Solo Brands Inc. shrunk its loss in the third quarter ended September 30 as sales jumped 47 percent. The parent of Solo Stove lowered its sales guidance for the year but kept its outlook for gross margin and EBITDA margin.

The company’s four brands include Solo Stove firepits, stoves, and accessories, Chubbies casual apparel and activewear, Oru Kayak, origami folding kayaks, and ISLE paddleboards, maker of inflatable paddle boards.

Third Quarter 2022 Highlights Compared to Third Quarter 2021

  • Net sales of $102.2 million, up $32.7 million or 47.1 percent
  • Net loss of $4.0 million, down $6.1 million
  • Loss per Class A common stock – basic and diluted of $0.03 for the third quarter of 2022
  • Adjusted net income of $7.6 million, down $8.2 million, or 52.1 percent
  • Adjusted EBITDA of $11.2 million, down $6.9 million, or 38.1 percent
  • Adjusted EPS of $0.15 for the third quarter of 2022

“We are pleased to announce that we exceeded third quarter expectations. Our team executed our strategic playbook and delivered strong revenue growth with healthy gross margins. Both existing and new customers responded positively to the innovation we introduced in the third quarter, which enabled us to expand and extend our deep connection with consumers,” said John Merris, CEO of Solo Brands. “Because we anticipate continued market uncertainty, we are taking a balanced approach to counteract near term volatility. We expect to mitigate current macro-economic headwinds and demonstrate the advantage of our differentiated Solo Brands’ model which emphasizes the experiences enabled by our iconic products.”

Operating Results for the Three Months Ended September 30, 2022

Net sales increased 47.1 percent to $102.2 million, compared to $69.4 million in the third quarter of 2021. The increase was driven by activity from acquired businesses and improved demand in both the wholesale and direct-to-consumer sales channels.

  • Direct-to-consumer revenues increased 48.6 percent to $86.3 million compared to $58.1 million in the third quarter of 2021.
  • Wholesale revenues increased 39.7 percent to $15.9 million compared to $11.4 million in the third quarter of 2021.

Gross profit increased 57.8 percent to $64.7 million, compared to $41.0 million in the third quarter of 2021. Adjusted gross profit increased 39.1 percent to $64.7 million compared to $46.5 million in the same period of the prior year, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin increased 4.2 percent to 63.3 percent due to inventory turns driving recognition of fair value inventory write-ups from acquisition activity during the three months ended September 30, 2021, with no comparable impacts during the three months ended September 30, 2022. Adjusted gross margin decreased to 63.3 percent compared to 67.0 percent in the same period in 2021 primarily due to the gross margin profile of the acquisitions made in the third quarter of 2021 and higher inbound freight costs.

Selling, general and administrative (SG&A) expenses increased to $59.5 million, compared to $28.6 million in the third quarter of 2021. $9.2 million of the increase was related to the businesses acquired in the third quarter of 2021, which did not include activity for the full comparative period. The remaining variance was driven by $13.5 million of higher fixed costs and $8.1 million of incremental variable costs. The fixed cost increases were primarily due to investments in long-term strategic initiatives, costs associated with becoming a public company and increased headcount. The variable cost increases were primarily due to marketing and distribution expenses.

Depreciation and amortization expenses increased to $6.2 million compared to $5.1 million in the third quarter of 2021. The increase in depreciation and amortization expenses was driven by a $0.4 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity and a $0.8 million increase in depreciation primarily related to a new global headquarters facility.

Loss per Class A common stock basic and diluted per share was $0.03. A comparison to the same period last year is not meaningful or comparable due to the reorganization transactions which occurred in 2021. 

Adjusted EPS for the third quarter of 2022 was $0.15. Weighted average basic and diluted shares were 63,469,798.

Operating Results for the Nine Months Ended September 30, 2022

Net sales increased 41.0 percent to $320.4 million, compared to $227.2 million in the prior year period primarily driven by activity from acquired businesses.

  • Direct-to-consumer revenues increased 37.2 percent to $262.6 million compared to $191.5 million in the prior year period.
  • Wholesale revenues increased 61.5 percent to $57.8 million compared to $35.8 million in the prior year period.

Gross profit increased 36.0 percent to $200.2 million, compared to $147.2 million in the prior year. Adjusted gross profit increased 35.0 percent to $208.0 million compared to $154.1 million in the prior year period, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin decreased 2.3 percent to 62.5 percent. Adjusted gross margin decreased to 64.9 percent compared to 67.8 percent in the prior year period primarily due to the gross margin profile of the businesses acquired in the third quarter of 2021 and higher inbound freight costs.

Selling, general and administrative (SG&A) expenses increased 126.4 percent to $174.3 million, compared to $77.0 million in the prior year period. The increase included $41.8 million of activity related to the businesses acquired in 2021 that did not have activity for the full comparative period. The remaining variance was driven by $34.5 million of higher fixed costs and $20.8 million of incremental variable costs. The fixed cost increases were primarily due to investments in long-term strategic initiatives, costs associated with becoming a public company and increased headcount. The variable cost increases were primarily due to marketing and distribution expenses.

Depreciation and amortization expenses increased to $18.2 million compared to $13.0 million in the prior year period. The increase in depreciation and amortization expenses was driven by a $3.1 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity and a $2.1 million increase in depreciation primarily related to a new global headquarters facility.

Impairment charges of $30.6 million were recorded in 2022, of which $27.9 million related to goodwill for the company’s ISLE reporting unit and $2.7 million related to the ISLE trademark intangible. No impairment charges were recorded during the prior year.

Loss per Class A common stock basic and diluted per share was $0.26. A comparison to the same period last year is not meaningful or comparable due to the reorganization transactions which occurred in 2021. 

Adjusted EPS for the nine months ended September 30, 2022 was $0.74. Weighted average diluted shares were 63,429,125.

Balance Sheet

Cash and cash equivalents at the end of the third quarter totaled $17.2 million, compared to $25.1 million at December 31, 2021.

Outstanding borrowings were $77.5 million under the Revolving Credit Facility, and $97.5 million under the Term Loan Agreement as of September 30, 2022. The borrowing capacity on the Revolving Credit Facility was $350 million as of September 30, 2022, leaving $272.5 million of availability.

Inventory at the end of the third quarter was $165.8 million, compared to $102.3 million at December 31, 2021. Increases in inventory were driven by preparation for the holiday season, international expansion and new product launches.

Full Year 2022 Guidance

Based on the latest macro-economic trends and overall consumer unpredictability heading into the holiday season, Solo Brands are revising our full year revenue guidance and reaffirming our previous guidance for adjusted gross margin and adjusted EBITDA margin.

  • Total revenue is expected to grow 15 percent to 20 percent versus our prior guidance of a mid-20 percent range.
  • Adjusted gross margin, as previously guided, is planned to be above 60 percent of total revenue.
  • Adjusted EBITDA margin, as previously guided, is expected to be in the mid-teens as a percentage of total revenue.

Photo courtesy Solo Stove