Q4 2020 Clarus Corp Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter and full year ended December 31, 'twenty 'twenty joining us today are Clarus Corporation's President John <unk> Executive Vice President and Chief.
So even CUNY and the company's external director of Investor Relations Cody Slack following their remarks, we'll open the call for questions before I go further I would like to turn call over to Mr. Slaw as you reach the company's safe Harbor statement within the meaning of the private.
Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Yeah.
Thank you. 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 of 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 the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward looking statements used in this call.
Include but are not limited to the.
The overall level of consumer demand on the company's products general economic conditions, and other factors affecting consumer confidence preferences and behavior disruption and volatility in the global currency capital and credit markets. The financial strength of the company's customers the company's ability to implement its business strategy the ability of the company to execute it in a.
Great acquisitions, the impact that global climate change trends may have on the company and its suppliers and customers.
The company's exposure to product liability or product warranty claims and other loss contingencies disc.
Disruptions and other impacts to the company's business as a result of the COVID-19 global pandemic.
And government actions and restrictive measures implemented in response.
Stability of the company's manufacturing facilities and suppliers as well as consumer demand for our products in light of disease epidemics and health related concerns such as COVID-19 changes in governmental regulation legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra and Barnes <unk>.
<unk> and <unk>.
Possession, and use of firearms and ammunition by our customers.
The company's ability to protect patents trademarks and other intellectual property rights or the ability of our information technology systems or information security systems to operate effectively include.
Including as a result of security breaches viruses hackers malware natural disasters vendor business interruptions or other causes.
Our ability to properly maintain protect repair upgrade our information technology systems, our information security systems or problems with our transitioning to upgrade or replacement systems.
The impact of adverse publicity about the company and its brands, including without limitation through social media or in connection with brand damaging events and or public perception fluctuations in the price 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 carryforwards changes in tax laws tariffs legal regulatory political and economic risks.
And the Companys ability to maintain a quarterly 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 the SEC, including the company's annual report on form 10-K quarterly reports on form 10-Q, and current reports on form eight.
K all.
All forward looking statements included in this call are based upon information available to the company as of the date of this call and speak only as of the date hereof. The company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the date on this call.
I'd like to remind everyone. This call will be available for replay through March 22nd starting at eight P. M. Eastern Tonight, a webcast replay will also be available via the link provided in today's press release as.
As well as on the company's website at Clarus Corp Dot com.
Any redistribution retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corp is strictly prohibited.
Now I would like to turn the call over to the President of Clarus, John Wall Brecht John.
Thank you Cody and good afternoon, everyone. I hope everyone has remained healthy inactive in these first few months of the new year.
We operate in a dynamic retail environment throughout 2020, our strategy and our portfolio of Super fan brands remained resilient.
As indicated in our February pre announcement and supported by today's results Q4 showed the enduring strength of our well diversified brands.
Total sales were up 24% as we experienced accelerating sales.
Growth of our Sierra brand and continued recovery of our Black Diamond brand, we generated $11 million on adjusted EBITDA for the quarter, representing a 56% increase year over year.
Despite the retail demand free we experienced in the first half was 2020, our full year consolidated sales gross margin and adjusted EBITDA dollar results.
We're also resilient declining only slightly from our record performance in 2019.
We also generated $24 million on free cash flow in 2020 on more than three times increase from 2019.
This is a testament to the work hard work of our team and our commitment to our strategic priorities for.
Preserving brand equity, while continuing to execute our innovate and accelerate playbook across our brand portfolio.
As we have historically stated our playbook focuses on investing in R&D.
And expanding product categories, new product innovation and driving brand awareness, all while remaining relevant to the core user.
To break this down by a specific brand and business performance.
Diamond sales continued to improve and ended flat to the prior year. Despite a lackluster winter season and continued negative impacts associated with COVID-19.
Participation on the outdoor activity has broadly increase to mid pandemic related restrictions and this trend has showed no signs of stopping in 2021.
Amid this elevated demand however, global supply chains remain impacted by the pandemic Chan.
Challenging the speed and the efficiency with which brand operators across industries can fulfill their orders.
Yes.
Despite these challenges we have worked hard to deepen our relationships with our key retail partners and global suppliers, which are reflected in our results today.
Our superfan brand strategy has also benefited us in this regard as we believe suppliers will form long lasting and productive partnerships with the brands that are best poised for long term performance.
Complementing our wholesale business, we have maintained momentum in direct to consumer sales across our online and retail store channels for the fourth quarter total direct to consumer sales were up 12%. We have driven further improvement in the activation with our E Commerce channel through our focus on increasing site traffic.
By optimizing our prospecting and retargeting processes.
Within our own retail locations traffic has continued to be down due to COVID-19 related restrictions, but conversions continue to rise proving innovative products and strong engagement went out within today's evolving retail landscape.
Moving forward, we expect to continue to seek to invest in our direct to consumer channels to further strengthen our omni channel presence.
As consumers continue to seek the outdoors amid pandemic related restrictions apparel with our highest growing product category in Q4 with 19% revenue growth.
