Q4 2019 Earnings Call
During today's conference call to discuss Claris corporations financial results for the fourth quarter and full year ended December 31 2019.
Joining us today, our claris corporations, President John Wildbrain, Chief administrative officer, and CFO, our own Kuni and the company's external director of Investor Relations Cody Slach.
Following their remarks, well open the call for your questions.
Before we go farther I would like to turn the call over to Mr. slots.
He reads the company's safe Harbor statement within.
Within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Thanks Carmen. Please note that during this call. The company May use words, such as appears anticipates believes plans expects intends future and similar expressions, which constitute forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act was 1995.
Forward looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties.
The company cautions you that forward looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward looking statements.
Potential risks and uncertainties that could cause actual results of operations or financial condition of the company could differ materially from those expressed or implied by forward looking statements used in this call include but are not limited to.
The overall level of consumer debt demand on the company's products.
General economic conditions, and other factors affecting consumer competence preferences and behavior.
Disruption and volatility in the global currency Calphalon credit markets.
Financial strength of the company's customers the company's ability to implement its business strategy the ability of the company's executing integrate acquisitions.
The impact that global climate change trends may have on the company and its suppliers and customers.
Ladies exposure to product liability or product warranty claims and other loss contingencies.
Ability of the company's manufacturing facilities in of suppliers, including in light of disease epidemics and health related concerns such as Corona virus.
Changes in governmental regulation legislation or public opinion relating to the manufacturing sales bullets in ammunition by our Crs segment, and the possession and use of firearms and ammunition by our customers.
The company's ability to protect patents trademarks and other intellectual property rights.
Any breaches of or interruptions in our information systems.
Fluctuations in the price you build it availability and quality of raw materials and contracted products as well as foreign currency fluctuations.
The company's ability to utilize its net operating loss carry forwards.
Changes in tax laws liabilities tariffs legal regulatory political and economic risks and the company's ability to declare a dividend.
More information on potential factors that could affect the Companys financial results is included from time to time in the company's public reports filed with Securities and Exchange Commission.
Including the Companys annual report on form 10-K quarterly reports on form 10-Q, and current reports on form eight K. All forward looking statements included in this call are based upon information available to the company is data this call speak only as a day here of.
The company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the data this call.
I'd like to remind everyone. This cold is available for replay through March 23rd starting at eight P.M. Eastern Tonight.
Cast replay will also be available via the link provided in today's press release as wells on the company's website Aclaris Corp. Dot com.
Any redistribution retransmission or rebroadcast of this call in any way without the expressed written consent of Claire's Corp is strictly prohibited.
Now I'd like to turn the call over to the President Claris, John Walbrecht John.
Thank you Cody and good afternoon, everyone. It's a pleasure to be joining you to discuss our fourth quarter and full year 2019 results.
We're pleased with our strong performance in the fourth quarter driven by the continued momentum within black Diamond, which grew 13% year over year with contributions from all regions and product categories.
<unk> performance from Black Diamond demonstrates the continued success of our innovate and accelerate growth strategy.
The same can be said for our full year performance Black Diamond sales were up 13% with growth in every geography sales channel and category.
This drove a 9% increase in our consolidated adjusted EBITDA for the year and 10% growth in adjusted net income.
We achieved these results while managing through headwinds brought on by the ongoing trade wars and the strengthening U.S. dollar, which together reduced our full year adjusted EBITDA by 3.7 million.
We have taken and we'll continue to take proactive steps to reengineer, our supply chain whenever possible in order to mitigate these headwinds.
And we'll share more on this shortly.
As we've discussed previously we're focused or black diamond strategy over the past three years on leading the market with new product introductions across all categories of crime mountain and snow, including the core activities of climbing help aneurysm mountaineering trail running back country skiing and snowboarding. These.
Innovations in equipment that generated more than 2900 product reviews in popular media and more than 92 industry Awards for 2019 compared to 75 in 2018.
This allowed us to achieve more first to market with our key retailers than ever before well, let's celebrating the marketing of these new products through social media athlete content and national advertising.
In fact, we increased followers across social media platforms by more than 33% and so our athletes cheap achieved their greatest accomplishments using our new equipment.
These products were widely recognized.
Some of the most prestigious trade organizations in our industry.
During the recent winter trade show Circuit Previewing product for fall 20, Black Diamond one and they spoke gold award for backcountry touring apparel in the snow sports category with Black Diamond Dawn patrol hybrid shell recognized as the best overall product in the category.
