Claris Corp. announced that its profits and sales exceeded Wall Street targets in the second quarter despite supply chain disruption in all segments. Full-year guidance was raised for its Precision Sports, or Ammunition, segment; maintained for its Outdoor segment, led by Black Diamond Equipment; and lowered for its new Adventure segment.
In a conference call with analysts, Clarus President John Walbrecht noted that Clarus has seen demand and growth in all three segments: outdoor, precision sports and adventure. Future bookings for Fall 22 and Spring 23 also continued to show strong demand across all categories and segments.
Additionally, the price increases implemented through 2021 and 2022 “stand,” allowing the company to improve margins in the quarter despite currency fluctuations, increased logistics costs and higher amounts of air freight used due to supply chain challenges. He added, “We are confident that gross margin improvement strategies are on and such value leaks are either currently facing or transitory in nature. As such, we expect improved results over the next few quarters. »
Sales jump 57% in the second quarter
In the quarter ended June 30, sales rose 57% to $114.9 million, beating Wall Street’s consensus estimate of $110.2 million. At constant exchange rates, total sales increased by 59%.
Sales increased 16% on a pro forma basis. Pro forma results are adjusted to reflect the acquisition of Australian company Rhino Rack on July 1, 2021 and Australian company MaxTrax Australia on December 1, 2021, which now constitute its Adventure segment.
Organic sales were up 22% in the second quarter, acquisitions contributed 37%, and exchange rates were a headwind of 2%.
Adjusted EBITDA for the quarter jumped 51% to a record $17.6 million, beating analysts’ consensus target of $16.9 million. The adjusted EBITDA margin decreased to 15.3% from 15.9% in the same quarter of the previous year.
Net income in the second quarter climbed 105% to $3.8 million, or 9 cents per share, from $1.8 million, or 6 cents, in the year-ago quarter. On an adjusted basis, which excludes non-cash items and transaction costs, profit rose 92% to $13.1 million, or 33 cents per share, from $6.8 million, or 20 cents , in the same quarter of the previous year.
Gross margins for the quarter were 38.0%, compared to 38.2% in the prior year quarter. Channel and product mix improvements were offset by unfavorable transportation costs and currency movements in the Outdoor and Adventure segments. Foreign currencies negatively impacted gross margin by 80 basis points.
SG&A expenses jumped to $35.4 million from $20.7 million in the same quarter a year ago, primarily due to the inclusion of Rhino-Rack and MaxTrax, which contributed $9. $8 million in expenses.
Non-cash stock-based compensation for performance bonuses was $3.6 million, an increase of $1.7 million from the second quarter of 2021. The remainder of the increase SG&A expense was driven by investments in Outdoor segment DTC initiatives and higher business costs. As a percentage of sales, operating expenses represented 30.8% of sales compared to 29.1% a year ago.
Outdoor segment sales up 17%
Outdoor segment sales increased 17% to $52.6 million from the same quarter a year earlier due to demand, slightly offset by supply chain and logistics issues that had an impact on the company’s ability to deliver products on time and in full. Growth was over 20% after adjusting for currency headwinds.
The segment includes Black Diamond Equipment, PIEPS and SKINourishment.
“Demand in the Outdoor segment remains strong,” Walbrecht said. “Black Diamond has once again proven its industry-leading momentum, creating over 2.2 billion impressions and driving growth across all categories, primarily in apparel, headlamps, hiking poles and basic climbing gear. These categories are pathways to the Black Diamond brand, given their accessibility to the everyday consumer as well as their large total addressable markets. Throughout the pandemic and into spring 2022, we have prioritized product innovations and execution in these key categories and consumer response has been strong.
During the second quarter, Black Diamond continued to experience supply chain and logistics issues and other delays caused by COVID-19-related shutdowns in Southeast Asia, resulting in a request for approximately $10 million that had already been filed but was stuck in transit. About half of this demand was in key product categories that are expected to convert to online, full-price revenue in the coming quarters.
