Brand aggregator Compass Diversified (CODI) saw first-quarter sales decline 33 percent at BOA, 34 percent at Velocity Outdoor and 5 percent at Primaloft, all impacted to varying degrees by elevated inventories in the marketplace. Marucci Sports and 5.11 both delivered healthy double-digit sales growth. 

BOA’s Sales Declined 33.1 Percent
BOA’s sales fell 33.1 percent to $38 million in the first quarter from $56.8 million in the year-ago period. The main factor of the decrease was higher than anticipated end market inventory levels due to supply chain normalization and the corresponding inventory ordering surge experienced in many of BOA’s industries in 2022. CODI expects a normalization of inventory levels for BOA’s partners by the end of this year

BOA’s operating income fell 57.4 percent to $8.0 million in Q1 from $18.8 million for the comparable period in 2022.

Gross margins eroded to 60.0 percent in Q1 from 62.8 percent a year ago, driven by fixed manufacturing overhead expenses and increased depreciation related to tooling. SG&A expenses declined 15.7 percent, primarily due to decreased employee costs associated with BOA’s bonus plan. As a percent of sales, SG&A expenses increased 28.1 percent of sales compared to 22.4 percent a year ago.

Elias Sabo, CODI’s CEO, said BOA “is executing at an extremely high level and continues to take market share. Our products are on some of the strongest selling SKUs for our brand partners, and we continue to accelerate the number of new SKUs we are gaining placement on, but the current rate of destocking is so high that it’s actually outpacing the market share gains we are experiencing from product sell-through and SKU count growth. This is obviously a unique phenomenon. And once we get beyond this current inventory destocking cycle, we would expect a significant snapback in revenue growth and profitability.”

On an analyst call, Pat Maciariello, CODI’s COO, said, “Though BOA showed a decline in EBITDA versus a record Q1 2022, we remain very confident in the company’s market share, SKU counts and product positioning. Put simply, in many segments, our sell-in was less than our sell-through.

“As we have discussed, we believe this trend will continue in the second quarter before rebounding in the back half of the calendar year. The team there continues to manage effectively, and we continue to expect full-year 2023 EBITDA performance above 2021 levels. We were encouraged recently by the prelaunch of Alpine boots incorporating BOA’s technology as well as the company’s partnership with Under Armour on their new slip speed line of training shoes,” concluded Maciariello.

Primaloft Sees 4.7 Percent Revenue Drop
Primaloft, acquired in July 2022, had pro-forma sales in the quarter of $24.5 million against $25.7 million a year ago, representing a decline of 4.7 percent. The decrease was attributed to lower ordering from existing customers due to higher inventory levels at retail customers which more than offset new customer wins.

Primaloft’s operating income came to $5.0 million against $5.3 million, representing a decline of 5.7 percent.

Gross margins improved to 63.5 percent from 60.2 percent a year ago due to price increases implemented in the fourth quarter of 2022. However, SG&A expense grew 8.5 percent to $5.1 million, including $1.2 million in integration services fees, and increased as a percent of sales to 20.8 percent of sales compared to 18.3 percent a year ago.

Maciariello said, “PrimaLoft showed a slight decline in both revenue and EBITDA as customers continue to pull down their target inventory levels. While financial performance to date has not fully met our expectations at the time of acquisition, we believe the company is taking market share. And given where it sits in the supply chain and the impact of inventory rebalancing, we believe it is outperforming its competitors. The company’s project pipeline for 2024 is as broad as ever, and we remain bullish about PrimaLoft’s financial prospects following inventory stabilization in the supply chain.”

Marucci’s Revenues Expand 11.9 Percent
Marucci’s sales jumped 11.9 percent to $58.3 million from $52.1 million a year ago. The gain was primarily due to increased customer demand and market share in many of Marucci’s key product lines, including aluminum and wood bats and batting gloves.

Operating income surged 120 percent to $14.3 million from $7.9 million for the same period in 2022.

Gross margins improved to 56.2 percent from 44.8 percent a year ago, primarily due to higher spending on air freight in the prior year’s quarter as supply chain issues led to increased transportation costs.

The sales gains and margin improvement offset an increase in SG&A expenses by 21.3 percent, reaching 27.3 percent of sales against 25.2 percent a year ago. The higher operating costs partially correlate to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses. Marucci also incurred additional promotional and marketing expenses in the current quarter due to seasonal programs for several retail customers.

Maciariello said on Marucci, “Marucci had an exceptional quarter, as revenue grew by 12 percent and EBITDA grew by over 25 percent when compared to the strong Q1 2022. The company benefited from exceptional sell-throughs of its CATX line of bats introduced last year and experienced strong growth in non-bat categories, including fielding gloves, bags and helmets, all showing significant growth in the quarter. Also, significant air freight investments incurred in Q1 2022 to maintain and grow shelf space did not recur in Q1 2023, and the company operated efficiently.”

