Q1 2021 Clarus Corp Earnings Call
Discuss Clarus Corporation's financial results for.
For the first quarter ended March 31, 2021 joining us today are Clarus Corp, Clarus Corporation's President John.
Non walbrook executive Vice President and CFO, Aaron Kuehne, and the company's external director of Investor Relations Cody slot following their remarks, well open the call for your questions before before we go further I would like to turn the call over to Mr. Slaw.
For a series the company's safe Harbor statement within the meaning of the private securities.
Litigation Reform Act of 1995.
Debt provides important cautions regarding forward looking statements.
Cody. Please go ahead.
Thank you please.
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 Companys expectations.
<unk> and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties. The company cautions you that for these 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 overall level of consumer demand on the company's products general economic conditions and other factors affecting consumer call.
<unk> preferences and behavior.
Disruption and volatility in the global currency capital and credit markets for.
Financial strength of the company's customers the company's ability to implement its business strategy the ability of the company to execute and integrate acquisitions the impact that global climate change trends may have on the company and suppliers and customers the company's exposure to product liability or product warranty claims and other loss contingencies.
Yes.
Disruptions and other impacts to the company's business as a result of the COVID-19 global pandemic.
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 these.
Excuse me in light of disease epidemics and health related concerns such as the.
The COVID-19 pandemic changes.
Changes in governmental regulation legislation or public opinion relating to the manufacturing sales bullets and ammunition by our Sierra segment.
And on the possession and use of firearms and ammunition by our customers.
The company's ability to protect patents trademarks and other intellectual property rights.
The ability of our information technology systems or information security systems to operate effectively 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 <unk> its brands, including without limitation.
Through social media or in connection with brand damaging events <unk> public perception fluctuations in the price availability and quality for all 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 and liabilities tariffs legal regulatory political and economic risks.
And the company's ability to maintain a quarterly dividend.
More information on potential factors that could affect the company's financial results is included from time to time, 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 8-K.
All forward looking statements included in this call are based upon information available on the company as of the day to this call and speak only as the date hereof. The company assumes no obligation to update any forward looking statements to reflect events or circumstances. After the date of this call.
I'd like to remind everyone on this call will be available for replay through may 24th starting at eight P. M. Eastern Tonight, a webcast replay will also be available via the link provided in today's press release 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 that everyone is staying healthy and active in the outdoors.
It is great to be addressing you today and speaking about the strong results, we announced earlier this afternoon.
The first quarter was another quarter, where we not only achieved what we set out to do but we also exceeded our expectations.
These results were driven by the continued execution of our brand to play book. This playbook focuses on.
Our innovate and accelerate strategy, which calls for investing in R&D to drive innovation in both existing and new product categories driving brand awareness, all while being easy to do business with and staying relevant to our core consumers.
We believe that the superfan brands excel within our clear strategy, making the execution of this playbook more seamless.
Total sales were up 41% as we experienced accelerating growth in both our Sierra and black Diamond segments as well as robust demand across each of the product categories. We substantially improved gross margin and earnings thanks to the strength of our brands our capabilities to fulfill demand and are consistent.
Pricing strategy. This marks our third consecutive quarter of revenue expansion and we generated $10 6 million in adjusted EBITDA for the quarter, representing a growth of 191%. These.
These strong results as well as our continued momentum have us raising our full year financial outlook Aaron will address the details of this shortly.
Black Diamond and Sierra we continued to outperform the market as we executed our playbook in particular with our key account relationships.
Via higher levels of product availability in support of our increasing brand presence and accelerating demand amongst the core consumer in.
And black Diamond sales increased 13% as we benefited from the recovery in the outdoor market and reduced inventory volatility at retail.
Which allows us to accelerate our growth, particularly with some of the key retail accounts.
This is despite continued headwinds from COVID-19 and supply chain challenges.
Demand in our book businesses continued to surge and we were able to navigate component shortage shortages relatively well as seen by 94% and 92% pro forma first quarter sales growth for our Sierra and brand Barnes brands respectively.
To continue with the supply chain challenges across our brands, we have leveraged our super fan brand recognition to strengthen our relationships with our key retail partners and our global suppliers. We continue to see evidence that suppliers prioritize the formation of long lasting and productive partners with brand.
But our best poised for long term performance and we believe our brands fit this mold.
Building. These favorable relationships also benefit the navigation of the current supply chain environment, which is why we believe we're outperforming our competition in this area of our business in the recent quarters.
Returning to our Q1 brand performance the 13% increase in Black Diamond sales was mostly attributed to surge in consumer demand and the recovery from the pandemic by category. He was up 23 per cent mountain was up 20 per cent and climb was up 3%.
Hard goods growth of 16% was driven by solid double digit growth across the product portfolio in particular, trekking poles skins, Headlamps leidy dwarves packs bouldering in helmets.
Our wholesale channel led the way of sales performance in Q1 on the back of solid growth at our specialty retail partners and especially our key accounts.
The reopening of markets and broader COVID-19 recovery is certainly a key factor enabling this growth.
Our direct to consumer channel slowed compared to recent quarters as we prioritize inventory allocation to our wholesale partners to ensure their ability to have strong kickoff to the spring 2021 season.
This reinforces our partnership approach and the ease of doing business with mint mentally we continue to be excited by our ever improving digital presence led by launching a new website in January of 2021.