Additionally, at the outdoor retailer Snow show the editors men's Journal magazine named Black Diamond dump for all hybrid gel one of the 10 coolest products for the year.
These recognitions demonstrate how our engineer.
And design teams truly understand the needs of climbers skiers and mountain athletes and bring the most relevant thoughtfully designed and high performance geared to the market.
Now moving onto some brand specific updates for the fourth quarter.
Our black Diamond apparel business was up 25% due to continued growth in men's and women's sportswear technical outerwear and logo where.
Our technical outerwear has been a bright spot in an otherwise challenging broader market for this type of products due to our unique point of differentiation.
Some of our key abroad styles like division down.
Approach and recon and boundary lines are matched matching innovations with specific activity based user groups, which is resonating very well in the market. We're also gaining greater awareness around the technical features of differentiation within our apparel line.
Our time business was up 19% driven by harnesses Caribbean nurse and helmets as was the continued positive growth trends and popularity of the sport.
Additionally, footwear, our fastest growing product segment continues to gain traction amongst both existing and new customers to the brand. We've been quite pleased with the early results and look forward to our global performance footwear launched this spring.
Our ski business grew 13% due to strong demand across our back country portfolio of products.
Specifically focused on snow safety products, such as beacons, and our new line of Jetforce pass along with equipment for Alpine two were in such as binding and skins.
And our mountain business, we grew sales by 4% due to some early launch in the spring product in ARQ <unk>, two our international distributor markets and we experience, particularly strong growth in trucking poles and gloves.
Finally, our efforts to evaluate the customer experience built brand awareness and support our wholesale partners is also great gaining traction with a 38% increase in our direct business.
We are prospecting and re targeting more effectively to drive increased levels of traffic to our website as well as to our three new strategic retail locations in castle rock, Colorado, Lehigh and Salt Lake City, Utah.
We also continue to support our multi channel direct business with more community outreach increased training of our employees and enhanced product offering and through improved merchandising efforts.
Switching gears to see era.
As expected we continue to experienced softness in the board and ammunition market, which contributed to a 35% decline in sales.
We believe the brand is still outperforming the competition in this environment due this year as diversified customer base and retailers.
Distributors and OEM partners as well as its 250 skew offering.
Like last quarter, Sears premium products have allowed us to maintain margins and continue executing our innovate and accelerate playbook, regardless of the market dynamics.
This playbook includes further strengthening the brands market positioning by investing in product innovation sales and marketing and pursuing new long term revenue opportunities like our launch Indiana condition.
Now if you comment on regional sales in the fourth quarter.
Sales domestically were up 3% SCR headwinds mast, otherwise health healthy sales trends at black Diamond, particularly in our apparel and climb categories. We also experienced strong growth at a couple key accounts and as I, just mentioned realized strong growth in our direct to consumer business.
Internationally sales were up 11% due to solid snow safety orders in our European market, which was partially due to favorable winter weather that drove healthy replenishment orders.
And our distributor markets improved product availability early launches the spring 2020 products and higher replenishment orders drove the increases in sales.
At Black Diamond, we're committed to continued product innovation, new product introductions and an accelerated go to market strategy to deliver strong results.
And we look forward to carrying this momentum into 2020.
As we have previously discussed our primary focus is to maximize the organic growth and profitability of our brands.
We strongly believe this will provide the highest levels of return on invested capital.
We also take a strategic and disciplined approach to our capital allocation.
We regularly evaluate opportunities to opportunistically acquire similar superfan brands to complement our portfolio and where we can deploy our unique innovate and accelerate brand strategy.
We expect to target acquisitions that provide access to new product groups and customer channels or that can diversify us within the outdoor and consumer markets.
Super fan brands, not only have leading product marketshare and brand strength.
Among diehard customers, but also provide recurring revenue sustainable margins and strong cash flows.
To be accretive to earnings.
Must be well run businesses. This will ensure we are enhancing value for the company and continued to be careful stewards of the shareholder capital along with funding our quarterly dividends and repurchasing our common stock.
Consistent with our focus on the discipline pursuit of value enhancing external growth opportunities. We have identified your target that meets our stringent M&A criteria and expect to have more news to share. If this opportunity progressed as further.
Before I talk more about the outlook for 2020, I'd like to turn the call over the Aaron to walk through our Q4 results in more detail.
