Solo Brands, Inc., parent of the Solo Stove, Chubbies, Oru Kayak, Isle, and Icy Breeze brands, reported that fourth-quarter net sales decreased 16.2 percent year-over-year (YoY) to $165.3 million, compared to $197.2 million in the prior-year fourth quarter. The decline was said to be due, in part, to a lack of significant new product launches in the fourth quarter when compared to the prior-year quarter.
- Direct-to-consumer (DTC) revenues decreased 20.8 percent to $127.3 million, compared to $160.8 million in the prior-year fourth quarter.
- Wholesale revenues increased to $38.0 million, or 4.2 percent, compared to $36.5 million in the prior year fourth quarter, resulting from continued growth primarily within strategic retail partnerships.
“I am thrilled to be leading Solo Brands. In my first two months here, I have been incredibly impressed with the strength of our core brands, record operating cash flow, and the tremendous growth potential ahead,” said Chris Metz, CEO of Solo Brands. “I also recognize that there is work to be done to build the infrastructure, in terms of process, systems and talent, to support the brands and position the company to deliver consistent growth. Our focus in 2024 is to leverage our brands’ strengths while also making strategic investments for the long-term.”
Gross profit decreased 18.3 percent to $96.4 million, compared to $118.0 million in the prior year fourth quarter, primarily driven by the decrease in net sales.
- Gross margin decreased 150 basis points to 58.3 percent of sales, compared to the prior-year fourth quarter due to a shift in channel mix to Wholesale from DTC as compared to the prior-year period as the Wholesale channel typically has lower gross margins compared to that of the DTC channel.
SG&A expenses decreased 5.7 percent to $80.0 million, compared to $84.7 million in the prior year fourth quarter. The decrease was driven by $6.7 million of lower fixed costs, stemming from reductions in employee-related expenses and was partially offset by a $1.9 million increase in certain variable costs, primarily marketing expenses.
Impairment charges of $249.0 million were recorded in 2023, of which $234.8 million was related to goodwill for the company’s Solo Stove, Oru and Isle reporting units and $14.2 million related to the Oru and Isle intangible assets as a result of the decline in performance of these reporting units compared to previous forecasts. No impairment charges were recorded during the prior year fourth quarter.
Other operating expenses increased to $1.3 million compared to a nominal amount in the prior year fourth quarter. The increase was primarily driven by management transition costs and costs related to the acquisitions in 2023, with nominal net costs in the prior-year fourth quarter.
Interest expense, net increased 42.3 percent to $3.5 million, compared to $2.4 million in the prior-year fourth quarter, as a result of an increase in the weighted average interest rate on the total debt balance, as well as a higher average debt balance when compared to the prior-year fourth quarter.
Net (loss) income per Class A common stock basic and diluted per share was $2.14 a share for the fourth quarter of 2023 compared to a loss of 18 cents for the prior-year fourth quarter.
- Adjusted net income per Class A common stock was 13 cents per diluted share for the fourth quarter of 2023 compared to 25 cents for the prior-year fourth quarter.
Full Year Results
Net sales decreased 4.4 percent YoY to $494.8 million;
- Direct-to-consumer revenues decreased 15.4 percent YoY to $358.1 million.
- Wholesale revenues increased 45.1 percent to $136.7 million.
- Gross margin decreased 40 basis points to 61.1 percent of sales.
- SG&A expenses decreased 3.7 percent to $249.4 million.
- Depreciation and amortization expenses increased 8.1 percent to $26.6 million.
Impairment charges of $249.0 million were recorded in 2023, of which $234.8 million was related to goodwill for the company’s Solo Stove, Oru and Isle reporting units and $14.2 million related to the Oru and Isle intangible assets as a result of the decline in performance of these reporting units compared to previous forecasts.
- Impairment charges of $30.6 million were recorded in 2022, of which $27.9 million was related to goodwill for the company’s Isle reporting unit and $2.7 million related to the Isle trademark intangible as a result of the weakened demand for the Isle reporting unit’s products identified in the second quarter of 2022.
Other operating expenses increased 39.9 percent to $5.0 million, compared to $3.6 million in the prior year, primarily due to $2.0 million of acquisition-related expenses as a result of the acquisition activity in 2023, an increase of 222.9 percent compared to the acquisition-related activity included in other operating expenses in the prior year.
Interest expense, net increased 75.5 percent to $11.0 million, compared to $6.3 million in the prior year, as a result of an increase in the weighted average interest rate on the total debt balance, as well as a higher average debt balance when compared to the prior year.
Net loss per Class A common stock basic and diluted per share was $1.84 for 2023, compared to 8 cents for 2022.
- Adjusted net income per Class A common stock basic and diluted per share was 58 cents for 2023, compared to 61 cents for 2022.
Balance Sheet
- Cash and cash equivalents were $19.8 million at December 31, 2023 compared to $23.3 million at December 31, 2022.
- Inventory was $111.6 million at year-end compared to $133.0 million at prior year-end. The decrease was reportedly the result of continued focus by management to optimize inventory turnover.
- Outstanding borrowings at year-end were $60.0 million under the Revolving Credit Facility and $91.3 million under the Term Loan Agreement, compared to $20.0 million and $96.3 million at December 31, 2022, respectively. The borrowing capacity on the Revolving Credit Facility was $350.0 million as of December 31, 2023, leaving $289.4 million of availability, net of issued and outstanding letters of credit.
Full Year 2024 Outlook
“We continue to be incredibly excited about the strength of our brands and believe in our long-term growth strategy,” shared Metz. “As we focus on 2024, we see tremendous opportunity for channel and category expansion in our business; however, we are mindful of the current uncertain environment and are not immune to the pressures on consumers’ discretionary spending. Given this backdrop, we are putting forth the following guidance for 2024:
- Total revenue is expected to be between $490 million to $510 million for 2024.
- Adjusted EBITDA margin* is expected to be between 10 percent to 12 percent for 2024.
The company’s full-year 2024 guidance is based on several assumptions subject to change, many of which are outside the company’s control. If actual results vary from these assumptions, the company’s expectations may change. There can be no assurance that the Company will achieve these results.
Image courtesy Oru Kayak