Q4 2023 Clarus Corporation Earnings Call
[music].
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 31st 2023, joining us today are Clarus Corporation's executive Chairman Warren Ganders.
Yeah, So Mike Yates and the company's external director of Investor Relations, Matt Berkowitz. Following their remarks, we'll open the call for your questions before we go further I would like to turn the call over to Mr. Berkowitz as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1095.
Divides important cautions regarding forward looking statements Matt. Please go ahead.
Thank you before we begin I'd like to remind everyone that during today's call, we'll be making several forward looking statements and we make these statements under the safe Harbor provision.
Private Securities Litigation Reform Act. These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
These forward looking statements are subject to potential restaurant uncertainties that could cause the actual results of operations or financial conditions of Clarus Corporation to differ materially from those expressed or implied by the forward looking statements more information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public.
<unk> filed with the SEC I'd like to remind everyone. This call will be available for replay through March 21, 2024, starting at seven P. M Eastern time 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.
Now I'd like to turn the call over to Claris as executive Chairman Warren Kansas.
Good afternoon, and thank you for joining Claris, there's earnings call to review our results for the fourth quarter and the full year.
I'm joined today by our Chief Financial Officer, Mike Yates.
I will start the call by addressing the overall business and corporate strategy.
Mike will then provide specific comments on the performance of our segments and a more detailed financial review.
While consumer demand remained constrained adversely impacting our fourth quarter results, we have taken crucial steps to realign our overall platform and individual brands to position claris for long term profitable growth as a pure play E. S G friendly outdoor business.
Specifically, we completed completed the sale of our precision sports segment.
Aligning the company to focus on our outdoor and adventure segments.
As we have communicated in prior quarters, we are establishing new baselines for our brands.
During this transition period, our leadership teams of both outdoor and adventure spent much of 2023.
Then to find areas for structural change.
Process improvement and enhanced operational efficiencies.
Incremental initiatives in the fourth quarter included taking a sharp action on inventory and product categories that we view as non core going forward, while exiting unprofitable retail decisions from prior years.
We entered 2024 with highly capable leadership teams committed to increasing profitability and unlocking new opportunities.
While continuing to build the foundation to scale and achieve operating leverage in future years.
Before discussing those segments in greater depth, let me first address the monetization of our precision sports segment.
Last week, we completed the $175 million sale, which represents a highly successful outcome for claris.
I'd like to highlight that we invested approximately 132 million in this segment.
Since 2017.
And during our ownership period precision sport returned nearly $94 million of cash to claris.
Inclusive of the gross proceeds from the sale, we generated nearly $270 million during our ownership period.
Importantly, the proceeds from this sale allowed us to retire all of Claris as outstanding debt.
Our balance sheet is now debt free with approximately $43 million of cash on hand.
Provides flexibility in how we pursue our long term value creation objectives and growth initiatives.
From an operating perspective Claris is now simplified around to traditional outdoor brands.
Without the overhang from the Associate Association with ammunition.
We believe that our platform offers an attractive entry point into two consumer segments with broad appeal and tailwind supporting growth as we enter a more normalized post COVID-19 environment.
In the near term our capital allocation strategy will focus on strengthening our existing operating businesses either through reinvestment in our high margin categories or through bolt on product acquisitions that enhance our brands.
Turning to our two remaining segments outdoor and adventure we are confident that we have two leaders in place.
Are we capable of driving claris has turned around.
We believe that we are at different points in the reset of both segments, but each segment is showing signs of the steps steps taken thus far are positive.
These brands are leaders in their respective core categories, and we expect that they will rebound as the market stabilizes and reaches a new normal.
We continue to believe that we are in the early stages of our action plan and recognize that our strategic initiatives require patience.
You'll hear more from both Neil Fiske and that Hayward at our upcoming Investor day.
Well they will share details on the significant strides we've taken in our strategic review.
Putting rebuilding top level leadership.
We are engaging with our customer base and restarting the product development pipeline with a focus on delivering enhanced product margins.
While we are excited to share our longer term vision next week I would like to take a moment now to discuss Q4 developments.
After turning the corner in Q3 adventure had its best quarter of the year with 43% sales growth and gross margins of 38, 1%.
