Vista Outdoor (VSTO) Q4 2019 Earnings Call Transcript

Vista Outdoor (VSTO 1.16%)
Q4 2019 Earnings Call
May. 09, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Vista Outdoor fourth-quarter fiscal year 2019 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Kelly Reisdorf. Please go ahead.

Kelly Reisdorf -- Vice President, Investor Relations

Thank you, Brandon. Good morning, and thank you for joining us for our fourth-quarter fiscal year 2019 earnings call. With me this morning are Chris Metz, Vista Outdoor chief executive officer; and Mick Lopez, senior vice president and chief financial officer. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act.

These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate. We encourage you to review today's press release and Vista Outdoor's SEC filings for more information on these risk factors and uncertainties. Please also note that we have posted presentation materials on our website at vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said, I'll turn the call over to you, Chris.

Chris Metz -- Chief Executive Officer

Thank you, Kelly, and good morning. Thank you all for joining us today as we discuss our fourth-quarter and full-year results. We have now completed the first year of the Vista Outdoor turnaround. I'm proud of our many accomplishments in fiscal year '19, and despite continued challenges, I'm optimistic about what the future holds for this company and its great brands.

A company turnaround doesn't happen overnight or even in four quarters. We understand that and we suspect you do too, but we are well on our way and made great strides this past year. To that end, I would like to start today by taking a few minutes to discuss what we've accomplished this past year and why those accomplishments are so critical to our future and then let you know where we are going from here. From an accomplishment standpoint, probably most important is that we've delivered on many of the fiscal year '19 commitments despite a very challenging environment, and as promised, it has created a solid and sturdy foundation for Vista Outdoor that will allow us to get back to growth.

Like all plans, ours has evolved due to changing conditions throughout the year, but we are on the same path and have the same end results in our sites. I'm pleased with several specific accomplishments this past fiscal year and want to talk about a few of the building blocks that we laid to create that solid foundation for growth. First, we've whipped out lots of costs within the company that have been weighing us down and stifling potential growth. We also significantly reduced corporate overhead to become a leaner, more focused company.

Excluding the sale of our Eyewear business, this includes reducing SG&A by $44 million or 11% this past year through a variety of initiatives, including closing the corporate headquarters in Utah, and consolidating the corporate leadership team. Second, we made solid progress on our portfolio rebalancing initiative. We reduced our debt $211 million, a 23% reduction. $154 million of that comes from the sale of our Eyewear business, which we sold at a 12 times EBITDA multiple, and the rest comes from our continued focus on working capital improvements.

As a result, our improved balance sheet will free up capital to invest in our growing brands. We know we still have more to do here, and this remains a top priority for fiscal year 2020. Third, we completed the restructuring of our brand teams. We brought in several great new leaders for our brands and, at the same time, have driven more autonomy and accountability down to the brands and reconstituted a real founders' mentality in each of our businesses.

By moving away from a corporate operating model, we have now enabled our brands to control their own destiny and undertake initiatives that are better suited and more narrowly tailored to their individual business plans while also addressing their unique challenges. In the past, when the company was operating the brands from corporate, many initiatives were a one-size-fits-all proposition. However, these brands are unique and diverse and cannot all run on the same exact plan. By pushing autonomy back down to the brands this past year, we quickly started seeing improved performance, more innovation and increased fuel for growth engines.

Fourth, we reprioritized and restructured what we do at corporate. For example, we created brand-new centers of excellence in e-commerce, sourcing and procurement. Our brands are already benefiting from our ability to have a centralized specialization in e-commerce and digital marketing. We know that we'll continue to grow as we mature in the digital world.

The digital investments we are making today will pay off in terms of increased sales and profitability tomorrow. In fact, fiscal year '19 saw us make good progress on e-commerce with several direct-to-consumer sites coming online. Our Camp Chef team continues to lead the way with the online shopping experience, and we've had excellent growth on our CamelBak direct-to-consumer. We've also brought online select products under the Speer Ammunition and bullet line.

Further, we took a different approach to corporate support functions this year, restructuring many of them to focus on the task, activities and initiatives that truly drive value to our brands during the turnaround. These functions are now leaner, more focused and have a much more disciplined service offering for the business. Lastly, we have implemented a new rigorous monthly review process for all of our brands and business units that allows us to monitor performance and drill down on critical matters in real time, furthering our focus on achieving commitments. At the end of the day, all of these accomplishments have helped us reset our foundation to create a more stable base.

Now with a secure foundation, we can realistically start talking about growth. And as I said when I first announced our transformation, we are committed to profitable growth, not just top line revenue. So let's talk about what's coming up here for fiscal year 2020 and beyond and why I'm optimistic that we're well positioned to successfully continue our turnaround this fiscal year. First, let me acknowledge that I understand you have not seen an announcement on the sale of Savage yet.

We had expected that this sale would be complete in fiscal '19, but obviously, it has slipped into the current year. We're still in the negotiation process but we have not signed the deal yet. I certainly wanted to be able to make an announcement on this call but our buyer still has some more work to complete their process, and then, of course, we need to take the deal to our board of directors for approval. We continue to believe strongly in the Savage asset, and I'm extremely proud of the Savage management team for continuing to diligently work this process while simultaneously delivering solid results.

Second, as I discussed earlier that one of our fiscal '19 accomplishments was driving costs out of the company, and that certainly has been a key to securing a more solid foundation. But this is an initiative that will continue into the current fiscal year as well. We're not done yet, and we know that there are certain areas where we can continue to drive unnecessary costs out of both corporate and the brands so that we can go to market with an even leaner and more focused company. Third, we're finally seeing signs of stabilization in the ammunition market.

