10-Q: Fox Factory Reports Q3 Loss Amid Tariff Impact, Restructuring

Fox Factory Holding Corp. reported a net loss for the third quarter and nine months ended October 3, 2025, primarily driven by a significant goodwill impairment charge and restructuring initiatives, despite an increase in net sales.

Summary

• Net sales for the three months ended October 3, 2025, increased by 4.8% to $376.4 million, compared to $359.1 million in the prior year period.
• Net sales for the nine months ended October 3, 2025, increased by 6.3% to $1,106.2 million, compared to $1,041.1 million in the prior year period.
• Reported a net loss of $0.7 million for the three months ended October 3, 2025, a significant decline from net income of $4.8 million in the same period last year.
• Reported a net loss of $257.7 million for the nine months ended October 3, 2025, compared to net income of $6.7 million in the prior year period.
• Basic and diluted earnings per share for the three months ended October 3, 2025, were $(0.02), down from $0.11 in the prior year.
• Basic and diluted earnings per share for the nine months ended October 3, 2025, were $(6.17), down from $0.16 in the prior year.
• A non-cash goodwill impairment charge of $262.1 million was recorded in the first quarter of fiscal year 2025, triggered by adverse changes in U.S. tariff policies and a sustained decline in stock price.
• Gross profit for the three months ended October 3, 2025, was $114.5 million (30.4% margin), an increase from $107.5 million (29.9% margin) in the prior year.
• Gross profit for the nine months ended October 3, 2025, was $341.1 million (30.8% margin), compared to $321.6 million (30.9% margin) in the prior year.
• Operating expenses for the nine months ended October 3, 2025, surged to $558.1 million from $275.3 million, primarily due to the goodwill impairment charge.
• Net cash provided by operating activities was $42.8 million for the nine months ended October 3, 2025, a decrease from $50.1 million in the prior year.
• The company undertook various restructuring initiatives, with the majority of costs related to footprint consolidations and workforce reductions within the Aftermarket Applications Group (AAG) and Specialty Sports Group (SSG).

Sentiment

Score: 3

Explanation: The company reported a substantial net loss for the nine-month period, primarily driven by a large goodwill impairment charge linked to tariff policy changes and stock price decline. While net sales saw modest growth, particularly in PVG and AAG, the Specialty Sports Group faced headwinds from inventory reductions. Ongoing macroeconomic challenges, high interest rates, and legal proceedings add to the negative sentiment. The refinancing of debt provides some stability but doesn't offset the significant losses.

Positives

• Net sales increased by 4.8% to $376.4 million for the three months ended October 3, 2025, and by 6.3% to $1,106.2 million for the nine months ended October 3, 2025.
• Gross margin improved by 50 basis points to 30.4% for the three months ended October 3, 2025, primarily due to product mix.
• Powered Vehicles Group (PVG) net sales increased by 15.1% to $125.9 million for the three months, and 7.6% to $371.5 million for the nine months, driven by strategic customer program launches and the Marzocchi acquisition.
• PVG adjusted EBITDA increased by 112.4% to $18.9 million for the three months, and 22.1% to $49.7 million for the nine months, due to higher gross profit.
• Aftermarket Applications Group (AAG) net sales increased by 17.4% to $117.8 million for the three months, and 11.2% to $343.8 million for the nine months, driven by increased demand for aftermarket products.
• AAG adjusted EBITDA increased by 31.9% to $12.4 million for the three months, and 18.5% to $45.5 million for the nine months, due to higher gross profit.
• Successfully entered into the Fifth Amendment to the Credit Agreement, replacing existing loans with a new Term Loan of $537.5 million and a Revolving Credit Facility of up to $500 million, extending maturity to October 24, 2030.

Negatives

• Reported a net loss of $0.7 million for the three months ended October 3, 2025, a decrease of 114.6% from net income of $4.8 million in the prior year.
• Reported a net loss of $257.7 million for the nine months ended October 3, 2025, a significant decrease of 3,946.3% from net income of $6.7 million in the prior year.
• Incurred a non-cash goodwill impairment charge of $262.1 million in the first quarter of fiscal year 2025, impacting all reporting units.
• Income from operations decreased by 19.7% to $15.1 million for the three months, and by 568.7% to a loss of $217.0 million for the nine months.
• Specialty Sports Group (SSG) net sales decreased by 11.2% to $132.7 million for the three months, and adjusted EBITDA decreased by 24.7% to $27.5 million, primarily due to OEMs, distributors, and dealers reducing inventory levels.
• Restructuring initiatives resulted in costs for employee severance, relocation, consulting fees, and losses related to lease terminations and fixed asset disposal, primarily within AAG and SSG.
• High interest rates, high vehicle costs, and macro-economic conditions continue to be headwinds impacting industry and consumer demand.
• The effective tax rate for the three months ended October 3, 2025, was 140.8% due to the unfavorable impact of discrete items in proportion to lower pre-tax income.
• The effective tax rate for the nine months ended October 3, 2025, was (0.6)% due to the impairment impact of non-deductible goodwill.

