Recreational products manufacturer American Outdoor Brands (NASDAQ:AOUT) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 4% year on year to $60.23 million. The company’s full-year revenue guidance of $207.5 million at the midpoint came in 2.5% above analysts’ estimates. Its GAAP profit of $0.24 per share was significantly above analysts’ consensus estimates.

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Company Overview

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ:AOUT) is an outdoor and recreational products company that offers firearms and firearm accessories.

Leisure Products

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, American Outdoor Brands grew its sales at a sluggish 4.7% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. American Outdoor Brands’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3% annually.

This quarter, American Outdoor Brands reported modest year-on-year revenue growth of 4% but beat Wall Street’s estimates by 13.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

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Cash Is King

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

American Outdoor Brands has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.7%, subpar for a consumer discretionary business.

American Outdoor Brands burned through $8.00 million of cash in Q3, equivalent to a negative 13.3% margin. The company’s cash burn was similar to its $8.76 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

Key Takeaways from American Outdoor Brands’s Q3 Results

We were impressed by how significantly American Outdoor Brands blew past analysts’ profit and EPS expectations this quarter. We were also excited its guidance came in ahead of Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock traded up 14.8% to $12.51 immediately after reporting.

Sure, American Outdoor Brands had a solid quarter, but if we look at the bigger picture, is this stock a buy? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.