind of the core brands, I would say. That have been doing well relative to the rest of the portfolio. And then when we look at the POS trends for the rest of our categories and brands, our other brands, whether it's cutlery and tools, etcetera, are performing better than their peers. Better than the competition. A little bit weaker, I would say, overall, but much better than than the categories are doing overall.

Okay. That's a helpful overview. Then I don't know if you touched on sort of M&A funnel and and how we think about pipeline of opportunity on the acquisition front. But I'd love to get an update on on that and where things stand.

Yeah. So we're we're still very active in looking at targets. So I think similar to last quarter, we're seeing fewer targets coming to market. And we are seeing more distressed assets in brands. You know? In in some cases, really good brands that we're taking a hard look at. But overall, I think you know, similar to to some others in our category, It's just trying to figure out, you know, where are they in the cycle themselves. Right? How do they have the right inventory, the right mix? You know, do they have IP? IP for us is incredibly important. And how well would those fit into our system? And so I would just say candidly, we're not finding a lot of great targets right now. So we're we're being very patient. You know, one thing we alluded to in the past too is the our ability to launch new brands. And there are categories that are are popping to the top for us that I think we could go and for very low cost and low investment enter some of these categories that we would have traditionally sought to enter through M&A. So during this time period, we're we're taking a hard look at that option. So so more to come on that front.

Okay. Appreciate it. I'll leave it there. Thank you.

Thanks, Matt. Thanks, Matt.

And your next question today will come from Mark Smith with Lake Street Capital Markets. Yeah. Hey, guys. You got Alex J Sturnieks on the line for Mark today. Thanks for taking my questions. Also kind of just sifting through some things here. I'm not sure if you already covered this, but, you know, you mentioned some variability on orders into Q2. Just curious if you're seeing any signs that buyers are trading down or shifting toward more value-oriented products do you feel like they're still leading in a premium innovation know, despite the broader macro pressures?

Yeah. It's it's a really good question. This is Brian. I'll answer it. Andy, feel free to chime in. So I think the shifts that we're seeing and you you can hear it too from some of the other retailer calls. Is the consumer is shifting maybe among the different retailers maybe shifting down Academy called that out, and they're they're one of the beneficiaries of that as the higher income consumers as they would say, trading down. But then specifically for our products, I think that if our POS was not as strong as it is, I I would have a better answer for our products. But I think what it does actually that reinforces that our consumer is really two parts. Right? You have the more fluid consumer because our our products are more premium, higher priced. Or you have the super enthusiast, somebody who, hey. They want the best. They're gonna pay for it. And so I think that we're doing a really good job of continuing to capture those consumers. With that said, the data that I've seen around spending know, with the the lower middle income households. Is they're under pressure right now. And and I think that they're you know, I think they're just buying less. I think you're seeing just less foot traffic from those consumers going into stores. And I think the sort of opening and mid-level price point products most of which we don't compete in, are are seeing the impact of that. I don't know if it necessarily that group is trading down. As much as it's looking to other retailers where they would trade down. Or just pulling back spend altogether, which is evidenced through lower foot traffic.

Okay. That's that's great. And then switching over, you know, on the gross margin side with tariffs. And sourcing costs still in flux. You mentioned you could probably hold the line where it's at right now. Just curious, like, what are the biggest factors you're watching that could push the outlook, you know, higher or lower?

I think it it depends. I mean, obviously, we're we're monitoring the tariff landscape on a daily basis. And the levers that we have in play, you know, Brian mentioned, you know, the cost concessions. We have great re re great relationships with our vendor partners, and and we've worked to with them on cost concessions. The pricing adjustments is is a fluid situation. Again, we're looking at to be competitive. We're looking to competitive landscape on pricing. And we specifically we did a very measured approach when we looked at our price adjustments. By category. So it's it's a fluid situation, and we'll, you know, keep pulling those levers as we can. Throughout the year.

Okay. Then another one for me. You know, you've you moved some production outside of China already. You know, could you help us think through how much of the portfolio still needs to be assessed whether or not to be moved, and then what kind of cost or execution trade-offs? Are there if that's that's necessary?

Yeah. No. Great great question. It's Brian again. So we've like we said, we've made significant progress diversifying our sourcing. And, you know, a portion of our portfolio has already shifted away from China, primarily into Southeast Asia. But, you know, that said, you know, there are certain product categories especially ones where as we release new products, you know, our average selling prices go up. They're more complicated. There's more technology. Just think about all the Bubba products and Caldwell products for example. Those require highly specialized tooling. And and China is, you know, and remains know, one of the best places for quality and cost competitiveness when it comes to those types of products. So as we've been sort of watching the ups and downs in news releases, on the different tariff rates, It's one of the things that led us to stay put momentarily for some of these categories. Until we see where the chips, you know, finally fall. But but but like I said, China is and remains you know, one of the most competitive countries for those types of products. And then in the future, the second half of your question, in the future, I think any any further moves that we make which we're assessing day by day, by the way, in our moving, will really just depend on on the tariff stability how much line of sight we get to this coming to an end, which I have not seen yet, And and, of course, supplier readiness and and ensuring that we maintain product quality That that is absolutely a critical piece to make sure that we can continue to service our retailers and and meet our our consumers' demands.

Okay. That's that's great. And then last one for me if I can fit it in. Just kinda going through the channel side of things. On the e-commerce side, you know, given that a lot of your sales are concentrated with the largest online partner and then they're readjusted their purchasing patterns. You know, are there any strategies you're pursuing to broaden that mix? Build a bit more balance in that channel over time?

Yeah. It's a good question. And one of the I think one of the things that our our data the data that we get does not do a good job of is showing the full e-commerce picture. And so what do what do I mean by that? Our traditional retailers have done a fantastic job of of playing hurry up offense, over the last four years, five years coming out of COVID I think because they were forced to during that period of time when people weren't going into stores. And so at least the data that I'm seeing, a lot of these retailers have significantly increased their website sales and now for some of them represent between 10 to even up to 30% of their total net sales. So I can't see how much of our traditional sales are going through the ecom channel. But you know, when you when you look at some of the recent same store sales trends, you know, comp stores, you know, relative to their overall performance. It's clear that ecom is is performing very well for a lot of these retailers. So to sort of defy what's happening with people going into their stores. I think lower foot traffic offset by more purchasing online. So as we think about just how the consumer's purchasing, through e-commerce channels, I I think that we're seeing a little bit of a maybe a retailer mix but where the data that we get obfuscates some of these bigger trends where traditional retailers are taking share. So our goal is to be, like we've always said, be where the consumer expects to find us. And and I think that's what's happening. I think you're seeing traditional retailers begin to take a larger share of that piece of the pie.

Okay. That's really helpful. Thank you, guys.

Yep. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Brian Daniel Murphy for any closing remarks.

Thank you, operator. I want to thank our employees, whose tireless commitment to innovation allows us to remain focused on executing our long-term vision. And thank you to everyone who joined us today. Look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.