American Outdoor Brands Corporation (AOBC) Q4 2019 Earnings Call Transcript

AOBC earnings call for the period ending April 30, 2019.

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American Outdoor Brands Corporation (NASDAQ:AOBC)
Q4 2019 Earnings Call
Jun 19, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the American Outdoor Brands Corporation Fourth Quarter and Full Year Fiscal 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, today's conference may be recorded. I'd now like to introduce your host for today's conference, Liz Sharp, Vice President of Investor Relations. Ma'am, please go ahead.

Liz Sharp -- Vice President of Investor Relations

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, believe, and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding revenue, earnings per share, non-GAAP earnings per share, fully diluted share count and tax rate for future periods, 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, including our Forms 8-K, 10-K and 10-Q. 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.

I have a few important items to note which regard to our comments on today's call. First, we reference certain non-GAAP financial measures on this call. Our non-GAAP results and guidance exclude goodwill impairment charges, the effects of tax reform, as well as acquisition-related costs, including amortization, debt extinguishment costs, recall-related expenses, one-time transition costs, a change in contingent consideration liability, fair value inventory step-up and the tax effect related to all of those adjustments.

The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in today's Form 8-K filing, 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. For detailed information on our results, please refer to our annual report on Form 10-K for the year ended April 30, 2018.

I will now turn the call over to James Debney, President and CEO of American Outdoor Brands.

James Debney -- President, CEO & Director

Thank you, Liz. Good afternoon and thanks everyone for joining us. With me on today's call is Jeff Buchanan, our CFO. Later in the call Jeff will provide a recap of our financial performance as well as our updated guidance. Fiscal 2019 was a year that presented several challenges for the firearms industry, including changes in the political environment and reduced consumer demand for both firearms and the accessories attached to them, such as lights, lasers and scopes.

Despite that backdrop, we delivered year-over-year growth in revenue and gross margin, and we believe we gained market share. And importantly, we made significant and exciting progress toward our long term strategy of being the leading provider of quality products for the shooting, hunting and rugged outdoor enthusiast. Today, I'll recap our accomplishments for the year in the context of our strategic plan, then Jeff will provide detail on our financial results and our outlook for the coming fiscal year.

You will find our strategic plan outlined in the Investor Presentation currently posted on our website. That plan consists of five main themes. The first of these is to remain focused on organic growth. Our objective is to harvest the growth potential of our 20 distinct brands by leveraging our deep understanding of the consumers' needs, wants and desires, and using that information as a leading light for our new product development pipeline. This approach allows us to further expand our overall addressable market and to establish ourselves in new product categories where we believe our brands have permission to play.

We made significant progress on this objective across our entire Company in fiscal 2019. In firearms, we introduced 106 new SKUs, including 32 meaningful new products and numerous line extensions. These included Performance Center versions of the SW22 Victory, a competition ready target pistol; a Thompson/Center long range rifle, a perfect match for the consumer's desire participate in precision target shooting; a ported M&P Shield 2.0, a Smith & Wesson M442 revolver, both designed for personal protection.

Our M&P 380 Shield EZ was honored by the NRA when it was named American Rifleman Handgun of the Year and women's innovative product of the year. This new platform of pistols launched nearly 18 months ago is still winning with consumers and providing us with opportunities to further expand the Shield family of products in the future. We launched the Performance Center version of the M&P 380 Shield EZ at the NRA annual meeting later in our fiscal year. So its financial impact will be visible in fiscal 2020.

Our entire Shield family has become a consumer favorite and I am pleased to report that by the end of fiscal 2019 we had shipped over 3 million Shield pistols. We are now approaching the $1 billion milestone for cumulative sales of the Shield family of handguns. During the year, we produced several new bundled promotions which combine our firearm with items from our outdoor products and accessories business to provide consumers a great value with brand names they know and trust.

The most impactful of these included our M&P Shield 380 EZ with a Crimson Trace laser sight combined with a handgun safe and M&P knife and an M&P flashlight. This bundle generated revenue for both of our business segments while providing consumers a great value and an immediate safe storage solution for their new firearm. We believe the combined impact of these achievements in our firearms business throughout the year helped us win market share.

While consumer demand for firearms remained weak in fiscal 2019 as indicated by a year-over-year decline in adjusted NICS background checks 8.8%, our units shipped into the sporting goods channel increased 4.2%. In outdoor products and accessories, which we refer to as OP&A, we created an entrepreneurial based brand lane (ph) structure. The lanes bring dedicated focus to each brand, establishing its positioning, its identity and where it has permission to play within specific product categories.

With this foundation in place we have found that our 20 OP&A brands fit within just four distinct lanes. They are marksmen, (inaudible), defender and adventurer. Each lane consists of a highly agile team that provides dedicated brand management, creative design, content production, product management, new product development and engineering. This team approach supports organic growth by allowing each brand to respond quickly to changing consumer trends.

The modular nature of the lanes also allows the division to leverage an organic growth opportunity by rapidly integrating newly acquired brands without adding significant headcount. Two examples from fiscal 2019 demonstrate this brand lane strategy and action. First, our brand lane team launched over 300 new products in OP&A in their first year of introduction. These new products represented 6.2% of the segment's full year revenue. However, it's important to note that vast majority of these products were launched at SHOT Show in January, very late in our fiscal year. So, that 6.2% number is not at all reflective of that annualized revenue potential.

These new products included the Caldwell Hydrosled the Frankford Arsenal M-Press, the BOG DeathGrip Hunting Tripod. We also introduced a new line of sights and scopes under the Crimson Trace brand which significantly broadened our product offering and greatly expanded our addressable market for this brand. Second, we launched an exciting major rebranding initiative. When we acquired Bubba Blade in fiscal 2018, the brand name had recognition among fishing enthusiasts, but was narrowly focused on a single product category, knives.

