Solo Brands, Inc.’s Q4 Wholesale Sales Surge Nearly 200 Percent While DTC Slips

Solo Brands, Inc., the parent company of the Solo Stove, Chubbies, Oru Kayak, and Isle brands, saw net sales increase 11.8 percent to $197.2 million in the fourth quarter ended December 31, compared to $176.5 million in the fourth quarter of 2021. The increase was said to be primarily driven by improved demand in the wholesale sales channel as a result of continued market penetration.

Direct-to-consumer revenues decreased 2.1 percent to $160.8 million in Q4, compared to $164.2 million in the fourth quarter of 2021.

Wholesale revenues increased 196.4 percent to $36.5 million in Q4, compared to $12.3 million in the fourth quarter of 2021.

Gross profit increased 5.6 percent to $118.0 million in the fourth quarter, compared to $111.7 million in the fourth quarter of 2021. Adjusted gross profit increased 0.7 percent to $118.0 million, compared to $117.2 million in the prior-year comparable period, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin decreased 3.5 percentage points to 59.8 percent of sales due to the gross margin profile of the businesses acquired in 2021 and the shift in sales channel mix with greater growth in wholesale sales, which typically have lower gross margins than DTC sales and higher inbound freight costs.

SG&A expenses increased to $84.7 million in Q4, compared to $82.5 million in the fourth quarter of 2021. The increase was driven by $7.4 million of higher fixed costs, partially offset by a $5.2 million decrease in variable costs. The fixed cost increase was primarily due to increased employee-related costs as a result of increased headcount and costs associated with becoming a public company. The variable cost decrease was primarily due to lower marketing expenses, partially offset by an increase in bad debt expense.

Depreciation and amortization expenses increased to $6.4 million in Q4, compared to $5.3 million in the fourth quarter of 2021. The increase in depreciation and amortization expenses was driven by a $0.5 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of 2021 acquisition activity and a $0.7 million increase in depreciation primarily related to a new global headquarters facility completed in the fourth quarter of 2021.

Other operating expenses fully decreased from $6.6 million in the fourth quarter of 2021, which were primarily driven by employee costs related to acquisitions, international expansion costs and costs to transition to a new global headquarters, all of which did not recur in the fourth quarter of 2022.

EPS was 18 cents per share for the fourth quarter of 2022, up from 17 cents in the prior-year quarter. Adjusted EPS was 33 cents per diluted share for the fourth quarter of 2022.

For the full year, Solo reported that net sales increased 28.2 percent to $517.6 million in 2022, compared to $403.7 million in the prior year, driven by increases in total orders both from businesses acquired in 2021 as well as organic increases in total orders. The increases in total orders were partially offset by a decrease in average order value primarily due to the product offerings of the Chubbies acquisition, which occurred in the third quarter of 2021. Demand improved in both the DTC and wholesale sales channels as a result of continued market penetration.

DTC revenues increased 19.1 percent to $423.4 million in 2022, compared to $355.7 million in the prior year. Wholesale revenues increased 96.0 percent to $94.2 million in 2022, compared to $48.1 million in the prior year.

Gross profit increased 22.9 percent to $318.2 million compared to $258.9 million in the prior year. Adjusted gross profit increased 20.2 percent to $326.0 million in 2022 compared to $271.3 million in the prior year, reflecting the impact of purchase accounting adjustments related to acquired businesses. Gross margin decreased 2.7 percentage points to 61.5 percent of sales due to the gross margin profile of the businesses acquired in 2021 and the shift in sales channel mix with greater growth in wholesale sales, which typically have lower gross margins than DTC sales.

SG&A expenses increased 62.4 percent to $259.0 million in 2022, compared to $159.5 million in the prior year. The increase included $43.7 million of activity related to the businesses acquired in 2021 that did not have activity for the full comparative period. The remaining increase was driven by $39.8 million of higher fixed costs and $15.9 million of incremental variable costs. The fixed cost increases were primarily due to employee costs as a result of equity-based compensation, increased headcount and severance, costs associated with becoming a public company, and investments in long-term strategic initiatives. The variable cost increases were primarily due to marketing and distribution expenses.

Depreciation and amortization expenses increased to $24.6 million compared to $18.2 million in the prior year. The increase in depreciation and amortization expenses was driven by a $3.6 million increase in amortization primarily related to increases in definite-lived intangible assets as a result of acquisition activity in 2021 and a $2.8 million increase in depreciation primarily related to a new global headquarters facility completed in the fourth quarter of 2021.

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.

Other operating expenses decreased 70.9 percent to $3.6 million from $12.3 million in the prior year primarily due to a $7.9 million decrease in acquisition-related expenses as a result of lower acquisition activity during 2022 and a $1.8 million decrease in business optimization expenses as a result of non-recurring warehouse and headquarters transition costs primarily incurred in the fourth quarter of 2021, partially offset by $0.7 million of management transition costs incurred during 2022.

The EPS loss per share was 8 cents in 2002, compared to 17 cents profit per diluted share in 2021. Adjusted EPS was $1.07 per diluted share in 2022.

Cash and cash equivalents were $23.3 million at year-end, compared to $25.1 million at December 31, 2021.

Outstanding borrowings were $20.0 million under the Revolving Credit Facility, and $96.3 million under the Term Loan Agreement as of December 31, 2022. The borrowing capacity on the Revolving Credit Facility was $350.0 million as of December 31, 2022, leaving $330.0 million of availability.

Inventory was $133.0 million at December 31, compared to $102.3 million at December 31, 2021. Increases in inventory were primarily driven by international and new product expansion.

Looking ahead, total revenue for 2023 is expected to be between $520 million to $540 million. Adjusted EBITDA margin is expected to be between 16.5 percent to 17.5 percent for 2023.

“We continue to be incredibly excited about our long-term growth strategy and see tremendous opportunity for both channel and category expansion in our business; however, we are mindful of the current uncertain environment and not immune to the pressures on consumer discretionary spending,” the company said in a release.

Photo courtesy Solo Stove