Over the prior year quarter. This performance is reflective of our decision to not aggressively promote or discount black diamond products at the onset of the pandemic and we believe that this has strengthened our long term competitive position.
Category <unk>.
<unk> was down 15% mountain was down 5%, while ski was up 3% during the fourth quarter.
As I mentioned consumer demand across all outdoor categories remains robust with climb back country skiing and associated products, such as headwinds and trekking poles, gaining particularly strong momentum.
However, we are still working to mitigate supply chain impacts to fulfill these orders in an optimal pace.
Despite having a responsive supply chain that can be managed in a dynamic environment.
We encountered unforeseen challenges at the raw materials and the component levels. This.
This took away our ability to fully leverage the dedicated capacity, we have with our vendor partners.
Compounding this is the well documented on logistic challenges associated with the geographic imbalance in container availability and the current port congestion.
These dynamics has caused us to experience significant delays in preprint product availability with expedited airfreight as on on setting lever, which comes at a much higher levels of costs.
Well, certainly 2020 presented a difficult operating environment, we believe that Super fan brands can provide market share gains even faster during challenging times.
In 2020, BD was recognized with over 100 product awards validating our superfan brand approach. Most recently black Diamond was recognized as one of the best selling climbing equipment brands in a January installment of the new 2020 retailer survey.
We earned leading positions across four product categories and were named as the number one selling brand for hardware and harnesses.
Our team at BD.
<unk> delivered the most innovative products for our core consumers and results like this show we are continued to be on track.
Look into 2020. One we are encouraged by BD brand momentum and return to growth. We expect the trends in the outdoor participation to continue including an acceleration on our apparel business further adoption of lighting and trekking pole lines expanded distribution with our gloves and strong back country's season.
Providing additional upside to our growing <unk> category.
And our share of business, we generated sales of $13 5 million up 167% from the prior year quarter.
This performance reflects sustained.
Broad based sales growth across both bullets and ammunition in each of our channels.
We continued to experience strong domestic tailwind ahead of.
And following the U S election, as well as increased participation in outdoor hunting ending and indoor shooting ranges.
Similar to fulfillment challenges within black Diamond, our bullet and ammunition category was also impacted by industry wide supply shortages.
As we work to secure enough components to keep our manufacturing on pace with the heightened demand.
To successfully navigate this environment, we will continue to leverage our strong relationships with our retail partners over the coming months, we will continue to work to increase our production of low to them all at our Barnes facility.
In the time since we completed our acquisition of Barnes in early October the brand has outperformed our expectations. We believe that this further validates the bar with its rich history of product innovation and strong brand awareness amongst the core enthusiasts is exactly what we seek with superfan brands.
We have already driven numerous financial and operational synergies and we will continue to advance this over the coming months.
In addition to the brand's outside revenue performance, we have reestablished relationship processes and ordering cycles that were severe.
When Remington entered bankruptcy and there is more to be done on this front, we expect the bonds industry, leading technology will help us improve our production capabilities as well as expand our current product offerings to include a comprehensive lead free all copper line and facilitate future expansion into.
Additional product categories.
From a strategic standpoint Barnes allows us to further mobilized our innovate and accelerate growth plan in conjunction with Sierra we are seeking to build the leading specialty premium bullet and ammunition platform.
We're already quickly filling the order book of 2021, and we continue to expect that this combined platform has long term runway to generating $100 million in sales over time with a 25% to 30% adjusted EBITDA margins and high free cash flow conversion.
As we think about 'twenty 'twenty, one and on the Arris segment, we expect to continue leveraging current demand tailwind for bullets and ammunition and working to advance our integration of Barnes.
Over the coming months, we will stay closely attuned to our broader health recommendations and evolving conditions across the retail industry.
The challenges of the pandemic poses to our current operation operating environment, both from a supply chain and demand perspective makes it difficult to gain further visibility on when our consolidated businesses will be fully normalized but we believe our authentic well diversified super fan brand portfolio will continue.
To optimally serve its core user and benefit from strong consumer loyalty.
These brand attributes and our innovate and accelerate growth playbook provides us with a solid foundation from which to navigate any further changes in our operating environment.
This playbook, we seek to continue to build our brands.
Bolstering our market position through investments in product innovation.
And strengthen our go to market strategy via sales and marketing.
We believe that this allows us to not only support our current portfolio, but also further distinguish and diversify it across new product categories geographies and channels as.
As we do so we will continue to seeking to leverage our strong balance sheet to provide us up to me optionality for long term growth opportunities.
Our performance through 2020 has underscored the importance and success of our strategy.
As we have highlighted before internally, we drive our financial results toward a modified return on invested capital metric.
We believe this best aligns profitability targets within the entire organization, despite what accounting adjustments might be required during purchase accounting and representing our true invested capital in the different businesses.
We calculate our internal return on invested capital by comparing adjusted EBITDA as defined in our earnings release for each of the businesses to the associated purchase prices plus or minus any additional capital required or generated on accumulative basis used.