While .223/5.56 POS data remained soft, we're seeing sell-in and sell-through from a POS standpoint, in general, finally starting to level out. We believe this indicates that we're getting close to the bottom of the demand trough. Maybe equally as important is that the work we've been doing in our Shooting Sports segment will position us well to capture share when the ammo market comes back. We've been holding share in a highly competitive market despite pricing pressures from competitors, and we believe that it is a good sign of our potential when the market returns.

Fourth, we are anticipating full year organic growth in our Outdoor Products segment for the first time in Vista's history. The work we've been doing to stabilize our Outdoor Products brand is starting to bear fruit. While I certainly don't expect to see growth every quarter from every brand in Outdoor Products, it will build as the fiscal year moves on. I do see an overall growth pattern emerging in that business segment that is extremely encouraging and serves as a long-term indicator of our success in turning around the company.

Fifth, our focus on profitability is beginning to pay dividends. In fiscal year '19, we made it a priority not to chase after sales at the expense of profitability. Brands like Bushnell in particular walked away from deals that just weren't profitable. While we all want top-line sales growth, I'm pleased with the team's commitment to maintaining pricing discipline.

I believe we're starting to change customer behavior through this discipline. While this may have eaten away at the top-line revenue a bit, this is representative of the continued commitment to improve the profitability of our brands. Finally and maybe the most important reason for optimism is that we still have incredible brands in this portfolio. Our brands are still some of the most iconic brands in the outdoor industry.

And while some of these brands lost a little momentum as Vista was forming and maturing, the work we've done this year positions all of these incredible brands to lead their respective categories. These brands are now all operating with more autonomy, creating a meaningful mission and vision for their respective enthusiasts and forging a very compelling future. What they have in common now is a commitment to building great teams, a passion for innovation and the tools necessary to create amazing end user experiences for their customers. And all of these brands have some really great products on tap for this year.

We introduced scores of new products at our winter trade shows and have just completed the launch of even more at the NRA Show. Here's a few examples of the products we're very excited about: for ammunition business, we're already -- we've already launched over 100 new ammunition products this calendar year. I told you about some of these last quarter but a few others that I want to mention are the new Short shotshells and Top Gun sporting shot shells, which are great for clay shooting. We're now offering component bullets for Hydra-Shok Deep and Edge TLR lines that we know our consumers are really excited about as well as new offerings in our rimfire line, the CCI Clean-22 and Quiet-22 Semi-Auto.

And we're also offerings Speer's top-of-the-line Gold Dot 2 ammunition to the commercial market. Our BLACKHAWK! T-Series holster, which is a new retention holster, has been generating tremendous buzz with law enforcement agencies. On the Bushnell side, we've recently launched the Golf Pro XE rangefinder, which is the talk of the golf industry as a truly revolutionary technology, the first of its kind to accurately measure changes in altitude and slope and the effects of humidity on golf ball distance. CamelBak has just launched their pivot line of products made from 50% recyclable materials in addition to their Eddy+ and Peak Fitness bottles and their women's run collection, and Camp Chef continues to improve their portable grill and accessories offerings for the backyard and patio consumer.

While I'm optimistic about fiscal year '20, I'm also realistic that we're not out of the woods yet. We continue to face headwinds that are pressuring our business. While the ammo market seems to be bottoming out, we still aren't seeing that upward J curve that we'd like to see. All of the best minds predicted that the recovery would take 18 to 24 months, and here we are at well over two years without the market rebounding.

We also continue to see retail pressures with consolidations and bankruptcies that really affected our fiscal year '19 and will again pressure us in fiscal year '20. We believe we've got solid guidance for fiscal year '20. I surely appreciate that it's hard to get excited about a flat sales guide but our guidance of doubling our EPS or better is the start to the trajectory we want to be on. However, as we have stated previously, our goals remain to achieve profitable growth, and I'm confident we're on the right track to get there.

With that, let's talk a bit about the future. While I know we've made solid progress, it's surely not as fast as any of us would like, and it's not a straight line either. But I can tell you this, for fiscal year '20, we're going to see -- you're going to see us continue to cut cost out of the business, improve our supply chain and move faster on e-commerce and empowering our brand teams. One of the biggest aspects to our turnaround is what our portfolio is going to look like moving forward.

As you know, we've made the decision to not immediately sell our BellGiro business. We discussed that on our last earnings call but I want to spend a little more time on that decision to put it in the proper perspective. When we announced our plan to adjust our portfolio, we said and have continued to say that divestitures only make sense for the company and our shareholders if we can achieve the right price and the right terms. As for the BellGiro business, after further internal and external analysis was complete, we came to the conclusion that those brands can return to growth and display the leadership economics we expect from the brands in our portfolio.

However, today, with the current state of that business, we don't believe we'd get the offers we'd want to see for that business. So we're going to spend some time to improve the brand's performance to get them to where they rightfully should be. Since that decision, we've also had a leadership change at BellGiro and we're going to use that as an opportunity to continue building those brands with a fresh perspective. As for Savage, we'll continue that process with an eye toward completing the negotiation as soon as practical, and we hope that the remainder of the process is productive and gets us the result that we need to have confidence in closing the transaction.

So I hope that gives you a little more color on where we're heading in the near to midterm with the portfolio. For those of you who have stuck with us far -- stuck with us thus far through the turnaround, we think you're going to see that your belief in our company is going to be rewarded with long-term earnings growth. So I want to thank everyone for joining us today, and as I said, I remain extremely optimistic about the future of Vista Outdoor. I know everyone wants an immediate fix, but the truth is that we're on track with our turnaround, and as you know, turnarounds are always a multiyear process.