This was a major undertaking, especially while most of the team was working remotely during COVID-19.
During Q1, we continue to refine our our updated platform driving improved activation with more sophisticated prospecting and retargeting efforts.
As we continue to improve our inventory position and develop more refined data driven tools and expand our retail footprint. We believe our direct to consumer channel will become the most.
Brand accretive touch point of our Super fans.
Our north American and European businesses, both grew double digit on the reopening momentum this growth growth was petition, particularly offset by a decline in our international global distributor market due to lingering lingering COVID-19 impacts as well as our transition away from a distributor.
Our model into the brand controlled strategy in Spain in the second quarter.
We successfully transferred positioned the U K in Q4 and believe this will become one of our top five markets in the region serviced by our Black Diamond European Office.
In apparel sales sales remained stable during the first quarter, despite the lower than expected inventory availability due to elongated logistic challenges experienced globally due to shipping delays.
Our order books are quickly filling for the second half of the year due to our wholesale partners regaining confidence and their own customers return.
Within our own retail stores, we are also seeing increasing traffic.
This traffic is incredibly important as it helps us to gain insight into the brand perception.
This is essential for something like our pro offering we continue to treat apparel like equipment employing technical reach features as well as points of differentiation.
At our stores, we were able to see and hear firsthand, how our consumers use the product and how they can be improved whether that is true next generation material innovation or advancement of technical aspects.
Speaking of technical aspects of our products. We recently saw that our black Diamond quick draws were used by the NASA space X crew one in their mission back to Earth last week from the international space station.
This is a great example of how our quality products can be used in a variety of ways and shows the importance of our tireless innovation efforts.
Continuing on the topics of technical development, specifically in our apparel business unit, we recently hired Tony Rivera, who will lead the business unit under our vice President of product Collyn Paluch, Tony has extensive knowledge in merchandising and was most recently responsible for driving consumer conversion at arc Terex.
He's a key hire as we seek to expand our growing momentum in our apparel initiative.
Inventory is a near term challenge we remain optimistic that we will grow apparel into 100 million dollar business over the long term.
Now moving to the.
Two our Crs segment, we generated sales of $23 5 million or up 203% from the prior year quarter or 94 per cent when excluding Barnes.
This performance reflects sustained broad based sales growth across both bullets and ammunition. We continue to experience strong domestic tailwind ahead of and following the U S election, as well as an increased participation in outdoor hunting and indoor shooting ranges are.
Our bullets and ammunition categories remain impacted by industry wide supply shortages as we work for security enough components to keep our manufacturing on pace with the heightened demand.
To successfully navigate this environment, we will continue to seek to utilize our balance sheet to enhance product availability.
And leverage our strong relationships with our key retail partners.
So October we've leveraged the Aaron's leadership team to support the excellent existing teams at bonds in order to increased daily output and navigate industry material shortages and effectively lift each brand's ability to meet and exceed customer demand on.
Our combined order book of 2021 continues to quickly fill as we get closer to achieving our stated goal of delivering $100 million in sales over the long term, while approximately 30% adjusted EBITDA margin and a high free cash flow conversion.
Looking ahead, we will remain cognizant of health recommendations, especially as it relates to the conditions within the retail on supply chain environment that we operate in.
While challenges remain we are confident in our well diversified superfan brand portfolio that has served its core users throughout the pandemic.
We'll continue to execute our strategy and produce strong results despite the dynamic environment.
Another important piece of our organic growth plan is our M&A strategy.
We have a disciplined acquisition strategy that we believe ensures we will be able to deploy our innovate and accelerate brand strategy.
With the strategy, we target superfan brands that may give us a foothold in a new product group or customer channel as we seek to diversify us further within the outdoor and consumer markets.
We anticipate progress on this in and hope to be sharing further details in the short term.
Lastly, I would like to welcome Susan Atman as our board of Directors director nominee to the organization.
Susan has over two decades of leadership experience within large public company and academia. She currently works at the University of Wisconsin, Madison, where she direct online degrees in engineering professional development program as well as teachers courses in technical leadership and technical product project management.
Previously she managed thermo Fisher scientific global analytical instrument business, a multi hundred million dollar business, where she managed a team of 770 associates with operations in the U S U K, Germany, and China as well as sales teams worldwide.
Susan has also held leadership roles at Danaher and Schneider Electric electric where she was pleased to have nominated Susan to our board and believes that her focus on innovation scaling operations and are people development skills will be a great assets to our board.
With that I'll now turn the call over to Eric Cooney, Our Chief Financial Officer, who will provide some additional commentary on our performance in the first quarter and more details on our increased 2021 outlook. Thank you Eric.
Thank you John and good afternoon, everyone diving right into our results for the first quarter of 2021 total sales increased 41% to $75 $3 million by segment Black Diamond sales improved 13% to $51.8 million and sell them. The sheer segment increased 203% to 23.
$5 million, excluding bonds, which we acquired in early on in.
In early October 2020, our first quarter sales from the sheer segment were up 94% organically Barnes continues to outperform our expectations for performance within Black Diamond was primarily due to the growth on our hard good products, particularly in ski and mountain. This overall demand increase was driven by the continued Rick.
Covered within the outdoor space. We also experienced an increase in cells that are key retail accounts as well as on specialty retail.
