Black Diamond Inc. widened its losses in the second quarter due to stepped-up efforts to jumpstart growth. But its renewed focus on its flagship brand already helped drive top-line growth in the period and officials expect the momentum to continue in the back half of 2017.
The company maintained its guidance for the year.
Revenues in the quarter climbed 5.5 percent to $30.7 million and grew 6 percent on a currency-neutral basis. The gains were driven by strong growth in its climb and ski categories, especially within its independent global distributor (IGD) and direct-to-consumer (DTC) channels. The company’s distributor business was up 23 percent while DTC was up 15 percent.
“Our second quarter served as a period of continued progress to better serving our core consumers while driving innovation in current and adjacent product categories,” said John Walbrecht, Black Diamond’s president, on a conference call with analysts. “We grew sales in all of our major markets, geographic market, and across all our distribution channels including strong double-digit growth in our distributor and our direct to consumer businesses.”
The gains were helped by the launch of new Black Diamond rock shoes; its new rope line, a category introduced last fall, as well as its harnesses, carabiner and trekking pole collections. Added Walbrecht, “The response to our climbing shoe line has been quite strong, both in terms of consumer and retailer feedback as well as trade recognition.”
The second quarter tends to be a high-replenishment order period for the company and investments to improve its supply chain helped the company chase demand, particularly European and IGD markets.
Europe also benefited to a small degree from its DTC launch late in the first quarter of this year. In IGD, sales grew strong double digits due to fulfillment of certain second half 2017 preseason bookings and increased replenishment orders for China, Korea, Japan and Australia.
“Our North American business particularly in the U.S. continued to perform well due to the strong direct to consumer growth,” added Walbrecht. “In fact our hard goods e-commerce sales were up 24 percent compared to the same quarter last year, and demand exceeded our production in both apparel and ropes again.”
From a channel distribution and product mix standpoint, Black Diamond’s DTC platform continued to increase its focus on premium products as off-price promotions were eliminated from its website. Said Walbrecht, “The result has fueled this channel strong performance.”
Gross margin expanded 90 basis points to 29.5 percent primarily due to a favorable mix of higher margin products and channel distribution. This was partially offset by approximately 220 basis points in prior year due to repatriation of its manufacturing activities from China to Salt Lake. Higher than expected sales of discontinued merchandise primarily associated with the rightsizing of its apparel line lowered margins by 150 basis points in the quarter.
Aaron Kuehne, CFO, on the call noted that efforts to recalibrate its apparel line to a “more-focused SKU count” are largely complete, and he stressed that the margin pressure in apparel was not due to lower gross margins on its newer merchandise.
SG&A expenses in the quarter were up 11 percent to $12.9 million due to investments to drive new product introductions and increase brand equity. Early success with this strategy led the company to accelerate the timing on such investments ahead of the key trade show selling season.
The net loss in the quarter spread to $3.7 million, or 12 cents a share, from a loss of $3.2 million, 10 cents, a year ago.
Excluding non-cash items, restructuring charges and a $2 million arbitrary award related to a recall in the year-ago quarter, the adjusted net loss would have been $3.4 million, or 11 cents, in the latest period versus a loss of $2.5 million, or 8 cents, a year ago.
Adjusted EBITDA was a loss of $2.7 million compared to a loss of $2.3 million in the second quarter of 2016.
Walbrecht noted that given the company’s progress on sales and backlog demand, it “accelerated the timing of various sales and marketing initiatives to further booster what we expect to be the robust fall ’17 and spring ’18 selling season.”
This included enhanced media spending generating over 3.5 billion impressions during the first half of 2017. The goal is to reach 5 million impressions in 2017.
“Our partnerships with key photographers like Tim Kemple, Jimmy Chin and Chris Burkard, alongside our BD athletes, continues to drive very strong brand impressions,” said Walbrecht. “From Adam Ondra’s climb of the Dawn Wall to the Babsi Zangerl climb of Zodiac, Joe Kinder’s Bone Tomahawk, Alex Honnold’s free-soloing of the Freerider in Yosemite and Joe Grant’s third-place finish at Hardrock 100, BD continues to make dominate impressions with our consumers.”
Continued investments in its R&D capabilities are also planned with several new hires, an incremental investment in digital merchandising and other summer tradeshow activities.
“These investments continue to be centered around the following two key themes,” said Walbrecht. “First, we have returned our focus back to Black Diamond Equipment and specifically on product innovation as we’ve launched more than 10 new product category innovations for spring ’18 along. Secondly, we are striving to enhance our brand equity through targeted marketing centered around brand experience and the aspirational nature of our products. We expect this marketing support will continue to drive sales in all markets for the upcoming selling season.”
The focus also includes improving on-time delivery, stronger sell throughs and establishing an “ease to do business” mantra companywide. An aggressive national ad campaign encompassing both print and television will focus on its “Defy the Dark” headlight campaign and its backcountry skiing campaigns. Additionally, with winter gym season approaching, the company will continue to focus on climbing sportswear, a category continuing to see stronger than expected demand.
Following the trade show, stronger than expected growth is being seen in spring ’18 bookings. Spring 2018 will feature new developments of both climb and mountain. During the spring ’18 tradeshow cycle including the recently completed Outdoor Retailer show, Black Diamond received the 2017 Editor’s Choice Gold award for the Mega Light Tent, Outside Gear of the Show for the Black Diamond Momentum rock shoe, Gear Junkie’s Best in Show for the BD Momentum rock shoe, Gear Patrol Editor’s Choice for the Black Diamond shadow rock shoe, Men’s Journal Top 5 items for BD momentum show as well as Outdoor Retailer’s Boot of the Show award.
In addition, Backpacker Magazine awarded its Distant Z-Poles as one of the best new trekking poles for 2017. Overall, Black Diamond has more than 30 new product initiatives in the works across the 33 categories that the brand currently offers.
Walbrecht said Black Diamond continues to gain market share due to the innovation its bringing to the climb, in ski, mountain and outdoor apparel segments; its focus on specialty and overall brand strength; and disruptive marketing. Said Walbrecht, “We either have 120 competitors or no competitors depending upon how you look at our category offerings and I think our retailers, because of our specialty nature are enthused and excited about the different product innovations that were coming out across a broad range of product categories and we’re seeing it in 20 plus different categories and that’s where BD strength lies.”
For the year, Black Diamond continues to anticipate sales to grow between 3 percent and 7 percent to approximately $153 million to $158 million compared to $148.2 million in 2016. Full-year gross margin are still expected to come in well above the 29.5 percent reported in 2016, but is now expected to land at the lower end of its previously anticipated range of 32.5 percent to 33.5 percent due to the accelerated clearance of discontinued apparel offerings.
SG&A is still expected to be approximately $50.5 million compared to $49.9 million in 2016. Capital expenditures likewise are still expected to be $2.5 million. Kuehne said the company is “very active in our strategy to acquire high quality, durable, cash flow producing assets that are potentially unrelated to the outdoor equipment industry to diversify our business,” although he implied no deals were imminent.
Photo courtesy Black Diamond