Walbrecht added, “With strong consumer activity in rock climbing, ski touring, trail running and backpacking, our global backlog for Black Diamond maintained momentum. We continue to purchase inventory in line with our demand plans. However, we are handicapping backlog in our 2022 sales forecast due to the supply chain and logistics challenges we continue to face. »
Precision Sport sales up 24%
Precision Sport sales increased 24% to $35.2 million, reflecting continued strong demand and outperformance in the supply chain environment. The segment includes the Sierra and Barnes bullet and ammunition brands.
Walbrecht said the premium positioning and innovation of both brands continues to drive market share gains.
“Demand remained high during the quarter, particularly for centerfire bullets,” Walbrecht said. “We are proud to have built the enviable position of being able to provide a unique, premium product demanded by Special Forces, Law Enforcement, Reloaders, Competitive Shooters and Hunters. If and when the market slows down, we have an extensive pipeline of new product innovations ready to launch to our superfans and OEM partners.
As demand continues to outstrip supply for Sierra and Barnes, Clarus continues to increase bullet and ammunition loading capacity, heading towards a year-end bullet production rate target of 350 million. bullets at Sierra and 120 million at Barnes as well as an ammunition load capacity of 50 million rounds. Walbrecht inferred that Sierra and Barnes do not anticipate a slowdown in the second half as much as the overall ammunition market.
“We believe it is inaccurate to lump our Precision Sports brands into the broader ammunition market, given our unique product and brand positioning, core specialty market share, premium pricing, consumer enthusiasm and growing demands from our various channels around the world,” said Walbrecht. “Again, it’s our demand across very diverse geographies and channels that allows us to change quickly when one channel slows down or the supply chain limits other opportunities.”
For the remainder of 2022 and into 2023, Clarus sees continued strong demand for Sierra and Barnes. He added: “Over the past two months, our management has had the good fortune to meet with our top 30 Precision Sports accounts and these interactions only confirm our continued expectations for long-term demand for the balls and even more. ammunition. Going forward, we will continue to innovate new products, increase our capacity, source the best components, and strengthen our delivery times and execution targets to ensure our ease of doing business with nature. with our key partners.
Adventure segment sales impacted by supply constraints
Adventure segment sales were $27.1 million in the second quarter of 2022 and reflected strong demand in North America, somewhat offset by lower-than-expected new vehicle availability, which limited sales new products, especially in the Australian domestic market. The segment includes Rhino Rack and MaxTrax.
Walbrecht said the land market was challenged during the quarter due to high gasoline prices and supply chain issues that impacted the delivery of new vehicles. New vehicles improve the ability of Rhino Rack and MaxTrax to drive the introduction of new products.
On the positive side, Q2 marked the second quarter of Rhino-Rack’s introduction in North America and reception remained strong with pro forma sales increasing 31% in North America. MaxTrax also saw strong growth in North America “as we strive to increase inventory allocations to meet demand for our recovery panels.” Clarus plans to take over the role of North American distributor for MaxTrax on January 1 to accelerate growth.
The North American momentum was particularly encouraging as the growth potential in North America was the reason Clarus acquired both brands. Walbrecht said: “We believe the North American market is about 10 times larger than our two brands, the home markets of Australia and New Zealand, but also about 10 years behind the curve. “
In the brand’s home territories of Australia and New Zealand, the second quarter represents the period of seasonal slowdown because it is their winter. Walbrecht said of the Adventure segment, “As for the second half of 2022, we are focused on expanding distribution, building consumer awareness and launching our 2023 products to the global market at the SEMA show. in November.”
Outlook 2022
Clarus still expects 2022 sales to grow about 25% to $470.0 million from 2021, despite the worsening effect of the strong U.S. dollar, which according to the company, will represent a $7 million headwind for sales in the second half.
By segment, outdoor sales are expected to rise further in single digits to around $237.5 million. The Precision Sport segment is now expected to grow 16% to approximately $127.5 million (up from $112.5 million previously), and the Adventure segment is expected to contribute approximately $105 million (from $120 million) .
Adjusted EBITDA in 2022 is still expected to be approximately $78.0 million, representing an Adjusted EBITDA margin of 16.5%.
Capital expenditures should still be around $9.0 million and free cash flow should now be between $30.0 and $40.0 million (previously $50.0 and $60.0 million) .