Our vision, our acquisition was always much bigger and we believe the brand could flourish in the much broader fishing tool category. So, we rebranded Bubba Blade simply to Bubba and then transferred its valuable product DNA such as its signature non-slip red grip and (inaudible) variety of new products across fishing gear and accessories. We effectively took Bubba Blade from a single product brand to a broad and exciting new lifestyle brand that captures one of today's most popular trends. Much like farm to table, Bubba addresses the water to table lifestyle that appeals to so many consumers. This is a great example of our ability to leverage our brands to greatly expand our addressable market.

It's also an exciting story that is just beginning and we believe we possess other brands that have the same type of potential. Lastly, it is important to note that our Crimson Trace brand is now part of this focused and creative brand Lane structure, fitting perfectly into the defender lane. As a result, we will now be able to shut out and move the Oregon front office of Crimson Trace to Missouri by the end of this calendar year.

Our second strategic theme is to simplify our go-to-market process. Our objective here is to streamline our approach to the market by simplifying and consolidating our logistics operations to a single location as our new logistics and customer service facility, making it easier for our customers to do business with us. This new facility in Missouri lies at the core of achieving this objective, providing the infrastructure and capacity for our future growth. It will centralize the logistics, warehousing and distribution operations for our entire business, enabling growth, enhancing efficiencies and allowing us to better serve customers across the organization.

And because the property will house multiple functions beyond just logistics and customer service, we will now refer to this as our Missouri campus. We have made significant progress on this objective and today I am pleased to report that all customer orders for our firearms business on now managed entirely by our logistics and customer service team at the Missouri campus. This includes the order management process in all areas of fulfillment such as picking, packing and shipping.

Today, the simplification of our go-to-market process has allowed us to eliminate poor (ph) physical locations as those operations move to the new campus. Over the last two years these closures include a facility in Tennessee, 160,000 square feet; a third-party warehouse in Kentucky, 20,000 square feet; a third-party inventory location in Missouri, 100,000 square feet; and a temporary office location, also in Missouri, 7,500 square feet.

We are on track to shut down two additional physical locations that include our 100,000 square foot US (inaudible) warehouse and office in Florida by the end of this month and our 145,000 square foot original BTI office and warehouse in Missouri by this coming fall. We also have third-party warehouse and shipping locations in New York and Springfield which are currently being consolidated and which together represent 35,000 square feet of space. When we are finished, we will have eliminated a total of 570,000 square feet of space across these locations and moved all of that functionality into our new 633,000 square foot Missouri campus, which will be utilized at only 70% at that point. That campus will then be home to be our OP&A a division and all its support personnel as well as the logistics and customer services division and their support teams. Jeff will walk through the financial impact of those actions later in the call.

Our third strategic theme is to create a level dribble infrastructure. We have made significant investments in and progress toward developing each component of this important strategic initiative. The logistics and customer service division represents one such investment and is a cornerstone of this critical infrastructure. In addition, we recently formed our global e-commerce and technology division. This new division will be at the forefront of our digital innovation, providing best-in-class sales and marketing technologies that will allow us to further amplify our marketing efforts toward maximizing the consumer experience. We also established an office and team in China, an action designed to strengthen our relationships with our ever growing supplier base while enhancing our flexibility and response time to new consumer trends. Our China team is comprised of engineers and designers that play a key role in our new product development process.

Our investment in our infrastructure is significant and will continue throughout 2020. So it is important to underscore that these actions are a critical part of creating an adaptable and scalable framework that truly differentiates us from our competition and adds value for our customers. Most importantly, these investments will enable our future organic and inorganic growth, ultimately creating value for our shareholders.

Our fourth strategic theme is to pursue complementary acquisitions. Our disciplined approach to acquisitions has yielded our current diverse portfolio of brands. When we first began we focused solely on our core firearm consumer whose passion for the shooting sports we deeply understood. We studied that consumers' passion, identifying parallel opportunities based on other outdoor activities and making acquisitions to enter those markets.

This process yielded not only successful acquisitions, but it also provided a natural expansion of our consumer base beyond the core firearm owner. For example, we now have a fishing consumer and a camping consumer. And for each of those consumers, we have a set of passions that can be further explored for opportunities to expand our addressable market yet again. We now seek to expand those markets not just organically, but also inorganically via tuck-in opportunities. We define tuck-ins as low risk, high return, relatively straightforward asset purchases of strong brands and their intellectual property that can be rapidly integrated by leveraging our existing framework.

Our acquisition of LaserLyte in fiscal 2019 is a great example of rapid integration. LaserLyte's firearm training systems, laser sights on both sides complement our existing offering, enabling us to further reach into the electro-optics market. Importantly, this is a business that we acquired and fully integrated within just eight weeks, a clear demonstration of our ability to rapidly execute and integrate a tuck-in acquisition.

Our fifth and final strategic theme is to fine-tune our capital structure. We continually focus on optimizing our balance sheet to achieve our top priority which is to invest in our own Company and maintain the financial flexibility to address future organic and inorganic opportunities. We believe this approach will provide our shareholders with the best possible long term return. As Jack will outline for you later on the call, we maintained a strong balance sheet throughout fiscal 2019 even as we continued to make significant investments in our Company that will help us deliver on our long term strategy.

Now let me touch briefly on a few highlights from the fourth quarter. As you know, we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers, not directly to end consumers. That said, adjusted NICS background checks are generally considered to be the best available proxy for consumer demand for firearms. In our fiscal Q4, background checks for handguns declined 7% year-over-year, while our unit shipped to distributors and retailers increased by 16.6%. For the same period, background checks for long guns declined by 16.7% year-over-year while our unit shipped to distributors and retailers increased 9%.

