Compass Group Diversified Holdings Inc. joined a growing number of companies that expect their sporting goods businesses to deliver earnings growth this year despite lower than expected first quarter results.
The publicly traded holding company reported sales at its Branded Consumables segment slipped 5.9 percent in the first quarter ended March 31, as weaker currencies abroad and port congestion at home trimmed sales at CamelBak and ErgoBaby and Liberty Safe continued to adjust to lower firearms sales.
Sales growth slowed dramatically at ErgoBaby compared with a year earlier, while sales at Liberty Safe and CamelBak fell $1.9 million (-4.8 percent) and $3.9 million (-10.5 percent) respectively. Combined revenue and EBITDA from the three businesses decreased approximately 4 percent and 8 percent respectively, compared to the year-earlier period. The combined EBITDA margin of the three businesses declined 70 basis points to 20.7 percent for the quarter ended March 31, 2015.
Gross margins surged at ErgoBaby, which makes slings, strollers and car seats for carrying infants, but not enough to offset the impact of lower sales at the other two business. The appreciation of the dollar curbed growth at both CamelBak and ErgoBaby, where international sales declined 4.6 and 1.3 percent respectively.
Liberty Safe grow margins
At Liberty Safe, which manufactures gun safes in Utah for sale under both its own brand and licensed brands such as Remington, Cabela's and John Deere, results were in line with expectations. While revenue declined 11 percent compared to the first quarter of 2014, revenues were up 16 percent from the fourth quarter. The increase reflected demand for premium gun and home safes returning to more normalized levels following the downturn that began late in the first quarter of 2014. Gross margins improved 160 basis points to 22.3 percent compared with a year earlier, while EBITDA margins rose 40 basis points year-over-year and 660 basis points sequentially.
Port delays hit CamelBak's hydration sales
At CamelBak, net sales declined 4.8 percent, or more than expected, as a $2.6 million decline in Hydration product sales easily offset an $800,000 increase in Bottle sales and $400,000 increase in accessories sales. The decline in Hydration sales was attributed to a pulling forward of shipments into the fourth quarter of 2014, lower military demand and lack of inventory of some hydration packs due to congestion at West Coast ports. Operating margins fell 330 basis points to 11.9 percent due to higher freight costs, deleveraging of costs and the strengthening of the U.S. dollar against the euro and British pound.
ErgoBaby posted revenue and EBITDA growth of approximately 6 percent and 17 percent respectively, down significantly from 20.8 and 50.6 percent in the first quarter of 2014. Domestic sales grew 14.1 percent to $9.7 million as a $2.7 million increase in sales of the ErgoBaby 360 sling introduced in April 2014 more than offset a $1.4 million decline in sales of travel systems attributed to declining orders for the modular Orbit Baby G3 travel system launched a year earlier.
Given continued strong growth at ErgoBaby and a return to normal operations at West Coast ports, CODI CEO Alan Offenberg said he still expects the Branded Consumables businesses to deliver “solid year-over-year earnings growth.”
While CamelBak performed below expectations on softer than expected demand in the first quarter, Offenberg expects it to deliver strong results for the year.
While CODI, which is essentially a publicly traded private equity fund, saw fewer buying opportunities that expected in the first quarter, Offenberg said deal flow had picked up in recent weeks. He noted that CamelBak and ErgoBaby could make add-on acquisitions under the right circumstances.
