In its first quarterly report since going public on October 28, Solo Brands reported sales vaulted 138.3 percent in the third quarter ended September 30 with strength across its four brands—Chubbies, Isle Paddle Boards, Oru Kayak, and Solo Stove. 

“Our third-quarter results reflect the strong momentum in our business across all of our brands with Solo Stove, our primary growth driver, continuing to deliver solid growth through our compelling product offerings and distinctive marketing,” said John Merris, CEO, Solo Brands. “The investments we have made to our supply chain position us well to continue to generate strong revenue and profitability in 2021.”

Sales in the quarter reached $69.4 million against $29.1 million a year ago, helped by strong results across channels. In its IPO filing documents, the company, based in Southlake, TX, had predicted sales in the range of $66.9 million to $69.3 million.

DTC revenues vaulted 119.6 percent to $58.1 million, while wholesale revenues ran up 323.4 percent to $11.4 million. The gains were primarily driven by a hike in total orders by 104.7 percent, with the average order value increasing 3.9 percent.

On a conference call with analysts, Samuel Simmons, CFO, said, “We believe the increase in the number of orders is primarily due to the positive response from our increased spending on our digital marketing strategy, growing brand awareness and increased demand for outdoor recreation and leisure lifestyle products.”

The gains partly reflected the acquisitions of Oru Kayak in May 2021, Isle in August 2021 and Chubbies in September 2021.

Net income reached $2.1 million, down 79.4 percent from $10.3 million in the third quarter last year.

On an adjusted basis, excluding one-time impacts primarily related to the acquisitions and transactions tied to its IPO, earnings reached $15.8 million, up 39.7 percent from $11.3 million last year. Adjusted EBITDA advanced 56.7 percent to $18.2 million compared to $11.6 million in the third quarter last year.

Adjusted gross margin declined to 67.0 percent, in line with expectations, from 71.8 percent, with the decline attributed to increased freight rates and higher logistics costs. The reported gross margin was 59.1 percent against 71.3 percent.

At the end of the third quarter, inventory was $113.6 million, compared to $14.3 million as of December 31. The increase reflects a strong inventory position across brands, including brands acquired in 2021.

Simmons said, “We are pleased with the efforts our team made across our brands to build up inventory throughout the year to satisfy our growing demand. Despite supply chain imbalances impacting many companies, we are well-positioned with the level, mix and quantities of inventory on hand. Accordingly, we are in great shape to provide a best-in-class experience for our customers from order to delivery through the holidays and into next year.”

Looking ahead, Simmons said the “holiday season has gotten off to a strong start,” and the company raised its guidance for the full year, which calls for:

  • Total revenue to be between $344 million and $352 million, up from $177.5 million on a pro-forma basis in 2020; and
  • Adjusted EBITDA to be between $107 million and $109 million, up from $61.0 million in fiscal 2020.

On the call, Merris provided a deep dive into Solo Brands’ business model.

“The key attributes of our platform are (1) our direct connection to our community of customers, (2) our innovative product development capabilities and (3) our scalable global infrastructure,” said Merris. 

“Our e-commerce platform provides us the opportunity to have a direct relationship with our customers, and we know that our customers are our most impactful brand advocates.”

He noted that word-of-mouth referrals drove 45 percent of new customers to Solo Stove through June 30, which has held through the third quarter. He added, “We use our strong customer engagement to leverage our vast first-party consumer data to improve our marketing efficiency, increase customer engagement and drive loyalty and repeat purchases.”

Consumer insights are applied to digital ads and e-mail strategies across brands while also supporting product development capabilities,” said Merris. He said, “Our customers tell us what they like, what they don’t like and what they want us to develop.”

As a result, approximately 80 percent of Solo Brands’ revenue was generated for new products launched in 2019, and the company has a 36 percent repeat purchase rate with customers.