Our year one goal was to fix the foundation, we've done that. We're stronger than we were a year ago and in a much better position to attack the next phase of our plan. Our year two goal is to build on that foundation. We will do that by ensuring we have strong growth strategies identified for our brands and continued efficiencies at corporate to help support our brands.

We're already making good progress in this area. We've got excellent talent at the brands that is getting smarter every day. We continue to rip out costs and become more efficient in our business operations, and we're setting aggressive goals for our brand teams so that we're in position to take or hold share in our leadership categories. We continue to make progress each quarter, and I remain confident that we're on the right path.

I want to thank our employees for their hard work to get us where we are so far, and I know they will help propel us to where we want to be in the future. With that, I'll turn the remainder of the time over to Mick to discuss the financials. Mick?

Mick Lopez -- Senior Vice President and Chief Financial Officer

Thank you, Chris. Good morning, everyone. We have disclosed both as reported and adjusted results in our press release. You will also find a more detailed financial presentation of our fourth quarter and full year fiscal year 2019 performance on our website.

On that presentation, let's start on Page 4 with the highlights in our fiscal year 2019 ending balance sheet that shows $211 million debt reduction or 23% as a result of asset sales and improvements made to working capital. Most of these working capital improvements came from reductions in accounts receivable and also in capital expenditures year to year. We have reset over $500 million in goodwill and intangible assets to better reflect their valuation. Also, notice on our long-term debt that we have been successful in obtaining a new credit agreement that is at a much lower cost with less strict covenants.

Moving on to Slide 5, you can see that we have consistently lowered our debt, and consequently, our net debt leverage ratio at the end of the year was about six times as defined by the terms of our credit agreement at the time. Now turning to our profit performance. Today, I will discuss adjusted results first for Vista Outdoor overall and then provide a little more color on our segments. Turning to Slide 6 and looking at the fourth quarter, we recorded sales of $515 million, down 10% compared to the prior year quarter.

The decrease was primarily caused by the loss of $34 million in revenue from our Eyewear business, which we sold in the second quarter, which implies an organic revenue decrease of 4%. Ammunition sales for the quarter were flat compared to the prior year quarter, while sales in outdoor recreation, firearms and hunt shoot accessories were lower this quarter. The company achieved full-year sales of $2.06 billion, which exceeded our guidance. This is a decrease of 11%, compared to the prior year or 7% on a comparable basis without Eyewear.

We experienced declines in ammunition, hydration, and hunt shoot accessories offset by increases in firearms and outdoor cooking. Gross profit for the fourth quarter was $103 million, compared to $112 million in the prior-year quarter. The gross profit rate for the fourth quarter was 20%, reflecting a small 34-basis-point increase over the prior year quarter. Full-year gross profit was $432 million, compared to $524 million in the prior year.

The gross profit rate for the full year was 21%, compared to 23% in the prior year, a decrease of 173 basis points driven by 302 basis point decrease from shooting sports. Operating expenses for the fourth quarter were $92 million, compared to $123 million in the prior year quarter for a total reduction of 25%. On a comparable basis, expenses decreased by $19 million or 17%, adjusted for the sale of our Eyewear business. The decrease reflects lower bad debt expense, benefits of cost-reduction actions taken and lower overall selling costs.

Full-year operating expenses were $371 million, compared to $444 million from the prior year. The 16% year-over-year decrease reflects the sale of Eyewear. On a comparable basis, expenses decreased, as Chris said, by $44 million or 11% as a result of multiple cost-reduction initiatives across the whole company. From a GAAP standpoint, please note that the Savage firearms' asset that was classified as held-for-sale in the third quarter was impaired for an additional $36 million in the fourth quarter in order to reflect the latest $170 million valuation from the potential buyer.

Interest expense for the fourth quarter was $11 million, down 4% compared to the prior-year period. The decrease was due to overall lower debt balance partially offset by higher average interest rate. Interest expense for the full year was $51 million compared to $49 million in the prior year. The full-year increase reflects a higher average interest rate partially offset by a decrease in average debt balance.

The tax rate for the quarter was 170%, compared to 46% in the prior year. The tax rate benefit for the full year was 14%, compared to 8% in the prior year. The current year tax rate was primarily affected by the release of tax reserves as well as a true-up of prior year taxes partially offset by nondeductible expenses incurred over the year. Any of these fixed amounts, of course, moves the tax rate significantly.

EBITDA for the year was 6.7% and in line with our guidance of about 7%. EPS in the fourth quarter was $0.01, up from negative $0.22 in the prior year quarter. The company delivered earnings per share of $0.14 for the full year, down from $0.50 in the prior year. The EPS shortfall to our full-year guidance was a result of several factors in the fourth quarter.

First, we experienced a number of discrete production- and supply related issues, which limited our ability to meet demand for higher-margin products. Secondly, approximately $0.04 of the impact resulted from increases to our bad debt reserve in the quarter to account for material bankruptcy risk with respect to a large customer. Finally, in the quarter, we also increased our product liability reserves to reflect increased risk in that area resulting in a further $0.03 impact to earnings per share. We delivered free cash flow for the full year of $79 million, which was within our guidance of $70 million to $100 million.

Now turning to our business segments on Slide 7 where we report both sales and adjusted gross profit by segment. Looking at the fourth quarter, our Outdoor Products segment recorded sales of $220 million, down 19% from the prior quarter. On a comparable basis without Eyewear, the decrease is 8%, and we continue to see softness in the hunt shoot accessories market. For the full year, sales were $990 million, down 14% compared to the prior year.

