Powered by a seasonally-strong performance by its flagship fire pit brand, Solo Stove, Solo Brands reported sales in the fourth quarter ended December 31 surged 164 percent to $176.5 million.
“We are incredibly pleased with our performance in the fourth quarter, and for the full year driven by the continued strength and vitality of our brands, especially Solo Stove, which seasonally outperforms in the fourth quarter,” said John Merris, CEO, on a call with analysts. “We continue to see tremendous opportunity for growth across our platform, which is focused on disruptive outdoor lifestyle brands.”
Solo Brands’ business also includes Chubbies, Oru Kayak and Isle paddleboards, all acquired in 2021.
By channels, direct-to-consumer (DTC) sales vaulted 162 percent to $164.2 million from $62.7 million in the same period in the prior year. Wholesale sales increased 197 percent to $12.3 million compared to $4.1 million in the prior year. Growth was driven by an increase in volume, specifically an increase in total orders by 105 percent. Average order value expanded 14.2 percent, driven by product mix with promotional levels remaining consistent with prior years.
Gross margins improved to 63.3 percent from 62.2 percent in the prior year. Adjusted gross margin was 66.4 percent compared to 78.8 percent in the prior year, with the variance over the prior year driven by higher freight and logistics expenses.
SG&A expenses for the quarter increased four-fold to $82.5 million from $19.6 million, reflecting higher expenses related to marketing, headcount, equity-based compensation, shipping and building out its international infrastructure.
Adjusted EBITDA for the quarter increased 55.1 percent to $43.1 million, representing a margin of 24.4 percent. Adjusted net income increased 38 percent to $35.3 million, or 45 cents. Net income came to $12.4 million, or 17 cents a share, including costs related to its initial public offering last October.
For the year, sales increased 203 percent to $403.7 million. The gains were led by Solo Stove, which grew 171 percent over the prior year to $362 million. Organic growth across its other brands, Chubbies, Oru and Isle, increased 60 percent to $121.3 million over the prior year. On a proforma basis, assuming all four brands were owned in both years, the combined organic growth rate was 131 percent to $483.3 million. DTC accounted for 88.1 percent of total sales and wholesale, 11.9 percent.
For the full year, adjusted EBITDA increased 220 percent to $120.9 million, or 29.9 percent of sales. Adjusted net income grew 105 percent to $105.3 million.
Growth Drivers
Merris elaborated on Solo Brands’ business model that includes a DTC focus driving “a special connection to our customers” to support referral rates climbing in 2021 to 48 percent and repeat purchase rates continuing at 40 percent. Said Merris, “Our strong referral and repeat purchase rates lower customer acquisition costs, allowing us to maximize marketing spend, enhance new customer acquisition and increase LTV.”
Access to first-party data also helps shorten the product innovation cycle.
Solo Brands also benefits from its multi-brand platform that provides “a global, scalable infrastructure that supports rapid organic growth, efficiencies and share learnings,” according to Merris. Leveraging customer data also helps “drive cross-pollination.” Over 25,000 of the company’s customers purchased from at least two of its brands by the end of 2021, up from 4,000 at the beginning of the year.
Going forward, strategic initiatives to drive growth include investing in its data platform to improve engagement with customers and capitalize on recent promoter scores trending up into the 80s and the high referral and repeat-purchase rates. Merris said, “Our data capabilities are expected to increase our marketing efficiency, provide some profit protection, and help to insulate us in this new environment where marketing costs are rising.”
Innovation is also being counted on to drive growth. Solo Stove’s recent launch Heat Deflector is seeing solid sales. The Pi Pizza oven, set to start shipping in the second quarter, has generated “super positive” initial response rates.
At Oru Kayak, a black edition kayak was introduced in the fourth quarter to a quick sell-out, relaunched and expanded. A lower-priced kayak, Oru Lake, will be introduced later this year. Isle and Chubbies also have launches planned for later this year. Said Merris, “We will continue to make strategic investments to innovate our product lines and get new products to customers faster.”
At wholesale, door expansion is planned at several key retailers, including Ace Hardware, Dick’s Sporting Goods, Academy, and Tractor Supply. Two Solo Stove SKUs are were prioritized as exclusive to retail, including a larger 30-inch fire pit, The Canyon.
Internationally, Solo Stove launched localized sites in Canada in August, in Europe in October, and plans to enter Australia in the third quarter this year.
Finally, strategic acquisitions remain a priority. Said Merris, “We are pleased that interest to join Solo Stove is strong. We are highly selective and focus on finding unique brands that are founder-led and will complement our existing platform.”
Inventory at the end of the fourth quarter was $102.3 million. Lower than desired inventory due to supply chain disruptions at the close of 2020 resulted in stock outs during the 2021 first quarter. Sam Simmons, CFO, said on the call, “We’re in a much better inventory position today and appreciate all of our team’s efforts to ensure the best experience for our customers.”
Merris said that while Solo Brands is experiencing continued pressures from inbound freight, price will be a key lever to mitigate cost increases over the near term. Prices have been increased slightly at wholesale accounts. Solo Brands is also increasing its supplier base and exploring additional geographic opportunities for manufacturing, including North America.
Looking ahead, revenues for 2022 are expected in the range of 540 million to 570 million, up at the midpoint by around 36 percent compared to $403.7 million in 2021. Adjusted EBITDA is projected in the range of $121 million to $132 million against $120.9 million.
For the first quarter, total revenue is expected to be between $82 million and $85 million, and adjusted EBITDA (between $12 million and $14 million.)
Solo Brands has seen a slight slowdown in sales trends for the first quarter that Merris attributed to “recent macro headwinds.” The quarter is also against the most difficult comparisons of the year.
Merris said, “We believe our guidance appropriately incorporates the current trends in our business as well as the investments that I discussed earlier. We have a lot of growth opportunities in front of us, and we are excited for the future. We believe the investments we are making in our business will position us for long-term sustainable growth.”
Photo, Pi Pizza oven/courtesy Solo Stoves
