By Eric Smith
A stellar third quarter from Black Diamond propelled the brand’s parent Clarus Corp. to post record sales in the period and also prompted the company to lift revenue and EBITDA guidance for 2018.
Black Diamond notched 12 percent growth, including 14 percent growth in climb and 40 percent growth in apparel, which was “driven by continued strong demand for our new rainwear line, the increased fulfillment of our bottoms program as well as gaining traction in both sportswear and logo wear,” President John Walbrecht said on Monday afternoon’s earnings conference call with analysts.
Meanwhile, Black Diamond’s mountain business was up 17 percent “due to continued growth in trekking poles and gloves, which are focused strategic initiatives that we have begun investing in nearly two years ago and are beginning to show well in the results as of today,” Walbrecht added.
The only softness for the brand was in its ski business, Walbrecht said. It was “down in the third quarter due to the timing of early deliveries in the third quarter of 2017 that created a difficult comparison,” he said. “We fully anticipate that our ski business will experience a solid rebound in Q4, as we expect to deliver for the first time the new family of Black Diamond Beacons that feature both Bluetooth capabilities, leveraging the technology of PIEPS. We believe this provides us with a great opportunity to segment the marketplace and gain even more market share within the snow safety category.”
Looking at Black Diamond’s sales geographically, the company was up 5 percent in Q3 in the U.S.—”due to solid performance in climb and mountain categories,” Walbrecht said—while sales were up 17 percent in international regions “due to our European team’s continued great efforts positioning the brand for continued growth.”
“We believe the strength of the brand continues to build due to our enhanced sales and marketing efforts, and we also experienced strong performance in both Japan and Korea,” Walbrecht added.
Overall, Clarus reported sales jumped 22 percent to a record $55.7 million, which beat Wall Street targets by $2.5 million. Net income improved significantly to $4.1 million, or 14 cents per share, compared to a net loss of $1.6 million or (5) cents per share the same quarter a year ago.
Net income in the third quarter improved significantly to $4.1 million or 14 cents per diluted share, compared to a net loss of $1.6 million or (5) cents per diluted share in the year-ago quarter. Net income in the third quarter of 2018 included $2.8 million of non-cash items and minimal transaction and restructuring costs, compared to $2.7 million of non-cash items, $1.9 million in transaction costs and minimal restructuring costs in the third quarter of 2017.
Adjusted net income before non-cash items increased significantly to a record $7 million, or 23 cents per share, compared to $2.9 million, or 10 cents per share. EPS beat Wall Street’s estimates by 17 cents.
Clarus now expects fiscal year 2018 sales to come in at the upper end of its previously stated $205-$210 million range ($202-$207 million on a constant currency basis) compared to $170.7 million in 2017.
The company also now expects adjusted EBITDA margin to be approximately 9.5 percent (8.5 percent in prior outlook), which includes $5 million of cash corporate overhead expenditures, compared to 3.6 percent in 2017.
“The record results of our third quarter continued to prove the momentum in our brands and reinforce that our strategy is gaining strength,” Walbrecht said, adding that the Sierra brand saw 35 percent pro forma growth. “These results were due to our continued focus on product innovation and an accelerated go-to-market strategy, supported by strong order fulfillment.”
On the Sierra side, Walbrecht noted that Clarus has owned the brand for about a year and is pleased with its growth so far.
“August marked our one-year anniversary of owning Sierra, and the execution of our brand-enhancing playbook grew stronger in the third quarter,” he said. “Combining these results with our strengthening balance sheet, and we believe that we are well positioned for future organic growth as well as acquiring additional super fan brands.”
The strength of both Black Diamond and Sierra were noticed by analysts like Jim Duffy of Stifel, who wrote in a note to investors, “3Q upside reflects balanced strength in the business with upside from both the Black Diamond and Sierra businesses. With momentum in the portfolio, the recalibration to the upper end of the prior revenue guide for the year may prove conservative suggestive of capacity for further EBITDA upside.”
And Dave King of Roth Capital Partners wrote, “Results beat on lower-than-expected expenses and strong growth for both Black Diamond and the acquired Sierra business, while management raised guidance to reflect the upside. 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 Black Diamond