In a more recent update, May adjusted NICS were up only slightly year-over-year and while NICS appears to be following typical seasonality, this was the second lowest May for adjusted NICS in the past five years, indicating that the consumer market for firearms remains soft.

Distributor inventory for our firearms decreased sequentially from 141,000 units at the end of Q3 to 127,000 units at the end of Q4. We have heard from distributors and retailers that they remain comfortable with their overall inventory levels. That said, we also believe we are a mix of biased market. Distributors and retailers are accustomed to carrying lower levels of inventory than in the past as they await promotional deals. Since the end of Q4, distributor inventories have increased on our current weeks of sales at distribution or above our eight-week threshold.

Our vision for our Company is one that truly sets us apart from our peers. Our focus remains on the consumer and our investments reflect that focus. From innovation and new product development to the creation of leveragable infrastructure that allows us to rapidly integrate acquisitions and streamline our go-to-market process, all of our objectives are designed to expand our addressable markets and to take an increasing share of those markets by addressing the needs, wants and desires of our consumers.

With that, I'll ask Jeff to provide more detail on our financial results and our updated guidance. Jeff?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Thanks, James. Revenue for the year was $638.3 million, an increase of 5.2% over the prior year. Revenue in our firearms segment was $481.3 million, an increase of 6.3% and revenue in our OP&A segment was $177.3 million, an increase of 3.3% and representing more than a quarter of our total revenue. Without considering Crimson Trace products revenue, which was down for the year, the OP&A segment was up 6.8%. Within those total revenue numbers, intercompany sales eliminations were approximately $20.3 million.

Revenue for the fourth quarter was $175.5 million, an increase of 2.2% over the prior year. Revenue in firearms was $140.7 million, an increase of 4.8% and revenue in OP&A was $42.2 million, a decrease of 3.4% from the prior year. Without considering Crimson Trace products revenue which was down for the quarter, the OP&A segment was up 3.3%. Within those total revenue numbers, intercompany sales eliminations were approximately $7.1 million. As James mentioned, we are proceeding with the restructuring of Crimson Trace into the OP&A division including moving the Crimson Trace front offices in Oregon to Missouri, an action we believe will significantly improve operating efficiencies over time.

For the year, the total Company gross margin was 35.4% compared to 32.3% in the prior year. The firearms gross margin was 31.9%, an increase over the prior year and the OP&A gross margin was 45.9%, the same as the prior year. The total Company gross margin increase was driven mainly by the firearms segment which had lower promotional product discounts and rebates, and lower manufacturing spending.

For the year, GAAP operating expenses were $188.2 million compared to $168.7 million in the prior year. Current year expenses included $10.4 million for a partial impairment of goodwill in Q3 related to Crimson Trace. On a non-GAAP basis, which excludes that impairmental and acquisition related amortization, operating expenses were $154.8 million as compared to $146.7 million in the prior year. In Q4, GAAP operating expenses were $48.1 million compared to $41 million in the prior year. On a non-GAAP basis, quarterly operating expenses were $42.2 million as compared to $35.4 million in the prior year. The year-over-year operating expense increase in both the yearly and the quarterly numbers mainly relates to higher variable compensation expenses and increased depreciation relating to our new Missouri campus.

On a GAAP basis, EPS for the year came in at $0.33 as compared with $0.37 in the prior year, although it should be noted that with that the Q3 Crimson Trace impairment the current year GAAP EPS would have been $0.52. Our non-GAAP EPS, which excludes that fiscal '19 impairment, onetime tax reform benefits in fiscal '18 and all acquisition related and other cost in both years, was $0.83 in the current year as compared with $0.46 last year. For the fourth quarter, GAAP EPS came in at $0.18 as compared with $0.14 in the prior year. Our non-GAAP EPS was $0.26 as compared with $0.24 last year.

In fiscal '19, adjusted EBITDAS was $111.3 million for a 17.4% EBITDA margin compared to last year's $89.5 million which was a 14.7% margin. Adjusted EBITDA in Q4 was $31.9 million for an 18.1% EBITDA margin as compared with $33.4 million or a 19.4% margin in Q4 of last year.

So now, turning to the balance sheet. For the year, operating cash flow was $57.5 million and capital spending, including our investment in the equipment necessary for the new Missouri campus was $33.9 million, resulting in free cash flow of $24.3 million. In the quarter, operating cash flow was $36.7 million and CapEx was $8 million, resulting in free cash flow of $28.7 million. Our free cash flow is typically stronger in the second half of our fiscal year and has also improved over the last few quarters as we have neared completion of the Missouri campus.

We reduced our internal inventory levels for a third consecutive quarter. We are moving into the slower summer sales period. So we do expect inventory levels to rise until autumn as usual. In fiscal '19, our capital spending was approximately $33.9 million, an increase of about $15 million over the prior year. The increase was primarily related to the Missouri campus and included IT spending and equipment, but excluded the capitalized lease construction cost of $46.2 million. In fiscal 2020, we expect to spend about $30 million in CapEx which will include a continued cost relating to the consolidation of our facilities into the Missouri campus.

As of the end of Q4, our balance sheet remained strong with approximately $41 million of cash and $115.4 million of total net borrowings. I would note that we paid down $25 million on our line of credit in Q4, resulting in a zero balance on that line of credit at the end of the year. This means that we have reduced our net borrowings by nearly $100 million in a little under two years while still investing heavily in our business, including small acquisitions and the construction and furnishing of the Missouri campus.

Thus as of today, we have outstanding balances on our borrowings as follows; $75 million on our senior notes due in 2020 and $81 million on our bank term loan A also due in 2020. We currently pay a blended interest rate of approximately 4.73% on this debt.