Organically, without Eyewear, the decrease is 7%. As we focus on profitable sales, we see revenue decreases across most product lines offset by growth in outdoor cooking. Gross profit for the fourth quarter was $53 million, down 17% compared to the prior-year quarter. The gross profit rate of 24% for the quarter increased by a total of 70 basis points over the prior year quarter.

In a lower sales volume environment, the gross profit rate increase is the result of our continued focus on improving pricing discipline and cost-saving initiatives. Growth profit for the full year was $248 million compared to $290 million in the prior year. The 15% decrease reflects the sale of Eyewear again, lower sales volumes and product mix. The gross profit rate for the full year was 25% and was flat compared to the prior year.

Now turning to our Shooting Sports segment on Slide 8. Sales for the fourth quarter were $295 million, down 1% from the prior year quarter, which reflect the continued challenges within the firearms category. Ammunition sales were flat to the prior year quarter. Sales are up 22% on a sequential basis, which reflects timing of international contract deliveries and increased demand in key ammunition product lines.

For the full year, Shooting Sports reported sales of $1.069 billion, down 8%, which was primarily caused by overall continued Shooting Sports market softness. Turning to gross profit, fourth-quarter gross profit was $50 million, up 3% from $49 million in the prior-year quarter. The gross profit rate for the quarter was 17%, which is a 63 basis point increase from 16% in the prior year quarter. The gross profit rate improvement in the lower sales volumes is the result of favorable commodities, reduced overall discounting offset by continued weakness in the .223/5.56 market.

Full-year gross profit in Shooting Sports was $184 million, down 22% compared to the prior year. The full-year gross profit rate was 17%, compared to 20% in the prior year for a decrease of 302 basis points. The decline reflects overall less favorable commodity pricing, increased promotional activity, and lower overall sales volume tied to continued market softness through the year. Lastly, on Page 9.

We have established guidance for fiscal year 2020. This guidance includes the Savage firearms business for the full year. As with previous guidance we have given, we reflect all operating results, including amounts normally adjusted during the sales process, such as depreciation and amortization. Our intent remains for the success of sale of this Savage firearms assets, which will further our debt pay down goals.

Given uncertainties around the timing of the firearms transaction, we have included firearms for the full year in our guidance. From a total company perspective, we expect sales in the range of $1.94 billion to $2.03 billion. We expect overall gross margins and research and development investment generally in line with fiscal year '19. We anticipate Shooting Sports markets to be in the mid- to high-teens and Outdoor Products margins to be in the low to mid-20s.

We also expect EBITDA margins of approximately 7%. We expect annual interest expense in the range of $45 million to $50 million. The effective tax rate for the year is expected to be approximately 5%. We also expect to deliver full-year EPS in the range of $0.28 to $0.38 with improvement shown toward the back half of the year.

We expect full year capital expenditures to be in the range of $45 million to $50 million. Lastly, we expect to deliver free cash flow in the range of $55 million to $65 million. For modeling purposes, were Savage to be sold at the beginning of the year, EPS would be affected by a range of $0.10 to $0.15. For our first quarter, we expect continued challenges in the market and more excess inventory sold at lower margins.

New product introductions, commodity improvements and further cost reductions will gradually increase our gross profit every quarter. We do expect that our performance this fiscal year '20 will reflect normal seasonal variability between quarter-to-quarter earnings and, in particular, lower international ammunition orders. And with that, Brandon, we will now take questions.

Questions & Answers:

Operator

[Operator instructions] The first question will come from Eric Wold with B. Riley. Please go ahead with your question.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Thank you. Good morning. A few questions. I guess, one, I wanted dive a bit deeper into your comments around BellGiro to make sure I'm understanding your thoughts on those brands now.

Would you characterize that as continuing to run it to improve valuation for an eventual sale or is this a situation where it actually could be factored back into the portfolio long term and not be sold?

Chris Metz -- Chief Executive Officer

Yes. So, Eric, we -- our board and our senior leadership team evaluate our assets and our portfolio all the time. And as we sat down and reviewed the BellGiro asset, we came to the clear conclusion as a team and as a board that we are much better off holding this asset in continuing to improve it for a period of time, and that will be a multiyear period of time. We see that much upside in the business.

So at this point in time, we're excited about holding it. We think it's the best thing to do for driving shareholder value, and that's what our intended plan is.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Perfect. And then on the Outdoor Products, with the guidance or comments for growth overall organically for fiscal '20, give us a sense of kind of where you see strength and weakness with some of the various product lines or brands. And kind of what -- the ones that are expected to be weak, what the major headwinds are for those brands?

Chris Metz -- Chief Executive Officer

Yes. I mean, so starting first with Shooting Sports, in total, we still have not seen the bottom. We've seen signs that the bottom is near. We're certainly seeing signs of stabilization, but we're planning those businesses in our guidance to be slightly down in the fiscal year.

So kind of low-single digits, if you will. On the Outdoor Products side, in total, we expect that business to be up low-single digits. And if we look across all of our brands, just about every brand -- in fact, every brand -- major brand is forecasting to be up some more than others. And as we stated before, we've got brands like Camp Chef that continue to capitalize on the outdoor cooking space.

We would expect them to grow a bit more than some of our other brands. But we've got some other brands with some really, really exciting new products that are coming on stream and some e-commerce direct-to-consumer marketing initiatives that -- and digital marketing initiatives that we're doing that we're very excited about. So we're very happy with the position were in to grow our Outdoor Products business this year.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

OK. And just a final question from me, if I may. With the guidance for $55 million to $65 million of free cash flow this year versus 70 -- $79 million last year, sales improving, margin is OK. What's the biggest factor kind of keeping -- driving that decline in free cash flow? And where could you see opportunities to bring that higher, besides the sale?