Using this calculation on a consolidated basis during 2020, we generated more than 15% ROIC.
We are very proud of this performance and we expect that our disciplined approach to acquisition integration execution and capital allocation will continue to provide the highest level of returns of invested capital and help insulate us against further market uncertainty.
A few more words on our acquisition strategy.
We regularly evaluate opportunities to acquire similar super fan brands to complement our portfolio and where we can deploy our unique innovate and accelerate brand strategy.
While we.
We'll be sensitive to the market and economic environment as well as our leverage we expect to target acquisitions over the long term that provide access to new product groups and customer channels or can diversify us within the outdoor and consumer markets.
Super fan brands, not only have leading product market share and brand strength among diehard consumers, but also provide reoccurring revenue.
Payable margins and strong cash flow to be accretive to earnings.
They must be well run businesses.
This will ensure we on enhancing value of the company and continue to be careful stewards of shareholder capital along with funding our quarterly dividend and repurchasing of common stock.
We anticipate that this strategy.
Coupled with our focus on maximizing our brand organic.
Growth and profitability make us well positioned to sustain our momentum into 2021 and continued to deliver strong long term growth and shareholder value creation.
With that I'll now turn the call over to Eric Cooney, Our Chief Financial Officer, who will provide additional commentary on our performance in the fourth quarter and full year and more details on our 2021 outlook. Thank you erinn.
Thank you John and good afternoon, everyone jumping right into it for the fourth quarter of 2020 total sales increased 24% to $75 $9 million.
We experienced sustained momentum in our brands and within our industry as a whole.
By brand Black Diamond sales were flat to flat to $55 $8 million and share sales were up.
167% to $1 $13 $5 million, our fourth quarter sales also include approximately $6 $6 million of revenue contribution from Barnes, which which as John mentioned outperformed our expectations in its first few months on our platform excluding Barnes our sales were up 14% organically.
For the quarter.
The performance within Black Diamond was primarily due to a 10% growth in Europe, particularly in our apparel climb and mountain products. This sharp demand increase was.
Driven by the reopening of certain markets and retail accounts in preparation for the winter season. In addition, our apparel business was up 19% with strong growth in Europe and domestically due to our approach of treating the apparel is equipment, bringing to market award winning products that are highly functional and developed around leading sustainable features.
As John mentioned sales growth at Black Diamond was also aided by a 12% increase in our direct to consumer business. This growth was partially offset by a decline in our international global distribution distributor market due to lingering COVID-19 impacts as well as our transition away from a distributor model.
<unk> brand controlled strategy in the UK and Spain.
We started selling directly in the UK in the fourth quarter of 2020, but Spain will transition in Q2 of this year. This transition reduced black diamond sales by approximately $1 $4 million on the fourth quarter, but we would expect to more than make this up in the future. Once it is fully internalized.
The $8 $4 million year over year increase in Sierra was due to continued strong growth across domestic green box OEM and ammo due to the robust demand environment for bullets and ammunition.
Roughly $2 $4 million of this increase was driven by growth in our ammunition business.
Barnes, we experienced solid progression with our integration efforts throughout the fourth quarter, as we reestablish customer and vendor relationships.
While re launching the brand building up capacity enhancing supply chain capabilities and beginning to implement systems and processes process is expected to drive higher levels of output in order to fulfill increased demand.
On solid at a gross margin in the fourth quarter remained flat at 35, 5% compared to the year ago quarter improvements in product mix lower levels of discounting and foreign exchange benefits offset unfavorable offset unfavorable impacts under supply chain and logistic activities due to the COVID-19.
<unk> pandemic, excluding the fair value inventory step up associated with the barns acquisition.
Adjusted gross margin in the fourth quarter increased 50 basis points to 36%.
During the quarter, we experienced an 80 point.
80 basis point margin tailwind from foreign exchange overall ourselves on gross profit in the fourth quarter were positively impacted by foreign currency changes on a transactional basis by $900000.
As a reminder, with 30% of our global sales being denominated in foreign currencies, we attempt to manage our foreign currency risk on a continuous basis through natural hedges and foreign currency hedge contracts at Sierra approximately 45% of our product cost comprising materials, such as copper and lead we have continued.
Seeking to actively manage the impact the commodity costs have on our business specifically on gross margins with our vendor partners. We remain confident in the sound process. We currently have in place, which enables us to mitigate this risk for a period of six to nine months out.
Selling general and administrative expenses in the fourth quarter were $29 million compared to $17 $5 million in the year ago quarter, primarily due to the inclusion of bonds, which contributed $1 7 million and an increase in stock based compensation given clarus is stock price depreciation during the quarter.
Black Diamond brand SG&A was down slightly due to cost saving initiatives and CRM CNA was up 14% due to the aforementioned sold growth.
We continue to be quite pleased with the expense management on both brands given their respective performance.
Net income in the fourth quarter was $7 1 million or 22% 22.