Risks

• Changes in general economic conditions, including market and macro-economic disruptions resulting from escalating tensions between China and Taiwan, the ongoing Russian war in Ukraine, the Israel-Palestine conflict, or rising tension in the Middle East, or due to growing inflation or higher interest rates, or tariffs.
• Dependency on a limited number of suppliers for materials, product parts, and vehicle chassis could lead to an increase in material costs, disruptions in the supply chain, or reputational costs.
• Ability to develop new and innovative products in current end-markets.
• Ability to leverage technologies and brand to expand into new categories and end-markets.
• The spread of highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S. and global economy, which could in turn disrupt the business activities and operations of customers, as well as the company's businesses and operations.
• Ability to increase aftermarket penetration.
• Ability to accelerate international growth.
• Exposure to exchange rate fluctuations.
• The loss of key customers.
• Ability to accurately forecast demand for products.
• Ability to improve operating and supply chain efficiencies.
• Changes in commodity, freight, and tariff costs (including tariff relief or the ability to mitigate tariffs, particularly in light of the policies of the current presidential administration and retaliatory actions in response thereto).
• Ability to mitigate increasing input costs through pricing or other measures.
• Economic conditions that impact consumer spending or consumer credit, including changes in inflation or interest rates.
• Ability to enforce intellectual property rights.
• Future financial performance, including sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cash flow, and ability to maintain profitability.
• Ability to maintain premium brand image and high-performance products.
• Ability to maintain relationships with the professional athletes and race teams sponsored.
• Ability to selectively add additional dealers and distributors in certain geographic markets.
• The growth of the markets in which the company competes, expectations regarding consumer preferences, and ability to respond to changes in consumer preferences and effectively compete against competitors.
• Changes in demand for performance-defining products.
• The loss of key personnel, management, and skilled engineers.
• Ability to successfully identify, evaluate and manage potential or completed acquisitions and to benefit from such acquisitions.
• Legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the impact of changing emissions and other related regulations in the various jurisdictions in which products are produced, used, and/or sold.
• The cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in governmental or industry regulatory standards.
• Future disruptions in the operations of manufacturing facilities.
• Ability to adapt business model to mitigate the impact of certain changes in tax laws, tariffs, and international trade policies, including regulations or orders related to the import and export of industry products.
• Changes in the relative proportion of profit earned in the numerous jurisdictions in which the company does business and in tax legislation, case law and other authoritative guidance in those jurisdictions.
• Product recalls and product liability claims.
• U.S. policies related to global trade and tariffs, including increased tariffs on steel and aluminum, expanded tariffs on derivative products, termination of countrywide exemptions, and the imposition of 25% tariffs on products from Mexico and Canada, a 20% tariff on imports from China and Hong Kong, 25% tariffs on certain passenger vehicles and light trucks, and a universal reciprocal tariff of at least 10% on all countries (higher for certain countries) effective August 1, 2025.
• Risk that continued U.S. tariffs on imports could be met with additional retaliatory tariffs on U.S.-produced exports and that broader trade uncertainty could intensify.
• Adverse effects on the ability to timely or successfully import products or raw materials due to changes in U.S. laws, including potential holding for inspection by U.S. Customs and Border Patrol (U.S. CBP) based on suspicion of noncompliance.
• Potential penalties, fines, or sanctions if any suppliers are found to have dealings, directly or indirectly, with entities on the Uyghur Forced Labor Prevention Act (UFLPA) entity list.
• Increased scrutiny and review of Taiwan-based or other operations due to U.S. CBP's Withhold Release Order against bicycles, bicycle parts, and accessories manufactured in Taiwan by Giant Manufacturing Co. Ltd., potentially hindering or delaying importation and delivery of products manufactured in Taiwan.
• Legal proceedings, including a federal securities class action lawsuit and two stockholder derivative complaints, alleging violations of federal securities laws and breach of fiduciary duties by officers and directors.

Future Outlook

The company expects that cash on hand, cash flows from operations, and availability under its Credit Agreement will be sufficient to fund its operations during the next 12 months from the date of this Form 10-Q and beyond. It will continue to assess the impact of the One Big Beautiful Bill Act (OBBBA) on its effective tax rate for future periods. The company acknowledges that significant increases in inflation, particularly those related to wages and raw material costs, could continue to have an adverse impact on its business, and interest rate volatility could lead to higher interest expense on its variable-rate debt, though it utilizes interest rate swaps to mitigate this risk.

