Clarus Corp. reported sales declined 14 percent in the first quarter as a small gain at Black Diamond was offset by an 18 percent drop in ammunition sales due to ongoing supply chain challenges as well as continuing weakness in its Adventure segment. Earnings on an adjusted basis were down 53.4 percent.
Sales in the quarter ended March 31 of $97.4 million topped Wall Street’s consensus estimate of $95 million. Adjusted EPS OF 18 cents was in line with expectations. Clarus reiterated its guidance for the year.
First Quarter 2023 Financial Summary vs. Same Year‐Ago Quarter
- Sales of $97.4 million compared to $113.3 million, representing a decline of 14 percent.
- Gross margin was 37.0 percent compared to 39.1 percent.
- Net income of $1.6 million, or $0.04 per diluted share, compared to $5.3 million, or $0.13 per diluted share.
- Adjusted net income before non‐cash items of $6.9 million, or $0.18 per diluted share, compared to $14.8 million, or $0.37 per diluted share.
- Adjusted EBITDA of $9.6 million with an adjusted EBITDA margin of 9.9 percent compared to $19.7 million with an adjusted EBITDA margin of 17.4 percent.
“Clarus’ consolidated Q1 performance was resilient given the macroeconomic headwinds that carried over from 2022,” said Warren Kanders, Clarus’ executive chairman. “In Outdoor, strong direct‐to‐consumer and international performance were offset by lower open‐to‐buys at our North American retail accounts as 2022 inventory positions unwind. We are encouraged by our robust order book at Precision Sports, however, our ability to consistently source components constrained ammunition shipments in the quarter. While at Adventure, we experienced sequential stabilization throughout the quarter in our home market of Australia, but continued challenges in North America due to elevated inventory levels in all selling channels.
“Operationally, we enhanced our segment leadership to activate the next phase of our corporate and brand evolution. Our brand leaders are focused on establishing revenue, gross margin and EBITDA baselines, upgrading talent, and further driving shareholder value through cash flow generation and debt paydown.”
First Quarter 2023 Financial Results
Sales in the first quarter were $97.4 million compared to $113.3 million in the same year‐ago quarter. Foreign currency exchange was unfavorable to sales by $2.4 million in the first quarter as the U.S. dollar continued to strengthen against the Euro and Australian dollar.
Sales in the Outdoor segment (Black Diamond) increased 2 percent to $52.8 million, or $54.2 million on a constant currency basis, compared to $51.5 million in the year-ago quarter. The increase was due to growth in the direct-to-consumer channels, and European and IGD markets, nearly offset by continued weakness at the company’s key North American retail accounts. Precision Sport (Sierra and Barnes) sales decreased to $27.1 million compared to $33.1 million in the year-ago quarter due to ongoing supply chain challenges limiting ammo sales. Sales in the Adventure segment (Rhino-Rack, Maxtrax) were $17.5 million compared to $28.6 million in the year-ago quarter, reflecting lower consumer demand given the challenging market conditions and the difficult macro-environment in both Australia and North America.
Gross margin in the first quarter was 37.0 percent compared to 39.1 percent in the year‐ago quarter due to changes in channel and product mix and unfavorable foreign currency exchange movement. Easing freight costs positively impacted gross margin by 290 basis points, which was partially offset by a 150 basis point negative impact from foreign currency exchange, negative 130 basis points related to higher inventory reserves, and an unfavorable channel and product mix of 220 basis points. Specifically, the lower open-to-buys from the company’s key North American retail partners in the Outdoor segment further negatively impacted gross margin.
Selling, general and administrative expenses in the first quarter were $32.8 million compared to $34.2 million in the same year‐ago quarter. The decline was driven by expense improvements in the Adventure and Precision Sport segments, as well as lower non-cash stock-based compensation expenses for performance awards at corporate. These savings were partially offset by higher investments at Outdoor for employee costs and investments in the direct-to-consumer channel.
Net income in the first quarter was $1.6 million, or $0.04 per diluted share, compared to $5.3 million, or $0.13 per diluted share, in the prior year’s first quarter.
Adjusted net income before non-cash items in the first quarter, which excludes non‐cash items and transaction costs, was $6.9 million, or $0.18 per diluted share, compared to $14.8 million, or $0.37 per diluted share, in the same year‐ago quarter.
Adjusted EBITDA in the first quarter was $9.6 million, or an adjusted EBITDA margin of 9.9 percent, compared to $19.7 million, or an adjusted EBITDA margin of 17.4 percent, in the same year‐ago quarter. The decline in adjusted EBITDA was driven by lower sales volumes in the North American portion of the company’s Outdoor and Adventure segments and a $2.4 million consolidated headwind due to the strength of the U.S. dollar.
Net cash provided by operating activities for the three months ended March 31, 2023, was $3.2 million compared to $(10.8) million in the prior year’s quarter. Capital expenditures in the first quarter of 2023 were $1.5 million compared to $1.9 million in the prior year quarter. Free cash flow for the first quarter of 2023 was $1.7 million compared to $(12.7) million in the prior year quarter due to reduced inventory levels compared to December 31, 2022.
Liquidity at March 31, 2023 vs. December 31, 2022
- Cash and cash equivalents totaled $10.3 million compared to $12.1 million.
- Total debt of $137.0 million compared to $139.0 million.
- The company’s credit facility matures in April of 2027 and bears interest at a variable rate that was approximately 6.8 percent at March 31, 2023.
- Remaining access to approximately $61 million on the company’s revolving line of credit.
- Net debt leverage ratio of 2.4x compared to 2.0x
2023 Outlook
The company continues to expect fiscal year 2023 sales of approximately $420 million and adjusted EBITDA of approximately $60 million, or an adjusted EBITDA margin of 14.3 percent. In addition, capital expenditures are expected to range between $7 million to $8 million and free cash flow is expected to range between $35 million to $40 million for the full year 2023.
Net Operating Loss (NOL)
The company estimates that it has an available net operating loss (NOL) carryforwards for U.S. federal income tax purposes of approximately $17.7 million, which includes $1.8 million of U.S. federal NOL carryforwards that expire on December 31, 2023. 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 guarantee that the company will be able fully utilize the NOLs to offset current and future earnings or that the rights agreement will achieve the objective of preserving the value of the NOLs.
Photo courtesy Black Diamond