Black Diamond, Inc. will significantly reduce its SKU count of Black Diamond gear and equipment and exit a few equipment categories as part of its ongoing realignment of resources around faster growing, higher margin products, CEO Peter Metcalf told securities analysts Monday during the company’s first quarter conference call.




“We are rigorously using profit analysis,” said Metcalf. “Our teams have allowed us to get too much product that does not pay back on itself. We believe we will be way more efficient with a greatly reduced SKU count. And when you see us at the trade shows, you will know.”

 

He added that BDE is “looking at potentially getting out of a category or two” that are not meaningful from either a profitability or a brand standpoint. BDE also will slow spending and the cadence of product launches on the equipment side to make sure it is focusing resources on truly innovative products that will move the needle.

 

 

“We know we can continue to do that, but we also believe that we can do it with a tighter budget, a tighter group of people, more tightly orchestrated and more tightly integrated into the operations and manufacturing, which became a little bit balkanized and siloed over the years,” Metcalf said.

 

Apparel and POC boost Q1 sales, margins
BDE reported Monday that the launch of its spring apparel line and strong results at its POC ski helmet business helped push sales up 7 percent, or 8 percent currency-neutral, to $54.5 million in the first quarter ended March 31.

 

 

Gross margin in the first quarter of 2014 increased 70 basis points to 38.4 percent compared to 37.7 percent in the year-ago quarter. The increase was primarily due to a favorable product and geographic mix and contribution from higher margin products by POC, PIEPS and Black Diamond apparel, partially offset by an 80 basis point impact from foreign exchange fluctuations.

 

Selling, general and administrative expenses in the first quarter increased 8 percent and reached 41.5 percent of net sales, up 50 basis points from a year earlier. The increase was attributed primarily to continued investment in Black Diamond apparel and POC.

 

Net loss in the first quarter of 2014 improved to $1.3 million, or 4 cents per diluted share, compared to a net loss of $3.0 million, or 10 cents per diluted share, in the year-ago quarter. Adjusted net loss before non-cash items, however, was higher: $500,000, or 2 cents per diluted share, compared to a net loss of $300,000, or 1 cent per diluted share, in the first quarter of 2013.

 

BDE ended the quarter with cash of $4.4 million compared to $4.1 million at March 31, 2013. Total debt was $45.4 million at March 31, 2014, which included $17.5 million outstanding on the company's $30.0 million line of credit, leaving $12.5 million available. This compares to total debt of $41.5 million at March 31, 2013.

 

 

Spring apparel line out the door, POC road helmet launch next

“The majority of our spring 2014 apparel line was shipped in the first quarter,” continued Metcalf. “Sell-through is both on track with our internal plan and based upon selected retailer response, the line is trending ahead of our fall 2014 launch. Early retail and trade feedback for POC's road bike collection suggests it is well positioned for the core cyclist, and we expect the majority of the line to ship in the second quarter.”
 

Black Diamond's guidance for fiscal year 2014 remains on track with sales expected to be between $235 million and $240 million, which would represent an increase of approximately 16 percent to 18 percent from 2013. The company also expects gross margin in 2014 to range between 39.5 percent and 40.5 percent. Black Diamond's guidance for the first half of fiscal 2014 also remains on track with sales expected to range between $95 million and $100 million. For the second half of 2014, the company expects total sales to range between $135 million and $145 million.

 

Gregory sale could close in current quarter

Metcalf also said he was confident the company would complete its sale of Gregory Mountain Products in the current quarter as part of a strategic pivot the company announced last year that seeks to focus resources on its eponymous Black Diamond brand and POC.  Metcalf reiterated that BDE plans to plow proceeds from any sale of Gregory assets into direct-to-consumer (DTC) initiatives, including bricks-and-mortar stores. DTC grew its share of BDE revenues from about 5 to 7 percent in the first quarter.

 

Bantle takes on new global brand position

Metcalf also confirmed that Ryan Gellert, who moved to China for several years to establish Black Diamond’s global logistic hub there, had resigned from his position as Black Diamond brand president. In his place, BDE has appointed former director of apparel Tim Bantle to the new position of Managing Director, Black Diamond Brand. Bantle has responsibility for apparel and equipment and will report directly to COO Mark Ritchie to ensure the best use of BDE assets. Bantle joined BDE as director of apparel in 2011, when he was recruited from Patagonia to launch Black Diamond’s first apparel line.  Martjin Linden, meanwhile, has been promoted from design director of apparel to vice president of merchandising, design and apparel. Thomas Hodel has been promoted from European category director for hardgoods to ski line manager, global and will continue to work from Basel, Switzerland. The changes, along with a reshuffling of the global marketing team announced last month, reflect a realignment along global, rather than geographic lines. 

 

 

“We have made significant progress by both better-aligning our human resource spend with those faster growth and higher-margin areas of our business,” said Metcalf. “We expect our strategic pivot to be largely complete by the end of 2014, positioning Black Diamond for faster growth and profitability and helping to further evolve our direct-to-consumer channel strategy. Therefore, we continue to expect double-digit sales growth during 2014.”