Black Diamond Inc.’s sales and margins increased in the first quarter despite a decline in ASAP orders for ski hardgoods as its dealers moved up spring deliveries of more profitable mountaineering and climbing products to take advantage of unusually warm winter weather.
Double-digit growth of both Black Diamond and Gregory branded products helped propel sales to $46.4 million in the quarter ended March 31, up 19 percent from the year earlier quarter. Sales of carabiners, lights, poles, harnesses and ice gear were particularly strong. The growth was achieved with virtually no new doors as the company’s existing dealers sold through more products.
“We grew across nearly every primary category, driving double-digit sales growth for our Black Diamond Equipment and Gregory brands,” said Peter Metcalf, president and CEO of Black Diamond. “This was accomplished despite soft big ticket ski product and glove and mitten sales, which we believe demonstrates the resilience and multi-season balance of our product line.”
Gross margin in the quarter increased 150 points to 40.1 percent a year earlier due to a favorable shift in mix toward higher margin spring and summer products and better operating leverage. Net income reached $2.6 million, or 10 cents per diluted share, compared to net income of $1.2 million or 5 cents per diluted share in the year-ago quarter. Adjusted EBITDA (earnings before interest, taxes, other income, depreciation, amortization, non-cash equity compensation, transaction costs and restructuring charges) in the first quarter of 2012 increased 39 percent to $6.3 million, compared to $4.6 million in the year-ago quarter. Adjusted EBITDA in the first quarter of 2012 excluded $400,000 of non-cash equity compensation.
Metcalf said sales of the Gregory brand, which it acquire in 2010, grew at 25 percent plus largely as a result of BDE’s ability to plug the brand into its European distribution platform. While BDE continues to monitor its European dealers, credit holds are not meaningfully higher there than a year ago and pre-season orders across the bulk of its 27 categories excluding ski hardgoods, mittens and gloves – are “up nicely.”
BDE ended the quarter with $45.5 million in inventory, up 38.3 percent from March 31, 2011. CFO Robert Peay said most of the winter product the company is carrying over is in-line, higher priced hardgoods including skis and ski boots and that he expects most of the company’s discontinued carry-over product will be sold by the third quarter.
“Relative to ski hardgoods, we are carrying a little bit more inventory than we’d like, but feel most of it will roll into fall 2012, and some of it might roll into fall 2013,” said Peay. “If it’s a really good winter, those products will move nicely. If it’s like last winter, we will be carrying more than ideal into Fall 2013. We won’t really know until March 2013.”
Metcalf said having manufacturing operations in China helped BDE to mitigate much of the price pressure coming out of Asia during the quarter as well as respond more nimbly when dealers pulled forward spring deliveries in the first quarter.
BDE still expects sales to reach $160-$165 million in 2012 not including new category launches and acquisitions, up from $145.8 million in 2011. Gross margins are still expected to come in even with 2011.
The company ended the quarter with cash and cash equivalents totaling $41.6 million, up 17 fold from the end of last year. The increase reflected proceeds from a public offering in February of 8.9 million shares of its common stock. The issue raised net proceeds of $63.4 million before expenses, which the company used to pay down the outstanding balance on a revolving credit facility and raise money for ongoing global operational improvements, its Fall 2013 apparel launch and acquisitions.
For instance, BDE is now beta testing new fixtures in a bid to elevate its visibility in select stores that have agreed to carry its apparel beginning in fall 2013. The fixtures are designed to highlight Black Diamond’s position as the number two or three supplier in those stores and accelerate sell through of its products.
The company also has begun implementing a major new business-to-business platform to accelerate the sales cycle with its dealers and is preparing an RFP for a new direct-to-consumer platform.
“We also remain committed to our acquisition strategy and are enthusiastic about our growing pipeline of opportunities,” said Metcalf.
In early March, Metcalf disclosed that BDE was close to closing its first acquisition since acquiring Gregory Mountain Product in 2010. Those discussions continue and BDE has several other prospects in its deal pipeline. He said BDE is looking for more than cost savings synergies in its search for acquisitions.
“The driver is to find beautiful, premier, specialty, growing, IP-rich, competent brands that have all the ingredients to really grow as quickly as they are growing or more quickly than they are by receiving the benefit of our global distribution and global operational platform,” he said.