Mick Lopez -- Senior Vice President and Chief Financial Officer

Yes. Look, thanks for that question. And to allow a little bit more clarification, we've looked at our conversion of EBITDA into cash throughout the years. On a revenue basis, it's anywhere from 3% to 8%.

On a EBITDA basis, it varies widely from 12% to over 170%. Just last year, the -- respectively, the conversion rate versus revenue was about 4%, and we're being a little bit conserved in saying it's in that range, in the 3% to 4% range is what we're guiding to. So there's opportunities certainly on the inventory side. I think this year, we made great strides in our accounts receivable.

We notice also that we were very judicious in our use of working capital. And whereas we've been as high as $80 million and actually had a run rate of about $60 million, we've brought working capital in way below that in $40 millions, mid-$40 millions. So I'm very proud of that and we'll continue to focus on high return on investments on our working capital and to start turning our inventories more is where we see the upside.

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Got it. Thank you both.

Operator

Thank you for the question. The next question will come from Gautam Khanna with Cowen and Company. Please go ahead with your question.

Gautam Khanna -- Cowen and Company -- Analyst

Yes, thank you. I had a couple of questions. First, any update on the Lake City supply agreement and the terms of that contract?

Chris Metz -- Chief Executive Officer

Yes, so we're deep into the process here, and all we're able to comment on is publicly available information. We mentioned last time that we're partnered with who we think is the best contractor in the industry, and we feel like we've got two No. 1 folks that are arm in arm and going down the process of answering all of the questions from the government for the contract. So there's going to be a best and final due here shortly.

The government then will take their time to review the process through the summer months, and we'd anticipate an answer in the early fall time frame.

Gautam Khanna -- Cowen and Company -- Analyst

Got it. And just in the interim, has there been any change to the underlying pricing from Northbrook to Vista?

Chris Metz -- Chief Executive Officer

Yes, so I commented on the previous earnings call that we were hopeful that the Lake City organization would be more accommodating to help us go after some sales, and they have. And they've been very good to work with over the past 90 days, but the market remains soft. And we felt like we made the right decision to opt out of our exclusive contract because, frankly, the market has remained soft for a period of time and has continued to. But they've been more accommodating and we're certainly appreciative of their partnership as we look to sell more of their product.

Gautam Khanna -- Cowen and Company -- Analyst

Last one for me. Just on supply issues mentioned in the Shooting Sports segment, can you just elaborate on what specifically propped up in the quarter and has it been resolved as of yet?

Chris Metz -- Chief Executive Officer

Yes, so we don't want to get into very specifics of exactly what it was but we can assure you that it was onetime in nature. It was an incident that we strongly believe will not recur, and we don't expect it to have an issue on our plan for fiscal year '20.

Gautam Khanna -- Cowen and Company -- Analyst

Thank you.

Chris Metz -- Chief Executive Officer

Yes, thank you.

Operator

Thank you for the question. The next question will come from Dave King with ROTH Capital Partners. Please go ahead with your question.

Dave King -- ROTH Capital Partners -- Analyst

Thanks. Good morning, guys.

Chris Metz -- Chief Executive Officer

Good morning.

Mick Lopez -- Senior Vice President and Chief Financial Officer

Good morning.

Dave King -- ROTH Capital Partners -- Analyst

First on the $0.10 to $0.15 impact from the Savage sale. Is that based on the contribution to operating income or does that assume any reduction in debt and interest?

Mick Lopez -- Senior Vice President and Chief Financial Officer

That's a very good question, Dave, and it would be a reduction of interest also to compensate for the sale of the asset.

Dave King -- ROTH Capital Partners -- Analyst

OK. Thanks, Mick. And then on the revenue guidance, how do you see each of the quarters shaking out versus the down one to five you sort of laid out? It sounds like you're more optimistic on the outdoor side of the business. Should we be expecting improvement over the next couple of quarters or is that more second half loaded? And then sort of a similar question for Shooting Sports.

Thanks.

Chris Metz -- Chief Executive Officer

Yes. It's pretty similar to what we've seen in this past year where we feel like out strong -- we're going to have a stronger second half. Our strongest quarter has historically been our second quarter from a Shooting Sports standpoint that drives our overall second quarter to be stronger. But last year, first quarter was fairly weak.

We expect that to continue as we have some very seasonal products that don't sell as well in the first quarter. So we expected to roll out from a quarterly perspective pretty similar to what we've experienced the past four quarters. And we'll certainly on the Outdoor Products side will build as the quarters move on and as the new leadership, general management team that we have in place starts to see the fruit from their labors come forward in new products and what have you. So that will certainly lean toward the back half.

On the Shooting Sports side, again, it's going to be a weaker first quarter, stronger second quarter and will mirror a little bit of the -- what you've seen in the last two quarters in the back half.

Dave King -- ROTH Capital Partners -- Analyst

OK. That's great color, Chris. Thank you. And I guess lastly for me, on the production and supply chain issues, Mick, can you talk a little bit -- or Chris, can you talk a little bit about what drove those? And to what extent are those now behind you? Thank you.

Chris Metz -- Chief Executive Officer

Yes, so we had some issues with some of our suppliers in terms of material. A little bit was forecasting and a little bit was, frankly, just some opportunities that we had that we were chasing down that came up and they were unable to supply in quick response the material that we wanted. So there wasn't anything that would be an effect long-term that we're concerned with, but certainly had an effect on our fourth quarter and -- that held us back a bit.

Dave King -- ROTH Capital Partners -- Analyst

OK. None going forward. Good to hear.

