Good day, everyone, and welcome to the American Outdoor Brands, Inc. Second Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor 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 are 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 adjustments, technology implementation costs, 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 Murphy, President and CEO, and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks, everyone, for joining us today. Reflecting on the second quarter, I'm very proud of the way our teams continue to deliver in a dynamic environment. Efficiently managing tariffs, customer ordering dynamics, and cost reduction opportunities all while remaining committed to innovation and executing our term strategy. That commitment to innovation paired with disciplined execution of our strategy to enter new outdoor product categories is fueling the strength of our growth brands and the engagement we are seeing from consumers and retail partners. Together, these factors enabled us to deliver second-quarter results that surpassed our expectations even amid a dynamic retail backdrop. Pull-through of our products at several of our largest retailers was notably strong during the second quarter, with total POS up 4% year over year. This marks the second consecutive quarter of favorable POS performance, an encouraging indication that our products remain in demand and are helping to drive engagement at retail. This result is especially meaningful in light of recent reports from placer.ai indicating that foot traffic at most retailers trended down during the period. Before I turn to channel sell-in, I want to take a step back and talk about the evolution that is occurring in our traditional and e-commerce sales channels. In our traditional channel, a growing share of what has historically been classified as brick-and-mortar or in-store sales are now occurring through traditional retailers' online channels. Buy online, pick up in-store, ship to home, and same-day delivery, reflecting an evolutionary shift in how consumers shop. Many of our largest brick-and-mortar partners have invested heavily in omnichannel capabilities, and we are benefiting from that investment. For some of our retailers, online sales now represent up to 20% of their total revenue. Although these transactions reflect digital buying behavior, they are captured in…

Thanks, Brian. As Brian mentioned, we are very pleased with our results for the second quarter, with net sales and profitability coming in well ahead of our expectations. Net sales for Q2 were $57.2 million compared to $60.2 million in Q2 last year, a decrease of 5%. In our outdoor lifestyle category, which consists of products relating to hunting, fishing, meat processing, outdoor cooking, and rugged outdoor activities, net sales were $34.6 million, down 5% compared to Q2 last year, mainly driven by a decrease in meat processing equipment, partially offset by increases in our BOG and Gorilla brands. In our shooting sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance, and personal protection, net sales declined 5.1% compared to last year, driven by decreases in gun cleaning and personal protection products, partially offset by strong sales in our Caldwell brand. The outperformance by Caldwell was the result of expanded distribution of these innovative new products, particularly the Caldwell Claycopter, with an existing mass-market retailer that had not previously carried our Caldwell brand, as Brian mentioned. Turning to our distribution channels, our traditional channel net sales increased by 2.3% in Q2, while our e-commerce net sales decreased 15.9% compared to last year. Consistent with what we indicated in September, we believe our largest e-commerce retailer continued to adjust its purchasing pattern to realign with ongoing tariff impacts. Domestic net sales, which generated approximately 95% of our revenue in the quarter, decreased by $2.4 million or 4.3%, while international net sales decreased by roughly $600,000 compared to Q2 of last year. Gross margin remained strong in Q2, at 45.6%, compared to 48% in Q2 last year. This performance is noteworthy given the actions we took to clear some slow-moving inventory. In fact, without that action, gross…

We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Our first question is from Matt Koranda with ROTH Capital. Please go ahead.

Hey, good afternoon. So I guess I just wanted to start with the 4% sell-through metric that you shared. How much of your revenue in a given quarter do you have visibility into a POS, and maybe just which brands were tracking ahead of that 4% sell-through metric and which were maybe a little bit below?

Hey, Matt. It's Brian. So on the visibility question, we actually get to see quite a bit of our sales through POS. So it captures the majority of our largest retailers, and then, of course, we can also see our direct-to-consumer business. So I think we've sized it in the past, Andy, something close to 60% or so, roughly two-thirds of our revenue. And so we get a pretty good look at what's moving through. And then related to your second question, you know, which brands seem to perform better, you know, and were there others that performed not as well? I think it's pretty consistent with what we saw in November. Outdoor lifestyle, in particular, has been doing very, very well. And within shooting sports, I think as a category as a whole, it's been kind of aligning with NICS somewhat, so a little bit more pressure. There is softer demand for those types of products than there was last year, with the exception of Caldwell. Caldwell has just been off the charts, so with all the new products, including the Claycopter.

Okay. Alright. That's helpful, Brian. Thanks. And then yes, I was going to ask, you referenced the November performance in the prepared remarks and just now. Up 13%, I guess, in outdoor lifestyle, but then the guide for the quarter looks like it's down 8%. So maybe just help us kind of sketch the disconnect there. Is it shooting sports a little weaker in the quarter? Is there some inventory overhang that still needs to clear out among traditional retailers? Maybe just help us understand the gap there.