Per diluted share compared to net income of $12 $4 million or <unk> 40 per diluted share in the year ago quarter. The decrease included $3 $5 million of non cash charges and.
$600000 in transaction costs compared to $5 $6 million of non cash benefits and minimal transaction costs in the same year ago quarter in.
In addition, net income in the fourth quarter of 2019 included $10 4 million of net benefit associated with the partial release of our valuation loans on the on.
On our deferred tax assets.
Adjusted net income in the fourth quarter increased 64% to $11 2 million or 34 cents per.
Per diluted share compared to an adjusted net income was $6 $8 million or 22 cents per diluted share.
In the same year ago quarter, adjusted EBITDA in the fourth quarter increased 56% to $11 million compared to seven point compared to $7 million on the same year ago quarter.
Let me shift now to our liquidity at December 31, 2020 cash on cash equivalents increased significantly to $17 $8 million compared to $1 7 million as of December 31, 2019.
During the fourth quarter, we generated free cash flow defined as net cash provided by operating activities less capex of $6 $5 million compared to $2 $6 million in the fourth quarter of last year. During 2020 free cash flows increased nearly 350% to $24 million.
Total debt was $34 $6 million and we have.
Remaining access to roughly $44 $4 million on our on our revolving line of credit our net debt leverage ratio as of as of December 31, with 0.6 times versus a covenant requirement of four times, we are comfortable servicing our debt requirements at our attractive rate of light.
<unk>, plus 150 to 225 basis points.
Based on our current projections, we expect to be well within our leverage and fixed charge coverage ratio requirements and in full compliance with our current debt covenants for the remainder of the year.
Inventory levels continued to decline and were $5 $1 million below where we ended 2019, even while adding $5 $9 million of inventory associated with Barnes.
We are further adjusted the flow of goods in line with expected future demand and continued to maintain strong relationships with our supply chain partners, where we can dynamically manage our inventory levels with demand.
On the <unk> side, the business continues to experience significant output and great efficiencies. So we remain in a strong position there.
Echoing John's earlier remarks, we will keep working closely with our suppliers as part of our efforts to keep pace with heightened levels of demand and improve our supply of necessary component parts within our own operations, we remain committed to increasing capacity with our own bullet manufacturing in animal ammunition loading where possible.
Our tier on Barnes manufacturing facilities.
As evidenced by today's results we have maintained our focus on strong liquidity the health the health of our balance sheet and maximizing operating cash flow.
The proactive cost reduction measures. We took in response to the pandemic have accelerated on a shift towards a more digital presence sharpened our focus on key product categories improved operational efficiencies.
In terms of their connections within our distribution and supply partners.
With consumer demand remaining strong and retail orders gradually getting back and see we continue to believe clarus is well positioned both strategically and financially to benefit from the tailwind we are experiencing in our brands and two are definitely navigate an evolving retail environment.
While our visibility remains challenged by the possibility of future changes in consumer confidence buying behavior and the status of COVID-19.
Related lockdowns across our geographies, we remain cautiously optimistic about current trends in our business.
To reader to reiterate some of John's earlier comments, we believe robust consumer demand for outdoor activities and increased operational stability among our retailers will drive continued growth for black Diamond.
We also believe that the growth in recreating outdoors as well as lingering social and political factors will continue to accelerate our momentum across the combined.
Barnes and Sierra platform.
With this with this as context, we are pleased to announce our financial outlook for fiscal year 2021.
For the full year, we are expecting sales to grow 25% to $280 million compared to 2020.
By segment, we expect black Diamond to increase 17% to $200 million and we expect Sierra which includes Barnes to increased 52% to $80 million.
For the first quarter of 2021, we expect consolidated sales of approximately $70 million, representing an increase of 30% compared to 2020.
On a consolidated basis, we expect adjusted EBITDA in 2021 to grow approximately 56% to $35 million compared to 2020.
In addition, we expect capital expenditures of approximately $7 $5 million and free cash flow of approximately $15 million in 2021.
We are proud of the strong operational and financial Foundation, we have built as an organization over the years and.
And of the actions, we took to bolstered against the difficult operating environment in 2020, our proven innovate and accelerate playbook has preserved our brands equity and provided us the optionality needed to manage our brands from a position of strength in the most challenging market conditions across our organization we.
We're grateful for our team's dedication to executing on our strategic priorities and generating the highest possible returns on invested capital and we will work to continue delivering on these fronts throughout the year ahead on.
Operator, we're now ready for Q&A.
Thank you Sir so as a reminder to ask a question you on each press star one on your telephone.
All your question press the pound key again that a star one on your telephone please stand by while we compile the Q&A roster.
We do have a question from Randy <unk> from Jefferies, You're now live.
Thanks, a lot can you guys hear me.
Yeah, we can Randy.
Thanks, guys.
So just I wanted to talk a little bit about the outflow very impressive the outlook, especially on.
On the EBITDA dollar growth relative to the strong sales growth. So just just to get a little more clarity. There is that is that more of a mix of mixed items.
Sure.