Chris Metz -- Chief Executive Officer

No. Nothing --

Dave King -- ROTH Capital Partners -- Analyst

OK. Thanks for taking my questions and good luck with the year ahead.

Chris Metz -- Chief Executive Officer

Yes. Thank you, Dave.

Operator

Thank you for the question. The next question will come from Brett Andress with KeyBanc Capital Markets. Please go ahead with your question.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Hey. Good morning.

Chris Metz -- Chief Executive Officer

Good morning, Brett.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Can you help us understand the variables within the Savage sale process a little bit better? I guess, is the time line being stretched out over price discovery, which, I guess, maybe that's what impairment is telling us or are there any legal hurdles? Any other complexities that we're not appreciating? Just any color there.

Chris Metz -- Chief Executive Officer

Yes. So Brett, I think the Savage process is on many folks' minds. And so I think it probably makes sense to spend just a couple of minutes explaining where we're at today. And what I think makes most sense is to start at the very beginning.

What we said at the beginning of the process was that we felt it made sense to look to sell Savage because we thought it would be more valuable to others than it would be to us. We also said that we want to remain disciplined sellers and not give away the asset. We did not want to be part of a fire-sale. And we also said that there were more interested buyers, and therefore, we thought it was going to be a robust process.

In the last quarter, 90 days ago, we felt as though we were far enough along that we deemed it highly likely that there would be a signed contract by the end of the quarter. Now where do we sit today? We still believe that it makes the most sense to unlock long-term value to Vista to sell Savage. We continue to have strong interest from multiple buyers and we're very far along in due diligence with one said buyer. Unfortunately, as many of you know, it's a -- the firearms is a very challenging industry, and our buyer due diligence has taken significantly longer than we thought.

We being us, our buyer, and our advisors ever thought it would take. So as we look forward, we're going to continue down the path of due diligence and the current process, and we'll update as -- update you as we know more. Now the silver lining is Savage is a prized asset within the firearms industry. It's got a great track record, it's got a great management team, and we feel like it's not dilutive to our guidance this year.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Understood. Thank you. And sorry if I missed this one, but the increase in reserves for, I believe, customer credit risk and product liability litigation, I guess, where did that impact fall on the income statement? And just any more color on, I guess, what that is? There wasn't really any bankruptcies on my radar, but maybe I haven't been paying attention. So if you could elaborate on that?

Mick Lopez -- Senior Vice President and Chief Financial Officer

Sure, sure. So let's take first the product liability risk, which we attributed $0.30 for that. There is an assessment at year end we do with our legal team to go through a general reserve. We also look at specific cases.

And as a result of that, it was evident to us that we would take a cautious approach and that the right approach is to reserve for potential liabilities coming in the future, as we have done in the past. There was one particular case that prompted us to do the majority of the reserve, so that's one specific case. On the bad debt, you probably have heard that there have been no recent bankruptcies, but there are high potential for an impending bankruptcy. We have reserved that particular customer at 50%.

And given recent developments that we have heard in the marketplace, we thought it maybe would be prudent to increase our reserve to 90% as we have in the past only received about 10% recovery on these types of bankruptcies. So hopefully that adds sufficient color.

Chris Metz -- Chief Executive Officer

Yes. Just to put a finer point on it. We feel like -- it was a hit that we felt like all the evidence supported securing for that credit risk, and we feel like we're fully reserved now. As Mick said, we typically get a 10% recovery.

With 90% reserve, we feel like it was prudent to take this in the fourth quarter and be fully reserved walking into 2020.

Brett Andress -- KeyBanc Capital Markets -- Analyst

No. Thank you. Thank you for the color there. And a last one, Chris, just any update on the pricing environment within ammunition? With commodity costs coming down across the industry, are you seeing any signs of irrational pricing actions or just any movement kind of over the last 90 days along that front?

Chris Metz -- Chief Executive Officer

So, Brett, we're cautiously optimistic. But what's happened, what we've seen in our last 90 days is all of our major competitors have taken price increases, which we find highly encouraging. And so we see the pricing market, in general, stabilizing for ammunition, and so we're encouraged by what we're seeing in the marketplace. And we think that's a harbinger for better things to come this fiscal year than this past.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Got it. No, that is encouraging. Awesome. Thank you.

Chris Metz -- Chief Executive Officer

Thanks, Brett.

Operator

Thank you for your question. The next question will come from Jim Chartier with Monness, Crespi, Hardt & Company. Please go ahead.

Jim Chartier -- Monness, Crespi, Hardt, and Company

Good morning. Thanks for taking the question.

Chris Metz -- Chief Executive Officer

Hey, Jim. Good morning.

Jim Chartier -- Monness, Crespi, Hardt, and Company

Chris, on the Outdoor Products outlook for the year, could you just give us a little bit more color maybe in terms of backlog that you have or POS trends that you're seeing that gives you confidence that, that business won't fleck to organic growth this year?

Chris Metz -- Chief Executive Officer

Yes. So we -- there's no question that we've faced a challenging environment. I mean many folks have called it the retail apocalypse. And so there's been a lot of unnecessary -- well, not unnecessary, there's been a number of customer bankruptcies and what have you that have negatively affected a number of our brands.

What we see more of here is the strength of some of our brands and the sell-through that we're seeing. So this past winter, we had terrific snow and we capitalized on that with some of our helmets and goggles. We grew to the No. 2 share position in our goggle line with our new VIVID technology.

And things like that obviously lead to a stronger growth the following year as our dealer base looks to refill and restock their inventory position. We've had a number of new products that have recently hit -- I mentioned, Bushnell that, frankly, we can't build enough of them because the product is so hot right now. So we've had a number of product hits that we're encouraged by. And with the product road we've got in place and some of the traction we're getting online with our digital marketing efforts, we feel pretty confident that we've got some momentum that is sustainable.