Management Comments

• In management's opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented.
• Management provides this non-GAAP financial measure [total adjusted EBITDA] as a supplemental tool to assist investors in understanding our performance and evaluating our ongoing results of operations.
• While the Company believes that the estimates and assumptions used in the impairment test were reasonable, changes in key assumptions, including lower revenue growth, terminal growth rate, or increase in WACC could result in a future impairment of the reporting units.
• We are evaluating the potential effect on our supply chain and sourcing strategies, and while we expect some volatility in cash flows as we adjust, we believe our existing liquidity and access to the Credit Agreement provide sufficient flexibility to manage these developments.
• We are committed to complying with the UFLPA and have taken significant steps to assess and mitigate risks within our supply chain.
• Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level.

Industry Context

The company's performance is influenced by broader industry trends, including high interest rates, elevated vehicle costs, and general macro-economic conditions, which are impacting consumer demand and leading OEMs, distributors, and dealers to reduce inventory levels. Despite these headwinds, the company is seeing increased demand for aftermarket products, benefiting from strategic customer program launches, and gaining market share in the motorcycle business, particularly through the Marzocchi acquisition. Global trade actions and tariffs, especially U.S. policies and retaliatory measures, continue to introduce costs and uncertainty into the supply chain.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct comparison to industry standards.
• General market conditions, such as high interest rates, high vehicle costs, and macro-economic conditions, are noted as impacting industry and consumer demand, leading to reduced inventory levels by OEMs, distributors, and dealers.
• The company's performance is discussed in the context of these challenging market-wide economic conditions.

Corporate Governance

Legal Proceedings

• On February 20, 2024, a class action complaint alleging violations of federal securities laws was filed against the Company and certain current and former officers, claiming material misstatements and omissions regarding product demand and inventory levels. The amended complaint was dismissed on March 13, 2025, but plaintiff filed a second amended complaint on April 14, 2025, which defendants moved to dismiss on May 30, 2025.
• On October 9, 2024, and October 29, 2024, two stockholder derivative complaints were filed against certain officers and directors, with the Company as a nominal defendant, alleging breach of fiduciary duties or wrongdoing related to the underlying securities fraud claims. These cases are stayed pending the decision on the motion to dismiss the securities fraud litigation.
• The defendants deny all allegations of wrongdoing, believe the claims are without merit, and intend to vigorously defend themselves in both the class action and derivative lawsuits.

Stakeholder Impact

• Shareholders: Significant net loss and goodwill impairment could negatively impact shareholder value and confidence. Legal proceedings (securities class action, derivative suits) also pose a risk to shareholder interests.
• Employees: Organizational restructuring initiatives involved workforce reductions, impacting employees in the AAG and SSG segments.
• Customers: Increased demand for aftermarket products and strategic customer program launches indicate continued customer engagement in certain segments. However, lower industry demand in automotive OE and reduced inventory levels by OEMs, distributors, and dealers suggest challenges for some customer segments.
• Suppliers: Dependency on a limited number of suppliers and the impact of tariffs and global trade actions could affect supplier relationships and costs. Compliance with UFLPA adds complexity to supply chain management.
• Creditors: The Fifth Amendment to the Credit Agreement provides an improved covenant profile and extends debt maturity, which could be viewed positively by creditors, enhancing financial flexibility.

Next Steps

• The majority of cash payments associated with restructuring initiatives are expected to occur by the end of fiscal year ending January 2, 2026.
• The company will continue to assess the impact of the One Big Beautiful Bill Act (OBBBA) on the effective tax rate for future periods.
• The company will continue to monitor its goodwill balances for further potential impairments.
• Defendants intend to vigorously defend themselves against the securities class action and stockholder derivative complaints.
• The company is continuously working to enhance due diligence processes, leveraging available data and supplier engagement to ensure compliance with UFLPA to the fullest extent possible.

Key Dates

Recommendation

The company reported a substantial net loss for the nine-month period, primarily due to a significant non-cash goodwill impairment charge of $262.1 million, triggered by adverse tariff policies and a sustained decline in stock price. While net sales increased, this was overshadowed by the impairment and a 568.7% decrease in income from operations year-over-year. The Specialty Sports Group, a key segment, experienced a decline in sales and EBITDA due to inventory reductions by OEMs and distributors. Ongoing macroeconomic headwinds, high interest rates, and vehicle costs continue to challenge demand. Furthermore, the company faces multiple legal proceedings, including a securities class action and derivative lawsuits, which introduce additional uncertainty and potential liabilities. Although debt was refinanced to extend maturity, the overall financial performance and the challenging operating environment suggest a negative outlook for the stock.

Keywords

Fox Factory Holding Corp, FOXF, 10-Q, Quarterly Report, Financial Results, Goodwill Impairment, Net Loss, Net Sales, Powered Vehicles Group, Aftermarket Applications Group, Specialty Sports Group, Tariffs, Restructuring, Credit Agreement, Debt Refinancing, Marzocchi Acquisition, OEM, Aftermarket, Suspension, Performance Products, Sports Equipment, Supply Chain Risk, Legal Proceedings, Share Repurchase