We believe this was driven by the fact that we were the best positioned to fool to fulfill inventory in the current volatile supply chain environment with the core brand that has maintained on price.
This growth was partially offset by a decline in our international global distributor market due to lingering COVID-19 impacts as well as our transition away from a distributor model into a brand controlled strategy in Spain.
We started selling directly in the U K in the fourth quarter of 2020, but Spain will transition in Q2 of this year. This transition reduce black diamond sales by approximately $1 million on the first quarter, but we would expect to more than make this up in the future. Once it is fully internalized.
The $7 $3 million for 94% increase.
Sure. It was due to continued robust domestic demand for green box OEM and our new ammo initiative roughly $1.7 million of this increase was driven by growth in seres ammunition business.
Barnes continues to exceed our expectations, bringing in $8 $5 million of cells on the first quarter with domestic black box and animal leading sales growth.
We continued making progress with our integration efforts as we relaunch the brand and began to implement new processes to drive higher levels of output in order in order to fill market demand.
Consolidated gross margin in the first quarter improved 130 basis points to 35, 9% compared to the compared to 34, 6% in the year ago quarter and improvements in product mix and foreign exchange benefits more than offset unfavorable impacts on their supply chain and logistics due to the COVID-19 nine.
Pandemic, excluding the fair value inventory step up associated with the barns acquisition adjusted gross margin in the first quarter increased 180 basis points to $36 four per cent.
During the quarter, we experienced 100 basis, a 100 basis point margin tailwind from foreign exchange as a reminder, with over 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 head count hedge contracts.
Also at Sierra material costs, such as copper and lead make up 45 per cent of the product costs, we actively manage our costs with our vendor partners because we understand the impact the commodity costs have on our business specifically on gross margin through this active and deliberate management, we expect to be able to mitigate risk for them.
Six to nine months out.
SG&A expenses in the first quarter were $29 million.
Per the $17 $4 million in the year ago quarter, primarily due to the inclusion of Barnes, which contributed $1 $9 million and an increase in stock based compensation of $900000 due to the vesting of certain performance Awards black.
Black Diamond brand SG&A was up 2% and Prs G&A was up 9%, which excludes the impact of bonds. Both were up due to the strong sales progression. We remain extremely pleased with our expense management within both segments.
Net income in the first quarter increased significantly to $5 $7 million or 17 cents per diluted share compared to net income of 400000 of $40000 or zero cents per diluted share in the year ago quarter. The improvement is largely is largely attributed to a profitable sales growth.
Adjusted net income in the first quarter increased 280% to $10 2 million to $10 $2 million or <unk> 31 per diluted share compared to an adjusted net income of $2 $7 million or nine cents per diluted share in the same year ago quarter adjusted.
Adjusted EBITDA on the first quarter increased 191% to $10 $6 million compared to $3 $6 million in the same year ago quarter.
Now I'll shift to our asset efficiency on liquidity.
Inventory levels were at $70 million up slightly.
From where we ended last quarter, we continue to maintain strong relationships with our supply chain partners. So that we can adjust the flow of goods in line with expected demand and dynamically manage our inventory levels. Additionally, we remain committed to seeking to increase capacity with our own bullet manufacturing.
In ammunition loading where possible across our euro and barge manufacturing facilities in order to keep pace with the elevated demand.
At March 31, 2021 cash on cash equivalents were $6 $5 million compared to $17 $8 million as of December 31, 2020.
And $12 $8 million in the year ago period during the first quarter, we utilized free cash flow defined as net cash utilized were provided by operating activities less capex.
Of a negative $3 $9 million compared to generating $2 $2 million on the first quarter last year.
The use of free cash despite strong net income was primarily driven by our continued investments in key inventory items to seek to insulate ourselves from commodity pressures scarcity concerns and to satisfy strong consumer demand.
Total debt was $28 $6 million and we have remaining access to roughly $49 $3 million on our revolving line of credit.
Our net debt leverage ratio as of March 31 was 0.6 times versus a covenant requirement of four times, we are comfortable servicing our debt requirements at our attractive rate of LIBOR, 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.
This provides a nice lead in to some important topics, we want to frame related to our capital structure.
We are extremely pleased with the direction of our business with it which inherently provides us with additional growth out produce opportunities for us to evaluate both organically and through M&A.
You may have noticed the recent filings of our S. Three and S for which expired in December 2020.
These filings have a shelf life for three years.
We believe it is completely natural and good corporate hygiene for us to keep these effective with that being said as we have historically shown we will continue to seek to utilize.
Our balance sheet is the first and foremost way to growth.
We are a business with increasing levels of EBITDA and strong reoccurring free cash flow.
We also have great relationships with our banking partners, who are extremely supportive of our strategic initiatives.
We are owners and operators that are committed to being shareholder friendly and responsible in how we run the business, including the amount of leverage we take on.
We believe there is an optimal balance here with leverage to range between two times to three times.
At times, we might extend this a bit higher however, it will always be with a clear path of how we bring it back to within this range over the course of a 12 month period there.
There might come a time.
We will look to access the capital markets for additional liquidity, but it will be with the with the expectation of activating what I just what I have just described in terms of pursuing their strategic initiatives being shareholder friendly and running a disciplined business with a responsible amount of leverage.