Thank you John and good afternoon, everyone.
For the fourth quarter, 2019 sales increased 7% to $61 million compared to the same year ago corridor and on a constant currency basis sales were up 8%. This was driven by 13% growth and black Diamond wire saw strong performance across all categories geographies and channels partially also.
By the 35% decline this year due to continued headwinds in the bullet in ammunition marketplace, which were felt most prominently in our domestic OEM and the international industrial businesses.
In the domestic market military law enforcement orders remain soft well our international industrial business was impacted by lower demand both markets continue to face of supply demand imbalances, what the global environment being heavily promotional which is not something shares it just doesn't chasing.
Consolidated gross margin in the fourth quarter was 35.5 per cent compared to 35.6% in the year ago quarter. The slight decline was primarily due to foreign exchange headwinds from the strengthening U.S. dollar and the impact from recent Terence.
Foreign exchange headwinds reduced year over your gross margin by approximately 75 basis points in the fourth quarter and the impact from tariffs was 80 basis points.
Overall.
Ourselves in gross profit in the fourth quarter were negatively impacted by unfavorable foreign currency changes on the trends actual basis of $700000. The primary cost of our inventories denominated in us dollars well, 30% of our global cells are denominated in foreign currencies, primarily the euro Canadian dollar Norwegian krone.
With sprint, we attempt to manage our foreign currency risk.
On a continuous basis, the natural hedges and foreign currency hedge contracts, but these hedges will never be a perfect offset to the actual currency movements, especially with recent currency volatility.
You know reported cells in gross profit, our hedges offset approximately $200000 a foreign currency exposure in the fourth quarter for the full year foreign currency had an impact of approximately $2.6 million on sales and gross profit when compared to 2018.
That's euro approximately 45% of more product costs consistent materials, such as copper in wed we seek to active we measure the impact the commodity costs have on her business, specifically youngest margins what their vendor partners.
We believe that we have a sound process in place that enables us to mitigate this risk for a period of six to nine months out.
Another point on gross margin specifically surrounding the latest impact from the trade War.
Cost of our cost of goods sold were negatively impacted by approximately $510000 in the fourth quarter and $1.1 million for the full year as a result of Terence.
No. This was slightly below our full your estimate of 1.2 million given the roll back of list for B.
I would like to reiterate the proactive majors, we're taking to reduce future impacts wherever possible. We're focused on four primary mitigating activities.
First is to first is re caustic we've been working with our vendors to renegotiate costing to offset some of the impacts second is resourcing. We're partnering we're partnering with our <unk> with our diversified supply chains to identify different sources for the product coming out of China.
Third as repricing, we're working with our retailers to pass along some because given our pizza recent product innovation. However, these conversations are natural progression and we believe will have positive outcome.
And finally, we're optimizing logistics to bypass the U.S. on international shipments.
Selling general administrative expenses in the fourth quarter were $17.5 million compared to $16.5 million than a year ago quarter.
The increase was attributable to our continued investment in Black Diamond brand related activities focused on direct to consumer and research and development.
As a percentage of cells selling general and administrative expenses were 20.6% compared to 20.7% a decrease of 10 basis points.
Net income in the fourth quarter increased significantly to $12.4 million or 40 cents per day per diluted share compared to $3.5 million were 12 cents per diluted share in the year ago quarter. The increase included a $10.4 million net benefit associated with the partial release of our valuation.
Well, it's under for tax assets net income in the fourth quarter of 2019 also included $5.6 million of non cash charges compared to $2.2 million of non cash charges and $200000 and transaction and restructuring costs in the fourth quarter 2018.
Adjusted net income.
Which excludes noncash items as well as transaction and restructuring costs increased 16% to $6.8 million were 22% or 22 cents per diluted share compared to the fourth quarter 2018.
Adjusted EBITDA in the fourth quarter was $7 million compared to $6.6 million in a year ago corridor.
As a percentage of sales adjusted EBITDA was 11.5 per cent compared to 11.6% in the fourth quarter of 2018.
All in tariff installations, as well done favorable movement foreign currency impact in or fourth quarter, adjusted EBITDA by $1.2 million represented by $700000, an FX and $500000 and Terry.
On an annual basis, the impact was $3.7 million on adjusted EBITDA coming from $2.6 million and foreign currency and $1.1 million and Terence.
Net cash provided by operating activity for the for you for the full year ended 30.
