Following a year marked by restructuring activities, Black Diamond Inc. believes a “growing retailer confidence” in its refocus back on core Black Diamond product will lead to a rebound in sales in 2017.
“The recurring take-away was retailers’ perception that Black Diamond had been distracted over the past four to five years by various strategic initiatives,” said John Walbrecht, president, about his discussions with retailers since joining the company five months ago. “While most of these customers were relatively supportive along the way, their perception was that BD was distracted from its core equipment focus.”
As a result, Walbrecht said on his company’s fourth-quarter conference call that its fall 2017 sales and marketing campaigns will be centered only on Black Diamond Equipment, backed by a marketing focus built around brand experience and the aspirational natures of its products.
“Simply put, we believe that if we succeed in these two key areas and achieve better on time delivery, we will see improved sell-through and greater confidence in the brand looking forward,” said Walbrecht. “The early response of our consumers has been very positive, evidenced by not just strong fall 2017 bookings, but also by our improved spring 2017 ASAP orders.”
After an acquisition spree, the company sold Poc Sports in 2015 and Gregory Mountain Products in 2014.
Sales in the fourth quarter declined 6.1 percent to $41.4 million. Domestic sales were down 2.3 percent to $21.9 million, while international sales were off 9.1 percent to $19.5 million.
Excluding the impact of foreign exchange, net sales were down 2 percent due to poor European winter conditions impacting ski product sales and its move to scale back apparel. Partially offsetting these factors was continued strong climb and mountain equipment product growth, especially within direct-to-consumer, which was up 19 percent, and independent global distributor distribution, which was ahead 12 percent.
Walbrecht said the fourth quarter saw strong sell through of carabiners, climbing accessories, trekking poles, packs and protection lines, as well as Pieps Micro Beacons and avalanche kits. A strong reception was also seen for its Helio collection of carbon skis, gloves and poles. In apparel, its First Light Hoody and Dawn Patrol lines sold through well at retail.
Gross margins in the quarter were 29.1 percent compared to 33.5 percent in the same period last year. Excluding the impact of foreign exchange, gross margin was 32 percent. The 150 basis point year-over-year decline on a constant-currency basis was the result of a combination of additional costs associated with the continued ramp up of Black Diamond’s recently repatriated manufacturing activities from Asia to Salt Lake City and an unfavorable mix of lower-margin products.
SG&A, which excludes restructuring, merger and integration and transaction costs, was down 16 percent to $12.4 million compared to $15 million due to expense savings stemming from last year’s restructuring activities.
Black Diamond reduced its loss in the quarter to $1.4 million, or 5 cents a share, from $31.7 million, or 99 cents. The year-ago period included a $29.5 million goodwill impairment charge linked to the decline in the company’s market capitalization and the latest quarter also included non-recurring items. Excluding special items, net income from continuing operations was $400,000, or 1 cent a share, down from $600,000, or 2 cents, a year ago.
For the full year, revenues were down 4.6 percent to $148.2 million. The net loss was $9 million, or 30 cents a share, against a loss of $77.5 million, or $2.38, the prior year. On an adjusted basis, the net loss from continuing operations, was $2.6 million, or 9 cents a share, compared to loss $800,000, or 2 cents, in 2015.
Discussing some progress in regions and key initiatives, Walbrecht said its North American business, particularly in the U.S., continues to perform well due to the strength of its foundational climb and mountain categories.
“We believe the retail channel is relatively stable, and with a few exceptions our larger key accounts continue to perform well with our brand,” said Walbrecht. “In addition, our direct-to-consumer business continues to grow strong double digit, and is resonating quite well with our core consumers which we believe bodes well for the future wholesale business as well.”
Its independent global distributor business, which covers the rest of the world regions and includes large markets in Asia, was strong again in the fourth quarter. The refocused apparel approach led to strong sell-through in the fourth quarter, “which has continued so far for our spring orders, and fall 2017 bookings have also been very strong,” said Walbrecht.
Europe is seeing some pickup in Northern and Southern Europe but overall is being held back by foreign currency pressures, the dry winter and the apparel scale-back.
Last year’s move to repatriate manufacturing of most of its equipment from China to its headquarters in Salt Lake City has been completed. While Q4 gross margins were still slightly hampered by related inventory supply challenges, its manufacturing operations in Salt Lake continued to show steady improvements in efficiency, quality and output. Said Walbrecht, “We will continue to look for ways to optimize our business and enhance our gross margin, both on this initiative as well as on our manufacturers that supply the remaining 80 percent of our products.”
Black Diamond officials noted that it reached its 2016 goals of reestablishing its 2012 pre-acquisition cost structure, improving its working capital and creating a solid revenue base to build from after scaling back apparel and refocusing its independent global distribution, primarily in Asia. Among the highlights was eliminating $8.6 million of SG&A and reducing inventories year over year by $6.1 million.
Given recent favorable market dynamics in and around its climbing business, Black Diamond recently added headcount in R&D, as seen by recent additions, including Robert Fry as VP of merchandising and Trent Bush as VP of apparel design. In 2017, the R&D headcount is expected to expand by 10 to 12 employees. The company has also added approximately $1 million to its marketing budget to drive brand awareness in mainstream media outlets.
While refocusing back on the Black Diamond brand, the company indicated it continues to seek out an acquisition outside the outdoor space to help diversify its business. Said Walbrecht, “While it continues to be too early to provide any specific guidance or details around the redeployment of our capital, we remain absolutely committed and are very active in our strategy to acquire high quality, durable, cash-flow producing assets that are potentially unrelated to the outdoor equipment industry in order to diversify our business.”
Looking ahead, sales in 2017 are expected to grow between 3 and 7 percent. On a constant-currency basis, sales are expected to range from $154 million to $159 million, up 4 to 7 percent compared to 2016. Gross margins are projected to increase approximately 300 to 400 basis points and range between 32.5 and 33.5 percent compared to 29.5 percent in 2016, with foreign currency representing an approximate 50 basis point negative impact.
Photo courtesy Black Diamond
