Solo Brands, Inc. posted a net loss of $111.4 million in the third quarter due to costs related to the termination of an underperforming marketing agreement, impairment charges for IcyBreeze and an impairment charge related to its declining stock price—results excluding the adjustments aligned with expectations with sales down 15 percent.

The company’s brands include Solo Stove, TerraFlame, Chubbies, Isle, Oru Kayak and IcyBreeze.

“Our third quarter results were in line with our expectations despite a continued challenging macroeconomic backdrop for big ticket consumer durable items,” said Chris Metz, chief executive officer of Solo Brands. “We continue to see strong momentum and excitement from our retail partners; however, as expected, sales in our direct-to-consumer channel were challenged. During the quarter, we took decisive measures to address factors that were hindering our growth, and as a result of these actions, we believe that we are well positioned moving forward.”

Metz continued “As we move into our all-important fourth quarter, we are encouraged by our early sales trends. While we recognize the majority of the season is in front of us, we feel good about how we are positioned and are reaffirming our full year guidance for 2024.”

Operating Results for the Three Months Ended September 30, 2024
Net sales decreased to $94.1 million, or 14.7 percent, compared to $110.3 million in the third quarter of 2023. DTC channel net sales declined, driven by softer demand trends as a result of consumers being more selective with their spending, while the decline in retail channel net sales is the result of a non-recurring transaction in the prior year period attributed to a marketing barter arrangement.

Direct-to-consumer revenues decreased to $64.5 million, or 15.5 percent, compared to $76.3 million in the third quarter of 2023.

Retail revenues decreased to $29.7 million, or 12.7 percent, compared to $34.0 million in the third quarter of 2023. The non-recurring transaction with a marketing barter partner in the third quarter of 2023 contributed $7.2 million to retail channel net sales in the 2023 period.

Gross profit decreased to $39.3 million, compared to $68.3 million in the third quarter of 2023, primarily as a result of a $18.7 million write-down of inventory and related purchase orders of the IcyBreeze reporting unit. Gross margin decreased to 41.8 percent, compared to 61.9 percent for the same period of the prior year. Adjusted gross profit, which excludes the inventory write-down related to IcyBreeze and tooling depreciation, decreased to $58.3 million compared to $68.4 million in the third quarter of 2023 as a result of the reduction in net sales. Adjusted gross margin was 61.9 percent, which decreased nominally compared to the same period of the prior year.

Selling, general and administrative expenses increased to $61.1 million, compared to $57.0 million in the third quarter of 2023. The increase was driven by a $6.8 million increase in fair market value changes in contingent consideration related to certain of our 2023 acquisitions and a $1.1 million increase in variable costs, partially offset by a $3.8 million decrease in fixed costs. The variable cost increase was primarily the result of the increase in write-offs of prepaid marketing related to marketing campaigns that management determined were not aligned to the current marketing strategy.

The fixed costs decrease was primarily the result of the decrease in employee-related costs primarily driven by a significant reduction in equity-based compensation expense and bonus expense, offset in part by separation costs of certain management personnel and addition of senior leadership positions. Partially offsetting the net decrease in employee-related costs were increases in professional services and information technology expenditures.

Restructuring, Contract Termination and Impairment Charges increased to $83.6 million compared to $4.3 million in the third quarter of 2023. The increase was the result of management undertaking (i) the termination of an underperforming marketing agreement, (ii) reorganization of the Oru and ISLE reporting units into a consolidated management structure (iii) the charges related to the IcyBreeze reporting unit, resulting in $0.6 million of restructuring charges, $14.8 million of charges related to contract terminations and (iv) $43.2 million of impairment charges at the IcyBreeze reporting unit, as well as a goodwill impairment charge of $25.0 million at the Solo Stove reporting unit driven by the sustained decline in share price, with similar activity in the prior year of only a $4.3 million one-time contact termination fee, with offsetting benefits that were fully realized by the end of 2023.

Other operating expenses increased to $3.3 million, compared to $1.2 million in the third quarter of 2023. The increase was primarily driven by management transition costs, including expenses related to additional senior leadership positions and strategic consulting engagements.

Interest expense, net increased to $3.7 million, compared to $2.8 million in the third quarter of 2023, as a result of an increase in the weighted average interest rate on our total debt balance, as well as a higher average debt balance when compared to the same period of the prior year.

Net (loss) income per Class A common stock was $(1.19) per basic and diluted share for the third quarter of 2024 compared to $0.07 for the third quarter of 2023.

Adjusted net income (loss) per Class A common stock was $0.02 per basic and diluted share for the third quarter of 2024 compared to $0.19 for the third quarter of 2023.