With the strong consumer demand across our segments. We continue to believe Clarus is well positioned both strategically and financially to benefit from the tailwind we are experiencing across our brands with that context, along with our strong first quarter. We're pleased to announce that we are raising full year for our full year for.
Natural outlook, we are now expecting 2021 sales to grow 32% to $295 million compared to 2020. This is an increase from our previous guidance of $280 million by.
By segment, we now expect black Diamond to increase 20% to $205 million and for Sierra which includes Barnes, we expect actual sales to increased 71% or pro forma sales to increase 26% to $90 million.
On a consolidated on a consolidated basis, we now expect adjusted EBITDA in 2021 to grow approximately 70% to $38 million compared to 2020, we had previously guided to $35 million. In addition, we expect capital expenditures of approximately $7 $5 million.
And free cash flow of approximately $15 million in 2021.
Across our organization, we remain grateful for our team's focus and dedication to executing on our strategic priorities and generated the highest possible returns on invested capital. We remain proud of our strong operational and financial foundation that we've built over the years.
As we continue in 2021, we will continue to strive for positive results.
We have proven time and time again that our innovate and accelerate playbook and our commitment to Super fan brands is important to our success and allows us to prosper no matter the external market environment, operator, we're now ready for Q&A.
Thank you Sir as a reminder to ask a question you will need to press star one on your telephone keypad again that is star one to ask that question.
Our first question.
It will come from Jim Duffy from Stifel. Your line is open.
Thank you Nobody's called me Jimmy since my mom, some time ago, Okay, we will.
Yeah.
I Hope you guys are doing well.
E R. Thank Sir channel.
Wanted to start on the Sierra in barns business you raised the guide there by about $10 million really strong results from bonds in the first quarter, just annualizing the quarterly run rate for Barnes I mean.
Should we interpret that the majority of that increase total year comes from Barnes and I guess related to that you know pencils to share of about $15 million in the first quarter or is that maxed capacity on the Sierra business for is there room to.
You know increase their quarterly productivity weighted for the share of business.
So twofold answer to your question. The first is obviously at both for at both brands. We will continue both from a people perspective as well as a capex perspective continue to just drive for increased capacity to meet our demand demand exceed our ability to produce.
All of that the market would want at this point.
So obviously, that's the first point and in each of those come with their challenges a can you get enough people as soon as you want and train them up can you buy the machines in the appropriate you know turnaround time to be effective immediately that's the first piece the second be for your question is.
Obviously, we continue to see a strong demand book, we are very scrappy or agile as we say in regards to chasing down component.
We are aware that the market is challenged where it comes to all the components. We don't produce that a brass primers are propellant like I said, we are the scrappy as anybody can be to acquire those but we're also conservative in saying look if we can't get everything we want.
A very strong order book, we cannot load all the AMOLED that the market would like or demands from us at this point and so as always we are transparent with you we will absolutely charge forward be a scrappy and aggressive in the marketplace and fulfilling demand in supporting a retailer.
But we're also aware that there are challenges on the market. We think we can overcome them, but as we always say we want to make sure that we are upfront with any and all potential risks or challenges that could could happen in the next nine months.
Okay Fair enough and then shifting gears to black Diamond back for 2019 levels in the first quarter. There was still some impediments right.
Seemingly some supply chain dynamics that held back revenue in North America is that accurate.
Correct.
As you said, it's not a demand book and it's not even a factory book issue.
In terms of kind of our factories meet up our demand have they've been given purchase orders are they shipping accordingly on time to them yes.
You know what we faced as as the whole market did in Q1 was the elongated delays around logistics, which impacted our ability to get all of that product through the channel in Q1.
And then a few forward looking questions on the BD business.
First a distributor component what are the sightlines to normalization of demand there are those distributors sitting on inventories that they need to move through and therefore, it could be a prolonged and.
Impact or is it merely a matter of reopening and there'll be a need of inventories and the demand will turn back on.
And then I wanted to ask if you're starting to see signs of life in climb whether indoor climbing is coming back and you're starting to feel that in the business.
So again this is Aaron I'll take the first part and John will take the second as it relates to our IGD business or the international global distributor business, we actually see that things are starting to break free a little bit for us and so we anticipate that we should start to see things normalizing and returned back to.
A steady progression of growth in the back half of this year its been a little bit slower coming out of the COVID-19 situation. As a result, there has been the need for inventory levels just to work through the system. However, we are starting to see higher levels of interest as it relates to aesop for replenishment orders and all in.
Indications are starting to give us some pretty decent.
Suggestions that the back half should start to normalize and get back because they see to certain levels of growth.
On the second part for your question and as.
As you saw on the first quarter time was 3% that was a combination of one weather, obviously winter and we were selling more skis as we kick into Q2 climbed starts to surge a twofold. We are seeing a surging time as we go into Q2 and beyond in both outdoor and you know as expected, but then climbing.
Gyms are slow are starting to open up and it is our anticipation that by Q3 and Q4, if not at full capacity that'll be pretty close to as vaccines rollout more as people are a little more you know excited about getting into gyms.
So at this moment like should climb is is back to be in one of our strong growth categories in the future and we anticipate chasing that.
Well in through the rest of 2021.
Thank you guys I'll, let somebody else jump in.
Yes.
Our next question comes from the line of Lauren <unk> from Exane BNP Paribas.
Please proceed.
