American Outdoor Brands (NASDAQ:SWBI) is taking a huge, non-cash impairment charge against the goodwill it carries for its outdoor segment as the coronavirus pandemic caused major retail customers to delay or cancel orders for non-essential products.
While gun sales have surged over the past month, likely boosting American Outdoor's firearms business, the outdoors segment has suffered from consumers following advice to self-quarantine and self-isolate.
In an SEC filing, the company said it expects to see revenue decline and cash flows to be reduced, which is leading it in its fiscal fourth quarter to write down 45% to 55% of the $162 million in goodwill it recorded in its outdoor products and accessories segment.
A future of unknowns
While the stay-at-home orders many states and localities issued as the COVID-19 disease spread have encouraged people to still go outdoors for exercise, sporting goods stores have closed and retailers are prioritizing goods and services that people find essential.
Amazon.com, for example, has slowed deliveries for non-essential goods as it concentrates its efforts on delivering essential products to consumers.
American Outdoor says based upon its expectations for the revenue hit the outdoor segment is going to take, it has withdrawn the guidance it previously issued for the division for the full fiscal year.
It is also adding a new risk factor to its annual report regarding the coronavirus that acknowledges its business has already been adversely affected, "but the full extent of its impact will depend on future developments that are uncertain and cannot be accurately predicted."
Of the $182.2 million in total goodwill on its balance sheet, most comes from American Outdoor's outdoor products segment.