Compass Diversified Holdings, Inc. (CODI) reported double-digit growthat Fox Factory, CamelBak and Ergobaby more than offset a big drop in sales at Liberty Safe in the second quarter ended June 30.
CODI is a diversified investment company with controlling interest in seven industrial and consumer products companies and a 41 percent stake in Fox, which makes high-performance suspension systems for mountain bikes and off-road vehicles. Compass reduced its Fox holdings from 53 to 41 percent in a secondary offering of Fox stock in July. On Wednesday, Fox reported its
second quarter earnings grew 22.8 percent.
CamelBak
CamelBak’s net sales for the three months ended June 30 were approximately $40.9 million, an increase of $6.4 million, or 18.5 percent, compared to the same period in 2013.
The increase in gross sales resulted from increased sales in Bottles ($6.7 million), and Accessories ($0.2 million), offset in part by a decrease in sales in Hydration systems ($0.6 million) and Gloves ($0.1 million). The year-over-yar increase in Bottle sales was primarily attributable to an increase in international sales. The Eddy, the insulated Podium and the high-flow Chute water bottle lines performed well. Sales were also boosted by the launch of the Relay, CamelBak's first water-filtering pitcher. The decrease in Glove sales resulted from timing of government orders. The decrease in sales of Hydration systems was primarily attributable to the absence of Marine Corps contract sales, which reached $700,000 in the second quarter of last year.
Military sales declined to 17 percent of gross sales for the three months ended June 30, compared to 27 percent for the same period in 2013. International sales increased to 21 percent of gross sales, compared to 19 percent for the same period in 2013.
Cost of sales rose $3.9 million to approximately $23.5 million compared to the same period of 2013, due mainly to higher sales. Gross margins declined 90 basis points to 42.5 percent, compared to 43.4 percent in the quarter ended June 30, 2013. The decrease is principally attributable to increased bottle supplier costs not passed on to customers and unfavorable sales mix in Hydration systems.
Selling, general and administrative expense for the three months ended June 30, increased by approximately $500,000, or 5.7 percent to $9.2 million, but declined to 22.6 percent of net sales, compared to 25.1 percent of net sales for the same period of 2013. This increased spending was due higher marketing costs to support new product launches in 2014 and severance costs in connection with closing a foreign sales office.
Income from operations for the three months ended June 30, was approximately $5.8 million, an increase of $1.9 million when compared to the same period in 2013, based on the factors described above.
Ergobaby
At Ergobaby, net sales grew $3.0 million, or 18.6 percent, to $19.5 million compared to the same period in 2013. International sales grew $2.1 million to approximately $10.6 million as a $2.3 million increase in international sales of baby carriers and accessories more than offset a $200,000 decline in international sales of infant travel systems. The growth in international baby carrier sales was due to shipments of the new Ergobaby 360 four position carrier as well as increased shipments of Ergobaby’s bundle of joy (baby carrier plus infant insert).
Domestic sales were $8.9 million, up $900,000 from the corresponding period in 2013 thanks to increased sales of both baby carrier and accessories ($0.5 million) to national and specialty retail accounts and infant travel systems and accessories ($0.4 million) to national retail and online. The baby carrier sales were attributable to the launch of Ergobaby’s 360 four position carrier as well as increases in bundle of joy sales.
Ergobaby released the new Orbit Baby G3 infant travel system, which includes stroller bases, various seats and accessories, during the first quarter of 2014 into the domestic market, which accounts for the majority of this increase. The G3 infant travel system was launched in Korea in the first quarter of 2014 and will be available to the international market in July of this year. Baby carriers and accessories represented 83.7 percent of sales in the three-months ended June 30, compared to 81.9 percent in the same period in 2013.
Cost of sales for the three months ended June 30 was approximately $7.1 million, compared to $6.3 million in the same period of 2013. Gross margins reached 63.6 percent, compared to 61.9 percent for the same period in 2013. The 170 basis point improvement was primarily attributable to improved margins for the new Orbit Baby G3 product line and to improved gross profit margins for domestic baby carrier sales. Gross margins were negatively impacted by discounts given to customers as the Ergobaby transitioned to its new logo.
Selling, general and administrative expense increased to approximately $7.3 million, or 37.4 percent of net sales compared 36.8 percent of net sales for the same period of 2013. The $1.2 million increase was primarily attributable to increases in marketing expenses, in support of new product launches and consumer engagement activities, and to increases in employee related costs due to increased headcount to support business growth.
Income from operations for the most recent quarter increased $1.0 million, to $4.3 million, compared to $3.3 million for the same period of 2013.
Liberty Safe
At Liberty Safe, net sales for the quarter ended June 30, decreased approximately $12.9 million or 40.5 percent compared to the corresponding quarter ended June 30, 2013. Non-Dealer sales were approximately $9.0 million in the three months ended June 30, compared to $18.4 million for the three months ended June 30, 2013 representing a decrease of $9.4 million or 51.2 percent. Dealer sales totaled approximately $10.0 million in the three months ended June 30, compared to $13.5 million in the same period in 2013, representing a decrease of $3.5 million or 26.2 percent.
The decrease in Non-Dealer sales in the three-months ended June 30, 2014 is due to (i) lower sales to one large customer that over ordered in 2013 and as a result had excess stock during the 2014 quarter, (ii) the reduction of sales attributable to a large National account in 2014 compared to 2013 and (iii) a reduction in sales to the majority of Liberty’s larger customers as a result of an across-the board reduction in consumer demand for gun safes as gun owners concerns of more restrictive gun control legislation, has subsided. The decrease in sales to Dealer accounts is principally attributable to the aforementioned reduced consumer demand and increased sales rebates. We expect this sales trend to continue through the remainder of the 2014. Liberty Safe’s sales backlog was approximately $6.0 million at June 30, 2014 compared to approximately $32 million at June 30, 2013.
Cost of sales for the quarter ended June 30, decreased approximately $6.8 million when compared to the same period in 2013. Gross profit as a percentage of net sales totaled approximately 9.3 percent and 24.7 percent of net sales for the quarters ended June 30, and June 30, 2013, respectively. The steep decrease in gross profit as a percentage of sales during the three-months ended June 30, compared to the same period in 2013 is attributable to; (i) a write down ($1.6 million) to inventory reflecting the current price point for import safes that Liberty Safe has begun selling at a discount, (ii) negative cost variances as a result of lower manufacturing volume during the second quarter of 2014 compared to 2013, (iii) reduced margins on the sales of import safes and increased sales rebates and discounts, and, (iv) increases in unit production costs resulting from upgrades added to several 2014 safe models that were not able to passed on to customers as a result of the softening market. Going forward, Liberty Safe has mitigated a portion of its exposure to excess negative cost variances by writing down the carrying value of its import safes and reducing its workforce, but will still experience lower gross profit as a percentage of sales through the remainder of fiscal 2014 compared to comparable prior year periods as a result of higher revised standard costs based on the reduced production volume and the expected reduced margins on import safe sales.
Selling, general and administrative expense for the three months ended June 30, decreased to approximately $2.9 million or 15.4 percent of net sales compared $3.5 million or 10.9 percent of net sales for the same period of 2013. The $0.5 million decrease is primarily attributable to decreases in advertising costs and sales commissions ($0.3 million) and costs associated with a reduction in headcount ($0.2 million) during the three months ended June 30, compared to the same period of 2013.
Income from operations decreased $5.6 million during the three-months ended June 30, to a loss from operations of $2.2 million compared to the same period in 2013, principally as a result of the decrease in sales, reduced gross profit as a percentage of sales and other factors, as described above.
