Black Diamond Inc. said it expects fiscal 2012 results to come in toward the low end of its guidance because European retailers are pushing deliveries of winter product into the fourth quarter to conserve cash and reduce weather risk as the continent struggles with recession and currency risk.



CEO Peter Metcalf said that while a “deceleration” of sales in Europe had stopped and that the retail environment had “stabilized,” the company decided it was prudent to tweak its revenue guidance until there was more visibility on the weather.


Metcalf said some of the company’s European dealers had pushed back on taking deliveries of pre-season orders, which were weak to begin with because of last winter’s disappointing weather. “There is a little bit of a hot potato between retailers and distributors,” Metcalf said, noting that distributors don’t want to ship unless they know they are going to get paid and retailers want to delay deliveries until the snow falls.
 “We felt we should be prudent here and guide more toward lower range at this moment,” said Metcalf.


Black Diamond had increased its fiscal year 2012 guidance in August, when it said it expected total sales to range between $173.0 million and $178.0 million, including results from POC, a Swedish manufacturer of snowsports and cycling helmets which it acquired July 2, 2012.


BDE CFO Robert Peay tweaked his revenue guidance during a conference call while discussing the company’s third quarter results, which were released. Monday afternoon. BDE reported total sales increased 16 percent to $48.7 million during the quarter, compared to $42.0 million in the third quarter of 2011. The growth in sales was primarily attributed to the company's acquisition of POC, partially offset by the impact of foreign exchange rates as well the company’s decision to exclude sales to Kabushiki Kaisha A&F (“A&F”), the Japanese distributor of Gregory Mountain Products, during the third and fourth quarter. BDE expects to buy back roughly $700,000 of Gregory products from A&F after taking over that business Dec. 31.


Gross margin slipped 20 basis points to 37.9 percent in the third quarter compared to the year-ago quarter, after including $1.1 million for inventory fair value purchase accounting adjustments related to the acquisition of POC. Excluding that amount, adjusted gross margin in the third quarter of 2012 was 40.1 percent, a 200 basis point improvement compared to the year-ago quarter. The increase was due to a favorable mix in higher margin products and channel distribution as well as the inclusion of POC, which generates gross margins in the 43 to 45 percent range.


Net income reached $700,000, or 2 cents per diluted share, compared to $1.0 million, or 5 cents per diluted share in the third quarter of 2011. Excluding non-cash items and transaction, restructuring and merger and integration costs, adjusted net income increased 37 percent to $5.5 million, compared to $4.0 million in the third quarter of 2011, or 17 cents per diluted share.


On Oct. 1, 2012, BDE completed the acquisition of PIEPS for a total consideration valued at approximately $10.3 million in cash and assumed approximately $2.7 million in debt. Peay said PIEPs, which makes a personal locater beacon favored by German and Austrian ski pros, generates gross margins of 49 percent. He said POC, PIEPS and the acquisition of Gregory’s Japanese business will all help boost BDE’s gross margins next year. In 2014, the company could see further margin enhancement as it expands its apparel line and a ski manufacturing facility it opened last week in China hits stride.


Peay said BDE had thus far avoided deeply discounting any winter product in either North American or Europe. Although the company did carry over some seasonal product from last year, it was mostly in-line skis, gloves and boots. “If we get decent snow, we will see inventories fall to levels comparable in 2010,” said Peay.


Metcalf said a good winter and growing consumer confidence in Europe represented the biggest potential upside in coming quarters.
“What is key, is the confidence of the Europeans in the competency of their leadership,” said Metcalf, “… that the euro will be around for a while. And of course the weather cooperating would be immensely helpful.”


He disclosed that BDE expects to announce more hires in coming weeks at its new apparel operation that could boost sales of the company’s inaugural apparel line, which debuts at retail next fall. Black Diamond has shown that line to about 100 tops dealers in North America, Europe, Moscow and China in the last month. “The program is going just as well, if not better, than we expected,” Metcalf said.

“At the end of the quarter,” said Metcalf, “we entered into a contract with A&F to purchase Gregory's Japanese distribution assets and have established a seasoned management team to prepare for the strategic transition in this important market. Most recently, we unveiled our apparel project to Black Diamond's major trading partners and opened our 43,000-square foot, state-of-the-art ski manufacturing factory. These investments represent the culmination of many months of strategic planning and resource commitment which, collectively, we expect to drive significant long-term growth and value for our shareholders.