For the full year ended December 31, 2019 was $9.5 million compared to $11.4 million and the same year ago period.
In capital expenditures were $4.1 million compared to $3.4 million in 2018.
As communicated at the beginning of the year increase Capex reflects additional investments to improve our consumers experience innovate and launch new products and faster rate increase production capacity and to solidify systems for greater insights and scalability.
With these investments in mind free cash flow defined as net cash provided by operating activities plus capital expenditures for 2019 was $5.4 million compared to $8 million in 2018.
From an inventory perspective, we finished Q4 2019 with $73.4 million compared to $64.9 million as of December 31, 2018.
The Delta is primarily driven by increases within Black Diamond, which we expect a decrease substantially as we head into the first quarter of 2020.
More specifically the increase has been driven by a couple of different factors one increased inventory levels associated associated with the transition of certain in house manufacturing activities to OEM partners number two the investment in key product initiatives, such as footwear and three wrapping up our inventory love.
Sales of key product categories at the beginning of each season to ensure higher levels of fulfillment of pre season orders and the ability to provide higher levels of replenishment.
On the CRM side, we have continued to be opportunistic in managing our cost of goods sold an exposure to certain commodities by advanced purchases of copper and wed.
At December 31, 2019, cash cash equivalents totaled $1.7 million compared to $2.5 million at December 31, 2018.
From a capital allocation perspective during 2019, we repurchased 244000 shares of our common stock for approximately $2.7 million at an average price of $10, a 92 cents per share, leaving approximately $10.8 million remaining.
On a $30 million share repurchase program.
And we'll use $3 million to maintain our quarterly dividend.
At December 31, 2019, total debt was $22.7 million compared to $22.1 million at December 31, 2018.
Turning to our financial outlook for 2020.
We anticipate consolidated cells to grow approximately 6% to $244 million versus 2019.
With 44% of these cells expected to come in the first half of the year.
And 56% in the second half.
We expect black diamond cells to increased high single digits as the brand continues to perform extremely well across all categories channels and regions.
We expect sales this year to be down low single digits in 2020 due to market headwinds, we assume will persist more than offsetting new growth avenues, like Amazon, which is growing nicely, but still relatively small.
Given the divergence in both brands growth trajectory. If it is important to note that well see are still generate strong relative profits at 13% of our total. So today, we expect it will become even less of the driver to our consolidated results in 2020.
We expect adjusted EBITDA increased 6% to approximately $24 million in 2020, and expect to generate free cash flow of approximately $10 million, which includes approximately $5 million in capital expenditures.
This outlook includes an estimated 1.1 million dollar reduction to 2020 adjusted EBITDA due to the expected impact of terrorists that we [laughter] that we are unable to offset with the previously discussed mitigation efforts.
As well as soon as well as an estimated 1.5 million dollar negative impact from foreign currency for total expected headwind to 2020 EBITDA of approximately $2.6 million.
Now a few other qualitative factors to keep in mind regarding our 2020 outlook.
Our outlook includes appropriate investments in some of our high growth areas, such as E Commerce and retail.
Currently our ecommerce and retail initiatives represent 5% number of our business. We would expect this percentage increase substantially overtime as we continue to build brand awareness support our retail partners and create a best in class consumer experience.
We're also seeking to bolster our innovation efforts within the climbing running and buyer and back country activities. This will be supported by continued focus on core equipment categories as well it so as well is accelerating growth within our footwear and apparel initiative.
We're also mindful of the need to continue to invest in people.
Systems, and our operational footprint as we borrowed stellar business into the future.
Further investments will also be made to increase new product development capabilities. That's here.
We continue to implore buy versus build approach focusing on designing and building the best products for our consumers and increasing gross margins along the way.
This requires leveraging our ever improving supply chains, implementing continuous improvement programs and vertically integrating certain activities as appropriate.
A few more comments related to our outlook and the potential negative impacts due to due to the corona virus.
First and foremost Holton 50 of our employees customers and partners around the world is our highest priority.
And our frog in our thoughts are with those affected by the virus.
Well, we are not unique to the disruption being caused by the buyers and we continue to monitor this situation closely we believe we are well positioned to navigate it given the diversity of our business and operating model.
However, we will not be able to offset the affected is having on logistical disruptions and productive and production delays in our supply chains.
We're also currently seeing an impact to consumer demand in certain key international markets within Asia Pacific Region, Specifically, China, Hong Kong, Taiwan, Korea, Japan, and Australia, and Europe, specifically, Italy, France, and the Netherlands.
