Solo Brands, Inc. reported significant improvement in adjusted earnings in the third quarter ended September 30 as sales advanced 8.0 percent, led by wholesale channel gains. The company, based in Grapevine, TX, reiterated its outlook for the year.

Solo Brands’ portfolio includes Solo Stove, a maker of firepits, stoves and accessories; Chubbies, a casual apparel and activewear brand; Oru Kayak, a maker of origami folding kayaks; and ISLE, a maker of inflatable and hard paddle boards and accessories.

Third Quarter 2023 Highlights Compared to Third Quarter 2022

  • Net sales of $110.3 million, up $8.2 million or 8.0 percent
  • Net income of $3.1 million, up $7.1 million or 176.7 percent
  • Income (loss) per Class A common stock – basic and diluted of $0.07
  • Adjusted net income of $15.2 million, up $7.6 million or 100.7 percent
  • Adjusted EBITDA of $15.0 million, up $3.7 million or 33.0 percent
  • Adjusted EPS of $0.28 per diluted share, up $0.13

Nine Months Ended 2023 Highlights Compared to Nine Months Ended 2022

  • Net sales of $329.5 million, up $9.1 million or 2.8 percent
  • Net income of $15.5 million, up $42.7 million or 157.2 percent
  • Income (loss) per Class A common stock – basic and diluted of $0.20, up $0.46
  • Net cash provided by operating activities of $39.2 million, up $74.5 million or 210.9 percent
  • Free cash flow of $32.2 million, up $75.1 million or 175.2 percent
  • Adjusted net income of $43.4 million, up $7.4 million or 20.7 percent
  • Adjusted EBITDA of $55.3 million, up $6.4 million or 13.1 percent
  • Adjusted EPS of $0.66 per diluted share, down $0.08

“We delivered third-quarter results exceeding expectations largely driven by strong retail sales. Brand momentum is encouraging as we grow our retailer relationships,” said John Merris, CEO of Solo Brands. “Looking ahead at the all-important fourth quarter, we recognize the headwinds consumers are facing. However, we have a lot of exciting, unique and compelling marketing programs to reach new customers, which we believe will stand out from the crowd and drive enthusiasm for our brand. We are well positioned to navigate an uncertain consumer environment given the resilience and strength of our financial model. Solo Brands generates healthy EBITDA margins, has low financial leverage, a balanced omnichannel sales approach, and is capital-lite, leading to strong free cash flow.”

Operating Results for the Three Months Ended September 30, 2023
Net sales increased 8.0 percent to $110.3 million compared to $102.2 million in the third quarter of 2022. Continued expansion of the wholesale network led to an increase in wholesale channel revenue, partially offset by a decrease in our direct-to-consumer channel revenue driven by a product mix shift along with decreased digital marketing spend.

  • Wholesale revenues increased 114.3 percent to $34.0 million compared to $15.9 million in the third quarter of 2022.
  • Direct-to-consumer revenues decreased 11.6 percent to $76.3 million compared to $86.3 million in the third quarter of 2022.

Gross profit increased 5.5 percent to $68.3 million compared to $64.7 million in the third quarter of 2022 primarily driven by an increase in net sales. Gross margin decreased 1.4 percent to 61.9 percent when compared to the same period of the prior year due to a mix shift to wholesale versus the prior year.

SG&A expenses increased 3.1 percent to $61.3 million compared to $59.5 million in the third quarter of 2022. The increase was driven by $0.9 million of higher fixed costs and $0.9 million increase in variable costs.

Income (loss) per Class A common stock basic and diluted per share was $0.07 for the third quarter of 2023 compared to $(0.03) for the third quarter of 2022.

Adjusted EPS was $0.28 per diluted share for the third quarter of 2023 compared to $0.15 for the third quarter of 2022.

Operating Results for the Nine Months Ended September 30, 2023
Net sales increased 2.8 percent to $329.5 million compared to $320.4 million in the prior year. The increase was primarily driven by strength with our key strategic retailers and continued market penetration within the wholesale channel, partially offset by a decrease in our direct-to-consumer channel revenue driven by a product mix shift, including products and accessories launched in the second half of 2022 and increased volume for apparel products, along with decreased digital marketing spend.

  • Wholesale revenues increased 70.9 percent to $98.7 million compared to $57.8 million in the prior year.
  • DTC revenues decreased 12.1 percent to $230.7 million compared to $262.6 million in the prior year.

Gross profit increased 2.8 percent to $205.7 million compared to $200.2 million in the prior year primarily due to the increase in net sales. Gross margin decreased (0.1) percent to 62.4 percent when compared to the same period of the prior year driven by a wholesale mix shift offset by a decrease in freight costs.

SG&A expenses decreased 2.8 percent to $169.5 million compared to $174.3 million in the prior year period. The decrease was driven by an $11.3 million decrease in variable costs, partially offset by $6.4 million of higher fixed costs. The variable cost decrease was primarily due to lower marketing and distribution expenses, as well as fair value changes of the contingent consideration. The fixed cost increase was due to increases in employee costs as a result of equity-based compensation, bonus expense, severance, and increases in rent as a result of the addition of new storefronts and warehouse locations.

Impairment charges fully decreased from $30.6 million, 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. No impairment charges were recorded during the nine months ended September 30, 2023.

Income (loss) per Class A common stock basic and diluted per share was $0.20 compared to $(0.26) in the prior year.

Adjusted EPS was $0.66 per diluted share compared to $0.74 in the prior year.

Balance Sheet

  • Cash and cash equivalents were $16.6 million at September 30, 2023, compared to $23.3 million at December 31, 2022.
  • Outstanding borrowings were $75.0 million under the Revolving Credit Facility, and $92.5 million under the Term Loan Agreement as of September 30, 2023. The borrowing capacity on the Revolving Credit Facility was $350.0 million as of September 30, 2023, leaving $275.0 million of availability.
  • Inventory was $114.1 million at September 30, 2023, compared to $133.0 million at December 31, 2022. The decrease in inventory is due to prudent inventory management resulting in lower replenishments following the peak season in the fourth quarter of 2022.

Full Year 2023 Guidance
For fiscal 2023, we continue to expect revenue to be in the range of $520 to $540 million, with the most likely outcome at the midpoint of that range of $530 million which reflects the pressure from the macro environment as well as the timing of shipments that pulled forward from Q4 into Q3. We also continue to expect to deliver an Adjusted EBITDA margin of between 17 percent to 18 percent for the full year.

Photo courtesy Solo Brands