Editor’s note: Tomorrow’s SGB Executive will include a Q&A with Clarus Corp. President John Walbrecht, who spoke with us on a wide range of topics, including the company’s unique way of looking at its portfolio of brands.
By Eric Smith
Product innovation across its entire portfolio—but especially at climbing and backcountry ski brand Black Diamond—helped Clarus Corp. notch a record year in 2018 and also positioned the company for solid growth in 2019 and beyond.
Salt Lake City, UT-based Clarus—whose brands are Black Diamond, Sierra Bullets, Pieps and SKINourishment—on Monday reported adjusted net income before non-cash items for the fourth quarter increased 27 percent to $5.9 million, or 19 cents per share, which beat Wall Street targets by 11 cents and was up from $4.6 million, or 15 cents per share, in the year-ago quarter.
Sales in Q4 increased 9 percent to $57.3 million, beating estimates by $0.7 million and up from $52.7 million in the year-ago fourth quarter. The increase was driven by 8 percent growth in Black Diamond and 14 percent from Sierra. On a constant currency basis, total sales were up 9 percent.
For the year, adjusted net income before non-cash items increased to $19.3 million, or 64 cents per share, compared to $4.7 million, or 16 cents per share, in 2017. And sales increased 24 percent to $212.1 million.
The sales increase was driven by the inclusion of Sierra, which contributed $35.4 million in total sales and $25 million in incremental sales during the year, and growth in Black Diamond apparel, climb and mountain product categories. Excluding the Sierra acquisition, sales increased 10 percent. On a constant currency basis, total sales were up 23 percent.
“The double-digit revenue growth from both Black Diamond and Sierra in 2018 are proof that our dedication to a consumer-centric product innovation strategy is paying off,” President John Walbrecht said on Monday afternoon’s conference call with analysts. “This was met with increased gross margins across the portfolio as well as throughout the majority of our product segments.
All told, Clarus is executing up and down its portfolio, especially with its flagship brand. Black Diamond saw 8 percent growth in the fourth quarter, with apparel up 60 percent behind strong results from nearly all segments including stretch rainwear, bottoms, logo wear and sportswear, Walbrecht said.
Black Diamond’s mountain business was up 10 percent thanks to the “new lighting product introductions that were well received at retail along with strong performance in gloves,” Walbrecht said.
Also, BD’s climb category was down slightly in the fourth quarter primarily because the year-ago quarter included a footwear launch, the Momentum Rock Shoes. The climb segment typically has lighter sell-in compared to ski and mountain, Walbrecht added.
And ski business was “essentially flat in the fourth quarter due to the delay in the launch of the Black Diamond Beacons and this strategic reduction of JetForce 1.0 shipments in anticipation of the entirely new Jetforce Tour packs expected to launch in fall ’19,” Walbrecht said.
As the company looks to 2019, the focus is now on accelerating product R&D and innovation strategy, which the company believes will help deliver another strong year for Black Diamond.
“We expect that 2019 will see the introduction of over 300 new products across all of Black Diamond primary product categories and the continuation of our enhanced go-to-market strategy at both Sierra and SKINourishment, which is focused on new product introductions, expanded distribution and better consumer engagement,” Walbrecht said. “We will continue to look to innovate and accelerate in our existing businesses, bringing to market new product introductions, expanding our distribution and increasing consumer engagement.”
Walbrecht said the company has created momentum across its entire brand portfolio with a focus on innovating new product and accelerating them through brand awareness.
“This is evident in our outlook for 2019, which calls for high-single-digit sales growth and 20 percent adjusted EBITDA expansion,” he said. “In fact, we have already seen a strong start to Q1 in 2019, which has thus far been supported by the fulfillment of our strong spring 2019 product offerings, improved product availability in our core snow safety line and the strong execution by various teams in positioning the brand with our retailers and creating awareness within each of our different product categories.”
Here is a breakdown of Clarus’ financial performance from the fourth quarter and 2018, along with Wall Street and analyst reaction, and the company’s 2019 outlook.
- Sales increased 9 percent to $57.3 million.
- Gross margin increased 300 basis points to 35.6 percent.
- Net income was $3.5 million or 12 cents per share, compared to $6 million or 20 cents per share. The fourth quarter of 2017 included an income tax benefit of $6.1 million related to the implementation of the Tax Cuts and Jobs Act.
- Adjusted net income before non-cash items increased 27 percent to $5.9 million or 19 cents per share, compared to $4.6 million or 15 cents per share.
- Adjusted EBITDA increased 30 percent to $6.6 million and as a percentage of sales, adjusted EBITDA increased 190 basis points to 11.6 percent.
- Repurchased 101,833 shares of its common stock for approximately $1 million ($9.60 per share), bringing the total amount purchased during 2018 to 519,070 shares or $4.3 million ($8.31 per share). The Company maintains a $30 million share repurchase program, which still has approximately $13.5 million available.
- Sales increased 24 percent to $212.1 million.
- Gross margin increased 340 basis points to 34.9 percent.
- Net income was $7.3 million or 24 cents per share, compared to $(0.7) million or (2) cents per share. Net loss in 2017 included the aforementioned income tax benefit of $6.1 million.
- Adjusted net income before non-cash items increased significantly to $19.3 million or 64 cents per share, compared to $4.7 million or 16 cents per share.
- Adjusted EBITDA increased significantly to $20.8 million, compared to $6.1 million, and as a percentage of sales, adjusted EBITDA increased 630 basis points to 9.8 percent.
- Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $8 million compared to $(11.7) million.
Wall Street reaction
Shares of Clarus Corp. dipped 21 cents, or 1.7 percent, to $11.97 on Tuesday, though the company’s stock remains nearly double the value that it was a year ago.
Clarus said it’s anticipating Fiscal Year 2019 sales to grow approximately 8 percent to $230 million compared to 2018. The company said it also expects adjusted EBITDA to increase approximately 20 percent to $25 million compared to 2018.
Additionally, in Fiscal Year 2019 the company expects capital expenditures to be approximately $4.5 million and free cash flow to be approximately $10 million.
Jim Duffy of Stifel wrote: “Black Diamond is a strong heritage brand with potential for growth and margin expansion under new leadership. Opportunity to monetize Clarus Corporation’s $141 million in NOLs (net operating loss) through the accretive Sierra Bullets acquisition complements value in the legacy Black Diamond business. We view risk-reward favorably, with expectation for multiple expansion in contemplation for the acquired profitability, margin improvements in the Black Diamond business, and capacity for future M&A activity.”
And Dave King of Roth Capital Partners wrote: “Management guided to 8 percent revenue growth and 20 percent EBITDA growth for 2019, though Q1 results should exceed these targets. We reiterate our Buy and see CLAR as a beat-and-raise story that could further grow into its valuation given the potential for robust top-line gains and margin expansion.”
Photo courtesy Clarus/Black Diamond