So now turning to our guidance. For the full fiscal year 2020, we expect our firearms business to reflect continued softness and a buyers' market in the consumer market for firearms while we expect our OP&A business to deliver solid growth. As a result, we anticipate our overall financial performance to be roughly flat to last year with a revenue range of $630 million to $650 million. At that level we would expect full year GAAP EPS of between $0.50 and $0.58 and non-GAAP EPS of between $0.76 and $0.84.

We believe revenue will be back-end loaded due mainly to new firearm products planned second half of the year. Taking into account the loading during the year as well as our typical summer slowdown in sales, we estimate revenue in Q1 to be between $120 million and $130 million. At those levels we would expect GAAP EPS to be at about break even and non-GAAP EPS of between $0.03 and $0.07.

As James has noted, we are continuing our consolidation efforts into Missouri, including the moves of USG, BTI and Crimson Trace. These actions will result in approximately $0.07 per share duplicate expenses in fiscal '20 that will not reoccur in fiscal '21, most of which are in OpEx. I would note that because the logistics, the warehouse operations for firearms are now being handled in Missouri, most of our freight and warehouse costs relating to firearms will now be in OpEx instead of cost of goods sold. We estimate that amount to be approximately $8 million to $9 million.

Finally, I would also point out that our fiscal 2020 forecast does not include any additional future tariffs on products that we manufacture in China for our OP&A business. Although we believe we could eventually mitigate a portion of any new tariff increase, a full 25% tariff on all such goods applied throughout the quarter could initially result in a full quarterly impact of as much as $3 million. In both our first quarter and full fiscal year numbers, our non-GAAP EPS excludes amortization and costs related to any acquisitions. All of these estimates are based on our current fully diluted share count of 55.5 million shares and a tax rate for the year approximately 27%. James?

James Debney -- President, CEO & Director

Thank you, Jeff. With that, operator, please open up the call for questions from our analysts.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of James Hardiman with Wedbush. Your line is now open.

James Hardiman -- Wedbush -- Analyst

Good afternoon. So, really good fourth quarter, certainly versus your guidance you beat it by $0.13 basically doubling that up. I don't think you really spoke to what was so much better than you initially anticipated three months ago.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Hi. Basically what helped was like the top line, like the top line drove extra about $0.05 in sales and then that extra top line helped with absorption by another $0.03. We did release some reserves at the end of the year because you threw things up that was another $0.04, that accounted for most of it. The -- we had a lot of promotional activity in Q4 that I think helped with the sales and the revenue, the top line. A lot of that came in at the very end as people were trying to get on -- get it in under the wire as the promotions were ending at the end of our fiscal year.

James Hardiman -- Wedbush -- Analyst

That's helpful. And then commentary on the firearms business continued softness moving forward. Maybe compare that outlook to how you've anticipated it looking three months ago. If I recall correctly, you would sort of look to June as a month that maybe things could bottom out and turn around. Your commentary on May didn't sound very constructive although it was the first increase we've seen in a while and was better than I think a lot of people were looking for. So maybe walk us through the machinations there, was May better or worse than you thought it would be. And I guess has your outlook for the next 12 months gotten better or worse versus how you're thinking about a few months back.

James Debney -- President, CEO & Director

Hi James. I don't think our outlook's particularly changed. I mean at the moment it's fairly flattish and we stick by that. Yes, May was up but as you stack it up against prior years, it still ranks pretty low. That's what leads us to the conclusion that we believe the market is soft and we are in that summer period as well which all know is the seasonal slow period. And it's always difficult to predict how things will go once we enter the cooler months, you know, go into the fall and hunting kicks in and so on, back into the holiday, gift giving season which is always where we see the most sales at retail. So I think we just maintain that flattish outlook. Yes, you could take some encouragement away from the May result. Yes, it was certainly a positive year-on-year but I don't think we know enough yet. We just don't have enough data points.

James Hardiman -- Wedbush -- Analyst

Perfectly fair. And then last question from me. Maybe just speak to inventory, it was down versus 3Q but up versus last year. Sounds like distributors are pretty comfortable. What's the right amount of inventory. You talked about it being a buyers' market and them taking less inventory. I'm just trying to put that inventory number in the proper context.

James Debney -- President, CEO & Director

I think, you know, what's the right inventory. I think that's the million dollar question. I don't think anybody knows. And as distributors have obviously experienced competitors, you know, file for bankruptcy as we know, one just happened recently, so I would say that they're cautious. I think that's a good thing. They also know that the inventory that they need is readily available from manufacturers. So I think they're doing the small thing by keeping their inventory as lean as possible but obviously not too lean so that they jeopardize their service levels to independent retailers. I mean you would expect business picks up, that inventory levels probably going have to increase to support those service levels. That's the way it works. As we move through the summer period, there's no doubt that our inventory levels will start to creep back up again because they need to get ready for the busy period that's coming and they need to take advantage also of just a regular normal cadence of promotions, for example, we engage in. As you know, we'll have a late summer promotion, we'll do a spring promotions and so on and they need to get ready for those. It is a buyer's market, that's our belief right now because the inventory is readily available and we still have a soft market when it comes to the consumer.

Hey, James, I just want to add, on our inventory, the firearms finished goods inventory is actually down both over Q3 and Q4 of last year. The outdoor products, OP&A inventory is significantly up over last year. And that's mainly because we did buy forward because of the tariffs that were going to be imposed and probably buying like some now with respect to the possibility of additional tariffs. And as we said we're moving a lot of inventory around now with the closing of UST and the upcoming move of BTI. So, we do have excess inventory with regard to those moves. So, most of the differences right now are really related outdoor products. The finished goods inventory at the firearms level is basically been -- it's been sort of on a downward descent for the last eight quarters, up and down a little bit, but mostly down.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

And just to add another point, (inaudible) have excess inventory, that's an inventory of very good product. This is not a product --

James Debney -- President, CEO & Director

(multiple speakers)

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

It's product that doesn't have a shelf life, it's fast moving product as well. So, we don't have any concerns there.