Representing approximately 15% of our consolidated business.
Our outlook assumes a portion of these headwinds for the first year for the first half of the year.
However, it does not consider any additional negative developments that could take place related to the buyers on their supply chains logistics view geographical locations impacted and any negative impact on travel and consumer demand.
As a reminder.
Common stock continues to be subject to a rights agreement that is intended to limit the number of 5% or more owners and therefore reduce the risk of a possible change of ownership to maximize the value of Oriental wells.
Any such change of ownership under these rules would impair existing and significant new wells for federal income tax purposes.
As of December 31, 2019, we estimate that we have available and it will carry forwards for us federal income tax purposes of approximately $132 million now I'd like to turn the call back over to John.
Thanks, Aaron now that we've highlighted our results I'd like to transition our focus to black diamond's upcoming spring and fall 2020 seasons.
We have an innovative and comprehensive suite of 250, new product offerings that will be coming to market and have already garnered significant positive response for spring 2020, we expect to have 125, new products launching covering climb mountain and apparel within time, we're expecting any.
Spanning our performance footwear offerings to include both performance and lifestyle approach fuse, which we plan to launch globally. This strong spring.
This extension will complement our timing to line and continued the strong momentum we have already generated with our entrance into footwear two years ago.
We will also be launching new Caribbean or the newsy for can vision helmets award winning air net harness rock shoes and Baldry Jefferies.
And our mountain categories, we plan to introduce a complete collection of rechargeable lighting, new trekking Poles and expanded collection of day packs.
Within apparel the focus of spring 2020 will be on both alpine and trail running categories.
We will launch the new awarded Highline jacket Swift pants rhythm shirt in long sleeve, new distance running short and the deployed jacket.
In time, we have expanded our stretch denim program with our new Craig denim, adding to the forged denim and creating a unique denim story made only for our core climbing consumers.
Supporting these product launches will be a marketing campaign campaign focused on accelerating in store support and consumer again engagement via our athletes and then and a more robust digital presence.
The addition of three new strategic retail location will help.
Elevate the awareness and demand for our brand and more consumer centric manner.
Now turning to fall 2020.
As we continue to refine our focus on the activity based consumer we see multiple avenues for growth one of them that being of back country, where we see increasing participation and a consumer appreciation for innovation performance and safety.
In the snow sports category will we will be releasing our Don patrol hybrid gel, which was engineered to provide protection from the storm wild reasonable stuff shell fabric in a body maps in key placements of thermal regulation. It features our proprietary BD dry waterproof breathable solution Green theme techno.
Allergies impel, a PFC free finish for way stretched for mobility, and an innovative center front duals zipper with built in mesh paneling, preventing while scanning up.
Other products to highlight include our new circa 22 ski vessels, our partnership Ritchie Scenic 10 binding distanced by Tractions and our stone hauler doubles.
Now turning to Sierra.
Right another decline in sales in the fourth quarter, we remain focused on driving efficiencies into go to market process and continuing to innovate and accelerate across all product offerings.
So far in 2020, we have started to see signs of stabilization at some of the key accounts in our domestic green box and the OEM businesses as well as progress and our international strategy, specifically on the international front, we have near term opportunities in Europe, and Australia as well as our already developing Kieran.
Relationships to expand distribution and drive brand awareness.
Our expansion into emo category is progressing nicely and our offerings have been extremely well received both by the consumer as well as our retail partners to date, we have launched just eight cartridges.
Out of roughly 250 specially bullets, we offer within the CR brand and expect to ramp up with several more in the coming months.
For some perspective.
It just 10% of Steerable lots were sold as ammunition, we would expect fears revenue double and produce an adjusted EBITDA of approximately 20 million.
Other avenues, which remain untapped.
Or at the early stage development include enhanced marketing and digital capabilities improve distribution and forging new customer accounts.
We're excited by the runway for growth ahead of us in this year brand.
These introductions will be combined with creating awareness and driving demand for our ammunition offerings, but this is a long term process. We're working closely with our key partners in our product development and marketing efforts to drive awareness and I'm encouraged by this result, so far.
Now moving onto our performance sport business.
In 2020, we will be the year, where we plan to meaningfully launch the climb on brand.
With Taylor West appointment as the Division head last September he and his team had laid the foundation for a successful go to market process.
Focused on new product innovations.