Good afternoon, and thank you very much for taking my question Congrats on really phenomenal results.
Last quarter, I think you've talked about supply chain delays you talked about it again this quarter can you maybe quantify how much <unk> revenue fell into <unk>.
And any breakdown potentially between BD in Sierra and then as we look out consensus is at $53 million for QQ debt. The right way to think about it or should we think about a six handle for the quarter.
Yeah. Good question on Lorena pleasure to speak with you as it relates to the carryover from Q1 to Q2 for Black Diamond, we estimate that to be in the $5 million to $8 million range.
On the sheer barn side of things, that's a little bit more difficult to to quantify just considering the magnitude of the order book that exists and so it's really about just increasing output as quickly as possible.
Really good question also on as it relates to the.
The consensus amount for for Q2.
The way that we've thought about is that we'd like to we're pegging something closer to $65 $68 million for Q2 in terms of revenue and so hopefully folks can can reflect that in terms of how they think about modeling the rest of the year in particular Q2.
Very helpful and the last part of your commentary that the Sierra Barnes platform has long term runway to 100 million revenues and a 25% to 30% adjusted EBITDA margin. It looks like EBITDA margins had been more like in the 30 to 35 per cent range in the last two quarters with Barnes.
Why shouldn't we think about that kind of range going for it and R&D any investments or anything that we should consider that would temper the EBITDA margin going forward.
No.
We continue to integrate barns into the system and get more and more comfortable with its underlying characteristics and the way. It behaves as we ramp this up we are more comfortable with that target being increased to 30% EBITDA levels.
You know naturally.
Well documented by others within the industry, but also by ourselves you know the commodity pricing side of things is a topic of discussion with that being said, we will continue to be extremely responsible but also partnership oriented in terms of how we think about price increases there is opportunities to be had there but at the same time.
We feel that we've been able to manage that exposure not only through our own internal hedging activities. The way that we've been able to increase the overarching efficiencies on output levels, but also that we the way that we partner up with key accounts in terms of activating price increases.
So you know.
We've provided our sales with a little bit of range just in terms of headroom there, but we do feel comfortable in being able to sustain that 30% adjusted EBITDA level on on the combined business of here on margins.
And as <unk> seen over the last 12 months.
Every time, we turn around there's a new learning curve and though we feel like we quickly figure it out and continue to find ways to be scrappy and accelerate it.
It's probably not even eat naive to assume that everything is behind us.
That's great to hear John Lastly.
I think last quarter, you implied that the BD apparel business with around $30 million in absolute dollar terms with Tonys Onboarding can you talk about the building blocks to get to $100 million apparel business and then even near term where do we think the apparel business goes for 2021.
Yeah. So I think we've targeted the apparel business for 2021 somewhere in the.
$35 million to $38 million.
As we take that and obviously that has been hampered a little bit in Q1, as we talked about because of the elongated and logistics challenges it wasn't that demand and it wasn't the supply I E. The factories, but just our ability to move that product.
We're excited about Tony joining the team and the merchandising of the collection.
Continued to see very strong demand for apparel and.
And if you also saw on Instagram today, you know.
The treeline shell for spring 'twenty, one one gear of the year from outside magazine, and we continued to gain momentum both in our.
Apparel as equipment and not on our ability to create product that is award winning and differentiated in the marketplace.
As we continue to look beyond and $100 million goal, we continue to see that the drive of outdoor ism continued to gain for us on our brands momentum brand awareness overall.
You will see us continue to expand in the categories of alpine which is traditional outdoor you'll continue to see us expand and we continue to have strong momentum from around that country on winter Snow sports.
We continue to see opportunities within both sportswear and bottoms within the climb market you will see us continue to accelerate the trial run.
Ron tracked height direction fast and light product and then we continue to gain momentum in logo wear on accessories, and so we've been pretty targeted in those categories.
We continue to see this on a global basis. So it's not regional we're seeing strong momentum in Europe, as well as North America, and I and with our IGD partners.
We obviously as I've mentioned, we'll continue to rollout flagship retail stores.
With three to for the summer and they continued to be strong drivers to our growth in apparel as well.
So we're we're very positive on it.
That's great to hear thank you very much.
Our next question comes from the line.
Ryan Sundby from William Blair. Your line is now open.
Yeah, Hey, John Good afternoon, and congrats on a on a required here.
John I guess now that we're.
Having a year plus from the pandemic here I wanted to hear a little bit more about what kind of response to the pandemic youre seeing from competition as well as maybe the retail channel.
On the credit for any changes there in terms of pricing and promotion innovation versus early on in the pandemic and then on the retail front are you seeing any new concepts or redesign start to emerge on the I guess there on PC kind of routes on the format of experimentation, where he got index and Quebec, maybe open up additional book.
Houston for you got it yeah.
So great questions all the way along.
I think one of the reactions. When we saw early in March of 2020, the quick promotional piece as we said then.
We made it.
Cognizant strategic decision to not chase price with our product and in fact go the opposite continued to innovate our apparel at a pretty rapid rate and all product categories mind, you, but apparel being a big growth opportunity and really differentiate our products through our sustainability efforts and the <unk>.
And which we were creating product that was really industry, leading in that category, but also from a technical features new material types of things.
