Black Diamond Inc. reported sales increased 13.1 percent in the first quarter of 2015 driven by it Black Diamond and POC brands, which it could sell in separate transactions as early as the third quarter.
Sales grew 18 percent in currency-neutral terms, driven by Black Diamond's launch of a greatly expanded Women's apparel line and POC's launch of its first road bicycling collection, which includes helmets, apparel and eyewear.
In the United States, BDE's consolidated sales increased 21.9 percent to $20.9 million in the quarter ended March 31 compared with a year earlier, while International sales rose 7.6 percent on strong, late-season demand for some winter sports products.
The Black Diamond brand grew sales in all geographies thanks in large part to the launch of its first sportswear collection for women. Improved on-time deliveries of Spring apparel – particularly in Europe – lead to triple-digit, year-over-year growth of those sales. In the United States, the brand's sales at REI's five flagship stores grew in the double digits after the retailer installed co-branded displays celebrating the first free ascent of El Capitan's Dawn Wall by two Black Diamond athletes.
“This is a major step in reinforcing Black Diamond's brand presence at a key retail partner and the double-digit list and sellthrough within the stores is causing REI to think about expanding program,” said Metcalf.
POC sold out of most cycling product until July
 |
|
POC used its experience developing equipment |
POC continued to grow at a double-digit rate, driven by strong at-once orders for snow products – particularly in the Northeastern United States – as well as its rapidly growing bike business. POC plans to launch nearly 50 new styles and 180 new SKUs and double its retail door count in 2015. It is now launching its Raceday, which features 34 new styles, including helmets, and 135 new SKUs developed in collaboration with the Cannondale-Garmin Pro Cycling Team. The collection is designed to leverage POC's reputation for aerodynamic design among elite skiers and speed skaters to make inroads with more numerous road bicyclists.
POC has sold out of the majority of its cycling products for the first half of the year.
“Fortunately, unlike seasonal winter goods that have a short selling window, we expect to satisfy some of this additional demand later in the year,” said BDE CEO Peter Metcalf, who said he expects POC's assault on the bicycle market will double its sales over the next year.
Sales also grew at the PIEPS despite continued challenges in Japan and Russia and foreign currency headwinds in Europe and Canada. Based in Austria, PIEPS makes avalanche beacons and other safety gear and saw a spike in replenishment orders following late season snow storms in some European markets.
Margins rising, guidance intact
Gross margin increased 30 basis points to 37.8 percent in spite of a 260 basis point headwind from foreign currency. The increase was attributed to a higher mix of higher margin products and higher margin channel mix. Direct-to-consumer sales, for instance, again grew in the “healthy double-digit” range.
Selling, general and administrative expenses decreased $1.6 million, or 8 percent compared to the year-ago quarter.
Executives said the results illustrated the success of a “strategic pivot” it announced in late 2013 that called for selling Gregory Mountain Products, eliminating 25 percent of Black Diamond's equipment SKUs and using the savings to grow direct-to-consumer initiatives at Black Diamond and POC. In the first quarter, BDE took restructuring charges of $468,000, including costs associated with the relocation of hardgoods manufacturing from Asia to the United States and Europe.
Net loss from continuing operations was $1.7 million, or 5 cents per diluted share, compared to a loss $3.4 million, or 10 cents in the year-ago quarter. The loss in 2015 included $1.9 million of non-cash items, including the $470,000 in restructuring costs mentioned above, $300,000 in transaction costs related to exploring strategic alternatives. That compared to $800,000 of non-cash items in the year-ago quarter. Excluding those costs, adjusted net income from continuing operations, increased to $1.0 million, or 3 cents per diluted share compared to an adjusted net loss of $2.6 million, or 8 cents per diluted share, in the first quarter of 2014.
Adjusted EBITDA increased to $1.9 million compared to a loss of $2.2 million in the year-ago quarter.
BDE ended the quarter with cash and cash equivalents of $26.8 million, up more than six fold from a year earlier and 1.21 times its total debt of $22.0 million. Inventories increased 16.2 percent to $60.3 million, but some of that reflected BDE's decision to carry higher levels of some inventory through the third quarter of 2015 to avoid disruption as it shifts manufacturing of some hardgoods from a plant in China back to the United States – as well as early build out of inventory for its JetForce avalanche bag ahead of the 2015-16 winter season.
BDE affirmed its guidance for fiscal 2015, which call for sales to grow approximately 8 percent (11 percent c-n) to $208 million. The company also expects gross margin in fiscal year 2015 to be approximately 40 percent.
The company expects to complete repatriation of manufacturing operations by July, but will take another $500,000 to $1 million in restructuring charges during the balance of 2015 as it complete the restructuring. The process is expected to reduce annual costs by approximately $10 million in 2016.
“We also expect this strategy will provide significant working capital improvement and competitive benefit through a refresh cycle and greater speed to market,” Metcalf said.
Suitors emerge
In the meantime, Rothschild Inc. and Robert W. Baird & Co. continue to explore strategic alternatives for BDE, including selling Black Diamond Equipment-PIEPS and POC in two separate transactions.
“The company has received a number of non-binding indications of interest with respect to each of its brands,” the company said in its May 11 earnings release. “The company anticipates that the results of the strategic review process will be known during the third quarter of 2015.”
In a mid-March interview with The B.O.S.S. Report, Metcalf explained that breaking up the company could benefit the brands by removing the burdens of being part of a small public company. A breakup could help shareholders by enabling them to sell at high market multiples with little to no taxes thanks to $167 million in unused net operating loss (NOLS) carryforwards BDE can use to offset future federal income taxes.
Citing the confidential nature of its discussion with potential investors, BDE executives for the second time in a row declined to take questions from analysts during their earnings call Monday evening.