Enhance packaging packaging and visual merchandising.
New sales tools.
Global supply chain.
Expanded distribution and the heavy focus on E commerce.
On the products that we're playing to launching innovative line of Sun sunscreen products that satisfies both consumer and retailer interest in clean plant based recipes that both nurse the skin and protected from the Sun.
We believed that the growing need for re friendly alternatives in sunscreen also position us very well to compete in this large ever growing category.
Our updated and cohesive brand design has now mostly replaces the old fashion on the shelf new display ready point of purchase shippers will also help build brand presence and help convey our strongest points of differentiation.
The black Diamond Salesforce is actively representing in selling the brand through our distribution network and we are seen momentum began to grow and new opportunities emerge in certain accounts and regions.
We are investing in a strong direct to consumer sales engine to help grow the brand in a digital space, where consumer targeting advertising and storytelling and quickly bring relevant scale to a business was such a compelling product.
As we are taking advantage of the brands unique formulation purity and is rare within skincare no synthetic in any of our products.
This is well aligned with where the category is headed and with the growing awareness that people have of chemicals in everyday skin care products.
Our move toward more Composter, Composable compostable and biodegradable packaging also sets us apart within our category and whole upholds our mission of nurturing, both our bodies and you're at around us.
While still early days, we expect to earnestly drive sales for the climb on brand in 2020.
We have covered a lot today, but these are exciting times aclaris and there is much more for us to be excited about.
I'm sure analyst community has lot of questions.
I'll turn it over to the operate you begin our questions Harman.
Thank you.
And ladies and gentlemen, if you have a question at this time just press Star then the number one kielty I touched on telephone to withdraw your question press the pound key.
Please standby well, we compile the kidney roster.
I first question is some Randy Konik with Jefferies. Please go ahead.
Yes, Thanks, a lot I guess, Aaron I really question for you how are you thinking about.
Or where are you at west filming for.
Hey, ecommerce direct consumer business units suits group dramatically.
Your business like direct to consumers growing dramatically in the quarter and you talked about increasing penetration here, you've got where are you at with investments there and kind of fulfillment for those needs in that channel distribution and what should we expect from the company over the next six to six to eight quarters. Thanks.
Yeah, Great question, Randy and hope as well.
As mentioned, we continue to see the direct to consumer business perform extremely well for US you know the fourth quarter alone it was up 38%.
And we are mindful of how this channel interacts with the retail partners not only terms of how is pricing how it's presented but also how it's a lot of inventory and the overall fulfillment or the overall prioritization of fulfillment. This is something that we're actively working through in that we recognize that with the strong growth. We've we found.
Her socialism holes as it relates to the fulfillment through that channel and so part of the elevated.
Inventory levels that you see at the end of the year.
Is in response to some of those constraints or some of those holes that we've identified and continue to work through to ensure that once again, we continue to reinforce our retail partner the relationships with a retail partners, but also ensure that the consumer experiences best in class and part of that is ensuring that we have inventory available on the on the website.
And in the actual retail stores themselves. So something that we're we're very world and something that we're actively managing and working through and it's something that we expect to see significant improvements over the next several quarters as we continue to refine our approach in have greater insights.
The mix and also just overall demand.
[noise] really found ask question.
Oh, sorry.
I was going to say you found Randy because I know you sent me a couple of Thats about a during the year, obviously last year, we saw greater demand for some of these new categories of insulated and snow specific apparel than we had originally forecasted so we were chasing it.
Yeah helpful. So nice my last question then was for you John.
Do you get the playbook of innovate and accelerate.
It's really worked wonders in terms of doing a great job of adding new products. He talked about I think you said 250, new products on you talked about some perspective on the warrants that those products are garnering how are you thinking about as we think about the next few years managing.
The SKU count and the product lifecycle as you kind of tell your team you know kind of let's continue to kind of pushed down below on innovation across all product categories have you kind of think about what's the appropriate level of thought of skews to have in the business across the different channels of distribution just curious on how you're thinking about managing that.
Over the medium term thanks.
Yes. So if you recall three years ago, we felt as a company that we had lost.
The title of being the innovator in the outdoor space and so you know and that a lot of retailers due to a lot of things that we had done internally had their foot on the break and our goal is first to get it off the break and then to put it on the gas.
That was accomplished in this innovate to accelerate strategy by innovating.
Products at a pretty rapid pace relative to our competition.
