Black Diamond slightly widened its loss in its second quarter ended June 30. Revenues grew with help of the launch of Black Diamond climbing shoes, its new ropes line as well as updates to harness, carabiner and helmets.
Second Quarter 2017 Financial Summary vs. Same Year-Ago Quarter
• Sales of $30.7 million, up 5 percent.
• Gross margin up 90 basis points to 29.5 percent.
• Net loss was $3.7 million or $(0.12) per share, compared to a net loss of $3.2 million or $(0.10) per share. Net loss in the year-ago quarter benefited from a $2.0 million arbitral award for certain claims against the former owner of PIEPS associated with the voluntary recall of all of the PIEPS VECTOR transceivers during 2013.
• Adjusted net loss before non-cash items was $3.4 million or 11 cents per share, compared to a loss of $2.5 million or 8 cents per share.
Second Quarter 2017 Financial Results
Sales in the second quarter of 2017 increased 5 percent to $30.7 million compared to $29.1 million in the same year-ago quarter. The increase was due to strong growth in the climb and ski categories. On a constant currency basis, sales were up 6 percent.
Gross margin increased 90 basis points to 29.5 percent compared to 28.6 percent in the year-ago quarter. The increase was primarily due to a favorable mix of higher margin products and channel distribution.
Selling, general and administrative expenses in the second quarter increased 11 percent to $12.9 million compared to $11.6 million in the year-ago quarter. The increase was driven by strategic initiatives to increase brand equity and drive new product introductions.
Net loss in the second quarter was $3.7 million or 12 cents per diluted share, compared to a net loss of $3.2 million or 10 cents per diluted share. Net loss in the second quarter of 2017 included $0.2 million of non-cash items and $0.1 million in restructuring charges, compared to $2.0 million of non-cash items, $0.5 million in restructuring costs, $0.1 million in transaction costs, partially offset by a $2.0 million cash arbitration award for the PIEPS VECTOR recall in the second quarter of 2016.
Adjusted net loss, which excludes the non-cash items, as well as restructuring and transaction costs and the arbitral award, was $3.4 million or $(0.11) per diluted share, compared to an adjusted net loss of $2.5 million or $(0.08) per diluted share in the second quarter of 2016.
Adjusted EBITDA was $(2.7) million compared to $(2.3) million in the second quarter of 2016.
At June 30, 2017, cash and cash equivalents totaled $63.4 million compared to $94.7 million at December 31, 2016. The company carried zero debt compared to debt of $21.9 million at the end of 2016. Stockholders’ equity was $156.3 million or approximately $5.21 per share based on approximately 30.0 million shares of the company’s common stock outstanding as of June 30, 2017.
“In the second quarter, our strategy to refocus on our core customer while innovating in current and adjacent product categories continued to gain momentum,” said John Walbrecht, president of Black Diamond Equipment. “We grew sales in all of our major geographic markets and across all distribution channels, including strong double-digit growth in our distributor and direct-to-consumer businesses. Products that drove this growth included the launch of Black Diamond climbing shoes, our new ropes line—a category we introduced last fall—as well as updates to our harness, carabiner and helmet lines.
“Given our progress, we accelerated the timing of various sales and marketing initiatives to further bolster what we expect to be robust fall 2017 and spring 2018 selling seasons. This strategy, along with our increased focus on product development, is being well-received by our retail partners and is anticipated to further strengthen the Black Diamond brand.”
The company continues to anticipate its fiscal year 2017 sales to grow between 3 percent-7 percent to approximately $153 to $158 million compared to $148.2 million in 2016. On a constant currency basis, the company expects sales to range between $154 to $159 million, or up 4 percent-7 percent compared to 2016.
The company continues to expect gross margin in fiscal 2017 to increase approximately 300 to 400 basis points and range between 32.5 percent-33.5 percent compared to 29.5 percent in 2016.
The company also continues to expect selling, general and administrative costs, including approximately $4.5 million of cash corporate overhead expenditures, to be approximately $50.5 million compared to $49.9 million in 2016. The company expects approximately $2.5 million in capital expenditures in 2017.
Redeployment and Diversification Strategy
On November 9, 2015, the company announced that it is seeking to redeploy its significant cash and cash equivalent balances. The company expects to invest in high-quality, durable, cash flow-producing assets potentially unrelated to the outdoor industry in order to diversify its business and potentially monetize its substantial net operating losses. The company intends to focus its search primarily in the United States, while also evaluating international investment opportunities should it find such opportunities attractive.
Net Operating Loss (NOL)
The company estimates that it has available NOL carryforwards for U.S. federal income tax purposes of approximately $172 million. The company’s common stock is subject to a rights agreement dated February 7, 2008 that is intended to limit the number of 5 percent or more owners and therefore reduce the risk of a possible change of ownership under Section 382 of the Internal Revenue Code of 1986, as amended. Any such change of ownership under these rules would limit or eliminate the ability of the company to use its existing NOLs for federal income tax purposes. However, there is no guaranty that the rights agreement will achieve the objective of preserving the value of the NOLs.
Photo courtesy Black Diamond