James Hardiman -- Wedbush -- Analyst

But just to clarify, the 127 number in terms of distributor inventory at the end of the quarter, I think it was 98 in the fourth quarter of last year. Was that number unnaturally low coming out of 4Q last year or what's driving that increase?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

I would say that's a pretty low number when you think about it. If you take off, you know, our average sell price and multiply by the number of units, you can see how much revenue that would represent for us. And you know that's call it roughly 10% for the firearms business. That's pretty low when you still think about 60% of our revenue is generated by two step (ph) -- the firearms business.

James Debney -- President, CEO & Director

Yes, historically, that was I think like one of the lowest quarters we've had in many quarters.

James Hardiman -- Wedbush -- Analyst

Okay, that's all from me. Thanks guys.

James Debney -- President, CEO & Director

Thanks, James.

Operator

Our next question comes from line of Steve Dyer with Craig Hallum. Your line is now open.

Ryan Sigdahl -- Craig Hallum -- Analyst

Hey guys. Ryan Sigdahl on for Steve. Congratulations on a solid quarter given the challenging environment.

James Debney -- President, CEO & Director

Thank you.

Ryan Sigdahl -- Craig Hallum -- Analyst

First question is really in the firearms, but with backlog down pretty meaningfully and a more cautious buyer the way it sounds, what gives you confidence in those new products driving growth in the back half of the year?

James Debney -- President, CEO & Director

I think it's really our prior experience to be honest. We have a very strong new product pipeline. We have a lot of experience. The revenue that's generated by new product introductions and you know there are obviously different tiers, you know, the lowest being a simple line extension to all the way to the one that's going to generate the most revenue which is a new platform and I think that's the success we saw with the new EZ platform, the M&P 380 EZ being the first caliber that we introduced. So there are several meaningful new product introductions across the whole of AOB that are staged for the balance of the year and we're particularly excited about those. Those will I have no doubt generate a good amount of revenue and that's what gives us confidence.

Ryan Sigdahl -- Craig Hallum -- Analyst

And just to clarify, you have both new product line extensions as well as new platforms coming?

James Debney -- President, CEO & Director

What I would say is that January (ph) we have the full spectrum going on and that's just typical. As you heard in the prepared remarks, we launched 100 plus new products in firearms, 32 of those were meaningful. I'm not saying that's the mix you'll see this year, but I'm just indicating to you that you will see the full spectrum from what could be a new platform to a simple line extension. That's typically what we do.

Ryan Sigdahl -- Craig Hallum -- Analyst

Got it. And James, you briefly mentioned that a large distributor recently filed Chapter 11. What impact has that had on your business and then how would you assess the financial health of your other customers?

James Debney -- President, CEO & Director

The one that most recently filed for bankruptcy had lost relevance over the last 12 to 18 months. So as an impact on our business going forward right now, minimal. So no real concerns there. As for the balance of our customers when it comes to our two step distribution partners, I just see strong partners. So I have no concerns.

Ryan Sigdahl -- Craig Hallum -- Analyst

Great. Last one for me and then I'll turn it over. Handgun average selling price was down last several quarters here and it's the lowest in quite a while this quarter. What's the primary driver of that? Is it bundling, mix, incentives etc. And then should we expect that to continue? Thanks. Good luck.

James Debney -- President, CEO & Director

Right. It's mainly due to a promotional activity. The -- from January to April the types of promotions that are typically done in the industry are buy X, get Y free, like buy eight, get nine free -- or get one free. The more successful the promotional activity is or the lower that ratio is, then the lower the ASP is. So I think the change in ASP primarily relates to that. It also relates partially to success in, for example the 380 EZ which is a less expensive product versus a revolver, Performance Center revolver which goes for $800 or $900. So my product mix -- a successful product mix is probably impacting that also.

Operator

Our next question comes from the line of Cai Von Rumohr with Cowen and Company. Your line is now open.

Cai Von Rumohr -- Cowen and Company -- Analyst

Thank you very much. And good for other guys.

James Debney -- President, CEO & Director

Hi, Cai.

Cai Von Rumohr -- Cowen and Company -- Analyst

Jeff could you -- I think I meant how much is the duplicative expense likely to be this year in OpEx and sort of how does that pattern across the year.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Yes. Well, it around $0.08. Like $0.07 to $0.08. And it's relatively equal throughout the year. So I pro rata each quarter -- a couple of cents a quarter roughly.

Cai Von Rumohr -- Cowen and Company -- Analyst

Is the benefit zero, is it zero in the next year. I would have thought it would have been [Multiple Speakers] early on.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Right, so there's a lot -- Cai, there's a lot going on. So let me -- I tried to explain this. So -- like for example there's increased depreciation and cost associated with the new Missouri campus. Yet offsetting that is the reduced costs on things like closing UST and now the front office of Crimson Trace, moving the other Columbia location etc.

So what I try to do is by saying that the costs that are duplicate with next year, I'm trying to identify the costs that are in essence going away. And that's this, like $0.07 that I mentioned in the script, which is approximately $0.02 a quarter. And that is relatively pro rata because we can't do this all at once. We're staging the center. We just announced Crimson Trace. And all of those cost savings in Crimson Trace are really going to occur in 2021, and account for a large portion of that $0.07 that I'm talking about.