And we're seeing a strong response to that both in bookings by accounts seem to point of difference with B D. Now and it's really around the activity based model that debt what people want from apparel is product that will help them to have their best days in the mountains and so that's what we're really focused on.
Like I said, we continue to see debt in the REIT environment I, even our own flagship stores. We see you know sales of apparel, representing 50, 560% of our sales were in our on our traditional wholesale model globally. It represents 15% to 18% of our business. So in that aspect continues to <unk>.
Prove out and as we said in the in the notes it gives us a great environment to talk with and really learn from our core consumers. What is it that makes BD apparel unique in the marketplace to your format is rolling out we'll continue to roll out our own flagship retail stores or what we refer to as community centers, where we can construct around the actor.
<unk> and provide the product, whether it's hard goods equipment or apparel to you know to help their solutions.
Obviously, I think as BD continues to gain momentum, we're continuing to see success not only in traditional hard goods equipment categories, but also in categories like packaging gloves footwear and apparel, the what we call our transformational categories and we'll continue to see that and then the market obviously is getting aggressive.
In a positive way Rei continues to add new doors.
As you mentioned Dick's sporting goods is adding Dick's sporting good doors, they've also launched the new house of sports formats, and then you know under Todd's leadership that'll be launching public lands.
And I think that opens up a lot of opportunities given BD leadership in key categories of growth within outdoor today that'd be enough climbing both in hard goods and apparel bottoms, specifically for US is a big driver in back country again apparel specific for back country, it's different than front mountain.
Insulated.
<unk> Jackets, and then as trail run hike fast through continues to become the new driver you know BD lighter faster more breathable stronger product really plays into that so I think retailers are excited about the direction. We're going we're seeing very strong sell in and very strong sell through.
And you know.
Ah lined in leadership with how we are seeing now in the equipment side of the business, which has been a great positive momentum.
But.
Current assessment, there and then I guess just kind of.
Follow up on that how.
How do we think about.
Expanding pipeline on distribution and yet still protecting the brand image.
Authenticity.
Can you lay out maybe.
Criteria or no.
I guess what.
You're comfortable.
Oh on the brand.
Our current.
<unk>.
Yeah. So obviously, we break our accounts into multiple tiers, what we call our national accounts accounts that you know represent outdoors them across the whole country. We then have key accounts either in regions or by categories. And then we have a very strong specialty ski Avenue and then obviously our own direct to consumer both through E.
Common pro segment, but also through the expansion of our retail stores and we're really about you know at the end of the day. The question is really driven by where does that consumers expect to find BD products and and that really is the driver to it right, whereas our consumer, whereas our community and hence you see.
<unk> stores opening in places like Boulder, Colorado, Jackson, Wyoming Bend, Oregon.
Park City, where our consumer resides in plays our sports.
In terms of other distribution you know currently right now we have a lot of demand within our current distribution.
So I would say were tentative on adding a lot on distributions at this moment until we can be as we've said easy to do business with deliver on time have good fulfillment and be long term partners that are the competitive advantages to our retailers one of the things that we're seeing and it is really promising for BD is.
Black Diamond is becoming viewed as a competitive advantage brand to many of our retailers as they either edit and amplify categories and BD winds out given our leading market share or they edit and amplify brands based on the brand's ability to prove that it can navigate the challenging times right now.
There'll be a good partner delivering on time.
Okay.
Our next question comes from the line of Brian Mayors from Lake Street Capital. Please proceed.
Yeah, Hi, guys. Thanks for taking my questions first one for me can you talk about the monthly cadence of sales for the Black Diamond business during the quarter and then if you're seeing that again, so far in the second quarter here.
Yeah, I mean, I think obviously you know a monthly cadence we have very strong order book that we book on a seasonal basis spring summer slashed for winter.
Obviously, the Cajun is increasing and that's really more of a function not about the order demand book I think the retailers would have taken everything in January if we would've had it available as logistics, which were the challenge.
Now in Q1 and become more consistent and it's really just about planning out what was typically a six week logistics challenge became a 12 to 14 weeks that obviously has a roll forward impact once you get into that cadence retailers as well it doesn't we're able to meet closer to that demand, though I will say.
Consumer demand is accelerating as we go as we went from winter into spring, we've seen the consumer demand accelerating as we go into summer, we anticipate it will continue to accelerate summer and into fall.
Great that's helpful.
And then can you talk a little bit more about the ecommerce business and direct to consumer during the quarter on how you've seen that grow and maybe what percentage of mix that was for the quarter.
Yeah, So Gary D to C represents about 15% to 20% of our business.
As mentioned in our prepared remarks.
You know if we had all availability of inventory right now and you know one of the first question is how much did we really post in Q1 that had to move into Q2. When you can't do meet all your retailers' demand in either on time delivery or fulfillment and we're prioritizing for them. It makes it more difficult for.
To allocate or prioritize that product availability to our own direct to consumer model and so you know until we get back to full inventory opportunities, we've chosen and in Q1 to work with our key retail partners as we said to make sure that day, we're able to kick off there.
Spring season with as much product as we could given their order book, but also the increasing demand.
We have built the platform we believe strongly in our data analytic tools, we believe that long term, there's a huge opportunity for the brand. In addition to it as a support to what we're doing with our current wholesale business. We also see opportunities to continue to expand our flagship retail stores and those have had a very good.
