Black Diamond, Inc. is intently focused on acquiring companies with $10 million to $50 million in annual sales even as it works toward launching its own technical apparel line, according to details of a new five-year strategic plan disclosed last week.
In a Feb. 7 press release, and later in a conference call with analysts from Munich, Germany, where he was attending the ISPO show, BDE President and CEO Peter Metcalf outlined targets in the company’s newly minted strategic plan for fiscal 2011-2015. Chief among those was the disclosure that BDE is targeting fall 2013 as a possible launch window for an outdoor technical apparel brand to be distributed exclusively through the specialty channel. Like its Finnish competitor Amer Sports (Arc’teryx, Atomic, Mavic, Salomon and Suunto), Black Diamond has concluded that apparel and footwear represent the only two categories big enough to materially impact growth over the next decade and beyond.
“The opportunity is very large and we believe that if we execute it well, we can achieve annual sales of apparel and footwear equal to or larger than our annual hard good sales and at higher margins within five years of our initial launch,” Metcalf said.
BDE expects fourth quarter consolidated sales and full-year pro forma sales for the year ended Dec. 31 to come in at $34 million and $125 million respectively. That’s up 10% from 2009 and near the top end of its previous guidance. While the company won’t announce final figures and earnings until KPMG completes its audit of the company's 2010 results March 1, Metcalf attributed sales growth to favorable winter weather across the globe and accelerating economy. Sales of a new line of lightweight AT ski boots performed particularly well in Europe, and helped boost sales of Black Diamond-branded skis and accessories there during the quarter.
The company’s five-year plan envisions 12.5% compounded annual sales growth solely from existing categories, and calls for $13 million in incremental operating expense investments annually in areas such as a new and larger distribution facility in Salt Lake City, visual merchandising, direct-to-consumer sales and marketing, product development and infrastructure. BDE expects to finance those investments out of free cash flow even as it reduces its line of credit and accumulates $20 million in cash reserves by the end of 2015.
While the spending will dilute earnings in the first two years, it will generate sustained earnings and operating margin growth in the next few years.
Metcalf said the company’s fourth quarter results demonstrate the success of its merger last year with Gregory Mountain Products and the public shell corporation Clarus Corp. to create the nation’s newest pure-play, publicly-traded active outdoor lifestyle company. The transaction gave Black Diamond access to public capital and Gregory access to Black Diamond’s global sourcing, marketing and distribution infrastructure to create a global growth platform.
In the current fiscal year, BDE expects sales to range between $135 million to $140 million, excluding the impact of new category launches or possible strategic acquisitions. Gross margins are expected to range between 36% and 39% of sales during FY 2011 and the company expects to remain profitable, cash flow positive, and self-funding with respect to working capital needs. Gross margins would hinge largely on exchange rates. Gregory won’t become accretive to earnings until 2012.
