Solo Brands, Inc. reported results in the first half exceeded expectations, but the parent of Solo Stove reduced its full-year outlook due to deteriorating trends so far in the third quarter.
The company’s other brands include TerraFlame, Chubbies, Oru Kayak, Isle, and IcyBreeze.
“We are pleased with our second quarter results and were encouraged to see strong retail sales and sequential improvement in our direct-to-consumer business” said Chris Metz, chief executive officer of Solo Brands. “During the quarter, we continued to make investments in talent and systems, setting the foundation needed to drive sustainable long-term growth while also completing the Solo Brands’ strategic plan based on an in-depth analysis of our business. However, the near-term environment remains quite challenging and quarter to date, we are experiencing softer demand trends in our business as consumers are being more selective with their spending. As a result, we are lowering our full year 2024 guidance, but we remain confident in our brands and in our long-term strategic plan that will unlock the full value of our business.”
Operating Results for the Three Months Ended June 30, 2024
- Net sales increased to $131.6 million, or 0.5 percent, compared to $130.9 million in the second quarter of 2023. Retail sales increased, resulting from continued growth with its strategic partnerships, while direct-to-consumer (DTC) channel revenue declined by a nominal amount.
- DTC revenues decreased to $98.8 million, or 0.9 percent, compared to $99.7 million in the second quarter of 2023.
- Retail revenues increased to $32.8 million, or 4.8 percent, compared to $31.3 million in the second quarter of 2023.
- Gross profit decreased to $82.6 million, or 0.5 percent, compared to $83.1 million in the second quarter of 2023, primarily due to inventory fair value write-ups from 2023 acquisitions. Gross margin decreased to 62.8 percent, or 60 basis points, compared to the same period of the prior year. Adjusted gross profit, which excludes the impact of inventory fair value write-ups from the 2023 acquisitions and tooling depreciation, increased to $83.6 million, or 0.4 percent, compared to $83.3 million in the second quarter of 2023. Adjusted gross margin was 63.6 percent, which was flat compared to the same period of the prior year.
- SG&A expenses increased to $70.8 million, or 11.5 percent, compared to $63.5 million in the second quarter of 2023, driven by a $4.5 million increase in variable costs and a $2.8 million increase in fixed costs. The variable cost increase was primarily due to increased marketing and distribution expenses. The fixed costs increase was primarily the result of employee-related costs driven by changes to management, as well as increases within both professional fees and information technology expenditures.
- Other operating expenses increased to $3.2 million, or 49.3 percent, compared to $2.1 million in the second quarter of 2023. The increase was primarily driven by management transition costs associated with expenses related to additional senior leadership positions and consulting engagements.
- Interest expense, net, increased to $3.6 million, or 43.1 percent, compared to $2.5 million in the second quarter of 2023. This increase was due to an increase in the weighted average interest rate on its total debt balance and a higher average debt balance compared to the same period of the prior year.
- Net (loss) income per Class A common stock was $(0.05) per basic and diluted share for the second quarter of 2024 compared to $0.12 for the second quarter of 2023.
- Adjusted net income per Class A common stock was $0.04 per basic and diluted share in the second quarter of 2024, compared to $0.16 in the second quarter of 2023.
Operating Results for the Six Months Ended June 30, 2024
- Net sales decreased to $216.9 million, or 1.0 percent, compared to $219.1 million in the prior year. Lower net sales resulted, in part, from the lack of new product launches in the year and less effective marketing within the first quarter of 2024 compared to the prior year period. Within sales channels, DTC revenue declined while retail sales increased, resulting from continued growth primarily within its strategic partnerships.
- DTC revenues decreased to $149.8 million, or 3.0 percent, compared to $154.4 million in the prior year.
- Retail revenues increased to $67.1 million, or 3.6 percent, compared to $64.7 million in the prior year.
- Gross profit decreased to $133.2 million, or 3.1 percent, compared to $137.5 million in the prior year, primarily driven by the decrease in net sales, product mix shift, and inventory fair value write-ups stemming from 2023 acquisitions. Gross margin decreased to 61.4 percent, or 130 basis points, compared to the same period of the prior year. Adjusted gross profit decreased to $134.4 million, or 2.5 percent, compared to $137.8 million for the previous year, reflecting the impact of the inventory fair value write-ups from 2023 acquisitions and the change in gross profit drivers. Adjusted gross margin decreased to 62.0 percent, or 90 basis points, compared to the same period of the prior year.
- SG&A expenses increased to $119.2 million, or 10.2 percent, compared to $108.1 million in the prior year. The increase was driven by a $9.9 million increase in variable costs and a $1.1 million increase in fixed costs. The variable cost increase was primarily due to increased marketing expenses and higher distribution costs associated with its DTC net sales channel. The fixed cost increase was mainly the result of increases in professional fees and IT expenses supporting growth plans, partly offset by a decrease in employee-related costs, which benefited from a reduction in equity-based compensation and bonus expenses.
- Other operating expenses increased to $5.4 million, or 112.6 percent, compared to $2.5 million in the prior year. The increase was primarily driven by management transition costs associated with expenses related to additional senior leadership positions and consulting engagements.
- Interest expense, net, increased to $6.7 million, or 39.6 percent, compared to $4.8 million in the prior year. This was due to an increase in the weighted average interest rate on total debt and a higher average debt balance.
- Net (loss) income per Class A common stock year-to-date was $(0.11) per basic and diluted share for 2024, compared to $0.13 for 2023.
- Adjusted net income per Class A common stock year to date was $0.07 per basic and diluted share for 2024, compared to $0.26 for 2023.
Consolidated Balance Sheet
- Cash and cash equivalents were $20.1 million at June 30, 2024 compared to $19.8 million at December 31, 2023.
- Inventory was $100.8 million at June 30, 2024 compared to $111.6 million at December 31, 2023. The decrease in inventory was the result of prudent inventory management.
- Outstanding borrowings were $75.0 million under the Revolving Credit Facility, and $88.8 million under the Term Loan Agreement as of June 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 June 30, 2024, leaving $274.4 million of availability, net of issued and outstanding letters of credit.
Full Year 2024 Outlook
“We continue to be laser-focused on stabilizing our business while investing in our capabilities and infrastructure to return to growth in 2025,” said Metz. “Despite exceeding our internal expectations for the first half of the year, our current third-quarter performance has been challenging, and we believe it is prudent to be cautious given the uncertain macroeconomic environment. As a result, we are lowering our annual guidance for 2024.”
The company’s updated 2024 outlook is as follows:
- Total revenue to be between $470 million to $490 million for 2024, previously, $490 million to $510 million, and
- Adjusted EBITDA margin to be between 9 percent and 10 percent for 2024, previously, 10 percent to 12 percent.
Image courtesy Oru Kayak