Black Diamond Equipment reported a revenue increase of 22% for the third quarter ended Sept. 30, 2023, partially due to strong direct-to-consumer business.
“We see our direct-to-consumer business as one of the best indicators of the strength of the brand, since it is the fullest expression of our assortment and has less of the inventory hangover effect that has dragged down the wholesale market,” said Mike Yates, chief financial officer of parent company Clarus Corporation, in a conference call with investors.
Yates added that DTC is still a “relatively small piece of the overall Black Diamond business.”
Clarus is focused on moving discontinued merchandise and inventory and implementing more promotional pricing as it attempts to turn inventory into cash, he said.
“We did reduce inventory at Black Diamond by over $10 million, and in order to do that we needed to be very aggressive on pricing, specifically in the wholesale market in North America,” Yates said.
Outdoor Sales Down 3%
Sales in Clarus’ outdoor segment were $60.8 million in constant currency, down 3% compared to the prior-year quarter.
Yates said the 3% decrease was due to declines in the company’s North American and European sales region, partially offset by strength in the direct-to-consumer channels and the PIEPS safety equipment brand.
“North America is stabilizing but remains challenging as retailers continue to manage inventory and keep open-to-buy tight,” said Warren Kanders, Clarus’ executive chairman.
“Europe was a drag on the overall result as the region felt some of the inventory and macroeconomic challenges that our North American business faced in the fourth quarter of last year and the first half of this year.”
He expects this softness to persist in Europe in the coming quarters.
The company’s outdoor inventory has not yet fully aligned with demand, Yates added. The outdoor segment has approximately $70 million in inventory and should be in the $60 million range by the end of the quarter, according to Yates.
“The aging of inventory has significantly improved in 2023 and the team is focused on prioritizing faster-moving product,” Yates said.
Clarus is working on organizational reshaping to reduce costs and Yates expects the actions to drive improvements in both growth and operating margins next year for the outdoor business.
Clarus Q3 Results
Company-wide, sales for the quarter were $100.1 million, down 13% compared to the previous-year period.
Gross margin improved 140 basis points to 35.5% compared to 34.1% in the prior-year period, primarily driven by easing freight costs.
Clarus posted a net loss of $1.3 million for the quarter.
“Our brands largely experienced another challenging quarter given persistent macroeconomic headwinds that have constrained consumer demand, as well as the continued inventory overhang at retail and distributors,” Kanders said.
Clarus is working to reduce inventory across the company.
“Looking towards the fourth quarter, our priorities remain set on seeking the stabilization of sales and margins, additional organizational reshaping and cost reductions, and resetting our brands to a new baseline as we enter 2024,” he added.
The company now expects fiscal year 2023 sales of $364 million to $368 million and adjusted EBITDA of $33 million to $35 million. That’s down from the expected sales of $400 million for the year that the company had projected in August.
In addition, capital expenditures are now expected to be approximately $6 million and free cash flow is now expected to range between $20 and $22 million for full-year 2023.
Bart Schaneman can be reached at email@example.com.