So right now we're going to be running -- we're still running a lot of, like I say, duplicate things that are going away. And I mean maybe it's $0.03 in quarter 1 and maybe it's down to $0.01 by quarter 4. But in general there's not a big upswing. It's just a very slight downward glide path. But all those are definitely gone by next year 2021.

Cai Von Rumohr -- Cowen and Company -- Analyst

Got it. And then so you mentioned $8 million to $9 million of saved expense moves from COGS to OpEx. How should I think about how much of that is -- I would assume most of that's related to firearms but maybe not. Roughly how should I think about the allocation of that to firearms and OGM (ph)?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Yes. It's about 75% of firearms.

Cai Von Rumohr -- Cowen and Company -- Analyst

Got it. Okay. And then so $3 million per quarter of the tariff goes to 25%. But I assume that assumes no actions on your part in terms of raising prices to offset that.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Yes exactly. So let me explain the $3 million. That's -- I think that's the worst possible amount in a quarter. So it's like assuming that the full quarter is impacted and that we don't have previously bought inventory. We haven't taken any mitigating steps. It's just the worst case. Obviously if the full 25% in tariff is imposed on all Chinese goods, we will take mitigating actions. And those actions are you work with suppliers to get additional price concessions. You raise prices. You find other areas to offshore. And we think we can do all those things. I'm not sure whether we can mitigate the full impact of additional tariffs but we're thinking about it right now and as to whether those are going to be imposed. It seems the story changes every day.

Cai Von Rumohr -- Cowen and Company -- Analyst

So just roughly, what percent of the OP&A sales are produced in China.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

A very large percentage. I would say mid-80s. Yeah, I mean we do a lot of assembly on Crimson Trace for example in Portland, although they buy product in Asia. But it's not -- the cost is lower. It's assembly costs there. So yeah, I think James is right, like 70s, 80s something like that. And we buy -- I know we buy like knife products in Taiwan. So that's probably a good answer.

Cai Von Rumohr -- Cowen and Company -- Analyst

So DSOs were a little bit higher. How come they were where they were?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

You know like I said a lot of sales at the end of a quarter as people were trying to get the deals that were ending at the end of April.

Cai Von Rumohr -- Cowen and Company -- Analyst

Got it. Okay, OK. That's it for CapEx (ph). And then last -- free cash flow, what's that look like for the year. I mean you're entering with a little extra inventory for buffer for China. What's the free cash flow look like now with the CapExes then?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

I would say the free cash flow next year looks better than this year. We typically don't give a forecast for free cash flow. But it definitely -- definitely looks better, just for the exact reason that you mentioned. You got -- right now you have high DSOs and some inventory buildup. Yeah. High inventory for the tariffs. So -- and less outgoing cash. So --

Cai Von Rumohr -- Cowen and Company -- Analyst

Yeah. And last one, M&A, you're still looking for tuck ins. What's the pipeline look like, and in terms of we are looking at big things, small things, give us some color on that if you can.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

The company's focus is on smaller transactions. It's tough out there because the price is high, the interest rates are low. And so the result\s that the PE firms can pay a lot because they're willing to leverage a lot more than we are.

So where we've had success the last two like BUBBA and LaserLyte were ones that we were not in a process that we found on our own. Right now we're finding -- I mean there's -- things are coming up and we look at them. We're finding that in the process, it's hard at this point to be competitive because we're just more conservative. Our weighted average cost of capital has dropped. It's around 8% now. So our bogey for an acquisition has dropped maybe like 10% or higher.

But it's hard to find it. But we're still -- we are working on things that we find on our own. And it is the focus of the company on acquisitions. It's the biggest bang for the buck. You buy it on EBITDA, you don't hire any people, you don't take any buildings. You basically take some inventory and the supply chain and the IP and you -- and we've already -- as we James mentioned, we bought laser light. We did the whole thing in just a week eight weeks.

So we have the infrastructure now. As James mentioned we're closing all these extra facilities. We have everything now in the Missouri campus. But despite the fact that the square footage is about equal trade, the cost is about an equal trade. The Missouri campus is only 60% to 70% utilized. So for basically even dollars and even square footage we have the excess capacity. So we definitely would like to find these, what we call tuck-ins. Typically they would be smaller.

Cai Von Rumohr -- Cowen and Company -- Analyst

Got it. Thank you very much.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Thank you.

James Debney -- President, CEO & Director

Thanks Cai.

Operator

Our next question comes from the line of Scott Stember with CL King. Your line is now open.

Scott Stember -- CL King -- Analyst

Good evening. Thanks for taking my questions.

James Debney -- President, CEO & Director

Hi, Scott.

Scott Stember -- CL King -- Analyst

You alluded to the fact that in the fourth quarter there were -- I guess some consumers that were rushing to get in. I guess working to try to get their product with certain promotions. And I'm just trying to tie that into the first quarter where I guess, even on the high end you are looking at for about a 10% decline in sales year-over-year. Maybe just talk about the cadence of how some of those promotions are falling off or are you just stopping some of these bundling programs. Just give us an idea of how much of an impact it's having on your expectations for the first quarter?

James Debney -- President, CEO & Director

Yes, I'd just like to clarify that promotional activity in Q4 is just the typical spring show specials we refer to them as, where you may buy six of something and receive one, it's pretty good. And that was coming to an end to April. That targets retailers, not consumers. So with those retailers who were waiting as long as possible, looking at the -- I suspect looking at their inventory and trying to optimize their inventory and then trying to capitalize on that promotion before it ended at the end of April, obviously which was the end of our fiscal year.

So, when you look at our units shipped, we believe that we significantly over performed. We definitely over performed the market. You can see that in the numbers for sure. When you compare to adjusted mix. And so as we come into Q1, there's obviously got to be some correction. And we think that's what we're going to see in Q1. And that's built into our guidance.

