Black Diamond's sales growth slowed in the fourth quarter as a lack of snow in the United States and Europe curbed sell-through of its backcountry skis, mittens, gloves and other winter sports products. Despite Europe’s uncertain economic outlook, the lack of early snow and rising production costs, the company still expects to achieve revenue growth of 10 to 15 percent and maintain gross margins this year.
The company said it expects to report consolidated sales grew 6 percent to more than $36 million in the quarter ended Dec. 31, 2011. By comparison, sales for the year grew at least 16 percent, including a 2 percent currency benefit, from pro forma sales of $145 million, according to preliminary estimates released by the company last week.
Pro forma prior year sales include the results of Black Diamond Equipment and Gregory Mountain Products prior to their acquisitions by the company on May 28, 2010.
Gross margin in the fourth quarter of 2011 is expected to exceed 39.0 percent, compared to an adjusted gross margin of 38.2 percent in the year-ago quarter, with the improvement primarily attributed to the shift in mix toward higher margin products. Gross margin for the full year of 2011 is expected to be in line with the pro forma adjusted gross margin of 38.6 percent reported in 2010.
As a result of the higher than expected gross margins and earnings, BDE expects to be able to use net operating loss carryforwards (“NOL”) from its 2010 reverse merger with a public shell company to offset federal income taxes and save $3.0 million in net cash payments. Although the company does not expect this will impact cash flow in 2011, by releasing the NOL reserve, BDE expects to increase its GAAP earnings per share by 12 to 15 cents over and above what it would have normally reported for the fiscal year ended Dec. 31, 2011.
President and CEO Peter Metcalf said the gains came despite economic uncertainty in Europe and unusually warm weather that has slowed sell-through of its ski and other winter sport products.
“This situation has left retail inventory inflated in a few categories, created an understandable and rational degree of trade conservatism and is causing some limited financial issues with a few European customers that may result in either product not getting shipped or shipped late or very modest accounts receivables write offs,” said Metcalf. He said he does not foresee write offs of any major accounts.
Snowfall since December has made it more likely that the company’s dealers in Europe, North America and Japan will be able to move out inventory “so they are more reasonably positioned to bring in product for next year, although admittedly in a more modest manner,” Metcalf continued. “Gloves and mittens and ski boots will not see as much growth as if this had been a solid winter.”
CFO Robert Peay said AR were as healthy as he’s seen them in North America and that there are no indications that potential trade write offs will exceed historic reserves.
In 2012, BDE expects full-year sales to reach between $160-$165 million, not including new category launches, the impact of acquisitions or currency impacts. The company expects to maintain gross margin at 2011 levels even after a $5-6 million one-time surge in operating expenditures. Roughly $3 million of the increased spending will go toward expanding BDE’s manufacturing footprint in China, gaining control of foreign distribution and expanding e-commerce and visual merchandizing. BDE’s investment in China will enable it to make new categories of products at better margin and become more responsive to demand, Metcalf said. BDE will incur another $3 million in non-recurring incremental operating expenses this year ramping up for its Fall 2013 apparel launch.
One benefit of the recent economic and weather volatility is that it may speed up BDE’s negotiations to acquire companies. The relatively strong performance of outdoor brands has caused many owners to spurn offers thinking the value of the companies will rise.
“It’s been a wake-up call about when they want to do a transaction,” said Metcalf. “Is it really 24 months from now of is it right now? We hope the current situation can be parlayed into an opportunity with people who have been really firm in their price, that they may begin to temper their thinking and become more accommodating in their negotiating position or flexible in their timing.”
BDE’s plans call for adding $250 million a year in sales, or about a third of projected growth, through acquisitions.