Response, despite the traffic concerns of COVID-19, we are seeing 50 to 60% to 70% conversion rate on.
On a consumer basis within our retail stores and so the Super fan you know, albeit social distance mask in hand and separate it still comes out. So we long term, we still believe very much in that we believe that someday DTC on represent 30 plus percent of our business, but our belief is that that is in addition to can.
Can you and to be the best strategic partner, we can for our the rest of our retail partners.
Great and then last one for me it looks like another strong quarter gross margin how should we think about that for the rest of the year and if there's any promotions that we should be thinking about maybe in the third or fourth quarter.
No, we're not anticipating any significant promotions or anything of the like instead, we would anticipate that we would you know.
Confused see the progression that we saw in Q1 for the rest of it for the for the rest of the year naturally balanced for appropriately for the different quarters.
Remembering that sometimes you have a mix of product or mix of product that has different margins based on the season.
Great. That's helpful. Thanks, guys.
Our next question comes from the line of Matt Koranda from Roth Capital. Please proceed.
Hey, guys, thanks, and thanks for the margin or the sorry, the revenue commentary on to Q $65 to $68 million on shuttered.
Follow up question on that so maybe you could.
Could you help us with the split between BD and Sarah Barnes I mean, I guess, what I'd just drag out the run rate and <unk> from share of Barnes.
It would suggest pretty big year over year acceleration on BD is that the message we should be taking away here or do we expect to get a little bit more juice out of share Barnes on the second quarter in terms of a quarterly run rate.
No, it's really going to be driven by the BD business.
We would anticipate that the results for share of Barnes for Q2 are very similar to what we saw in Q1, and so that progression as you know on the BD side and continue to see the recovery, but also the acceleration of that business.
Okay, and then the categories with MPD and <unk> I know that John sort of alluded to that but maybe John could you talk a little bit more specifically about where you're seeing the biggest acceleration I know you've met you employ them, but maybe you could also talk about apparel versus hard goods and sort of apparel I guess it was a little bit of a laggard. This quarter does that pick up in the <unk> given the flow of supply that we have coming on.
Yeah. So I think what you will see in Q2 is a.
<unk> returned to growth a more significant growth for the category of climb.
You will continue to see strong growth in what we call new outdoors them, which is really this track height trial run segment, which for US is supported heavily by.
Trekking Poles Headlamps day packs that type of item.
And then you'll continue to see apparel gain momentum to our goals as we've seen it for the whole year.
You know, putting our apparel growth that you know in hot you know strong double digit growth and moving forward like that so you know the season shift.
The biggest impact in Q1 was literally a logistics issue and so it doesn't show and then also the transition between what typically is fall winter. The you know the fourth quarter and the first quarter are heavily driven by E and the second and the third quarter are more driven by time.
Okay very helpful.
And then if we could shift over to see our barns business.
I mean, I guess, if we assume that the <unk> run rate is sort of Max capacity.
For the moment at least where are some of the components that are sort of providing are presenting the biggest headwind, especially for the ammo business and maybe you could break out how much was ammo versus projectiles AR in the quarter as well that would be helpful.
Yeah, I would say ballpark, what we'd like to see at the Sierra level is.
We have three tiers of business one is called OEM as you know, where we shipped bullets do either law enforcement military for others to low DAU. MAU. Then you have the green box side of the businesses, which we send to consumers who load their own ammo and then the third element of that as being the ammo, we load ourselves through our OEM third part.
<unk> partnerships.
We would love to see those at a third a third a third consistently.
And gaming and that exceeds even what our original strategy was with Sierra of originally targeting about 10% of our business in ammo. We've now seen based on demand that that's significantly higher than we originally projected and so now filling that gap between 10% and the market opportunity.
And so today, we've targeted that we'd like to see it about a third of our business on a quarterly or monthly basis as to your point, that's really driven by the components that we cannot supply without being first and foremost for us. The biggest challenge has really been around bras.
And getting reliant brascan components that we feel match up well with the air quality in terms of loaded ammo.
On the importance of accuracy.
We've been able to be very scrappy, and resolve around primers and around for propellant, but but brass seems to still be the biggest challenge loading in ammo in the barn side that business is much more of a 50 50, a lot less OEM and more black box in ammo opportunity and we see the opportunity for.
The ammo to be much bigger than we ever anticipated and that was just limited by the management and ownership for the past and again, that's the same we have the opportunity to load ammo within Barnes.
We obviously can provide ourselves with with the bullet we've been able to be very scrappy and acquire primers and propellant and continue to face the challenges of getting the bras that aligns again with the quality and importance of Barnes ammo.
Alright, very helpful. Jon will jump on carrier thanks, guys.
Our next question comes from the line of Linda Bolton Weiser from D. A Davidson your line is open.
Hi, Thank you I was just curious on.
M&A front I think you alluded to them some activity that maybe you're looking at things can you just talk about do you find the environment difficult because of this backs kind of going after a lot of deal some of the companies have said that.
I'll jump in and Eric can add his piece I think twofold for US one we have a very clear view of what we would consider appropriate M&A within the clarus portfolio.
And so you know we have well targeted brands that we define super fan brands, if they don't fit in that mix. We typically don't track them irregardless, if they're in a process or not in the process and then a lot of the superfan brands. We worked through our not process oriented brands. They are founder led to organizations that through.
