Black Diamond Inc. will be adding several major outdoor chains to its distribution before the holidays to offset a sharp decline in orders from its largest outdoor specialty accounts, the company’s CEO told analysts Monday.
BDE President and CEO Peter Metcalf made the disclosure after disclosing to analysts that the company had lowered its full-year guidance primarily because major retailers who have historically placed the largest pre-season orders for its climbing, skiing and other gear shifted to a more conservative buying posture in the second quarter.
“We have had this summer some outright cancellations,” said Metcalf. “They were the exception, but there were a few large ones from our largest retailers that were unexpected by us and by them and it did hurt. We have made a deliberate decision to add some important, larger specialty retail chains to the Black Diamond and Gregory dealer list by the holidays and into spring 2014 just to make sure we are a little bit more diverse and have our eggs spread a little bit more broadly. We think that will give us more leverage and a little bit more resilience in that channel.”
Metcalf did not name any of the retailers involved. BDE’s principal brands include Black Diamond, Gregory (backpacks and luggage), POC (helmets) and PIEPS (avalanche beacons).
Despite the decline in pre-season orders and other headwinds, BDE reported sales reached a record $38.9 million in the second quarter ended June 30, up 22 percent from a year earlier. The increase was attributed to the addition of POC Sweden AB (POC), which was acquired in the second half of 2012, organic sales growth and the expected increase in Gregory's sales in Japan due to the transition to a direct distribution model.
Gross margins also rose, growing 120 basis points to 40.3 percent as a more favorable mix of products and distribution channels more than offset a 20 percent decline in the yen and higher levels of close out and promotional sales needed to clear winter products.
Net loss in the second quarter of 2013 was $2.3 million, or 7 cents per diluted share, compared to net loss of $1.9 million, or 6 cents per diluted share, in the year-ago quarter. Excluding merger and integration costs, adjusted net loss before non-cash items in the second quarter of 2013 was $200,000, or a penny per diluted share, compared to a loss of $300,000, or a penny per diluted share, in the second quarter of 2012.
Metcalf said all the company’s brands achieved double-digit growth despite the headwinds.
“Following two consecutive challenging winter seasons, industry purchasing trends are continuing to evolve toward a model that we believe is intentionally shifting more inventory risk to manufacturers and distributors,” said Metcalf.
Metcalf attributed the more cautious ordering to the late start and long duration of winter, which forced retailers to mark down significant amounts of seasonal inventory two seasons in a row. While mark downs helped both vendors and retailers clean out much of their seasonal inventory, no one in the industry knows how many skis retailers have carried over from last winter. BDE ended the quarter with $56.7 million in inventory, down 6.5 percent from the beginning of the year.
“In the outdoor segment for Gregory and Black Diamond, some of the larger retailers would prefer to run out than be over inventoried,” said Metcalf. “That is apparently – at this moment – the preferred mentality.”
The more cautious buying, weaker yen and a dip in sell-through rates prompted BDE to lower its revenue forecast for the year by about 5 percent. The company now expects total sales to range between $205 million and $210 million compared to the previously estimated range of $216 million and $221 million. This revised range implies year-over-year sales growth of between 17 percent and 19 percent for the full year 2013, or 9 to 11 percent on a pro forma basis.
The company also now expects gross margin for fiscal year 2013 to range between 38.5 percent and 40.0 percent compared to the previously estimated range of 40.0 percent and 41.0 percent. Both revised sales and gross margin guidance incorporate the expected impacts of year-to-date exchange rate fluctuations, but are exclusive of future exchange rate fluctuations. In 2014, the company still expects to increase sales 20 percent with accelerating profitability.
