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Holley’s Q1 sales fell 3.7% to $147.3 million as elevated distributor inventories and severe winter weather delayed demand, but management said order trends improved late in the quarter and into Q2. April revenue was already growing in the mid-single-digit range, suggesting a recovery is underway.
Profitability held up despite weaker sales, with net income rising to $7.3 million from $2.8 million and adjusted EBITDA essentially flat at $27.3 million. The company also delivered $6.5 million in cost savings, helping offset gross margin pressure from lower volume.
Holley is reshaping its portfolio and acquisitions strategy by exiting five brands, consolidating facilities and completing the HRX acquisition in premium racing safety gear. The company kept adjusted EBITDA guidance unchanged, while trimming full-year sales guidance to reflect portfolio actions and expecting leverage to improve below 3.5x by year-end.
Holley (NYSE:HLLY) reported lower first-quarter 2026 sales as elevated distributor inventories and severe winter weather weighed on early-quarter demand, but executives said order trends improved late in the period and into the second quarter.
President and Chief Executive Officer Matthew Stevenson said the quarter began with “a couple of temporary headwinds,” including elevated distributor inventories after partners worked toward year-end rebate targets and stocked up ahead of a Jan. 1 price increase. He said the company expected inventories to normalize in January and February, but severe winter weather slowed retail activity and delayed the process.
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“Beginning in week eight, as weather conditions improved and channel dynamics normalized, we saw steady improvement in purchasing patterns,” Stevenson said. He added that Holley exited the quarter with momentum and that early second-quarter trends were encouraging, with healthier channel inventories and improving order activity.
Holley reported first-quarter net sales of $147.3 million, down 3.7% from $153 million in the prior-year period. Chief Financial Officer Jesse Weaver said all reported sales in the quarter were core sales, as the company was not rolling over any acquisitions or divestitures in the period.
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Gross profit declined to $60.7 million from $64.1 million a year earlier, while gross margin decreased 65 basis points to 41.2%. Weaver attributed the gross margin compression to fixed-cost deleverage, partially offset by operational efficiency gains.
SG&A, including research and development, declined to $39.4 million from $40.8 million, reflecting improved efficiency in legal and marketing spending and lower outbound freight tied to reduced sales volumes.
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Net income rose to $7.3 million from $2.8 million in the first quarter of 2025. Adjusted net income increased to $5.7 million from $2.6 million. Adjusted EBITDA was $27.3 million, essentially flat from the prior-year period, while adjusted EBITDA margin improved 71 basis points to 18.5%.
Stevenson said the company delivered $6.5 million in cost savings during the quarter, including $3.8 million from purchasing discipline and tariff mitigation and $2.7 million from operational improvements.
Three of Holley’s four divisions grew in the quarter, while American Performance declined due to weather and inventory-related factors.
American Performance: Sales declined 9.7%, which Stevenson said reflected the greatest impact from weather and temporary inventory dynamics at a small number of key partners.
Truck & Off-Road: Sales rose 3.8%, supported by momentum in the truck category and product introductions.
Euro & Import: Sales increased 1%, with performance limited by product availability constraints earlier in the quarter that have since been addressed.
Safety & Racing: Sales grew 10.2%, driven by the Snell 2025 helmet certification cycle, demand for the Stilo brand and strength in motorcycle safety.
In response to an analyst question, Weaver said sell-out sales at distribution partners were “very strong” and were likely in the “plus 4% range.” He estimated weather accounted for about 3 percentage points of pressure, while elevated inventory contributed another roughly 4 percentage points to the gap between sell-in and sell-out trends.
Holley is moving forward with a portfolio rebalancing initiative aimed at exiting brands that do not meet its growth, profitability or strategic criteria, simplifying operations and redeploying capital into higher-growth areas.
Stevenson said the company is in the process of exiting five brands and consolidating five facilities and is approximately halfway through that work. The effort includes reducing warehouse space by about 100,000 square feet, streamlining the workforce by about 9% and rationalizing roughly 11,000 SKUs, representing about 25% of the portfolio by count.
The company expects the portfolio rebalancing effort to generate more than $15 million in one-time net cash and to expand adjusted EBITDA margin by approximately 75 to 150 basis points, including at least $1 million in annualized benefits. Holley also expects a modest leverage improvement of around 0.15x and about a 5% improvement in inventory terms.
Holley also closed the acquisition of HRX, an Italy-based maker of premium racing apparel and safety equipment, including suits, gloves, shoes and team wear. Stevenson said HRX is a strategic fit within the company’s safety division and adds FIA-homologated products, premium manufacturing capabilities and a stronger presence in Europe.
The company said it is targeting five to 10 bolt-on acquisitions over the next 24 months. Stevenson said Holley is generally looking at founder-led businesses with $5 million to $10 million in revenue, established double-digit revenue growth, the ability to reach EBITDA margins of 20% or more after synergies, and positive free cash flow.
Holley updated its full-year 2026 net sales guidance to a range of $610 million to $640 million, reflecting a net $15 million revenue reduction tied to portfolio optimization actions. Weaver said the company’s core business revenue range is unchanged.
Adjusted EBITDA guidance remains unchanged at $127 million to $137 million. Weaver said the portfolio optimization is expected to be slightly accretive to adjusted EBITDA on a net basis while generating incremental cash and reducing operational complexity.
The company’s guidance for capital expenditures, depreciation and amortization, and interest expense was unchanged.
Weaver said second-quarter trends were starting positively, with April revenue growing in the mid-single-digit range. Later in the call, Stevenson said April growth was “over 6%” and that demand trends were continuing into May. Weaver said the unchanged core business outlook implies recovery of the first-quarter sales shortfall over the balance of the year, supported by April trends and planned product introductions.
Free cash flow was negative $6.3 million in the first quarter, improving by about $4.5 million from the prior-year period. Weaver said the first quarter is expected to be the low point for free cash flow this year, similar to last year, and that free cash flow should improve meaningfully in the second quarter as inventory levels come back in line.
Inventory was up modestly in the first quarter, reflecting sales performance. Weaver said actions taken starting in January around forecasting, safety stock and a more just-in-time approach on high-velocity SKUs are beginning to pay off. Holley continues to target $10 million to $15 million in inventory reduction for the year.
Covenant net leverage ended the quarter at 3.84x, down from 4.32x a year earlier but modestly higher than year-end due to seasonal working capital needs and the HRX acquisition. Holley expects to end 2026 below 3.5x net leverage.
The company ended the quarter with $33.1 million of cash and $10 million drawn on its revolving credit facility. Weaver said the revolver draw was used proactively to fund the final Cataclean payment and the HRX acquisition, and the company planned to repay it in the coming weeks with cash on hand.
Stevenson closed the call by saying Holley remains committed to its long-term targets of at least 6% organic top-line growth, 40% gross margins and adjusted EBITDA margins above 20%.
Holley Inc is a designer, manufacturer and marketer of high‐performance automotive products for the enthusiast market. Through its portfolio of well‐known brands, the company develops fuel delivery systems, intake manifolds, ignition components, nitrous oxide systems, digital controls and other engine‐dress accessories tailored to both street and competition applications. Holley's products are sold through a network of domestic and international distributors, retailers and directly to professional race teams and hobbyists.
The company's product offerings span mechanical and electronic fuel injection, carburetion, engine management, add‐on power systems and calibration tools.
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The article "Holley Q1 Earnings Call Highlights" was originally published by MarketBeat.
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