Clarus Rides Black Diamond To Earnings And Revenue Beat

Clarus Corp., parent of Black Diamond Equipment and Sierra Bullets, on Monday, reported fourth-quarter net income of $12.4 million, or 40 cents per diluted share, topping Wall Street’s estimates by 9 cents.

The company’s Q4 revenue of $61 million was $1.3 million better than analysts’ targets behind a 13 percent increase in Black Diamond sales that partially offset a 35 percent decline in Sierra sales.

“We ended fiscal 2019 with strong fourth-quarter results, driven by continued brand momentum and sales performance from Black Diamond across all regions and product categories,” said John Walbrecht, president of Clarus. “The continued success of our men’s and women’s sportswear, technical outerwear and logo wear has provided a strong foundation for our apparel business, which grew 25 percent in the fourth quarter. We also achieved strong results in climb, with 19 percent growth driven by footwear, harnesses, carabiners and helmets.

“Furthermore, our efforts to elevate the customer experience, build brand awareness and support our wholesale partners continue to gain traction, as our direct business was up 38 percent. These top‐line trends, along with improvements in the core fundamentals of our business, drove solid Adjusted EBITDA growth.

“While expected, continued softness in the bullet and ammunition market impacted our Sierra brand during the quarter. Despite the current environment, we believe Sierra is outperforming the competition due to our pursuit of product innovation and diversified customer base spanning retailers, distributors and OEM partners.

“We also take a strategic and disciplined approach to our capital allocation. We regularly evaluate opportunities to opportunistically acquire similar super-fan brands to complement our portfolio and where we can deploy our unique ‘innovate and accelerate’ brand strategy. Consistent with our focus on the disciplined pursuit of value-enhancing external growth opportunities, we have identified a target that meets our stringent M&A criteria and expect to have more news to share if this opportunity progresses further.”

Fourth Quarter 2019 Financial Summary vs. Same Year‐Ago Quarter

• Sales increased 7 percent to $61 million.
• Gross margin was 35.5 percent compared to 35.6 percent.
• Net income increased to $12.4 million, or $0.40 per diluted share, compared to $3.5 million, or $0.12 per diluted share. The fourth quarter of 2019 included a $10.4 million net benefit associated with the partial release of the company’s valuation allowance on its deferred tax assets.
• Adjusted net income before non‐cash items increased 16 percent to $6.8 million, or $0.22 per diluted share, compared to $5.9 million, or $0.19 per diluted share.
• Adjusted EBITDA increased 6 percent to $7 million compared to $6.6 million.
• At December 31, 2019, cash and cash equivalents totaled $1.7 million compared to $2.5 million at December 31, 2018, and debt was $22.7 million compared to $22.1 million at December 31, 2018.

2019 Financial Summary vs. 2018

• Sales increased 8 percent to $229.4 million.
• Gross margin increased slightly to 35 percent compared to 34.9 percent.
• Net income increased significantly to $19 million, or $0.61 per diluted share, compared to $7.3 million, or $0.24 per diluted share.
• Adjusted net income before non‐cash items increased 10 percent to $21.3 million, or $0.69 per diluted share, compared to $19.3 million, or $0.64 per diluted share.
• Adjusted EBITDA increased 9 percent to $22.7 million compared to $20.8 million.
• Repurchased 243,873 shares of Clarus common stock for approximately $2.7 million at an average price of $10.92 per share, leaving approximately $10.8 million remaining on the company’s $30 million share repurchase program.
• Paid $3 million in dividends ($0.10 per share annually) compared to $1.5 million. The company’s quarterly dividend was initiated in August 2018.
• Free cash flow, defined as net cash provided by operating activities less capital expenditures, was $5.4 million compared to $8 million.

Fourth Quarter 2019 Financial Results
Sales in the fourth quarter increased 7 percent to $61 million compared to $57.3 million in the same year-ago quarter. The increase was driven by a 13 percent increase in Black Diamond sales, partially offset by a 35 percent decline in Sierra sales. The Sierra decline was expected due to continued headwinds in the bullet and ammunition industry. On a constant currency basis, total sales were up 8 percent.

Gross margin in the fourth quarter was 35.5 percent compared to 35.6 percent in the year‐ago quarter. The slight decline was primarily due to foreign exchange headwinds from the strengthening U.S. dollar and the impact of recent tariffs. Foreign exchange headwinds reduced year‐over‐year gross margin by approximately 75 basis points in the fourth quarter of 2019 and the impact from tariffs was an 80-basis point headwind.

