Solo Brands, Inc. reported first-quarter sales, adjusted EBITDA topping expectations, and noted that the company has made progress in repositioning its brands for growth. On an analyst call, CEO Chris Metz said Solo Stove saw improving direct-to-consumer (DTC) trends while Chubbies benefited from the early arrival of a shorts campaign.

Solo Brands, which also owns Oru Kayak, Isle, IcyBreeze, and TerraFlame brands, reiterated its outlook for the year.

In the quarter, sales declined 3.3 percent to $85.3 million. The company attributed the decline to less effective marketing that reduced site traffic within the DTC channel. While DTC sales declined, wholesale sales increased year-over-year from its focus on strategic partnerships.

DTC revenues declined 6.8 percent to $51.0 million, while wholesale revenues increased 2.5 percent to $34.3 million.

Gross margin eroded 250 basis points to 59.2 percent due to a shift in channel mix to wholesale from DTC year-over-year. The wholesale channel typically has lower gross margins than DTC.

SG&A expenses increased 8.5 percent to $48.4 million, driven by increases of $5.5 million in variable costs, including marketing and distribution expenses. Partially offsetting these increases, fixed costs declined $1.7 million, stemming from employee-related expense reductions. As a percentage of sales, SG&A expenses increased to 56.7 percent of sales against 50.6 percent a year ago.

Other operating expenses increased to $2.2 million compared to $405,000 a year ago, primarily driven by management transition costs associated with expenses related to adding senior leadership roles and strategic consulting hires.

In the period, the net loss came to $6.5 million, or 6 cents a share, against earnings of $933,000, or 1 cent, a year ago. On a pro-forma basis, earnings fell 83.8 percent to $1.7 million, or 3 cents a share, from $10.3 million, or 10 cents per share, a year ago.

Adjusted EBITDA fell 72.1 percent to $4.3 million from $15.4 million a year ago, with EBITDA margins eroding to 5.0 percent from 17.4 percent a year ago.

Adjusted results exclude expenses for amortization, equity-based compensation, management transition costs, business optimization, and expansion.

In January, Metz, formerly CEO of Vista Outdoor, succeeded John Merris as CEO.

Solo Brands lowered its revenue guidance for the year to a range between $490 million and $500 million compared to its previous guidance of $520 million to $540 million. It also lowered its target for adjusted EBITDA margin to a range of 14 percent to 15 percent from its previous guidance of 17 percent to 18 percent due to marketing expenses tied to the campaign.

On the analyst call for the latest quarter, Metz said Solo Brands has made progress in developing a companywide strategic plan. He said, “We hired a leading firm to help us with this exercise, and we’re about 50 percent of the way through the workstream. Again, the strategic work will inform where we focus our investmentsresources and, ultimately, how we regain our footing as a high growth and high profitability company.”

Metz said one priority for the company is to resume DTC growth, and it has made progress with a 6.8 percent decline in DTC sales, marking a notable improvement from a 21 percent decline in the fourth quarter. Metz said, “We gained momentum as Q1 progressed.”

Another focus for Solo Brands is developing a more balanced omnichannel strategy that would not be dilutive to EBITDA margins. Said Metz, “In Q1, we saw sequential improvement in our DTC performance, and we continue to see growth in our retail channel.”

Regarding Solo Stove, its primary brand, the top three priorities remain revenue growth, product innovation and talent acquisition. Metz said, “On the revenue front, the changes we’re making in our DTC channel are starting to show signs of stabilization with marked improvement in sales year-over-year in Q1 versus our performance of Q4.”

Supported by new hires, tactical changes to Solo Stove’s marketing have helped create a more balanced approach to acquisition versus retention marketing, helping stabilize ROAS (return on ad spend). Metz added, “We also believe we were able to capitalize on the new customers we acquired through the Snoop campaign.”

Solo Stove continues to see “solid momentum” expanding in wholesale retail channels, supporting its efforts to create a balanced omnichannel approach. 

At Dick’s Sporting Goods, Solo Stove’s door count increased in Q1 from 350 stores to 700 stores. Solo Stove also successfully tested 100 doors at Tractor Supply, increasing the brand’s net door count to over 1,500 doors. Metz stated, “Now, we will take time to see significant sales growth from the new doors, but I’m encouraged about the trajectory for our retail channel moving forward.”

In marketing, Solo Stove entered a new relationship with an agency “with full-funnel performance and digital capabilities.” Metz added, “I am highly confident this will pay dividends as we move through the balance of this year.”

Regarding Solo Stove’s leadership team, Mike McGoohan, who joined Solo Brands as chief growth officer in February, was named president of Solo Stove while continuing in his initial role. McGoohan was formerly the chief marketing officer at Central Garden & Pet.

John Junker, former VP of sales at Bell+Giro, was hired as Solo Stove’s SVP of sales to accelerate growth with wholesale accounts. Metz said, “John brings broad experience with our key customers that will enable us to develop deeper, more strategic partnerships with our key customers.”

At Chubbies, its second-largest brand, sales momentum continued in the first quarter after a record-breaking 2023.

Metz noted that the first quarter marked the beginning of the retail selling season for shorts and swim trunks, and Chubbies successfully ran the brand campaign, “Trunks For All.” Chubbies benefitted from shipping most of its biggest retail partners’ initial floor sets at the end of the fourth quarter, so the product was in stores before the critical spring break selling season began. Metz said, “Importantly for us and our retail partners, sell-through exceeded expectations; this is important to see as we enter the height of shorts and trunk season in Q2.”

Metz said Solo Brands will seek balanced growth across DTC, retail and its owned retail locations across brands. “I’m encouraged by the green shoots we see in the business,” said Metz.

“While we are very early in our turnaround, our brands are strong and continue to resonate with our customers; this gives us confidence that we have tremendous growth opportunities ahead of us. Our portfolio is supported by a company that is in a strong financial position and generates strong free cash flow with little debt, which allows us to make the necessary investments to position us for long-term sustainable growth.”

Inventory was $112.3 million on March 31 compared to $111.6 million on December 31, 2023.

While first-quarter results exceeded expectations, Solo Brands maintained its year-long guidance given the uncertain macro environment. Revenue is expected to be between $490 million to $510 million in 2024. The adjusted EBITDA margin is expected to be between 10 percent and 12 percent for 2024.

Asked in the Q&A session about the promotional environment, Metz said, “The environment is certainly more promotional. We’ve seen consumers show a bit more discretion with regard to their purchases, knowing that they’re more stretched than they have been. That said, we’ve reacted in a very effective manner, which we’re seeing in the results of our business so far in Q1. It’s continuing into Q2, and it’s predominantly through bundling. So, we’re doing a nice job. Our marketing team is creating bundles that create a ‘win-win.’ It creates a better value for consumers. But it also creates higher AOVs (average order volumes) for usand it’s not margin-dilutive. 

“We’re also doing a better job with what I call ‘retention marketing,’ where we’re mining our current customer base with more effective and timely promotions around key holidays like Mother’s Day this weekend. So that’s one of the contributions you’re seeing from the talent we’ve brought in, where they’re taking the same content that we have because it’s still in the early days and using that content in a more effective, compelling way. And that’s across all our brands, but predominantly Solo Stove,” concluded Metz.

Image courtesy Solo Brands/Chubbies