Compass Diversified Holdings’ (CODI) reported 5.11’s 2018 revenues expanded 12.2 percent in 2018 while Velocity Outdoor’s revenue increased 10.3 percent. Liberty Safe saw a 10.1 percent decline last year.

5.11’s 2018 revenue increase of 12.2 percent exceeded expectations, while EBITDA decreased 16.2 percent compared to 2017. As discussed previously, 5.11’s margins were negatively impacted by the installation of a new ERP system, the transition to a new distribution warehouse and the recruitment of a number of executive management team members.

On a conference call with analysts, Elias Sabo, CEO, said the 5.11’s investments “came at a heavy cost to EBITDA and given 5.11’s negligible cash taxes these costs weighed heavily on our 2018 cash flow.”

The executive changes included appointing last September Francisco Morales, co-founder and president of 5.11, to CEO of the brand. Tom Davin transitioned from CEO to an advisory role. At that time, 5.11 also appointed of Matt Hyde as executive chairman. Hyde previously served as CEO of West Marine following a 26-year tenure at REI, culminating as EVP.

5.11 is a leading provider of tactical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts.

Said Pat Maciariello, partner, manager of West Coast Office for CODI on the call about 5.11, “With these activities largely behind us, we expect 5.11 to produce a strong rebound in margins in 2019, as well as continued solid revenue growth.”

In the Q&A session, Ryan Faulkingham, EVP and CFO, said 5.11 may have a “few less store openings in 2019 than we had in 2018,” as the new management team fine-tunes the brand’s direct-to-consumer (DTC) approach. He said 5.11 has about 40 stores and they’re “doing exceptionally well.” Stores will remain “absolutely a critical part” of 5.11’s strategy to support its ongoing evolution from traditionally a professional brand to more of a consumer lifestyle brand.

Sabo added that DTC, including online, is important for 5.11 because the outdoor/sporting goods channel “is seeing dramatically consolidation” that has also impacted results over the last few years at Velocity Outdoors and Liberty Safe. But being an apparel product traditionally with an “overwhelmingly” male customer base, 5.11 benefits to a greater degree from having stores.

Said Sabo, “We think it’s important to have physical points of distribution where people can go in that are being exposed to the brand and get the feel, how it fits, there’s just some important aspects as we are bringing in new customers. So we feel that it’s really important because there’s not as well established distribution network to go through more a traditional consumer wholesale approach that we have some of our own.”

The 10.3 percent gain at Velocity Outdoor segment as well as the 21.9 percent gain in the segment’s EBITDA was due primarily to the September 2018 acquisition of Ravin Crossbows. The segment makes airguns, archery products, laser aiming devices and related accessories under the Crosman, Benjamin, LaserMax, Ravin and CenterPoint brands.

Maciariello said, “For 2019, we expect Velocity’s financial performance to decline from 2018, in part due to tough comparisons for Ravin and in part due to continuing challenges in the outdoor sporting goods market.”

Liberty Safe, a maker of home and gun safes, performed below expectation with declines in 2018 of 10.1 percent in sales and 31.3 percent in EBITDA. Added Maciariello, “Liberty Safe experienced both the challenging outdoor sporting goods market and rising input costs due to steel tariffs. We expect Liberty’s financial performance to stabilize in 2019 and be in line with 2018 results.”

An investment presentation filed on CODI’s website noted that 5.11’s 2018 revenues were $348 million and adjusted EBITDA was $32 million. Velocity Outdoor’s sales were $165 million in 2018 and adjusted EBITDA was $31 million. Liberty Safe’s sales were $83 million and adjusted EBITDA was $32 million.

Other consumer businesses owned by CODI include Ergobaby and Manitoba Harvest. Overall, sales or the Branded Consumer Businesses segment grew to $753.4 million from $710.1 million. Adjusted EBITDA declined to $98.3 million from $115.4 million.

CODI also has a Niche Industrial Businesses segment that includes Advanced Circuits, Arnold, Clean Earth, Foam Fabricators and Sterno. Revenues last year reached $1.01 billion, up from $914.4 million. Adjusted EDBITDA improved to $184.6 million from $168.7 million.

For the year ended December 31, 2018, CODI reported a net loss of $1.8 million. This compared to net income of $33.6 million for the year ended December 31, 2017.

Image courtesy 5.11