Selling, general and administrative expenses in the fourth quarter were $17.5 million compared to $16.5 million in the year‐ago quarter. The increase was attributable to the company’s continued investment in Black Diamond brand‐related activities focused on direct‐to‐consumer and research and development. As a percentage of sales, selling, general and administrative expenses declined 10 basis points to 28.6 percent compared to 28.7 percent in the year‐ago quarter.

Net income in the fourth quarter was $12.4 million, or $0.40 per diluted share, compared to $3.5 million or $0.12 per diluted share in the year‐ago quarter. The increase included a $10.4 million net benefit associated with the partial release of the company’s valuation allowance on its deferred tax assets. Net income in the fourth quarter of 2019 also included $5.6 million of non‐cash benefits, compared to $2.2 million of non‐cash charges and $0.2 million in transaction and restructuring costs in the same year‐ago quarter.

Adjusted net income, which excludes the non‐cash items, as well as transaction and restructuring costs, in the fourth quarter was $6.8 million or $0.22 per diluted share, compared to $5.9 million or $0.19 per diluted share in the same year‐ago quarter.

Adjusted EBITDA in the fourth quarter increased 6 percent to $7 million compared to $6.6 million in the same year‐ago quarter. As a percentage of sales, adjusted EBITDA was 11.5 percent compared to 11.6 percent in the same year‐ago quarter.

At December 31, 2019, cash and cash equivalents totaled $1.7 million compared to $2.5 million at December 31, 2018. The company’s debt balance at December 31, 2019 was $22.7 million compared to $22.1 million at December 31, 2018.

Full Year 2019 Financial Results
Sales in 2019 increased 8 percent to $229.4 million compared to $212.1 million in 2018. The increase was driven by 13 percent growth in Black Diamond sales, partially offset by a 17 percent decline in Sierra sales. The year‐over‐year decline at Sierra was expected due to continued headwinds in the bullet and ammunition industry. On a constant currency basis, total sales were up 9 percent.

Gross margin in 2019 increased 10 basis points to 35 percent compared to 34.9 percent in 2018. Operational improvements more than offset a 75-basis point impact from foreign exchange headwinds and a 45-basis point impact from tariffs.

Selling, general and administrative expenses in 2019 were $68.7 million compared to $65.2 million in 2018. As a percentage of sales, selling, general and administrative expenses declined 80 basis points to 29.9 percent as the company accomplished various operational efficiencies while still driving strong Black Diamond brand growth and continuing to activate strategic investments in demand creation and product innovation at both Black Diamond and Sierra.

Net income in 2019 improved significantly to $19 million, or $0.61 per diluted share, compared to net income of $7.3 million, or $0.24 per diluted share, in 2018. Net income in 2019 included a $10.4 million net benefit associated with the partial release of the company’s valuation allowance on its deferred tax assets. Net income in 2019 also included $2.1 million of non‐cash charges and $0.2 million in transaction and restructuring costs, compared to net income in 2018 that included $11.4 million of non‐cash charges, $0.5 million of transaction costs, and $0.1 million of restructuring costs.

Adjusted net income in 2019, which excludes the non‐cash charges as well as transaction, merger and integration, and restructuring costs, increased 10 percent to $21.3 million, or $0.69 per diluted share, compared to $19.3 million, or $0.64 per diluted share, in 2018.

Adjusted EBITDA in 2019 increased 9 percent to $22.7 million compared to $20.8 million in 2018. As a percentage of sales, adjusted EBITDA improved 10 basis points to 9.9 percent.

Capital Allocation
During 2019, the company repurchased 243,873 shares of its common stock for approximately $2.7 million, or an average price of $10.92 per share, leaving approximately $10.8 million remaining on its $30 million share repurchase program.

During the year, the company also paid $3 million in dividends ($0.10 per share annually) compared to
$1.5 million in 2018. The company’s quarterly dividend was initiated in August 2018.

Net cash provided by operating activities for the year ended December 31, 2019, which reflects these capital allocation initiatives, was $9.5 million compared to $11.4 million in the prior year. Capital expenditures for 2019 were $4.1 million compared to $3.4 million in the same year‐ago period. Free cash flow, defined as net cash provided by operating activities less capital expenditures, for the year ended December 31, 2019 was $5.4 million compared to $8 million in the same year‐ago period.

2020 Outlook
Clarus anticipates fiscal year 2020 sales to grow approximately 6 percent to $244 million compared to 2019. By brand, the company expects sales for Black Diamond to increase high‐single digits with Sierra being down low‐single digits compared to 2019.

The company expects adjusted EBITDA in 2020 to increase approximately 6 percent to $24 million compared to 2019 with capital expenditures of approximately $5 million and free cash flow of approximately $10 million.

Photo courtesy Black Diamond