Addressing innovation across brands, Merris noted that Solo Stove, known for fire pits, camping stoves, grills and accessories, just entered a new category with Solo Stove Pie, a backyard pizza oven. He said, “We are excited about offering this new product offering to our customers and believe that we can disrupt this category and continue to be a key player in the growing outdoor lifestyle space.

Solo Stove also has seen an “extremely positive” initial response to the introduction of fire pits in a series of colors. Merris said, “Our customers told us that they wanted more color options beyond the natural stainless steel finish. We worked hard to find a coating that did not melt or flake under the heat of a secondary burn, which burns much hotter than a typical campfire.”

Oru Kayak recently introduced a black kayak that quickly sold out. Merris said the brand continues to capitalize as the inventor of the origami folding kayak. He said, “Today, we have five different kayak models that fit every major use case and we see a massive opportunity to continue introducing first-time kayakers to the sport.”

Isle Paddle Boards, founded in Southern California in 2004, was one of the first brands to sell surfboards on the Internet. Said Merris, “Today, Isle has evolved to sell both hard and inflatable stand-up paddle boards that can fold up into a backpack, making it easier to transport but still maintaining quality and performance.”

Merris said Chubbies, a maker of casual apparel and activewear, started the shorter inseam trend nearly 10 years ago but is particularly known for its social media engagement. Most notably, in the last 12 months Chubbies has developed a social following on TikTok with over 1.6 million followers. Merris said, “Chubbies is not a transactional apparel company, but instead a relationship-oriented brand that speaks to its customers as friends.”

The DTC model also helps Solo Brands maintain strong adjusted gross margins above 60 percent. Bringing in-house key functions such as supply chain warehousing, fulfillment and marketing, drives operating leverage that supports profitability.

“We have built a powerful DTC e-commerce platform for our existing and future brands,” said Merris. “I am pleased to say that we are a plug and play platform that has been able to generate significant leverage in marketing and advertising, shipping and fulfillment and human capital.”

Merris highlighted five growth strategies.

  • Accelerate organic growth: Merris said Solo Brands had “significant room for organic growth” within its four existing brands by building brand awareness and acquiring new customers. He said, ‘We see the total addressable market just for Solo Stove in the United States as 76 million households, and Solo Stove has only about one and a half percent market penetration in this market. In addition, we see a massive TAM (total addressable market) and untapped opportunity to gain increased domestic market penetration in our other brands.”
  • Utilize scale and platform efficiencies: Significant investments in its supply chain infrastructure, customer service and digital marketing platform have added significant scale. It brought fulfillment in-house in 2018 and opened three warehouses to improve shipping and picking times and overall lower fulfillment costs. Merris said, “We have been able to generate platform efficiencies driving material EBITDA leverage and a better customer experience.”
  • International expansion: In August, the company launched a Solo Stove website in Canada and it partnered with Oru Kayak, which had a presence in Canada, to drive awareness. Solo Stove generated more revenue in August in Canada than in August in its first six years in the U.S. In October, a fulfillment center opened in Rotterdam, the Netherlands, to service the European market, and it introduced a European website. Merris said Solo Brands sees a “tremendous opportunity to expand our brands internationally by replicating our successful domestic DTC model.”
  • Strategic acquisitions: Merris said Solo Brands has a “clearly defined brand accelerator model” and continues to evaluate opportunities. He said, “We are looking for enthusiast brands with impressive digital communities and strong emotional connections with our customers. We are a founder-friendly acquirer of choice and want to partner with brands who are category creators and who have developed a significant competitive moat in their respective categories.”
  • Channel expansion: While the focus is on DTC, having a retail presence meets the needs of consumers seeking an in-person experience, said Merris. Solo Brands sees an opportunity to expand at strategic partners, including REI, Ace Hardware and Dick’s Sporting Goods, and strategic retail could grow to 15-to-20 percent of overall sales over the next five years. Internally, Solo Brands operates seven stores across Chubbies, Isle and a recently-opened Solo Stove Opportunities is also forecast for corporate sales.

Photo courtesy Solo Stove