Clarus Corp. raised its annual sales targets for Black Diamond Equipment and its Sierra/Barnes ammo segment as both businesses accelerated growth during the first quarter. Clarus officials said the company had benefitted from its ability to overcome supply chain challenges.
In the quarter ended March 31, sales were up 40.7 percent to $75.3 million, topping expectations. By segment, Black Diamond sales improved 13 percent to $51.8 million, and sales in the Sierra segment jumped 203 percent to $23.5 million. Excluding Barnes, acquired in October 2020, first-quarter sales in the Sierra segment rose 94 percent organically.
“Across Black Diamond and Sierra, we continue to outperform the market as we executed our playbook, in particular with our key account relationships via higher levels of product availability in support of our increasing brand presence and accelerating demand among core consumer,” said John Walbrecht, president, Clarus, on a conference call with analysts.
He said Black Diamond “benefited from the recovery in our outdoor market and reduced inventory volatility at retail, which allowed us to accelerate growth, particularly with some of our key retail accounts, despite continued headwinds from COVID-19 and supply chain challenges.”
He added, “Demand in our bullet businesses continued to surge, and we were able to navigate component shortages relatively well.”
From a supply chain standpoint, Walbrecht believes Clarus had benefitted as suppliers prioritized long-term relationships with companies with strong growth prospects. He said, “Building these favorable relationships also benefits the navigation of the current supply chain environment, which is why we believe we’re outperforming our competition in this area of our business in the recent quarters.”
Net earnings in the quarter climbed to $5.7 million, or 17 cents a share, from $36,000, or less than 1 cent a share, a year ago. Adjusted net income vaulted 280 percent to $10.2 million or 31 cents, from $2.7 million, or 9 cents, in the same year-ago quarter.
Gross margin improved 130 basis points to 35.9 percent. Improvements in product mix and foreign exchange benefits more than offset unfavorable impacts from the supply chain and logistics due to the pandemic. Excluding a fair value inventory step-up associated with the Barnes acquisition, adjusted gross margin in the first quarter increased 180 basis points to 36.4 percent. Foreign exchange provided a 100 basis point margin tailwind.
SG&A expenses increased 20.1 percent to $20.9 million, primarily due to the inclusion of Barnes. As a percent of sales, SG&A expenses were 27.7 percent of sales against 32.4 percent a year ago. The performance was helped by expense management at both segments. Adjusted EBITDA in the quarter increased 191 percent to $10.6 million.
Black Diamond Sales Increased 13 Percent
The 13 percent gain at Black Diamond was “mostly attributed to surging consumer demand and the recovery from the pandemic,” said Walbrecht.
Ski was up 23 percent, Mountain gained 20 percent, and Climb increased 3 percent. Hardgoods growth of 16 percent was driven by a solid double-digit increase across its product portfolio, particularly trekking poles, skins, headlamps, lighting, gloves, packs, bouldering, and helmets.
Wholesale revenues led on the back of solid growth at specialty retail partners and key accounts. The reopening of markets and broader COVID recovery was a key factor enabling its growth. Direct-to-consumer growth slowed from recent quarters as inventory was prioritized to support wholesale partners and their ability to have strong kickoffs to the spring 2021 season. Said Walbrecht, “This reinforces our partnership approach and the ease of doing business with mentality.”
Aaron Kuehne, EVP and CFO, said its wholesale growth also reflected “the fact that we were the best-positioned to fulfill inventory in the current volatile supply chain environment with the core brand that has maintained on price.”
Black Diamond launched a new website in January 2021 that drove improved activation with more sophisticated prospecting and retargeting efforts. Said Walbrecht, “As we continue to improve our inventory position, develop more refined data-driven tools and expand our retail footprint, we believe our DTC channel will become the most brand accretive touchpoint of our super-fans.”
Black Diamond’s North American and European businesses both grew double-digits on the reopening momentum. This growth was partly offset by a decline in the international global distributor market due to lingering COVID-19 impacts and its transition from a distributor model to a direct strategy in Spain in the second quarter.
Black Diamond’s apparel sales remained stable during the quarter, despite the lower than expected inventory availability due to shipping delays. Walbrecht said, “Our order books are quickly filling for the second half of the year, due to our wholesale partners regaining confidence as their customers return.”
Walbrecht said Black Diamond continues to play up technical aspects of its apparel as a differentiator while noting that Black Diamond apparel was used by NASA’s SpaceX Crew-1 in their mission back to earth last week. He also highlighted the hiring of Anthony Rivera, former senior manager of merchandising for Arc’teryx, as business unit director for apparel. Walbrecht said, “While inventory is a near-term challenge, we remain optimistic that we will grow apparel into a $100 million business over the long-term.”
Sierra Segment Doubles Growth
The 94 percent, or $7.3 million, growth at the Sierra segment, excluding Barnes, reflects sustained broad-based sales growth across both bullets and ammunition.
“We continue to experience strong domestic tailwinds ahead of, and following, the U.S. election and an increased participation in outdoor hunting and indoor shooting ranges,” said Walbrecht.
Sierra’s growth was helped by continued robust domestic demand for its “Green Box” bullets and its new ammunition initiative. Barnes continues to exceed expectations, bringing in $8.5 million of sales in the first quarter with domestic Black Box and ammo leading sales growth. Integration efforts continue to drive higher levels of output to help fill market demand.
Walbrecht said the bullets and ammunition categories remain impacted by industrywide supply shortages in key components. He said, “We will continue to seek to utilize our balance sheet to enhance product availability and leverage our strong relationship with our key retail partners.”
Sierra’s segment combined 2021 order book remains healthy with the segment moving closer to achieving its stated goal of delivering $100 million in sales over the long-term at approximately 30 percent adjusted EBITDA margins and a high free cash flow conversion.
Companywide inventories at $70 million were up slightly from the end of the year. Kuehne said, “We continue to maintain strong relationships with our supply chain partners so that we can adjust the flow of goods in line with expected demand and dynamically manage our inventory levels. Additionally, we remain committed to seeking to increase capacity with our bullet manufacturing and ammunition loading, where possible, across our Sierra and Barnes manufacturing facilities to keep pace with the elevated demand.”
Walbrecht noted that M&A remains a priority for Clarus despite the uncertainty created by the pandemic. He elaborated, “We have a disciplined acquisition strategy that we believe ensures we will be able to deploy our Innovate And Accelerate brand strategy. With the strategy, we target super-fan brands that may give us a foothold in a new product group or customer channel as we seek to diversify further within the outdoor and consumer markets. We anticipate progress on this end and hope to be sharing further details in the short term.”
Clarus’ updated outlook for 2021 calls for:
- Sales to grow 32 percent to $295 million compared to 2020. Previously, sales were projected to grow 25 percent to $280 million;
- Black Diamond segment sales to increase 20 percent to $205 million. Previously, sales were expected to increase 17 percent to $200 million;
- Sierra, which includes Barnes, to surge 71 percent on a pro-forma basis to $90 million. Previously, sales were expected to expand 52 percent to $80 million;
- Adjusted EBITDA to grow approximately 70 percent to $38 million. Previously, adjusted EBITDA was expected to climb 56 percent to $35 million; and
- Capital expenditures at $7.5 million and free cash flow of $15 million remain the same targets as prior guidance.
Photos courtesy Black Diamond, Sierra Bullets