5.11’s Sales Expand 19.6 Percent
At 5.11, the outdoor and tactical gear brand sales were $124.5 million against $104.0 million a year ago, a gain of $20.4 million, or 19.6 percent. The increase is due to domestic wholesale growth of $9.1 million and international sales growth of $4.9 million resulting from strong demand and inventory availability improvement as compared to the prior year. Net sales were also positively impacted by a $9.0 million increase in direct-to-consumer sales largely due to sales from thirty new retail store openings since March 2022, bringing the total store count to 118 as of March 31, as well as strong demand in digital sales. These increases in sales were partially offset by a decrease of $2.0 million in direct-to-agency sales resulting from the fulfillment of a large contract in the prior year.

5.11’s operating income climbed 30.5 percent to $7.7 million from $5.9 million a year ago.

Gross margins at 5.11 were about flat at 52.2 percent against 52.1 percent a year ago. Price increases, as well as favorable customer mix and product mix, was largely offset by increased product costs and lower margin on direct-to-agency sales.

SG&A expense increased to $54.8 million from $45.8 million a year ago due to costs associated with additional retail stores, increased sales and marketing spend, increased usage of temporary labor, and bonus-related expenses. As a percent of sales, SG&A expense was flat a 44.1 percent in each period.

Maciariello said, “5.11 had a strong first quarter with revenue and adjusted EBITDA growing by 20 percent and 22 percent, respectively. Despite broad retail pressures in the US, the company once again benefited from strength in its diverse sales channels and end markets as professional sales both domestically and internationally led its growth. Additionally, the team at 5.11 did an excellent job in the quarter operating effectively and efficiently, and we’re able to gain leverage as adjusted EBITDA growth outpaced revenue growth.”

Velocity Outdoor’s Sales Fall 34 Percent
Velocity Outdoor, which includes the Crosman, Benjamin, Ravin, LaserMax, CenterPoint, and King’s Camo brands in the airguns and archery space, generated sales of $34.0 million, a decrease of 33.8 percent. The decrease was attributed primarily to inflationary pressures on retail demand.

The Velocity Outdoor segment showed an operating loss of $3.3 million in the period compared to operating earnings of $3.1 million for the same period in 2022.

Gross margins eroded to 23.5 percent of sales from 26.0 percent a year ago due to reduced absorption of operating costs. SG&A expense increased 11.9 percent due to the reduced revenue with marketing investments associated with the July 2022 acquisition of King’s Camo, a outdoor performance apparel and gear manufacturer. As a percent of sales, SG&A expense increased to 25.8 percent against 15.4 percent the prior year.

Maciariello said on Velocity Outdoor, “Point-of-sale activity has slowed following a strong performance during and immediately post-pandemic. In addition, retail partners in both of the company segments have sought to reduce inventory levels further. Though it is our belief that on a sequential basis quarterly performance will improve as we move through the year, we continue to examine additional options to rightsize parts of Velocity’s cost structure to better reflect current demand patterns. As a whole, we were very pleased with the performance of our businesses in the first quarter.”

Overall, CODI’s Branded Consumer segment, including Ergobaby and Lugano Diamonds, saw revenues increase 2 percent to $365.6 million and adjusted EBITDA decline 5 percent, as excess inventory in the supply chains at BOA, PrimaLoft, and Velocity offset strong growth at Lugano, Marucci and 5.11.

At its Niche Industrial segment, which includes Altor, Arnold Magnetic Technologies, and Sterno, revenues were approximately flat at $176.6 million, and adjusted EBITDA increased 19 percent versus the first quarter of 2022.

Companywide, net sales were up 6 percent and 1 percent on a pro forma basis to $542.2 million.

Net income increased to $109.6 million from $29.7 million, primarily due to the $98.0 million gain on the sale of Advanced Circuits in February 2023. Income from continuing operations of $13.0 million compared with $18.4 million, representing a decline of 29.3 percent. Adjusted EBITDA was up 11 percent to $91.9 million.

Elias Sabo, CODI’s CEO, said first-quarter results “significantly exceeded our expectations,” and CODI raised its guidance for the year. For the full year 2023, CODI now expects consolidated subsidiary adjusted EBITDA of between $430 million and $460 million, up from between $420 million and $460 million previously. Adjusted earnings are expected to be between $110 million and $135 million compared to between $105 million and $135 million previously.

Sabo cautioned, “The headwinds we overcame in Q1 are still very much out there and cloud our near-term outlook. Similar to our remarks on our fourth quarter call, some of our branded consumer subsidiaries with exposure to wholesale continue to experience significant inventory destocking headwinds.”

He added, “As a reminder, in the first half of 2022, we benefited from extremely high demand from customers who needed our product to help manage their own supply chain issues. With the pandemic winding down and some retailers reckoning with the fact that they over-ordered, it has created a whipsaw effect until inventory is rightsized. Until this happens, our growth in these businesses will be constrained. But fortunately, it is a unique event that we expect to start correcting in the second half of the year.”

Photo courtesy Marucci