Compass Diversified Holdings, which has been increasing its presence in the recreational products industry, released results for Fox Factory, CamelBak and ERGObaby for the third quarter ended Sept. 30.



The results included:

Fox Factory
Fox Factory, which derives the bulk of its sales from making suspension systems for mountain bikes, generated an additional $300,000 in net sales compared to the corresponding period in 2010. OEM sales increased $1.0 million to $50.6 million during the quarter compared to $49.6 million for the same period in 2010.


 

The increase in OEM sales is attributable to increases in sales in the powered vehicles sector totaling $4.0 million representing a 40.6% increase from the comparable prior year period, offset in part by a $3.0 million decrease in OEM sales in the mountain biking sector. The increase in OEM sales in the powered vehicles sector during the quarter was the result of an increase in sales of suspension components to the ATV and off-road markets. The decrease in OEM sales to the mountain biking sector was due to a more normalized seasonal sales pattern experienced during the current quarter. OEM mountain biking sales were higher than normal in the third fiscal quarter of 2010 due to a delay in the buying pattern of the OEM’s that pushed some second quarter 2010 sales into the third fiscal quarter. A greater proportion of these sales were reflected in the first half of 2011.

 

Aftermarket sales decreased approximately $600,000 to $11.1 million compared to $11.7 million in the same period in 2010. This decrease is attributable to decreases in Aftermarket net sales in the powered vehicles sector resulting from a decrease in military sales. International OEM and Aftermarket sales totaled approximately $42.4 million during the three months ended Sept. 30, 2011 and 2010.

 

Cost of sales for the three months decreased approximately $500,000, compared to the corresponding period in 2010. Gross profit as a percentage of sales was approximately 30.6%, up 120 basis points from the same period in 2010. The 1.2% increase was attributed to reductions in freight costs and a favorable customer/product mix during the most recent quarter.


Selling, general and administrative expense increased approximately $1.2 million compared to the same period in 2010. This increase is the result of increases in (i) sales and marketing costs ($100,000), (ii) engineering costs ($600,000), and (iii) other administrative costs, largely personnel related, ($500,000), compared to 2010, principally to support the significant increase in year-to-date sales.



Income from operations decreased approximately $400,000 to $10.0 million compared to the corresponding period in 2010, based principally on the factors described above.


CamelBak
Camelbak, a maker of hydration products and accessories for the outdoor recreation and military markets, had net sales of $38.3 million, an increase of $10.4 million, or 37.2%, compared to the same period in 2010. The increase in net sales is a result of increased sales in hydration packs ($4.0 million), bottles ($4.0 million), gloves ($1.0 million) and accessories ($1.4 million).


 

The increased sales was due to the continued success of “Antidote”, CamelBak’s new reservoir included in its 2011 recreational hydration pack line, the expansion of offerings in bottles and the continued expansion in its customer base, including new and existing customers, for all product lines. Sales of hydration packs and bottles represented approximately 73% of gross sales compared to 71% for the same period in 2010. Military sales represented approximately 40% of gross sales compared to 44% for the same period in 2010.


Cost of sales for were approximately $22.8 million compared to approximately $15.4 million in the same period of 2010. The increase of $7.4 million is due principally to the corresponding increase in sales.


 

Gross profit as a percentage of sales declined 420 basis points to 40.6% in the quarter ended September 30, 2011. The decrease is attributable to: (i) increases in duty charges in 2011 as a result of a one-time benefit, due to a customs ruling on CamelBak’s behalf, received in the three months ended September 30, 2010; and (ii) price increases from suppliers in the third quarter of 2011 for raw materials, particularly resins and fabric, which were not reflected in customer pricing.



Selling, general and administrative expense increased to approximately $7.3 million or 19.1% of net sales compared to $6.4 million or 23.0% of net sales for the same period of 2010. The $900,000 increase in selling, general and administrative expenses incurred compared to the same period in 2010 is attributable to; (i) gains from foreign currency derivatives included in the three months ended September 30, 2010 balance ($0.2 million); (ii) increases in advertising and marketing costs ($100,000); and (iii) increased research and development costs ($100,000), with the balance of the increase due to increased infrastructure costs such as personnel costs and benefits, and general overhead necessary to support expansion initiatives in connection with current and anticipated increased sales volume.



Income from operations was approximately $5.9 million, an increase of $2.3 million when compared to the same period in 2010, based on the factors described above.


 

ERGObaby
ERGObaby, which designs, markets and distributes wearable baby carriers and baby accessories, had net sales of $10.7 million, an increase of $2.8 million, or 35.4%, compared to the same period in 2010.

 

Domestic sales were approximately $4.3 million compared to approximately $3.6 million in the same period in 2010, as the number of domestic retail outlets ERGObaby’s products sold to increased from 850 to 997 for the year ended Sept. 30, 2011. Domestic sales increased approximately 21% compared to the same period in 2010 principally as the result of new distribution channels and increased average sales per store.

 

International sales were approximately $6.4 million compared to $4.3 million in the same period of 2010, an increase of $2.1 million or 47.3%.

This significant increase is primarily attributable to continued increases in sales to distributors in Asia, principally Japan, and South Korea, and the addition of new distributors during 2011 in Europe and Southeast Asia. Baby carriers represented 86.5% of sales compared to 87.6% for the same period in 2010. The remaining net sales in each of the three month periods ended September 30, 2011 and 2010 reflect accessory sales.



Cost of sales for were approximately $3.6 million compared to approximately $2.3 million in the same period of 2010. The increase of $1.3 million is due principally to the corresponding increase in sales. Gross profit as a percentage of sales decreased 450 basis points to 66.4% due to: (i) a greater percentage of organic baby carriers (which are standard baby carriers made with organic cotton) that generate a 7% to 10% lower gross profit margin than standard carriers and accounted for 47% of total baby carrier sales in the third quarter of 2011 compared to 42% in the same period of 2010; (ii) a greater percentage of net sales were international sales in the third quarter of 2011 compared to 2010, which carry a lower price point and, as a result, generate lower gross profit margins (on average, international sales have a gross profit margin of approximately 59% compared to 72% for domestic sales); and (iii) price increases in raw materials, particularly cotton.



Selling, general and administrative expense increased to approximately $4.0 million or 37.5% of net sales compared to $3.3 million or 41.8% of net sales for the same period of 2010. During the three months ended September 30, 2011. ERGObaby reversed a previously recorded liability ($1.0 million) related to the former owner’s earn-out provision. The earn-out provision provides for a payment to ERGObaby’s former owner of $2.0 million if net sales meet or exceed an agreed upon hurdle rate in calendar year 2011. We currently believe that the hurdle amount will not be met.


 

Ignoring the reversal of the previously recorded liability affecting the earn-out provision, selling, general and administrative expenses increased by $1.7 million compared to the same period in 2010. The increase in expenses was due principally to increases in marketing costs ($700,000), personnel costs, as a result of increased headcount ($900,000), and professional fees ($300,000). These increased expenses all related to expansion initiatives and general overhead in order to support the current and anticipated increased sales volume. These increases in expenses were offset in part by a decrease in bad debt expense of $200,000.


Income from operations for increased $800,000 to $2.5 million compared to $1.8 million earned during 2010 based principally on the factors described above.