Operating Results for the Nine Months Ended September 30, 2024

  • Net sales decreased to $311.0 million, or 5.6 percent, compared to $329.5 million in the prior year. Lower net sales resulted, in part, from a decline in DTC channel net sales driven by softness in demand as result of consumers being more selective with their spending that was identified in the second quarter of 2024. The retail channel net sales similarly declined, though by a lesser magnitude, as a result of the third quarter activity noted above, in which the prior year period benefited from a non-recurring transaction with a marketing barter partner.
  • Direct-to-consumer revenues decreased to $214.3 million, or 7.1 percent, compared to $230.7 million in the prior year.
  • Retail revenues decreased to $96.7 million, or 2.0 percent, compared to $98.7 million in the prior year. The non-recurring transaction with a marketing barter partner in the third quarter of 2023 contributed $7.2 million to retail channel net sales in the 2023 period.
  • Gross profit decreased to $172.5 million, compared to $205.7 million in the prior year, primarily as a result of a $18.7 million write-down of inventory and related purchase orders of the IcyBreeze reporting unit. Gross margin decreased to 55.5 percent, compared to 62.4 percent for the same period of the prior year. Adjusted gross profit, which excludes the impact of the inventory write-down related to IcyBreeze, the inventory fair value write ups from the 2023 acquisitions and tooling depreciation, decreased to $192.7 million compared to $206.3 million in the prior year as a result of a reduction in net sales. Adjusted gross margin decreased to 62.0 percent, or 60 basis points, when compared to the same period of the prior year.
  • Selling, general and administrative expenses increased to $180.3 million, compared to $165.2 million in the prior year. The increase was driven by a $7.0 million increase in fair market value changes in contingent consideration related to certain of our 2023 acquisitions and a $11.0 million increase in variable costs, partially offset by $2.7 million decrease in fixed costs. The variable cost increase was primarily due to increases in marketing expenses, which included spend under an underperforming marketing agreement, and an increase in write-offs of prepaid marketing related to marketing campaigns that management determined did not align with the current marketing strategy.
  • The fixed cost decrease was primarily the result of decreases in employee-related costs which benefited from a reduction in equity-based compensation and bonus expense, offset in part by separation costs of certain management personnel and addition of senior leadership positions. Partially offsetting this net decrease in employee-related costs were increases in professional services costs, software expenses and rent expense.
  • Restructuring, Contract Termination and Impairment Charges increased to $83.6 million, compared to $4.3 million in the third quarter of 2023. The increase was the result of management undertaking the activities noted above, resulting in $0.6 million of restructuring charges, $14.8 million of charges related to contract terminations and $43.2 million of impairment charges at the IcyBreeze reporting unit, as well as a goodwill impairment charge of $25.0 million at the Solo Stove reporting unit driven by the sustained decline in share price, with only a $4.3 million one-time contract termination fee in the prior year, with offsetting benefits that were fully realized by the end of 2023.
  • Other operating expenses increased to $8.7 million, compared to $3.7 million in the prior year. The increase was primarily driven by management transition costs, including expenses related to additional senior leadership positions and strategic consulting engagements.
  • Interest expense, net increased to $10.4 million, compared to $7.5 million in the prior year, as a result of an increase in the weighted average interest rate on total debt, as well as a higher average debt balance when compared to the prior year.
  • Net (loss) income per Class A common stock year to date was $(1.31) per basic and diluted share for 2024, compared to $0.20 for 2023.
  • Adjusted net income per Class A common stock year to date was $0.09 per basic and diluted share for 2024, compared to $0.44 for 2023.

Consolidated Balance Sheet

  • Cash and cash equivalents were $12.5 million as of September 30, 2024 compared to $19.8 million at December 31, 2023.
  • Inventory was $106.8 million as of September 30, 2024 compared to $111.6 million at December 31, 2023.
  • Outstanding borrowings were $75.0 million under the Revolving Credit Facility, and $87.5 million under the Term Loan Agreement as of September 30, 2024 compared to $60.0 million and $91.3 million at December 31, 2023, respectively. The borrowing capacity on the Revolving Credit Facility was $350.0 million as of September 30, 2024, leaving $274.4 million of availability, net of issued and outstanding letters of credit.

Full Year 2024 Outlook
The company’s reaffirmed 2024 outlook is as follows:

  • Total revenue is expected to be between $470 million to $490 million for 2024.
  • Adjusted EBITDA margin* is expected to be between 9 percent to 10 percent for 2024.

Image courtesy Solo Brands/IcyBreeze