And then through the awards you know.
Hopefully achieving this success and the recognition for what we're doing the next year and successfully as you said that that works.
The next chapters are more about redefining some of these categories and items clearly if we can still build faster lighter stronger products, then either our product ourselves or our competition. We will continue to look at that but.
We are.
As we're finding that you know we're successfully getting product placement now it's about how do we.
Motivate as well as accelerate that to the marketplace in marketing and then the other side is deciding where the return on investment for these products are in the best case scenario for our investments into him versus RV, API, which we called return on brand investments and sometimes they are brand investments to make the also.
For light ice grew in the World Other times, it's more as we go into things like footwear, where it's really focused on the return of actual investment in that category.
I think we're very disciplined to look at those all the time.
I would say that I think the team would be happy no. Our goal is not to continue do maintain or increase the pace of the amount of product we launched the market, but the focus more on on you know the fulfillment and the marketing around those.
That's helpful. Thank you guys.
Appreciate it.
Thank you. Our next question comes from Jim Duffy with Stifel.
Thank you Hi, John Iron.
Yes, Hi, Jim.
John I wanted to ask you to spend a moment talking about just the state of the bulletin ammunition in industry. When does this promotional downward spiral break how are you thinking about this playing forward and 2020 and are you planning for inflection that Sarah business as the year progresses.
Well I think the market would say that you know and we say this every time, we talk I think the market would say at this point that the market has bottomed and there's some signs of some positive momentum now it can that be changed if other other companies in the industry.
We don't survive and that impacts it potentially at that drops inventories on the market potentially.
I think you know there's always been a cyclical nature. This business and then you know this year politics will likely play a role until this I know that that you know we've never really focused heavily on the handgun business.
Bullet business, we've been more of a rifle, but I know that that the market. It is you know commenting that theres a rise in handgun bullet demand right now.
They haven't seen and I suspect with you know with other legislation going into the fall, we'll see that you know cross wider spectrum, we haven't modeled the business yet on that because we haven't seen that.
You know, we hoped for and anticipate that there may be some upside, but right now we've been prudent and said hey, let's let's base. It on what we really can't control both from a product bullet and ammunition launches and fulfillment and then you know attack each year, we're not slowing down as we said in the.
Right up on that new product innovation, nor the launches into ammo and we believe that the strategy is right long term and the cyclical part of the nature and the market share. We're gaining will reward is in the appropriate market.
Very helpful. Thank you and then you mentioned a bright spot in technical outerwear.
That being a bright spot and otherwise challenging market can you talk about you know is that translating to orders for second half of 20.
Or is that.
Challenging year for the market as a whole working against the order book.
No I would think I think that what we're finding is that outerwear as a whole is a mature marketplace technical outerwear. There's you know we can name sure that top 10 outerwear companies and then there are you know listen lists after that that participate in that sport.
Indifference to when we launched the apparel in fall 13, we really been specific about be building you know apparel that is equipment and the Don patrol hybrid shell is exactly that it is you know specific to a use in a process and because of it. It's one awards.
Things like the approach down being the lightest weighed down jacket in the marketplace. You know literally in two you know a year and a half when from never heard of to our number one revenue style in outerwear.
Division down the high line, which you know is the first recycled fully recyclable P. S. Three shelf from US is doing really well and as we look into the future. We seem to think this strategy is paying off for BD as a differentiator towards what is otherwise you know.
Mature market.
And you know, we do see strong responses to our bookings in in in these some of these new specific product categories.
And we'll continue to chase down them.
Great and then last one for me Aaron you have just eyeballing, the margins and thinking about some of the headwinds that you're seeing the tariffs facts and yes here or weakness from a mix standpoint, the margins actually looked like there are holding up pretty well can you talk about what you're seeing in the core black Diamond business is that reflective of a.
Mix dynamic or what are some of the other factors that might be.
Responsible for that.
Yeah. So you know.
It's a combination of a couple different factors.
One of 'em, primarily being a series of different continuous improvement initiatives that we kicked off about a year and half ago associated with certain value. We could use that we're seeing within the within the business and also within our in house manufacturing activities Resourcing activities. But then also being you know very close with the different category drop.
Powdered category Directors and also end market General managers, if you will in evaluating opportunities, where we could increase prices strategically or opportunistically well also continue to make sure that we're driving higher margin products in each of the geographical regions of channels and so it's it's a mixed bag, but it really is a manifestation.
