Black Diamond, Inc. (NASDAQ:BDE) reported its adjusted net loss from continuing operations increased 13.6 percent, or by $300,000, in the second quarter on sales that were up slightly in currency-neutral (c-n) terms.
The Salt Lake City-based maker of climbing gear and apparel reported sales from continuing operations reached $29.1 million in the second quarter ended June 30. While that was down 3 percent in reported terms, it was up slightly when excluding the impact of currency translation.
“Our second quarter was highlighted by continued growth in our North American business and strength in our global direct-to-consumer channel,” said Mark Ritchie, Black Diamond Equipment’s brand president. “We also experienced low double-digit growth in our independent global distributor business, as markets like Japan and Korea have begun to replenish their inventory after a period of industry consolidation and other market headwinds.”
Gross margin in the second quarter of 2016 was 28.6 percent compared to 35.0 percent in the year-ago quarter. A portion of the decrease was due to a 250 basis point headwind from foreign currency. Excluding the impact of foreign exchange, gross margin was 31.1 percent. Gross margin was also negatively impacted by an unfavorable mix in lower margin products and additional costs associated with the continued ramp of Black Diamond’s recently repatriated manufacturing activities from Asia to the U.S.
“We continued to experience foreign exchange challenges, particularly with the Euro, which impacted both revenue and gross margin,” Ritchie explained. “In addition, despite record factory output levels in May and June, the manufacturing activities that we repatriated from China back to Salt Lake City continued to operate at higher costs, further impacting gross margin. We are actively engaged in activities designed to improve, manage and measure factory efficiencies and expect to achieve higher gross margin, lower overhead and reduced response time to our customers in 2017.”
Selling, general and administrative expenses in the second quarter of 2016 decreased 18 percent to $11.6 million, compared to $14.1 million in the year-ago quarter. The decline was due to a restructuring implemented in 2015, partially offset by certain transition costs that did not qualify as restructuring charges.
Net loss from continuing operations in the second quarter was $3.2 million or $(0.10) per diluted share, compared to a net loss from continuing operations of $3.8 million or $(0.12) per diluted share in the year-ago quarter. Net loss from continuing operations in the second quarter of 2016 included $1.7 million of non-cash items, $0.5 million in restructuring costs and $0.1 million in transaction costs, partially offset by a $2.0 million arbitral award related to certain claims against the former owner of PIEPS associated with the voluntary recall of the PIEPS Vector transceiver in 2013.
Adjusted net loss from continuing operations, which excludes these non-cash items as well as restructuring and transaction costs and the arbitral award, was $2.5 million or $(0.08) per diluted share in the second quarter of 2016, compared to an adjusted net loss from continuing operations before non-cash items of $2.2 million or $(0.07) per diluted share in the second quarter of 2015.
Adjusted EBITDA was $(2.3) million compared to $(1.9) million in the second quarter of 2015, primarily driven by the aforementioned reduction in sales and gross margin.
At June 30, 2016, cash and available-for-sale marketable securities totaled $98.4 million compared to $98.2 million at December 31, 2015. Total debt was $21.0 million compared to $20.1 million at December 31, 2015. Stockholders’ equity was $166.0 million or approximately $5.48 per share based on 30.3 million shares of common stock outstanding as of June 30, 2016.
During the second quarter, the company repurchased 553,462 shares of its common stock for a total cost of approximately $2.3 million or $4.16 per share.
2016 Outlook
Black Diamond reaffirmed its fiscal year 2016 sales expectation of approximately $145 million to $150 million compared to $155.3 million in 2015. On a currency-neutral basis, the company expects sales of approximately $155 million to $160 million, or flat to up 3 percent compared to 2015. As a result of the higher costs due to the repatriation, the company now expects gross margin in fiscal 2016 to be approximately 30.0 percent compared to 34.9 percent in 2015. On a constant currency basis, the company now expects gross margin of approximately 33.5 percent.
“We remain well positioned to redeploy our nearly $100 million in cash and marketable securities into assets potentially outside of outdoor equipment,” said Chief Administrative Officer and CFO Aaron Kuehne. “We expect this strategy will drive optimal shareholder value.”
Last November, Black Diamond announced that it had engaged Rothschild Inc. as a financial advisor to help it identify high-quality, durable, cash flow-producing investments potentially unrelated to the outdoor industry as part of a plan to diversify its business and potentially monetize its substantial net operating loss carry-forwards, which can be used to offset $166 million in profits. Black Diamond has said it is focusing primarily on U.S. assets and businesses.
