Black Diamond Considering Monetizing Gregory Assets to Fund Retail Expansion

 

It was unclear whether BDE would consider selling Gregory outright, or is only interested in selling international distribution or licensing rights to the brand.

 

“We will explore the full waterfront of opportunities that reside in Gregory,” Black Diamond C0-Founder and CEO Peter Metcalf said Friday in a conference call where he updated the company’s guidance for 2013 and issued guidance for fiscal 2014.

 

What is clear, is that the Salt Lake City-based company is looking for options to accelerate investment in retailing.

 

 

“2014 is the year in which we intend to define the role of retail with our strategy,” said Metcalf. “Over time, retail and e-commerce are expected to require additional investment. For the time being, we anticipate funding these initiatives from our existing balance sheet and from our existing operation. However, we have also begun to explore strategic alternatives to monetize the value of untapped markets for Gregory Mountain Products business. We know that Gregory is an extremely valuable asset. We know it’s a coveted lifestyle brand in Japan, Korea and other Asian markets and that it has significant growth opportunities both from a brand extension and additional geographies.”

 

 

While BDE is dedicated to its existing dealer base, the comapny may consider opening more flagship, outlet and shop-in-shop stores in some markets in coming years, Metcalf said. Currently, the company operates just two brick-and-mortar stores; a Black Diamond store near its headquarters in Salt Lake City and a POC store in Chamonix, France.

 

 

BDE disclosed the plans Friday in an update to its fourth quarter 2013 guidance. The company said it expects to report record fourth quarter sales of approximately $60.4 million, up 24 percent from $48.8 million in the year-ago quarter. The increase was attributed to strong growth across all Black Diamond brands, categories and major geographies.

 

 

Black Diamond’s inaugural apparel line, which was made available through 260 carefully selected specialty outdoor retail stores last fall, met plan and set the stage for the launch of its first Spring collection at about 400 stores next month. Dealers sold through most styles as expected and complied with company policies governing when and by how much dealers can put its apparel on sale or initiate end–of-season mark downs.

 

 

BDE expects gross margin in the fourth quarter to be around 38.0 percent compared to 36.3 percent in the year-ago quarter. Margins would have been higher still if not for higher costs incurred to air freight product and larger write downs of discontinued or aging merchandise, particularly skis.

 

 

For the fiscal year ended Dec. 31, 2013, BDE expects to report sales of approximately $203.0 million, up 15 percent from $175.9 million in 2012, or just one point shy of the bottom range of guidance it gave in August. Metcalf attributed the shortfall to lower than expected ASAP orders for winter products from dealers in drought-stricken areas such as the Sierra Nevada in the Western United States and parts of Austria and Germany.

 

 

Gross margin for the full year of 2013 is expected to be around 38.2 percent, or flat with 2012. Higher air freight costs; inventory markdowns and a product recall by PIEPS more than offset the positive effects of foreign exchange rates. Excluding the PIEPs recall, which resulted in a mostly non-cash charge of $1.5 million, adjusted gross margin would have reached approximately 38.9 percent in 2013.

 

 

BDE will provide audited results for the fourth quarter and full year 2013 results in March. The company ended the year with inventory valued at about $46.6 million, or 11 percent below levels at the end of 2012.

 

 

“We believe we exited 2013 with our healthiest inventory levels in several years and our early spring 2014 bookings are strong,” said Metcalf.

 

BDE’s 2014 forecast calls for sales to grow by 16 to 18 percent, or $235-to -$240 million. Sales will grow in the double digits across all brands, although sales of Black Diamond apparel are expected to grow 3.5 times as it adds its first spring and women’s collections and grows its dealer base to 400 in the spring and 800 next fall.

 

 

SG&A is forecast to grow by about $12 million with about 80 percent of the increase going toward brand specific initiatives, such as: launching POC’s first line of road bike helmets and funding its sponsorship of the Garmin-Sharp pro cycling team; setting up POC distributors; and beefing up merchandising support for the Black Diamond and POC apparel lines. Gross margin is expected to range between 39.5 percent and 40.5 percent.

 

BDE could reach three other important milestones this year. Metcalf disclosed the company has hired an executive search firm to recruit a senior executive this year to run overall branding, apparel and direct-to-consumer efforts. Secondly, its ratio of Spring/Summer to Fall/Winter sales is expected to shift from 45/55 to 40/60.

 

Thirdly, CFO Aaron Kuehne said 2014 could become the year investor look back on as the inflection point when BDE’s investments in apparel and POC paid off in faster growth and greater profitability.