The higher margin Barnes and CRM are impacting the EBITDA growth or is there.
Is it something beyond that is it also on potential SG&A leverage versus gross margin expansion. Because I think you know gross margin might be impacted a little bit by the supply chain. So I just wanted to get a more clarity on that on the Tonight.
<unk> of the EBITDA outperformance relative to the strong sales growth.
Yes, Randy this is Eric Great question and thank you.
It's a multifaceted approach here on this really highlights the benefit and strength of our overall portfolio and that the EBITDA growth will be a function of not only the strong performance that we expect to see within share in barns, but also the recovery of the black Diamond brand and the achieving we're getting back to that magical milestone of 10% EBA.
Within Black Diamond this year.
So as a result, what we're seeing is a highlighted element of how this portfolio come together highlighting the strong performance in EBITDA profile of that of of share on Barnes, while also being able to continue to leverage the SG&A and seeing some modest gross margin improvements associated with that of what black Diamond as we continue.
To grow and scale the business.
Super Helpful. And then I guess, John a question for you.
And you're talking to your wholesale account partners.
How are they feeling about the environment and how are they thinking about their order trends for.
For the balance of the year on it seems.
Like things are strong out there I just wanted to get your perspective on what your your.
On your counterparts or your partners are telling you about what they see.
Yes, so both for spring 'twenty, one, which is now and fall 'twenty, one which will start for us.
Typically end of July beginning of August we are seeing strong bookings going into the year from our retail partners. Now in addition to that what they are all seen is.
Currently the positive side of vaccinations around the United States a warmer spring.
On the.
Outdoor ism continued to explode and grow and I think they're all optimistic that all of those trends will carry into a very strong summer and fall business.
And by the strength in the economy.
A very strong and robust black Friday, cyber Monday holiday window, and so that their view is right now is that the market is strong both for outdoors and the economy. As you know has got some update.
Got it on any kind of if I could sneak in one more so sorry on the apparel business really took off in the quarter on.
Leading the way.
Obviously, a lot of opportunity to get a higher percentage of higher penetration at that product category. What are you guys working on there in that in that in apparel in terms of SKU count proliferation or anything in that in that setting.
And you can kind of continue to drive strength in that part of the business and black on thank you.
Yeah.
So obviously I think what Erin called out in the in the script was correct. We started to see real momentum for BD as a difference in the apparel market when we approached apparel as equipment for the first part and that you know both award winning product, but then also what we would call category killers things like stretch rainwear.
Our bottom stretch denim.
Our country ski apparel those are the things that we have seen strong surge of growth in demand on and they don't seem to be slowing down because of those activities and choice of products arent slowing down I think the other side that we've done really well is really starting to look at this.
On line grows less skus than it grows in growth and the real focus is on that is getting deeper penetration with these category killers.
Across our specialty national in key accounts as well as the surge that we're seeing in D C and retail.
Super helpful. Thanks, guys.
Next one on the Q is Jim Duffy from Stifel fewer in our lives.
Yeah.
Thank you John.
Equally on them for you guys on the guidance Hope you guys are doing well.
Digging in on the guidance from the BD Guide calls for a return to 2019 levels, essentially which seems conservative given some of the participation trends because if we're thinking about <unk> 2021 versus 2019 can you talk about how the mix of the business will be different seasonality differences geographic differences.
Category channel differences.
Now, what's really going to be different looking at 'twenty, one over 2019 $200 million base.
Yes, so we anticipate Jim this is Aaron we anticipate seeing greater acceleration within North America, both through the key accounts, but also our direct to consumer channel. We do anticipate seeing some softness in the international side through our international Global distribution network that typically service as the APAC region and then.
Also we'd like to be able to see some further acceleration within Europe, but currently with the Lockdowns that are taking place there is a little bit of uncertainty around how that continues to shake out from a from a categorical standpoint, we anticipate.
On growth and continue to progression within apparel, and then key categories, such as light striking poles gloves.
Et cetera, and obviously you know climate will continue be a mainstay, but those are where we're seeing the primary movers.
Within those categories as we think about the future and in particular 'twenty one versus net of 19.
Very helpful. So its challenges in international markets.
Maybe.
Holding holding back on more optimistic view on the guidance.
And we're also seeing a little bit what we saw on the fourth quarter in Europe as a surge because they came out of it earlier because of the vaccine in the United States and.
The opportunity here, we're seeing faster surges in North America as Aaron said, both in the wholesale side, but also the D to C side.
And then got it another point on another point on that Jim has.
It's something that we highlighted on the script and that's just related to the continued logistical or supply chain challenges that most of the globe is experiencing and we're not immune to it we feel that we have really good supply chain partners. We are managing our working capital dynamically we've been ramping up our supply chain really since <unk>.
Toby on November ish, but some of the unforeseen challenges associated with the ports et cetera are causing us just to be a bit response.
But more tempered in terms of how we're looking about the year just recognizing that.
Theres still a few a few things that we just need to iron out and continue working on as we look to accelerate the business in the outer years, yes. Unfortunately demand is not 100% translatable because of what's taken place either in factories or more importantly, frankly in shipping.