But again, it's -- there are still headwinds that are out there and that's why we're forecasting the low single-digit growth that we're forecasting. And we expect the Outdoor Products business to build as we move through the year and we start to see more of these products hit the marketplace.

Jim Chartier -- Monness, Crespi, Hardt, and Company

Great. And then you put in place some new brand leaders, I think, close to a year ago. Just wanted to understand what changes they've made. And what -- are you starting to see an impact from the new leadership?

Chris Metz -- Chief Executive Officer

Well, we certainly are. And any time you bring in a new leader to some of the brands, it's going to take a bit of time before they start to get traction. And that's why we feel stronger and better about the -- about next year and as we move forward here because it just takes time for their initiatives to bear fruit. And so you mentioned the time frame.

So the first general manager we brought on was probably about a year ago right now. The others were brought in, in the last probably six to nine months. The general manager of our Bushnell business has been in place now for about a year, that's where we have seen the biggest impact because, frankly, he's been in the seat the longest. We implemented initiatives such as MAP pricing, which is minimum advertised pricing, and we didn't do quarter-end deals.

And at first, it hurt us but our customers started to realize that as they ordered our product, we weren't going to give it away. And so we became much more disciplined in our pricing. And by the way, this also helps our customers because they don't want to get behind product that doesn't have mapped pricing because they won't make money either. So it's a win-win.

And they're appreciative, but it's taking some time to work through the system. It's had immediate effect on the product road, as you've seen with our laser rangefinders and some of the other products that are starting to hit the marketplace right now. So we're excited about that. We've got new leaders in place at BLACKHAWK! and CamelBak, and we're really, really encouraged by what we're seeing there.

Obviously, we don't want to give away any competitive intelligence here, but trust me, they're having an impact on their teams, and we're highly excited about what we're seeing.

Mick Lopez -- Senior Vice President and Chief Financial Officer

I would also like to add that they're very disciplined operational leaders besides bearing -- have a lot of prowess on their marketing and sales side. And we have seen detailed reviews of inventory reduction in SKUs, moving some of the excess and obsolete, which is evident in some of their particular inventory numbers. So I think these leaders are great general managers. And if I combined, as Chris mentioned, contribution, that will yield more and more fruit as they build their teams out.

Some of them are just recently filled to the teams.

Chris Metz -- Chief Executive Officer

Yes. And so to add on that point because I think it's important for everybody on the call to understand, you're seeing in our guidance here no real growth in the sales line as it's -- Shooting Sports has offset the growth that we're going to see in Outdoor Products. But you're seeing margin lift, and that margin lift is coming from the efforts that Mick talked about. And so we sat down and partnered with each of our general managers and really gone after the complexity that sits in the business, and that means less SKUs, less inventory and taking action on stuff that gives us clear line of sight to the profitable products and where we can make the most money.

Jim Chartier -- Monness, Crespi, Hardt, and Company

Great. Thanks for all the color. Best of luck.

Chris Metz -- Chief Executive Officer

Yes. Thanks, Jim.

Mick Lopez -- Senior Vice President and Chief Financial Officer

Thanks, Jim.

Operator

Thank you for the question. The next question will come from Scott Stember with CL King & Associates. Please go ahead with your question.

Scott Stember -- C.L. King and Associates -- Analyst

Good morning and thanks for taking the question.

Chris Metz -- Chief Executive Officer

Yes, Scott.

Scott Stember -- C.L. King and Associates -- Analyst

Could you guys give us maybe an update on what you're seeing at the personal stockpiling angle? I know it's very difficult to ascertain, and I know that about a year, a year and a half ago, you guys conducted a study. And do you have any updated findings of when we could be seeing a turn there? Is that baked into your expectations that the market, I guess, will be flattish to down a little bit or do you still think that there could be some weakness on that front?

Chris Metz -- Chief Executive Officer

Yes. So what we've seen from our surveys is the underlying health of Shooting Sports in general is it continues to be very healthy. What we've seen from our conversations with distributors, buy groups, dealers as we went through all the winter shows was more optimism, frankly, than we've seen in a long, long time. They all feel good about the inventory levels that they're carrying, the conversations they've had with customers.

Our range customers and folks that operate ranges feel good about where they're at. But nobody really honestly knows how the fickle consumer demand turns into stockpiling or what have you. We really feel good about the inventory position and the underlying Shooting Sports, but what we're predicting is just a more normalized environment this year. We're not expecting any big run up.

We're not expecting any stockpiling. We're just expecting normal replenishment of inventory, and that's what we've guided to. And in fact, maybe a little bit down, as we said.

Scott Stember -- C.L. King and Associates -- Analyst

Got it. And just going back to the leverage situation and throwing the potential sale of Savage Arms in there, operating at six times right now. And I know that it sounds like you still expect this deal to get done, but in the event that, let's just say, this doesn't get done, at least with this one customer, maybe talk about -- or potential buyer, again, just remind us whether the demand or the excitement about this is still existing with other potential buyers? And also how comfortable are you operating within this six times leverage ratio range in the near term?

Mick Lopez -- Senior Vice President and Chief Financial Officer

Yes. Sure. We are in the process right now with a buyer. We're in exclusivity.

So we're hopeful that we can consummate the deal as agreed to. But there are other multiple buyers out there and we're willing certainly to reopen it, certainly once it closes. From a leverage perspective, I think we have addressed this in the past but would like to reiterate that Savage is a very profitable brand that yields a significant amount of cash flow and EBITDA, and we expect it to continue to do so. And actually, the leverage, as a consequence, will be approximately the same whether we keep Savage or not.