Long term relationships we've built.
And understanding that Clarus is the right organization to manage and continue to accelerate those super fan brands, realizing that those founders want a long term emotional connection to them and want to be proud of where that brand goes. So we havent been really impacted by the whole stack discussion going on.
On or felt pressured by that in terms of the multiples in the marketplace.
We continue to look for for Super fan brand opportunities.
And our very I would say disciplined in our approach and as Aaron mentioned in the script, ensuring that the way we look at them both from a ability to accelerate through the innovate and accelerate strategy, but then also knowing what what it would cost us.
And what that impact would be on on our leverage within our own situation and the way in which Aaron has managed the financials of the business.
As it allows us to be you know.
Or look to be more aggressive in the near future.
Okay.
Okay. Thank you very much.
Our last question comes from the line of Randy <unk> from Jefferies. Your line is open.
Hey, how are you guys Oh Jets go jet [laughter].
I hope so one thing I am excited but.
So I guess I couldn't hear something on the acquisition kind of topic for a second.
Maybe just give us for.
Perspective on capacity you may have to look.
Look at acquisitions at this point Erinn.
What do you have kind of firepower at your disposal to look at some of these opportunities that may be out there I was just curious.
Yes, so naturally with the pro forma business that we have today and the progression that has taken place.
You know candidly, we have we have quite a bit of dry powder as it relates to our ability to evaluate.
And to be able to fund through our through the utilization of our balance sheet.
Partnering with the different bank.
Relationships that we have within our group I'll hold off on giving too specific there Randy just because you know naturally these things.
Take a life of their own but that's the way we did highlight what we did as it relates to how we think about our capital structure.
For us to maintain a responsible responsible level of leverage.
But first and foremost we will be looking to utilize our balance sheet, our banking relationships upsized credit facilities et cetera, et cetera that would enable us to continue to progress forward with the.
The growth and development of the clinic holdings.
Great. That's super helpful. And then the wandering if you could just get you guys discussed this like I had to hop on the call little late but.
One thing I have noticed from a consumer facing perspective.
Is that there is.
You need the web site is full of really immersive kind of content and really just highlights.
The products the ambassadors for the brand Black Diamond et cetera. So just curious on you know feedback or any type of conversion improvement you're seeing is a result of that debt.
Improved content experience on the website with your customer base.
Yeah, Great question, Randy and that was you know and I'm glad you picked up on that that was the major focus websites have two purposes. One is they are today. The face of every brand you've never heard of something that I would tell you about Randy. The first thing you do is look at your phone and look it up in the first impression of that brand on that website.
As you know a good portion or do I want to see more and so first and foremost it was about making sure that our activities are athletes our content on a whole statement about why BB was pretty are present in our website and communicated that the second side of that is just how quick you can navigate through the website clicks.
And be into a shopping cart should you wish to acquire product.
And all the data analysis that we're doing from from re targeting through two increasing our traffic to expounding and tying into sell off.
Purchase opportunities through Instagram and so we're on a pretty aggressive.
Aggressive approach on both sides continue to make sure that on our website is the end they'll be all for the sports in which we serve as a brand that are climbing back country trail running.
And showcases all aspects of it you know from trekking Poles to jackets to pack and then the other side is just making sure that we continue to be you.
You know very inviting to the way in which we communicate with our consumers on a regular basis through email Instagram social media Facebook to drive traffic to the awareness of our new products and you're going to see as you recently have the integration between our website and our Instagram to really showcase all of these amaze.
<unk> products, we have that in the past, we we didn't do as great a job at showcase in the 100 to 150, new innovations that we pump out each season.
Yeah. It's Super helpful. And then did you give an update on where you stand on.
Low levels of supply as it relates to the.
Bullet ammunition area of the business.
Yeah.
What we're seeing is that it continues to be pretty consistent with what we saw on Q1, we are making.
Concerted efforts to increase that as time progresses, and we feel like we are making some headway. There. However, as it relates to some of the animal components as John described there are some headwinds there are some constraints, but you know candidly nothing that we haven't been able to solve for and nothing that we won't continue to be able to sell for as the year progresses.
And as we continue to work through this I think that is something that we have really demonstrated across the board is our ability to work with partners in managing their supply chains in a very dynamic way, but also ensuring in and.
Securitizing, the different components, whether it be raw materials, but also the.
On the components for for the sheer barns business or being able to get inventory out of the factories for the BD business. It really is just a matter of timing and how we've been able to land some of that out and cadence. It accordingly, and that's also reflected in the updated guidance.
We provided for the year, Randy we take the approach that.
That if you want to win the game it doesn't matter what the weather is figure it out.
No rain hail wind just figure it out everybody's playing on the same level playing field you just gotta be smarter scrap here.
They have to work a little harder, but those who figure it out when.
Got it good well, it's a super helpful guys really appreciate it.
Always a pleasure.
Yeah.
At this time. This concludes our question and answer session I would now.
And I'd like to turn the call over back to Mr. Walsh for closing remarks.
Thank you we'd like to thank everyone for listening to our call today and we look forward to speaking to you again, when we report on our second quarter 'twenty 'twenty. One results. Thanks for following up all the best everyone.
This concludes today's conference call. Thank you for participating.
May now disconnect.
Yeah.
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Okay.
Yeah.
Yes.
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Okay.