Clarus Corp. said aggressive inventory investments help navigate what John Walbrecht, president, has described as “the most difficult supply chain environment in our history” to support disproportionate third quarter growth in its business Black Diamond and bullets / ammunition.
During the quarter ended September 30, sales increased 69.0% to $ 109 million. The increase includes a contribution to revenues of approximately $ 13.2 million from Barnes, acquired in October 2020, and Rhino-Rack acquired in July 2021. On a proforma basis, sales increased 18%.
Third-quarter adjusted EBITDA climbed 110.9% to $ 19.2 million. The results were in line with a earnings update provided on October 18. Prior to the update, Wall Street’s consensus forecast predicted sales of $ 99.6 million and Adjusted EBITDA of $ 14.8 million.
On a call with analysts, Walbrecht noted that sales and Adjusted EBITDA set new records and that the period marked its fifth straight quarter of revenue and adjusted EBITDA growth.
Gross margins increased 240 basis points year over year and 520 basis points to 38.8% on an adjusted basis due to improved distribution channels and product line.
Third-quarter net income increased to $ 4.5 million, or 13 cents, from $ 1.2 million, or 4 cents, in the prior year quarter. The improvement is primarily attributable to profitable sales growth as well as a net benefit of $ 6 million associated with the partial release of its valuation allowance on its net operating loss deferred tax assets. Adjusted net income doubled to $ 18.1 million, or 50 cents, from $ 9.2 million, or 30 cents, in the last year’s quarter.
Inventory Investments Offset Supply Chain Disruption
To manage supply chain constraints, Clarus works closely with its supply chain partners and uses its strong track record to increase product availability to keep pace with high demand. For Black Diamond, an additional $ 5 million inventory is underway in an effort to offset the ongoing protracted process of moving inventory from supply chain partners to branded warehouses.
Executive Vice President and Chief Financial Officer Aaron Kuehne said on the call: “While this has resulted in higher levels of working capital, we are confident that our strategy of increasing the size of our pipeline will allow us to better respond to demand with higher levels of achievement and in a more timely manner. The results of our last two quarters prove that this strategy is working.
Likewise, the base stock levels of its Sierra and Barnes bullets and ammunition business have been voluntarily increased by an additional $ 8 million with a focus on the availability of raw materials and components. Kuehne said, “This has allowed us to protect our supply chains and the corresponding production of basic items, as well as opportunistically covering the cost of rising raw materials. These benefits are partially reflected in our reported gross margins. “
Walbrecht also said that Clarus’ size relative to some of the bigger outdoor players has allowed the company to be more agile and “pivot and adapt quickly in a dynamic environment” to support the improved results.
Walbrecht said: “Our brands are gaining market share in all of our major categories and bookings have remained strong in our portfolio as we approach 2022.”
Black Diamond Third Quarter Sales Increase 20%
Supported by favorable consumer trends in the outdoor market, Black Diamond sales increased 20% year-on-year. Growth was recorded across all geographies, sales channels and categories, with consumers of the brand continuing to spend more time outdoors.
North America experienced the most pronounced growth, benefiting from the recovery of external space. Clarus believes that Black Diamond is taking market share by being able to fill stocks in all major categories. This was especially the case in the national accounts, with that company growing 82% in the quarter.
By category, double-digit gains were observed in skiing, up 20%; mountain, up 18%; and climb, ahead of 14 percent. The 19% growth in durable goods was driven by double and triple digit growth across the entire product portfolio, including skis, lighting, climbing shoes, harnesses, T-poles and gloves. Footwear and clothing businesses, including in the above business categories, grew by 33% and 20% respectively.
Clothing has remained the fastest growing thanks to innovations such as new generation materials and advancements in technical aspects. Across the BD brand, more than 150 new products are expected to be launched by 2022, ranging from skis and snow safety gear to rock climbing, durable goods, clothing, footwear, bags and backpacks. back, headlamps and trekking poles.
With a focus on allocating inventory to wholesale partners, the weak double-digit growth in its direct-to-consumer activity was lower than what the brand experienced. The Black Diamond brand continues to prioritize accelerated e-commerce growth and store openings with openings slated for the coming months in Jackson, WY; Burlington, Vermont; and Bend, OR.
Sierra’s third quarter revenue doubled
Clarus’ Sierra segment, which includes both the Sierra and Barnes brands, generated sales in the quarter of $ 30.3 million, up 100% from Q320.
“Strong domestic tailwinds in the third quarter continued, including increasing participation in outdoor hunting and indoor shooting ranges,” said Walbrecht.
The $ 2 million, or 13% year-over-year increase in the Sierra brand is due to strong domestic demand for its industrial OEM products and the continued strength of ammunition. Sierra’s ammunition business increased nearly 140% in the quarter. Almost 40 percent of Sierra’s sales were made from ammunition in the quarter, compared to a target of 10 percent.
Barnes contributed $ 13.2 million in third-quarter sales, with proforma domestic black box, ammunition and OEM sales growth of 80%. Barnes has now enjoyed four consecutive quarters of revenue growth with expanding gross margins.
For Sierra and Barnes, the focus continues to be on increasing daily production to meet high demand. Since the acquisition of Barnes a year ago, bale production has already doubled to an annual rate of 110 million bales. Likewise, Sierra has increased its bale production by 89% since its acquisition in 2017 to a rate of 350 million bales per year.
The bullets / ammunition segment is also starting to work on commercializing two years of R&D innovations that had been paused with new ammunition classifications and other innovations coming for the end of 2022 and 2023. Said Walbrecht, “This strategy continues to be critical as we seek to further strengthen our market position as a leading supplier of premium specialty bullets and ammunition.”
Rhino-Rack Generates Third Quarter Revenue of $ 19.6 Million
Rhino-Rack contributed $ 19.6 million in sales in the third quarter, which was better than expected given that Australia, the brand’s dominant market, was in severe COVID crisis throughout the quarter. Strong year-over-year growth was observed in New Zealand as well as the United States, albeit from a small base.
Today, Rhino-Rack has the largest market share in Australia and New Zealand, but less than 1% market share in the United States. Expansion into the United States through major Clarus distributors and resellers is a priority.
“To date, we have had many positive conversations with potential new business partners in North America,” said Walbrecht. “This has traditionally been a space served by the automotive aftermarket, but given the growth of the category, it’s a perfect extension for many of our outdoor retailers to include in their assortment. So it’s great to be in this position as our retailers start chasing demand and we believe we have a strong brand to offer.
He added: “In the immediate term, however, we are focusing on prioritizing product availability to ensure on-time deliveries and better execution across our current accounts, given the headwinds in the supply chain. “
Company-wide, inventory levels are up 44% from the end of its last quarter and 74% from the end of 2020. The increase reflects $ 25.9 million in Rhino-Rack’s additional inventory as well as the $ 13 million inventory investment to support growth at its Black Diamond and Bullets / Ammo Segments.
Clarus is updating its annual forecast and now expects 2021 consolidated sales to increase 62% to $ 362.5 million from 2020, from $ 350 million previously. By segment, Black Diamond sales are now expected to increase 27% to $ 217.5 million, from $ 215 million. Sierra’s sales, including Barnes, are now expected to increase 99% to $ 105 million, from $ 95 million previously. Adjusted EBITDA in 2021 is expected to increase by around 155% to $ 57 million from 2020, from $ 52 million previously. Rhino-Rack Still Expected to Contribute Approximately $ 40 Million in H2 2021 Revenue and $ 6 Million in Consolidated Adjusted EBITDA.
Photo courtesy of Black Diamond