So as you just, quite rightly said, and compare versus last year, we are down. But to go back to what we said, it's a buyer's market. They're capitalizing on the opportunity without doubt. I don't blame them. The product's readily available. They can afford to take some inventory at a lower average cost and bleed it down and until they believe that the next promotion will come along.

We are not doing anything special. It's our normal cadence of promotional activity when it comes to working with our major retailers and our two step partners who serve all the independents, that we don't serve directional. This is very important three buy groups that we do work with. So it's our normal cadence that we are doing the bundling promotions and we will continue. We do believe that we'll continue to do those this fiscal year as well. They've been very effective. So we've worked up a number of different bundled promotions that we will activate throughout the year.

Scott Stember -- CL King -- Analyst

Got it. And maybe James just taking a step back, just looking at the market, I know that the last year and a half. I guess a lot of the declines could be pinned on some of the pullback in the politically motivated buying that was taking place. But clearly there are some underlying trends of organic growth although we can't see them right now in the mix numbers. But when you think assuming that there's no change in political stance in the country here and we don't get any political base buying or when do you think we could start to see what it would take for some of the underlying traits whether it's more people wanting personal security, whether it's women or just shooting sports, when do we see some signs that the industry can start to at least show some of the modest growth that we would expect to see.

James Debney -- President, CEO & Director

I think the trend -- some of the trends that you referred to obviously still lie in -- peoples' primary reason to buy a handgun for example is still personal protection. Women are still very interested in owning firearms. So those trends are there. And as you quite rightly said there's an absence of fear based buying and that to be absolutely clear to everybody, that's fear based buying based on fear of regulation, OK. So we don't see any of that right now.

The question you ask is a question that we try and answer internally all the time, as we try and figure out our forecast going forward, that obviously informs guidance that we give, and it's a difficult one for sure. Certainly the market appears to have somewhat reached its low point. Is it going to stop growing from here, I just don't know. And that's why we hold on to what we call a flattish outlook.

But what will drive excitement, what will drive revenue, all those new product introductions, that's absolutely key. And we have some -- significant one for the balance of the year. Our promotions will always be strong. Our bundled promotions will be strong. That was -- those worked very well last year, as you can see in our results. So the market, I don't know. We have what we have in control.

Certainly as you look outside of firearms for us we have our Outdoor Products and Accessory segment. We have a lot of excitement going on that, tremendous number of new products were launched last year, that we didn't get the full benefit in the year. We'll certainly see that benefit this year. Multiple rebranding initiatives. We have a very strong family of brands as we've discussed before. So we see plenty of growth opportunities there.

There's some navigation to do. Some of the retailers aren't as strong as we'd like but -- and it's a bit choppy out there. But I think that starting to settle down. We certainly formed extremely strong and high level strategic relationships with several key large retailers which we're excited about, and we'll leverage that going forward as well. So there's a lot of good things. We are working hard to mitigate the softness in the market. And I hope you recognize that in the results. That's all we can do. And we'll continue to do that. And if the market picks up, well that'll be a tailwind for us.

Scott Stember -- CL King -- Analyst

Got it. And just last question, Jeff you talked about the $0.07 or $0.08 of duplicative costs for everything that's going on throughout the year, evenly distributed. But once we get past that into 2021, I'm just trying to look back my notes and to see if you guys have come out and said, this is what the benefits will be starting in 2021 on the annualized basis from consolidating -- from -- from a cost savings standpoint or a synergy standpoint.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Yes, that's what that $0.07 to $0.08 is, that's just cost savings. Now obviously a lot of what we're doing, especially with respect to the distribution sales or the logistics and sales division is to try to enhance sales. Also James talked about the new initiative in e-commerce. So a lot of those expenses, in addition to going away, we hope there will be more top line benefit in 2021 to everything we're doing.

Scott Stember -- CL King -- Analyst

Got it. That's all I have. Thanks again guys.

James Debney -- President, CEO & Director

Thank you.

Operator

Our next question comes from line of Mark Smith with Lake Street. Your line is now open.

Mark Smith -- Lake Street Capital Markets -- Analyst

Hi guys. Just real quick, I just want to look at the promotional activity a little bit more here in the quarter. Was this really led by you guys or more so by your peers and was there anything that really surprised you in the promotional activities? Do you feel like it was at healthy levels throughout the quarter?

James Debney -- President, CEO & Director

I guess there aren't real surprises when we get back to it. It got somewhat back end loaded in the quarter. As I said people were waiting, retailers waiting for the last minute, looking at their inventory and then capitalizing on the last couple of weeks of that promotional period before it ended. Other than that no real surprises. I mean that's just a typical promotion, or as I mentioned it's the promotion for the show season, when distributors invite independent retailers into shows that they hold or they just do key (ph) shows and they're using those packages.

So not bundled packages and that's the typical buy five, get one free, buy six get one free and so on with our two set up distribution partners or offering those to those independent retailers. So nothing unusual in that respect.

Mark Smith -- Lake Street Capital Markets -- Analyst

Okay and pretty similar impact in handguns and long guns.

James Debney -- President, CEO & Director

We are a hand gun company, I mean that's where we're strongest. And so if you just look at the firearms segment that's what by far most of our revenue comes from.

Mark Smith -- Lake Street Capital Markets -- Analyst

That's fair. Thank you.

James Debney -- President, CEO & Director

Thank you.

Operator

Our next question comes from line of Ronald Bookbinder with IFS securities. Your line is now open.

Ronald Bookbinder -- IFS securities -- Analyst

Good evening and yes, congratulations on a nice finish to the year.

James Debney -- President, CEO & Director

Thanks Ron.