And then I was going to ask about that should we consider that just a push from <unk> to <unk> within this spring season business or.
Are you expecting these are challenges that linger throughout the year.
Right right now it does appear that we should expect to continue to see some challenges at least through Q2, if not are not into Q3 on.
Unfortunately, that's something that is.
Continuing to be part of the discussion as it relates to just not seeing a whole lot of relief over the next three to four months.
Okay.
And then I wanted to ask on the share in barns business can you guys talk a little bit about what capacity is.
And each of those Sierra I believe on bullets alone you'd been doing kind of in the $14 million to $15 million range capacity.
Barnes it sounds like you're already realizing some efficiencies there and then I'm trying to think about how to consider revenue.
The Barnes capacity it gives you some incremental.
Revenue capabilities within Sierra sort of way to frame like that $80 million guide, what how that fits within the context of the total production capacity of the entities.
Yeah.
One of my favorite statement as we've always talked about is obviously as we look at this business. We continued to drive capacity youre, putting out but at the same time, we're cautious to make sure that we don't lineup for every single opportunity at bat to be a homerun. So to your point, we continue to push capacity at Sierra.
And we continue to see that strong obviously much like we are seeing headwinds in BD with logistics the difficulty in accelerating net business to the order book that we completely have is a function of component not so much copper and lead from the book perspective, but if you want to build out the ammo side, which you.
As you recall is worth anywhere between five to eight times the revenue.
You have to have bullets, which we make plus primer, which we don't make plus per pallet, which we don't make plus breath, which we don't make in a rubik's cube that if you have 20 skus of ammo that you want to build do you have a rubik's cube of <unk>, because the propellant the primers and Nebraska is different by every.
Bullet caliber.
It's a bit of a mathematical pieces, we accelerate this obviously right now limiting part of that acceleration.
We continue to maximize our capacity wherever possible on the bullet side, we have very strong order books on both Barnes and Sierra we see lots of strength on the Barnes brand and its just a matter of accelerating that brand, but frankly, we believe that brand has as much value and importance in the market as the Sierra brand.
Despite the day Sierra is a brand that's on trend for 300 to 350 million bullets of production and Barnes is in the 80 to 100 million bullets of production range.
So we continue to accelerate those obviously our goal always is to maximize every single input to maximize every output.
But at this point like I said, we cannot you know our order book is strong, but we cannot deliver everything we would like it because of of constraints mainly on supply chains.
Okay. Thank you guys for taking my questions I appreciate the perspective.
Thanks, Jim.
Okay.
Next one on the Q is Lawrence Leighton from exam BNP Paribas you were in our lives.
Good afternoon, Tom Aaron Thanks for taking my question.
I appreciate that you broke out the Barnes revenues for the fourth quarter, I think $6 6 million.
Can you in terms of the guidance for.
Once you have $70 million, how much should we assume comes from Barnes and then how much should we assume for the full year with $25 million for the full year right.
Alright estimate.
Yeah, you're in the ballpark.
We're going to view these two as a combined business. This is the strength of bringing these two businesses together is that with some shared capacity in many.
Manufacturing capabilities et cetera.
We may see some left pocket right pocket type activity, but from here on out we're going to really be focused more on what the combined business looks like versus trying to split the hairs. If you will between the two the two brands.
Okay.
Okay, and then on gross margin.
I understand there's lots of puts and takes but you're obviously hearing a lot of.
Companies talking about freight pressure.
How do we think about the gross margin for <unk>.
And assuming that this is just a really a one maybe potentially two quarter event, but could we could we see you guys get back to your <unk> 19 gross margin of 36 per cent for the quarter.
It's going to be a little bit tough to get there just because of the compression on on.
On the supply chain side or on the logistics side by way of context.
You know as we talked about it we saw a nice favorable mix when it comes from per product and channel in Q4, we even were able to eliminate some of the value we could just associated with the DM and discounting.
And then also FX as a tailwind, but Q4 as an example, some of those challenges had had a negative impact of close to about 200 basis points.
And I would anticipate that we will continue to experience some of that I believe that we've been able to work through a good portion of that but.
Considering that it is still where we are today I would prefer to keep it a little bit more tempered on on the gross margin side of things for Q1.
Absolutely, Okay, and then really nice to hear about the apparel side.
To Randy's question.
Remind me.
Aaron I think back two years ago on the March 2019 call even call that maybe things have changed with Covid, but.
Apparel business was about 10% of your black Diamond business and footwear was from very low single digit percent.
Can you remind us where it stood for 2020.
And where do you think the long term potential is for these two categories.
Yes, so for 2020, we're sitting at call it 13% to 15% of apparel as a function of the BBA business.
So we could.
And about our portfolio there.
But you know as we've discussed before the way that we think about both of these opportunities over time is that we view these as needle movers and in particular with apparel and the progression that we're seeing you know long term, we have a target of at least $100 million for the for this category for the for the brand and it's going to <unk>.