Yeah. Absolutely. So I mean, overall, you know, demand is choppy, but it's not collapsing by any means. And, you know, POS has been very strong, but retailers have been managing to much lower inventory levels. And also, we're seeing them, this is based on our conversations too, placing bets at different times based on their available capital depending on the seasonality, depending on if it's the, at this point, the holidays. And so we're having to react and work with them, plan with them, in regards to how that replenishment will work going forward. It's part of the reason we gave an outlook today is because we have a little bit more visibility after some of those conversations and following Black Friday. We'll learn even more in SHOT Show in January. But it's based on what we know today, yes, POS is incredibly strong. But this is really working through their ordering patterns and how they're choosing to allocate capital.

Got it. What can you do to, if anything, I guess, to mitigate the softness from the large customer in the e-commerce channel that seems to be causing some of the revenue headwinds for you guys in the near term? Do we just have to lap the adjustments that they've made to sort of the inventory that they carry? Or are there any levers you have to pull on your end to sort of stabilize that channel a little bit?

Yeah. I mean, we're again, just taking a step back, you know, we thought it was important this call to just call out this evolution that we see taking place. I think if you listen to some of the other publicly traded traditional retailers like Academy, etcetera, while they're experiencing, you know, lower foot traffic, you are seeing higher sales. And that's attributed to, in most cases, to just growing e-commerce and omnichannel. So I think following COVID, you really saw a hurry-up offense and begin to invest significantly in those on those sides of things. And so we've even internally begun to think, you know, how can we begin to parse this out? Because this really is an e-commerce sale. We just don't have a lot of visibility to it. And we're seeing them take share, frankly, from some of these other very large online-only retailers. So I think over time, to answer your question, you know, how do you begin to kind of reduce some of that volatility? I think that's just sort of a nature, I hate to say this, but nature of that one customer. But the fact that our direct-to-consumer business has grown as much as it has, coupled with our traditional retailers beginning to take a greater share of omnichannel, I think that by the nature of how those percentages will ultimately work out, will reduce that volatility inherently. Outside of that, I think it's, you know, whenever there's a big change in the economy, this one large e-commerce retailer tends to be up and down. It's just been our experience.

Sales in that Q4 period. So I think you're typically, if you look back historically, we're going to expect that same seasonality in Q3 and Q4 at a high level. I'll just make one comment too just on the tail end of that. I mean, tariffs have been a headwind for everybody. I think for us, you know, the difference is we have a clear path to how we're going to offset those tariffs by FY 2027 going into FY 2027. So when you start to see some of those timing changes flow through, from pricing, supplier negotiations, you know, we've got tariff-efficient product designs. And at the end of the day, you know, still keeping innovation at the center of our story. So new product velocity, it's also a big part of that, and we've demonstrated that in the past. So I don't want that to be lost because the team has done an incredible job getting out ahead of this. There may be some timing differences, like Andy alluded to, but at the end of the day, we feel confident that we're going to be able to offset the tariffs. Okay. Very helpful, guys. I'll leave it there. Thank you.

Yes. Thanks, Matt. The next question is from Doug with Water Tower Research. Please go ahead.

Yes, thank you. Good afternoon, everybody. Just staying on tariffs, that's very helpful in laying out the cadence there. But just in stepping back, the implementation of the tariff mitigation is complete. It's just a question of having it come around and working through the P&L. Is that right?

That is correct, Doug. So the tariffs started to get capitalized in the inventory way back in March. So the timing for our P&L for amortizing starts to hit in December. Right? Our mitigation efforts with pricing were after that, so there's a little delay on that. We've also gotten cost concessions. Cost concessions work like tariffs, but opposite. So if we get cost concessions in May, we're really not going to see the benefit of those until our fourth quarter and then into next year. So as Brian talked about, when all of this shakes out, all the timing differences shake out, in 2027, we believe that we fully offset all the, with mitigation, we've offset all the tariff impact. The tariffs that exist today. Yeah. Right. Oh, thank you. That's very helpful.

It looks like you, I mean, the numbers beat estimates. Sounds like they beat your internal forecast, and a lot of it came in the last couple of weeks of the quarter. Do you think there was maybe a little borrowing from Q3 here at the end of the quarter?

Yeah. This is Brian. No. The short answer is no. You know, I've worked at companies before that are trying to pull things into quarters. And you don't want to get on that treadmill. So, no, we just try to run the business the best we can. Not be promotional if we can avoid it. Obviously, that leads to higher margins. But, really, I think it's that new customer that we brought on, the expanded distribution, combined with the online retailer we have discussed, that we started to see a bounce back and begin to replenish some of those orders that we would have expected in prior quarters.

Got it. Okay. That makes sense. And just finally, as I try to understand this disconnect between sales and POS, it's such a wide gap. Is there, I mean, you would think they would track. Do you have any visibility or any guesses on when you think the two numbers will align a little bit more closely than where we are today?