As you know somebody's initiatives that we put into play about a year year and have to go the team's been working extremely hard towards and and that's something that continues to be you know priority for all of us.
You know this idea of you know improving every every part of the business every single day, and I think what you're starting to see there what we're starting to theirs as they see the manifestation or.
Of those activities in those up those efforts.
Great. Thank you.
I appreciate it yeah.
Thank you again, and ladies and gentlemen, as hemi Minder to getting that can you just press Star then one.
Our next question is from Mark Smith with Lake Street Capital. Please go ahead.
Hi, guys.
First off John you've talked a little bit about the Olympics and potential opportunity there, especially as a as we look at climbing.
Being involved this year you know is your view changed on that if we saw cancellation would there be any you know real.
Impact from you in the near term of you spent money on market seen or anything that would impact that.
No I think I think two fold the first pieces, obviously, given the the Corona virus market trends in discussions I think that the Tokyo Olympics, maybe a question Mark and I think a lot of people will pay very close attention to you know politically as well as a.
Responsible wise how to approach that.
Our belief has always been the same that it's not really about the Olympic specifically the two weeks that will drive you don't have a positive impact on the black Diamond brand I think like anything it's the awareness of the sport in a greater spectrum to a much wider audience, it's the family sitting.
Around what's in the Olympics that decides little Johnny is going to be a climb or rather the baseball player or they're going to go try it climbing gym, because they've now seen this sport and it seems pretty exciting.
And that will rise. This you know as I said before Spider had huge growth coming out of that 2002 Olympic games not going into it.
We haven't a we've got lots of initiatives that we hope to try and and and you know rely on going into the Olympics. We haven't spent dollars on that to date. So we have no risk factor in there today, but we watch carefully to understand what's actually going to occur with the Olympics in the summer.
Programs.
As as you know the health concerns roll out.
So we're going to be mindful.
You know who knows how that'll be we may experience as consumers and the Olympic games, you know like nothing never before you know maybe totally just televised as opposed to attended.
Okay, and then staying on kind of current Corona virus, and you talked a little bit about kind of supply versus demand side of things. We've heard from other companies you know manufactures within China that there were seeing some people back to work and plants starting to pick up again can you guys talked to are you seeing that kind of thing going on and.
At this point and then if you kind of wait to what's built into your guidance here in the first half.
Just from impact from krona biased viruses more so on the supply side or more so on kind of the demand side.
So as it relates to the activity taking place in China, specifically surrounding our supply chains and and logistics force enough. We are starting to see a lot of those activities come back online. We by no means our you know at 100% of where we need to be.
But I would I would gauge that were about 60% to 80% of where we have where we need to be in where we want to be on a go forward basis.
As it relates to you know how we're considering the current a virus in our outlook as you might imagine it's pretty dynamic and you know if it continues to evolve every single day, but we're more focused from an outlook perspective in terms of how this could impact the demand side of things versus the actual supply.
I am logistics, we do anticipate that there could be some timing differences you know from Q1 to Q2 et cetera related to a supply and logistics standpoint, but overall you know the the.
The factors that we're considering it and that we outlined are more also are more around the demand side of things.
Okay, and then last one for me as we look at the Sierra business and your guidance. There you know just them with this guidance after doing more of the launch in some some new product rollouts that maybe hit later in the year that maybe drive some more growth in that business as we look at the timing or youre expecting that too.
Maybe see more of a ramp returned to growth in second half of the year.
Yeah, and part of it is but remember Q1 of 2019 was still a pretty good quarter for us on a year over year basis, and so the comparables a little bit tough and that's where we anticipate continued to see you know the negative trends that we've experienced over the last three quarters, but also as you mentioned you know not only if we had a strong.
Showing got shot show with some of the new products that we are introducing for 2020, but a lot of the new introductions are also you know there will be available or well start to ship them out in each two of 2020 and so it's a combination of those two factors playing into the overall outlook for share.
Excellent. Thank you.
Thank you.
This concludes that came in a session for today I will like to Chanda called back to Mr., while the bad for his closing remarks.
Thank you everyone.
We appreciate.
At this time this concludes it and.
[noise], we'd like to thank everyone for listening for today's call and we look forward to speaking to you. When we report on the first quarter of 2020. Our results later in May. Thank you for joined Us today.
And ladies and gentlemen. This does concludes todays teleconference. You may disconnect. Your lines at this time, thank you for participating.
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