Volume over over the next couple of years the way that it does but that's how we're targeting at least the opportunity in the in the in the near term.
But even net if you think about our business long term you know to your point and where we would be at that point apparel, we believe apparel, especially the way in which we approach it as an equipment side of the business.
In accessories is probably worth 25% of our sales at some point.
Okay. Thank you John and thank you Erin for for all the detail.
Next one on the QE is Matt Koranda from Roth capital partner, who were in our lives.
Moving on for Matt.
Just wanted to unpack the guidance a little bit just taking your comments from the return of.
But on and back to around 10% EBITDA margin suggests some heavy compression low from Sheila I understand there's a bunch of it will be tied to the supply chain issues is there anything in opex, that's coming up from.
The bond acquisition I think that's on an incremental $1 7 million on the quarter. Thanks.
Yeah. Good question in the guide that we're providing for 'twenty. One is very consistent with how we've outlined the combined business being the 25% to 30% EBITDA business. So what you saw is that during 2020 share obviously performed extremely well and will continue to find ways to improve upon that.
We think that there are some modest headwinds related to commodities and some other pressures but.
What youre seeing in the guide is really a function of the combined business for a full year, including that of Barnes.
Continuing to ramp that up and integrated into the system and making some investments into.
On the operations in some key personnel and also the rebranding activities.
And so for US it's right in line with that target as it relates to how we're thinking about the year coming together and provides us with an opportunity to be able to continue to progress from there as well.
That's helpful.
From a cash flow outlook from the year 15.
15 million, if I bridge that with Capex, you said, there's some modest working capital builds from there.
Anything else to income or I might be missing.
No. It's really the working capital we want to have some optionality with the cost of debt being what it is with our existing facility.
The strength of our balance sheet is a great.
No pun intended but it's a great asset range, it's a great position to be in it provides us with a lot of optionality, especially as it relates to how we think about managing inventory availability and also offsetting any noise associated with you know.
The cost of comprehensive example, we've been pretty open about how we manage the cost of copper and how we tend to go a little bit heavier on in certain windows of time to be able to insulate ourselves.
From such volatility, but then also on the Black Diamond side. This is a view for us to be able to utilize our balance sheet to ensure higher levels of availability recognizing that.
It would come as a negative on the free cash flow side of things versus what we saw in last year with that being said, we're going to continue to take a very disciplined approach here, we're not going to get over the tips of our skis, but we do recognize that there is an opportunity here amongst the volatility to take market share.
Part of our playbook as product availability on time delivery is being easy to do business with et cetera et cetera.
And we want we feel like we're in a really good position coming out of 2020 on the Covid side of things to be able to you know.
Flex our muscles, a little bit on trying to put ourselves in a better position compared to net of our competition.
Counter to what everybody kind of came out of 2020, believing relative to COVID-19.
What we've learned despite that the world slammed into the marketplace.
Had we been sitting on $10 million worth of life, we just hold those and we've been sitting on $10 million worth of memo. We would have sold that right and those are both functions of using our balance sheet to ensure availability of key product categories.
And if it continues like it is great. It will it will pay off in spades.
Hey, Thanks, guys.
Next one is Linda Bolton Weiser from D. A davidson fewer non life.
Hi can you talk.
Talk about I seem to recall that when you announced the Barnes acquisition that you talked about some kind of innovation coming this year I don't know I guess it was in the barn side of things could you kind of comment on whether that's the case.
Yeah. So give me on innovate and accelerate is a constant strategy, which is continue to innovate new bullets. All the time, while at the same time accelerating what you have now both the existing as well as the new and to be Frank we have lots of innovations that we could.
Launch in 'twenty, one and beyond at this moment.
But if I went out to a retailer right now and said to them, Hey guess, what I've got this new thing to show you. What he would say to me is loveseat John loved the new products, but can you delivered me more of just the basic.
Alright, and so this is a unique opportunity for the brand and something that they aren't focused on during our script is really focusing on maintaining continue to gain market share with existing products, while innovating, but being ready for those of a future deliver on time and have good fulfillment be easy to do business with.
Steel market share through your on time deliveries and fulfillment as fast as you can.
Great. We will continue to innovate and win the market isn't you know isn't chasing those like Crazy, we'll use that innovation to continue to drive the industry forward.
Great. Thanks, and then can you remind US you had taken some cost reduction actions in 2020, how much did you achieve for the full year and then will any of those costs come back in 2020 one.
Yes, so we outlined our cost savings program of about $95 million and we did not only achieve that but accreted up modestly and then as we think about those.
Those cost reductions coming back into 2021.
There will be some.
Some level of that that will come into play one of the things that we highlighted before that we anticipated about a million a half to $2 million worth of those.
Cost savings to be permanent in nature, which we're we're committed to and consistent with in terms of our guide, but there are certain.
Costs that we feel are necessary to continue to accelerate the business and support our long term initiatives and so we.
Abided for those.
For those expenses for the year.
Okay. Thank you very much.
