Outdoor recreation specialist Vista Outdoor (NYSE:VSTO) did about as well as expected in its fiscal 2020 second-quarter report as both its shooting sports and outdoor products businesses continued to decline. The company reported net sales of $445 million, down 19% year over year -- 7% on an organic basis -- but that was below the $459 million analysts were expecting.

Adjusted earnings, however, came in much better than forecast with Vista breaking even for the fiscal second quarter, compared with analyst expectations of a $0.09 per share loss. That's still worse than the $0.05 per share profit the company made last year, but it could be a sign that Vista's cost-cutting program is working as intended as part of its reorganization efforts.

Dollar sign amongst a bunch of bullets

Vista Outdoor's fiscal second quarter is still coming up short on ammunition sales. Image source: Getty Images.

Sales still shot through with holes

Vista said organic outdoor product sales fell 7% in the quarter, while segment organic gross profit rose 9%, increasing margin by 397 basis points over the year-ago period to 26%. Vista sold its eyewear business last year.

The shooting sports business also declined for the quarter, falling 6% on an organic basis, which excludes its firearms business that it sold early on in the second quarter. But unlike outdoor products, shooting sports gross margin fell to 14%, down 277 basis points.

The outdoor gear maker said that was due in large part to "several significant new challenges" it faced in the segment during the quarter, mostly likely Walmart's decision to stop selling all handgun ammunition and certain types of long-gun rounds. The retailer accounts for a large percentage of Vista's revenue, and though that's spread across both of Vista's operating segments, Walmart represents about 20% of the entire ammunition market.

Getting its cost structure under control

Making the best of a bad situation, though, Vista reported it was able to cut adjusted operating expenses by 14% to $81 million.

"The decisive actions we have taken to strengthen performance are yielding results," CEO Chris Metz said in the press release. "I am confident in the plans we have in place, and in our team's ability to successfully deliver on our financial guidance for fiscal year 2020."

That financial guidance continues to be for sales to come in a range of $1.75 billion to $1.85 billion for fiscal 2020 and adjusted earnings of $0.10 to $0.25 per share. It also anticipates generating $30 million to $40 million in free cash flow.

Among the one-time items Vista Outdoor used to adjust its results was approximately $10 million worth of earn-out compensation related to Camp Chef, the barbecue grill and outdoor camp stove maker it acquired back in 2016; advisory and legal fees associated with sales and acquisitions it made or considered making; and the actual costs associated with the sale of the Savage Arms firearms business.

That sale, however, helped Vista further reduce its long-term debt, which decreased over 15% from the first quarter. With the balance now standing at $578 million, CFO Mick Lopez noted, "We have now reduced our debt by approximately $600 million, which is a 51% reduction from our peak long-term debt balance of approximately $1.176 billion."

On the right track, mostly

Vista Outdoor still has a long slog ahead of it in making a turnaround, and as it noted, it's facing several new challenges that it hadn't anticipated before. On top of that, both of its primary businesses remain in a slump, and right now it's counting on cutting costs to get ahead.

While that's a necessary action to take, it can only carry Vista so far before it has to start showing positive results on its top line. At the moment, it has lightened its load considerably, and its stock no longer trades at the very discounted level it did just three months ago, having bounced back over 120% from its 2019 lows. Vista Outdoor offers a compelling argument that its turnaround should continue in the right direction.

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