We do hope to continue doing improvements to our reduction in debt through working capital management, as we had done last year, not just on asset sales. So we're confident that we are on track to going below six throughout the year.

Chris Metz -- Chief Executive Officer

Yes. So let me also add on to that. I think it's important to note, in the slides we've provided and -- that Mick referenced in his scripted remarks, Slide 5 talks about an inflection point that we hit. So for the first time in over seven or eight quarters, we actually saw our leverage ratio declined.

Obviously, that did not include the impact of the sale of Savage. It points more toward the efforts that we're making in the business to generate better earnings and, frankly, working capital improvements. So as we go forward with or without a sale of Savage, which nobody is forecasting anything other than finishing the process that we're in right now, is a continued reduction in our leverage. And that continued reduction in our leverage is going to come from a combination of asset sale as well as continued improvement in working capital and earnings growth.

Mick Lopez -- Senior Vice President and Chief Financial Officer

That's right.

Scott Stember -- C.L. King and Associates -- Analyst

Got it. That's all I have. Thank you.

Chris Metz -- Chief Executive Officer

OK. Thanks.

Mick Lopez -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. The next question will come from Karru Martinson with Jefferies. Please go ahead with your question.

Karru Martinson -- Jefferies -- Analyst

In the past, you guys talked about wanting to focus on the Savage Arms divestiture, get that out of the way, and then kind of review the portfolio. With the delay here in the process, meaning, have you ever -- have you given some additional thought to other assets perhaps that you would want to monetize?

Chris Metz -- Chief Executive Officer

Well, it really goes back to the previous question of how comfortable are we with the current leverage. And as we stated before, we want to continue to drive down our leverage ratio. We'd feel much more comfortable in that two to three times leverage position, and we're going to continue to work to get down there. We, as I mentioned before as well, continue to dialogue actively with our Board to discuss the best way to unlock and drive shareholder value.

And if we felt as though there is another asset sale that would contribute to that, we'd certainly be open to it. But at this point in time, we feel like the best way to drive shareholder value and continue to reduce our leverage ratio is to improve the businesses that we're running right now.

Mick Lopez -- Senior Vice President and Chief Financial Officer

Yes. I'd just like to add that our new credit facilities are just perfect for us. Our rates are fairly low. As of March 31st, the average interest rate was 4.8% on the revolver and 6.2% on the term loan.

We certainly have a much higher rate on our second lien, which is north of 10%, but that's only $40 million. So our overall rate is lower. That is reflected in our guidance for next year of lower interest expense. I mean, then when we look at the covenants associated with our debt, they're much more lenient.

We do have a FCCR, fixed charge coverage ratio, that we're confidently way above right now. So there's no concern there from a liquidity standpoint either.

Chris Metz -- Chief Executive Officer

Yes. To add on to Mick's point, we spent an awful lot of time last year working with our lenders. And it was a big initiative of ours knowing that we're in a transformation of the company that we locked down a long-term credit facility that would give us the ability to finish what we're doing. So all of our debt has a four-year plus maturity on it.

So we feel highly confident operating in the current leverage ratio that we're in right now as we work to get it down.

Mick Lopez -- Senior Vice President and Chief Financial Officer

Yes. We constantly talk to our financial partners at Wells, JP Morgan, BMO, Cap One, Fifth Third, and they're very confident of where we are. And again, as Chris mentioned, we have our next maturity in 2023 and feel that our liquidity position is perfectly fine right now. And we will continue to drive our leverage ratios down as we increase our EBITDA and contribution margins.

Karru Martinson -- Jefferies -- Analyst

OK. And notwithstanding the pricing pressures that you're seeing in ammo, it does seem like the Shooting Sports gross margin is bottoming out. Is the right way to think about that is that we have a lower margin here in the first quarter but we sequentially build each quarter for the full year?

Chris Metz -- Chief Executive Officer

Hey, listen, it's a very good question although we're not here to call the bottom on the sales growth although we've seen, as I said before, stabilization in the marketplace, which we're encouraged by, we do feel like we've hit that inflection point on margins. The activity that we have going on in our facilities, the commodities, little bit of a tailwind year over year. For a variety of reasons, we've troughed out in ammunition margins and you're going to see an improvement this year, not just year over year but sequentially as we go through the quarters. We feel good about that.

Operator

Thank you for the question. This concludes the Q&A portion. I'll now turn the call back over to Christopher Metz for closing remarks.

Chris Metz -- Chief Executive Officer

Thanks, again, for everyone's time today and being on the call this morning. I'm proud of what we've accomplished for fiscal year '19 and eager to prove what we can do in fiscal year '20. I believe we have a solid plan, a strong team, and the right mindset to accomplish our goals for the fiscal year. We've built a strong foundation in the first year of our transformation and that gives me great confidence for what we can achieve in the future.

I look forward to updating you on our progress in August. Thank you.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Kelly Reisdorf -- Vice President, Investor Relations

Chris Metz -- Chief Executive Officer

Mick Lopez -- Senior Vice President and Chief Financial Officer

Eric Wold -- B. Riley FBR, Inc. -- Analyst

Gautam Khanna -- Cowen and Company -- Analyst

Dave King -- ROTH Capital Partners -- Analyst

Brett Andress -- KeyBanc Capital Markets -- Analyst

Jim Chartier -- Monness, Crespi, Hardt, and Company

Scott Stember -- C.L. King and Associates -- Analyst

Karru Martinson -- Jefferies -- Analyst

More VSTO analysis

All earnings call transcripts