Driven by growth in North America and Europe, and across all of their primary product categories, Clarus Corp. reported revenues climbed 28 percent in the fourth quarter, including 11 percent growth for Black Diamond Equipment. Underlying profitability strongly improved a profit against a loss in the fourth quarter and management predicted growth in the range of of 17 to 20 percent in the current year.
In the fourth quarter ended December 31:
- Sales of $52.7 million, up 27 percent.
- Gross margin up 350 basis points to 32.6 percent; adjusted gross margin up 670 basis points to 35.8 percent.
- Net income improved to $6.0 million, or 20 cents per share, compared to a net loss of $1.4 million, or 5 cents per share.
- Adjusted net income before non-cash items increased to $4.6 million, or 15 cents, per share, compared to $0.4 million or $0.01 per share.
- Adjusted EBITDA improved to $5.1 million compared to $0.3 million.
The sales increase was driven by $6.8 million in sales generated by Sierra Bullets, acquired last August 2017. Excluding the acquisition, sales still increased organically by a healthy 11 percent with continued growth in Black Diamond Equipment. On a constant currency basis, total sales were up 25 percent.
Overall, sales benefited from a 10 percent year-over-year increase in pre-season orders, while improved fulfillment rates and healthier inventory levels drove a solid 28 percent increase in at-once orders. As a result, the company’s inline business grew in the quarter by 15 percent and helped offset by a 46 percent decrease in the amount of discontinued merchandise sold during the quarter.
On a conference call with analysts, John Walbrecht, the newly-elected president of Clarus, said the Black Diamond segment was up 11 percent in the quarter, driven by growth in North America and Europe and strength across all of the primary product categories of Climb, Mountain and Ski.
The Ski category grew 24 percent, driven by 33 percent sales growth from its PIEPS brand. Said Walbrecht, “PIEPS has benefited from Black Diamond’s focus on a broad collection built around snow safety and leveraging the Clarus platform under our two brands, one company approach.”
A strong winter in Europe also helped PIEPS both in sales and cleaning inventories at the close of the season.
The Climb Black category grew 19 percent in the quarter, fueled by the continued rollout of Rock Shoes line, as well as the early launch of its new spring harnesses. Other products that performed well in the quarter included trekking poles, gloves and packs, all of which were categories of strategic focus entering into 2017.
Apparel faced a challenging comparison against heavy discounts in the year-ago period, but inline sales grew 12 percent. Said Walbrecht, “While unseasonal, dry weather in the Western United States was a slight headwind to our apparel growth, our overall sales growth of 11 percent at Black Diamond segment highlights what we believe to be the power of diversification and the desire of our customers to participate in alternative outdoor activities when Mother Nature does not cooperate. Our exposure to climbing is a great example of this.”
Walbrecht said the Black Diamond segment continues to benefit from a three-pronged approach of innovating at a “pace faster than our competition,” improving its fulfillment rates and employing a “clear marketing strategy that speaks to our core consumer.”
Marketing reflects a returned focus to the Black Diamond brand and its innovations, and the brand launched its first-ever television campaign in mid-February during the Winter Olympics. Digital content, including social media, also remains a priority for the Black Diamond brand.
On the PR side, Black Diamond earned 5.9 billion total media impressions, up more than 50 percent over 2016, expanding major outdoor publications like Alpinists, Climb, Backcountry, BackPacker, Trail Runner, Outside Magazine and Men’s Journal to more mainstream publications like CNN and National Geographic, to core outlets like GearJunkie, Teton Gravity Research and Adventure Journal. Black Diamond also was awarded 35 industry trade awards in North America and 18 in Europe.
By region or the Black Diamond segment, North America saw broad-based growth in all product categories and by continued higher levels of support from its specialty retailers. In Europe, strong at-once orders, particularly in snow safety, harnesses, gloves, trekking poles and ski, drove double digit Q4 sales growth. In its Independent Global Distributor business, which covers the rest of the world regions, including large markets in Asia, Black Diamond experienced relatively flat results due to lower preseason orders, particularly in the mountain category, although climb and ski were strong. The brand has re-focused in this segment on expanding the key territories of Japan, Korea, Australia and China.
Sierra Bullets experienced some softness in the domestic marketplace, especially at retail, but is still “experiencing a stable book of business with our domestic OEM partners and we are active in executing the sales and marketing plans with our domestic retail accounts,” said Walbrecht.
The 350-basis-point improvement in gross margin to 32.6 percent was primarily due to a favorable mix of higher margin products, the stabilization of the company’s sourcing strategy and more normalized levels of discontinued merchandise. Excluding a fair value inventory step-up associated with the Sierra acquisition, adjusted gross margin in the fourth quarter increased 670 basis points to 35.8 percent. Excluding the acquisition of Sierra, gross margin was 35.4 percent.
SG&A expenses increased to $16.5 million compared to $12.6 million in the year-ago quarter due to $1.7 million in expenses due to the inclusion of Sierra as well as marketing and R&D costs for Black Diamond Equipment.
As a result of tax reform, an income tax benefit of $6.1 million tied to the company’s net operating loss carryforwards was recorded in the fourth quarter of 2017 compared to a $0.4 million benefit in the year-ago quarter.
Net income in the fourth quarter improved to $6.0 million or 20 cents per share, compared to a net loss of $1.4 million or 5 cents. The latest period included $1.7 million of non-cash items, $0.2 million in transaction costs, $0.1 million in merger and integration costs and minimal restructuring costs, compared to $1.7 million of non-cash items, $0.1 million in restructuring costs and minimal transaction costs in the fourth quarter of 2016.
Adjusted net income, which excludes the non-cash items, as well as transaction, merger and integration and restructuring costs, increased to $4.6 million, or 15 cents a share, compared to adjusted net income of $0.4 million, or 1 cent, in the fourth quarter of 2016. Adjusted EBITDA also increased to $5.1 million to $0.3 million in the fourth quarter of 2016.
For the year, sales increased 15 percent to $170.7 million. Excluding the Sierra acquisition, sales increased 8 percent. The net loss came to $0.7 million or 2 cents a share, compared to a net loss of $9.0 million, or 30 cents. Adjusted net income increased to $4.7 million, or 16 cents, compared to a net loss of $2.6 million, or 9 cents, in 2016. Adjusted EBITDA in 2017 expanded to $6.1 million compared to $(2.7) million in 2016.
Clarus anticipates 2018 sales to grow in the range of 17 to 20 percent to $200 million to $205 million. On a constant currency basis, sales are expected to climb 16 to 19 percent. High single to low double digit growth rates are projected at Black Diamond and low-single digit growth rates at Sierra. Adjusted EBITDA margin is projected to be approximately 8 percent, which includes $5 million of cash corporate overhead expenditures, compared to 3.6 percent in 2017.
Regarding his promotion to president, Walbrecht said he joined the company 18 months ago as president of the company’s Outdoor Group at a time when the company was shifting resources to reinforce Black Diamond “as one of the most disruptive brands in the outdoor industry,” and it expects to apply the same strategy to Sierra.
Said Walbrecht, who formerly led Mountain Hardwear, “My appointment as president also solidifies our new focus; while our key priority is integrating and growing the Sierra business, it’s important to reiterate that we also remain fully committed to the long-term capital acquisition strategy. As we evaluate future opportunities, we now intend to be focused on the outdoor and consumer industries.”
He added, “We believe straying too far from the company in this space would underutilize the great people and their significant capacities and goodwill we’ve built in these industries at both the Clarus corporate and individual brand levels.”
Photo courtesy Black Diamond