Black Diamond, Inc. reported discounting of winter goods and a 20 percent decline in the value of the yen drove down gross margin 240 basis points to 37.7 in the first quarter. Assuming the yen/dollar exchange rate remains near its March 31 level, the company still expects gross margin to reach 40 to 41 percent for the full year as a subsidiary takes over distribution in Japan and apparel sales kick in. 




The company reported total sales grew 10 percent to $51.0 million thanks largely to sales from two European sporting goods brands it acquired in the latter half of 2012.  Domestic sales rose 6.9 percent to $20.1 million, while International sales rose 11.9 percent to $30.9 million.

 

Gross margin declined 240 basis points to 37.7 percent due to product mix and a higher level of close-out and promotional activity on winter seasonal inventory as a result of the slow start to the 2012/2013 winter season. BDE attributed record sales and better margins in the first quarter of 2012 to unusually warm weather that kicked off sales of higher margin spring/summer product a month earlier than usual. The strengthening of the U.S dollar against yen impacted sales and gross margins at Gregory.

 

SG&A rose $7.1 million, or 51.6 percent during the quarter to $20.8 million due to inclusion of POC, PIEPs and the transition toward a direct distribution model in Japan, where BDE is buying out the distributor of its Gregory backpack brand. BDE reported an operating loss of $2.03 million compared with operating income of $4.73 million in the first quarter of 2012. Net loss for the quarter reached $3.0 million, or 10 cents per diluted share, compared to net income of $2.6 million or 10 cents per diluted share in the year-ago quarter. The first quarter of 2013 reflected approximately 8.9 million more shares of common stock outstanding when compared to the year-ago quarter due to the company’s public offering in February 2012.

 

In line with expectations

CEO Peter Metcalf said that aside from the effect of the yen, the results were in line with expectations.

 

“This double-digit sales growth is in spite of a colder, snowier late winter that delayed some higher margin spring and summer product sales, which we realized in the same quarter last year as the result of a much earlier start to the spring 2012 season, said Peter Metcalf, president and CEO of Black Diamond.

 

Interim CFO Aaron Kuehne said the health of the companys inventory is improving and predicted accounts receivables and inventory would grow more slowly than sales in 2013. BDE ended the quarter with $55.2 million inventory, down 9.1 percent from a year earlier.

 

Metcalf noted that in Europe, dealers have been able to sell winter gear nearer to full margin because epic late season snowfalls coincided with the regions late spring ski season. As a result, European pre-season orders for next winter have been stronger than in the United States, where there was less late snow and where spring skiing is less popular.

 

Long winter delays Spring shipments

The long winter has caused retailers in both markets to delay, cut back and cancel deliveries of spring merchandise. While none of the cancellations were meaningful, Metcalf noted the company was operating in a global retail marketplace that is more reticent to make preseason orders than it has been in the past. There is an evolving strategy among leading outdoor dealers of shifting to more ASAP orders.

 

Sales were particularly strong at POC, the Swedish maker of helmets, body armor and other gear for skiing, cycling and other gravity sports that BDE acquired in 2012. POC sold through its winter gear and has enjoyed strong sell in of spring and summer products. BDE is investing significant sums in POC in advance of its Spring 2014 launch of its first helmet for road biking. POC is targeting leading U.S. road and race shops in the independent bike dealer channel and rebuilding its U.S. sales team in preparation for the launch.

 

First quarter 2013 sales comparisons were also impacted by the anticipated transition of Gregory’s business in Japan from a distributor to direct distribution. That will be completed by the third quarter, when BDE expects to see significantly better comparable sales growth in Japan.

 

Still on track for 23-26 percent growth in 2013

BDE continues to expect first half sales of $90-95 million and full year 2013 sales of $216-$221 million. These ranges imply year-over-year sales growth of between 22 percent and 38 percent for the second quarter and between 23 percent and 26 percent for the full year 2013. The company continues to plan toward 20 percent sales growth and accelerating profitability in 2014 as higher margins from Black Diamond apparel, Japan and direct-to-consumer sales kick in.

 

“In 2013, we anticipate healthy organic growth from our active outdoor brands, and we expect POC and Black Diamond apparel to be our highest growth drivers with the most positive impact on margins, said Metcalf.

 

BDE has sold out its inaugural fall apparel line and expects to ship the bulk of orders to dealers by Sept. 1. It has shown its first spring line of 40 styles and 150 SKUs to key dealers. The line focuses on alpinism and crag wear and includes pieces made from synthetic fabrics and merino wool.

 

We remain enthusiastic about our 2013 apparel launch, which will be in stores this fall, and look forward to 2014 as the year we expect continued organic sales growth and the benefit of scale, integration and operating leverage in our business.”