You bet.
Next one on the line is Ryan Sundby from William Blair you weren't all lives.
Hi, John and thanks for taking my questions.
<unk>.
Just had a I guess a follow up on guidance as well.
As we think about the sequencing for the year.
In the past I think by Diamond sales have been more of a 45 per cent first half.
<unk> 55 per cent second half kind of slow.
I know that wasn't the case last year.
Covid and some of the store closures, but should we expect the CBD, but look more like historical trends from 'twenty to 'twenty one.
Yes that $45 55 type split spring summer fall winter, Yeah, ideally and obviously, that's the only caveat to that is just how much product coming.
Coming out of Asia or sitting in containers, how long that takes if you could ship anything today, yes, 100%.
Okay, and then I guess yeah.
Hello on that was just.
Exactly.
Given your guidance, calling for celebration themselves in 2021.
Do you have any concerns about supply chain or port congestion or whatever impacting your ability to meet demand this year.
I just want to make sure that that was clear.
Yeah, 100% so as someone brought up earlier on the question John that you know.
Our goal is to get back to.
In 2019 levels, both in revenue and also on EBITDA per performance.
Do we think that theres more outdoor ism and demand for the brand in that today potentially yes, and what do we think that will continue to surge. Yes. The driver is not on order book your demand right now it is as you as well brought up in this call. It is really more predicated on how fast can factory keep.
With the demand with component being the supply chain shortage and then just the elongated logistics issues that we're facing what used to be six weeks, it's turned into 12 or longer and port congestion and you know in.
Inability to either airfreight or boat freight because containers or planes on available and it's just become a real challenge not just for us I suspected every industry trying to move things to the United States over to Europe right now.
Got it okay.
Next question comes from Mark Smith from Lake Street Capital your non lives.
Hi, guys first one just a clarifying question don't know if I missed it on on apparel. Obviously, you had fantastic growth here in Q4 can you give us what the number was for the year as far as kind of growth.
So it was 13% to 15% of total <unk> sales.
Perfect.
And then second looking at Barnes within Canada.
<unk> to two things first on Barnes it doesn't sound like you're building that into the guidance at 100% capacity can can you kind of discuss that kind of what youre looking at for this year and then I don't know if you guys are typically quantified it but can you talk at all about kind of the backlog of orders within the Crs segment.
No. So so let me give you the perspective on that within Sierra on one of the fastest growing category has been that of ammo right and our gold members. We talked about was to get ammo when we launched it to be 10% of our business.
And we think as you saw on the fourth quarter it became more than that right in Barnes ammo represents more than 50 or 60% of the business opportunity within the segment and may be more given demand.
And the reality is that Barnes only produces the bullet and can only low <unk>, but as you know at the mercy of the market for primers propellant and bras.
And so that literally.
It's not a function of what the order books are for Sierra and barn, when we put our guidance for 2021, it's really about how we can manage as scrap as we are how can we manage the component side of the business to accelerate this now as we get better in the year and manage it we hope that we can meet or exceed the.
Expectations, but we're being conservative because at this moment like you said that the component availability is a real challenge.
Absolutely.
Next just a.
Direct to consumer was really strong continuing to see growth. There can you break out at all.
On the BD stores kind of how those are performing and kind of your outlook and thoughts on continued growth.
Yeah, I think we were pleased given what Covid did in 2020 to retail we were pleased with retail as a division of our D to C.
As of today, we have five stores.
Traffic was down in these stores anywhere between 60% to 80%, but conversion rates jumped from the low $22 50 to 60 per cent, which goes intend youre not going to go to the store given the environment unless you really want to buy something.
We continue to see opportunities to expand retail in 2021, and we'll probably add anywhere between three to five doors potentially but again you have to watch the market because not every market is responding to rebounding exactly the same.
Like I said, we see as a long term initiative in the short term our focus has been more on the deep the E com side of the D to C.
Because it doesn't have closures unfortunately, even in markets like Big Sky, which we opened in November we've had to close the store twice due to COVID-19.
Restrictions.
I think the other side that was really impressive and point out again about the growth in E. Com is that we did it without being off price.
And in a market that was very promotional driven which we believe is both proof of a super fan brand, but also the discipline that long term you know.
The value of BD is in the product itself not in its ability to short term promote.
Okay.
Last one from me real quick you know looking back when we have seen stimulus checks any idea kind of bumped that those are put in demand for your products and do you feel like you should get some bump in some some piece of those checks that comes to you.
I don't know if we see a directly obviously I think it has the potential to impact.
Retail be on.
Honest with you right now.
Given our demand for brand for our products I don't think that will change it dramatically frankly, one or two deliveries out of Asia will have more impact in the stimulus checks.
Great. Thank you guys.
You bet.
Okay.
At this time. This concludes our question and answer session I would now like to turn your call over back to Mr. <unk> for closing remarks.
Okay, I would like to thank everyone for listening to our call today and we look forward to speaking you again, when we report on the first quarter of 2021 results each day for everyone. All the best.
Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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