That's a great question. That's a great question. I think, you know, we spend a lot of time talking about what's happening with the retailer and what are the decisions that they're making. Because, you know, as we said in the prepared remarks, they're trying to navigate, you know, one, a consumer that's under increasing pressure. Specifically within that, this divergence between two different cohorts, you've got the higher-end cohorts, high income, that continue to spend on premium products, which we benefit from, and we see that in our data. And then this lower-income cohort, which is certainly pulling back, and they're spending a lot less. So trying to allocate and make sure they've got the right mix and assortment to appeal to their sort of evolving consumer base. And at the same time, trying to play, you know, a little bit of a staring contest with some of the other retailers on pricing. What should their pricing be? Just because we pass along price doesn't mean they just immediately turn around and pass that on to the consumer. They have their own promotional cycles and seasonality. So it's different by retailer. I realize this is becoming a little bit of a complex answer, but to answer your question, it's really all of those things taken together combined with how they're allocating their capital on what they think is going to win, where they're seeing traction with certain cohorts, and certainly, they have a desire to bring on new products, which we're a key vendor for. So those are getting, they are beginning to converge more and more the longer we go on, especially as tariffs stay where they are. So I see that window narrowing. I don't have a magical date in mind, but I think we're getting closer to it. I really do.

Well, no question. It's been a challenging environment. That's helpful. Thank you.

Again, if you have a question, the next question is from Mark Smith with Lake Street Capital. Please go ahead.

Hi, guys. I wanted to first just talk a little bit about consumer trends, you know, primarily any other insights you can give us around, you know, Black Friday and kind of point of sale trends that you saw there. And also curious if you've seen any bump really from Florida and maybe how much of your products maybe fall under a tax holiday there.

Yeah. Mark, this is Andy. So, as we talked in the consumer written remarks, we were really happy with Black Friday. Not only with POS, Black Friday in November, not only with our POS results, but our direct-to-consumer. So, yeah, we're really happy with that. Yeah. And I think we haven't talked about direct-to-consumer much either, but we also saw, that's part of the POS, really, really strong direct-to-consumer business, in particular for Meet Your Maker and Gorilla. And then regarding your question on Florida, that's not something that we looked into. So that, we'll circle back and take a look at that.

Okay. And then the next question is just thinking about new products. You guys talked about, you know, SHOT Show, some new products coming, and you guys really proved you can enter new markets, you know, with Caldwell as we think about shotgun sports here. I'm curious as we think about these new products that you have in the pipeline, should we look at a lot of these coming in kind of backfilling markets where you currently play? Or are there new segments and markets that you expect to enter here over the next twelve months?

Yeah. Great question. As you're asking that, Andy and Liz were looking at me because I start to smile. As I said in the remarks, like, we truly have the best pipeline I've ever seen. Yeah. So it's, like, super exciting. And if you look in our investor deck, I think we started last this last quarter. We certainly have, we'll have the same slides this time. But we gave a tease to where we're taking some of our growth brands as it relates to innovation. So, a big part of that is really just building upon the ecosystems. And those ecosystems within Caldwell, within Bubba, etcetera, and what we found is as we've expanded some of those new families, like the Claycopter, the Claymore, the Bubba Smart Fish Scale, is they're becoming very sticky with the consumer. And so we want to try to build on that momentum. So what you'll see, especially at SHOT, and we mentioned it in the prepared remarks, is the Claycopter surface-to-air, which is unbelievable. I mean, like, when you see this product, Mark, like, unbelievable. Everything we, everybody we show this to, our retailers, just says this thing shouldn't exist. So to have that type of technology where we're building up the Claycopter line, we're now integrating it with a new app. Wait till you see what that app can do. But you can now tether and daisy chain several, whether it's disc or traditional clay throwers, without the headaches of what the industry's had to deal with. So I think we're truly trying to shape some of these activities, but it's really building on the momentum in this ecosystem and, frankly, gamification. You're going to see a lot more gamification from us spread across several of our brands. And I think that's really the focus in FY '27. As it relates to entirely new products, you know, like what the smart risk was for Bubba or what the Claycopter was for Caldwell last year. We've got several of those in our pipeline. But I think you'll see at least the first part of FY '27 really building out those families and those ecosystems I talked about.

Excellent. Looking forward to seeing it. The last one for me is just any update on M&A. I think last quarter, you talked about maybe fewer kind of high-quality targets out there. Have you seen any changes in kind of the M&A landscape?

We are. We are seeing a few changes. I would say the ice is beginning to break a little bit. I think if there, you know, why is that? I do think that because tariffs have kind of paused somewhat, you know, we're not seeing as many drastic changes. I think that companies are now able to demonstrate some level of run-rate performance where they can go to market. We're seeing a few instances where, you know, family-owned businesses are at a point where, look, the last five years has dealt the industry a lot of change. And it's been, if you're a family-run business, that can be a challenge if you don't have resources like we do. We're seeing opportunities like that come to market. We also believe that there will be some bigger assets that will be surfacing here in the next six months, possibly some divestitures. And so we're keeping an eye on those and, at the same time, continuing to cultivate our own pipeline. So, if you were to ask my excitement level now versus three months ago, I would say I'm much more excited about the opportunities that are coming up right now.

Excellent. Thank you, guys.

Yep. Thanks, Mark.

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

Thanks, operator. As we head into the holidays, I'd like to give a special thanks to our employees whose loyalty, hard work, and dedication continue to move our company forward on the path towards an exciting long-term future. To those employees and to everyone else who joined us today, we wish you a happy and healthy holiday season. And we 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.