Ronald Bookbinder -- IFS securities -- Analyst

You guys have done an excellent job of taking market share in a competitive market through product innovation and bundling. Is there an opportunity given as you just expressed the strong relationships that you have with key retailers. Is there an opportunity for you guys to start producing private label firearms for retailers and going after sort of a lower value end of the market.

James Debney -- President, CEO & Director

I have private label in my background, when I look back into the roots of my career and I do my best to avoid it. I mean all it does it starts to commoditize your product, compress your margins, you have less pricing power. There's lots of negatives to private label.

The most valuable thing that we have are our 20 brands and that's what sets us apart. We own those brands. There's nothing else out there really like them. We have the full spectrum as well from an iconic brand, right the way down to brands that we are just nurturing and getting going now. And we can see in our future that we'll just start new brands from scratch and we'll get behind those and raise their awareness with the consumer by matching them with quality products.

So I definitely don't see private label in our future. They're often very, very small parts of our business are private label. But again like I mentioned what I think about private label.

Ronald Bookbinder -- IFS securities -- Analyst

Yes, yeah. It tends to be low margin, low revenue and but it would increase shift your throughput through your facilities. On the on the $0.07 to $0.08 that Jeff was just talking about that, that would be the cost savings going forward, in fiscal '21 and beyond. Is that $0.07 and $0.08 -- $0.07 to $0.08 already being backed out in the adjusted numbers?

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

No -- no because the only adjustments were taken in the adjusted numbers are really amortization. We're not taking any -- at this point we're not taking any one time numbers associated with all these various moves. I mean there might be a few dollars here and there, if it's a true one time. But really what's going on right now is we're operating several things at once, that are going to become just one thing. So it's kind of hard to identify what is like quote one time. So, instead of doing that I thought it would be best to just say that we have $0.07 to $0.08 of costs in this year that will not be around next year.

Ronald Bookbinder -- IFS securities -- Analyst

Okay, great. Thank you very much and good luck in the New Year.

James Debney -- President, CEO & Director

Thanks Ron.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Thanks.

Operator

And we have time for one more question. This question comes from the line of Max Natal (ph) with Dewey Media (ph). Your line is now open.

Unidentified Participant

Hey, guys congrats on the positive quarter. Just have a small bundle of questions, pun intended.

James Debney -- President, CEO & Director

Thanks Max.

Unidentified Participant

So based on the success of the bundled promos that you guys had, can we expect to see the supplies across more product SKUs both fire arms and accessories, I mean like cleaning kits, optics, upgraded cases, or even something like bundling your firearms with the Gemtech suppressors , especially since it's such a low hanging fruit.

James Debney -- President, CEO & Director

Yes, I think all of those are certainly on the table and make perfect sense. You will definitely see more of that. Some of them may even become standard SKUs. We just continue to see the value that we can create for the consumer. And if we see that demand can be sustained then I do believe that we'd make some of those just standards SKUs. And you can certainly see that with our M&P 15 SPORT II rifle as well where we could -- and the M&P 15-22 as well where we just continue to bundle those with Crimson Trace Optic, make that a standard SKU.

Unidentified Participant

Awesome. So one of the question you kind of already answered which was have you seen any evidence of any fear based buying. But as we're approaching the next upcoming election cycle and obviously the upcoming rhetoric, speaking with the distribution channel or the retail channel, have you seen any signs of willingness for them to leverage up again much like they did in 2016 or are they still hanging in with the lessons in the back of their mind from that?

James Debney -- President, CEO & Director

Yes, I think lessons learned definitely are resonating strongly in people's minds right now. There has certainly been nobody who's talking about building inventory and making a bet that they will see, some fair based buying manifest itself at some point. And again it's fear based buying, just unfair regulation. So nothing yet, but who knows.

Yes. And Max I'd like -- if you go back to '16 the build in anticipation of the Clinton-Trump, the election really occurred in '16, that is in the year of the election, probably four or five months before the election. We're still a year before that build up period started in the equivalent time in the last election. So we've got a lot of ways to go. And we'll see.

Unidentified Participant

And I guess the final question. So in light of a few of your private competitors seemingly having success with ammunition, have you guys considered tucking in any small ammo manufacturer or perhaps having your own branded line of ammunition.

James Debney -- President, CEO & Director

We've considered that and obviously we talk about the full spectrum of potential acquisitions and that's still one that we do talk about. But nothing really appeals to us right now. I would say.

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

Yeah, Max I would add to that. Two problems with that, One is the gross margins tend to be lower than like firearms. And also you know if we're going to be in, with respect to the firearms business we'd like to be in a leading position in terms of market share. So a tuck in acquisition in ammo it might -- yeah, you could do I suppose you could have some specialty ammo or something but it's not I don't think it would be our focus right now.

Unidentified Participant

Awesome. Thank you very much guys.

James Debney -- President, CEO & Director

Thank you.

Operator

And that concludes today's question and answer session. I'd like to turn the call back to Mr. Debney for closing remarks.

James Debney -- President, CEO & Director

Thank you operator. I want to thank everyone across the American Outdoor brands team for their commitment and dedication to excellence. Thank you for joining us today and we look forward to speaking with you next quarter. Take care everyone.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect everyone have a great day.

Duration: 91 minutes

Call participants:

Liz Sharp -- Vice President of Investor Relations

James Debney -- President, CEO & Director

Jeffrey D. Buchanan -- Executive VP, CFO, Chief Administrative Officer & Treasurer

James Hardiman -- Wedbush -- Analyst

Ryan Sigdahl -- Craig Hallum -- Analyst

Cai Von Rumohr -- Cowen and Company -- Analyst

Scott Stember -- CL King -- Analyst

Mark Smith -- Lake Street Capital Markets -- Analyst

Ronald Bookbinder -- IFS securities -- Analyst

Unidentified Participant

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