Wall Street seems fixated on the near-term headwinds facing Fox Factory Holding Corp. – bike inventory recalibrations, lingering UAW strike impacts, and cautious consumer spending. Yet, a closer look at their recent earnings transcript reveals a hidden gem that's quietly bolstering their bottom line and poised for significant growth: the Marucci acquisition.

While analysts are busy dissecting the ebbs and flows of the bike and automotive markets, Marucci, the high-margin baseball and softball equipment powerhouse, is steadily building momentum. This isn't just a feel-good story; it's a strategic masterstroke by Fox Factory, diversifying their revenue streams and injecting a much-needed dose of stability into their portfolio.

The numbers speak for themselves. In a challenging fourth quarter, Marucci over-delivered, exceeding both revenue and profitability expectations. This was achieved without the benefit of a major product launch, a testament to the strength of their established brands – Victus and Marucci – and their diversified product lineup.

Looking ahead, Fox Factory expects Marucci to be a double-digit growth engine, potentially hitting low-double-digit growth in 2024. This confidence isn't based on blind optimism but on a well-defined product roadmap that promises exciting new releases across multiple product lines.

Think about it. Baseball and softball are perennial American pastimes, experiencing robust growth, particularly in the youth and amateur leagues. This provides a solid foundation for Marucci's continued success, irrespective of the cyclical nature of Fox Factory's other markets.

Here's where it gets even more interesting. Beyond Marucci's inherent strength, Fox Factory sees significant potential for synergy within their vertically integrated manufacturing model. By leveraging their expertise in design, engineering, and production, they can optimize Marucci's supply chain, further enhancing their margin profile. These benefits, however, aren't expected to materialize immediately. Fox Factory is taking a long-term approach, focusing on building a strong foundation for sustainable growth, a strategy that may not be fully appreciated by analysts focused on immediate results.

"During the Q4 earnings call [February 22, 2024], Dennis Schemm, Fox Factory's CFO, highlighted Marucci's impressive EBITDA profile, praising its “strong accretion in the margin side.” This echoes CEO Mike Dennison’s earlier remarks, describing Marucci as an “OpEx heavy, CapEx light” business, delivering “right on track.”"

What does this mean for investors? Simply put, while Wall Street is preoccupied with short-term uncertainties, Marucci represents a long-term growth opportunity that's being overlooked. It's a classic case of a hidden gem within a larger company, poised to shine brightly as Fox Factory navigates the current market turbulence.

Hypothetical Performance of Marucci

Based on information from the earnings transcripts and financial data, we can hypothesize about Marucci's potential impact on Fox Factory's future performance.

Marucci's Growth: Fox Factory projects Marucci to achieve low-double-digit growth in 2024. Assuming Marucci generated approximately $180 million in 2023 (based on CFO’s commentary), a 10% growth rate would imply a revenue of $198 million in 2024.

Margin Accretion: Marucci is expected to have a higher EBITDA margin than the average for the Specialty Sports Group. Assuming Marucci's EBITDA margin is 25% (in line with Fox Factory’s long-term aspirations), this would contribute $49.5 million to SSG's EBITDA in 2024.

While these are just initial estimates, they illustrate the significant potential of the Marucci acquisition. As Fox Factory executes its product roadmap and unlocks synergies within its manufacturing model, Marucci could exceed expectations, becoming a key driver of both revenue and profitability growth in the years to come.

"Fun Fact: Did you know that Marucci bats are used by some of the biggest names in Major League Baseball, including All-Stars like Mike Trout and Francisco Lindor? The brand's popularity among professional athletes lends credence to Fox Factory's strategy of focusing on performance-defining products, a philosophy that resonates across all their segments, from high-performance mountain bikes to customized off-road trucks."