This reflected increasing sales in the Australian market and the benefit of the tread outdoors acquisition.
For context, excluding the acquisition of tread.
Gross margins increased 700 basis points over the prior year period.
We are pleased with the intermediate steps management has taken to improve overall profitability.
Our revenue growth in the quarter was largely driven by the introduction of the new pioneer six platform in Australia and.
And the first delivery deliveries to a new OEM customer for an upcoming product launch.
With respect to pioneer six this marks the first major new product launch in the last 15 months.
The pioneer range is the hallmark of the Rhino rack and we are excited to bring to market the portfolio of its accessories that complemented over the next 12 months along with other new product launches throughout 2024.
With respect to outdoor sales for the quarter were down nine 4% over the prior year period.
However, when zooming into the various selling channels, we began to see signs of stabilization, particularly in north American wholesale, which ticked up 2% over the prior comparable period.
This was driven by increases at our national accounts offset by continued challenges in certain key accounts, mainly big box partners and the specialty channel.
Our North American E Commerce sales were up 3% in the period offset by lower pro sales.
Our European International businesses were challenged in the quarter driven by warmer weather trends to open in the winter season.
At the business unit level, we saw gains across our footwear mountain products with slowness in ski and apparel.
Our core climbing business was up 4% for the period, but it's important to note that we are seeing repurchasing trends in the first quarter of 2024 to fill shelves back to normalized stock levels.
I am excited about our potential to build long term value and outdoor.
Neil has brought on an excellent team that is energized to break the black Diamond brand forward.
While we believe we have identified the necessary changes it takes time for those adjustments to manifest themselves in terms of performance.
We continue to stress simplification throughout the organization.
One of the core tenants of prior versions of Black Diamond with a focus on fast innovation and speed to market.
Neil and team have taken a balanced approach to product building a plan to reduce skus nearly 30%.
Focusing on fewer better products.
As part of that process, we took a critical view of necessary products and categories in the us.
Societe inventory levels.
You will see that we have taken an inventory write down.
$4 2 million in the quarter.
Most of which is associated with these actions.
Mike will cover this in greater detail in a moment.
In summary, while 2023 was a transition year for Claris. We're excited to begin 2024 with a solid foundation in place driven by continued strong momentum in adventure and operational progress and outdoor.
After completing the sale of our precision sports segment, we are now debt free with over $40 million of cash on our balance sheet, and the financial strength and flexibility to create sustainable value for shareholders.
Our priorities remain firmly set on the stabilization of sales and margins additional organizational reshaping and cost reduction initiatives to drive profitable growth in 2024 and beyond.
With that thank you for being with US today, and I will turn the call over to Mike now.
Thanks, Warren and good afternoon to everyone I'll start with our performance in the fourth quarter.
But before I dive into our reported results I'd like to share a summary of our performance inclusive of both continuing and discontinuing operations.
Lauren mentioned, we announced the sale of precision sport on December 29, 2023, and completed and closed on the sale of the segment of approximately $175 million on February 29 2024.
Accordingly under U S. GAAP financial statements had been presented on continuing operations and discontinued operations presentation.
Financials, and resolve clinical precision sports segment.
Been segregated and reported assets and liabilities held for sale on the December 31, 2023 balance sheet and the income statement as reported under discontinued operations for all periods presented in today's earnings release and in our Form 10-K filed earlier today.
In the fourth quarter.
At precision sport were $18 3 million, which exceeded our expectations compared to the guidance, we gave when reporting our third quarter 2023 results.
Including precision sport total fourth quarter sales were $94 8 million. This compares favorably to the $83 million to $87 million, we guided for the fourth quarter.
For the full year sales, including the contribution contributions of precision sport.
We delivered sales of approximately $376 million.
Again reflects the outperformance versus our guidance range of $3 $64 million to $368 million of revenue.
From an adjusted EBITDA perspective, precision sport generated $26 $8 million for the full year 2023 on sales of nearly $90 million or 29, 8% EBITDA margin.
And $4 9 million of adjusted EBITDA in the fourth quarter of 26, 7% on the $18 3 million of rapid.
Beginning today and going forward our U S. GAAP results will be comprised of our outdoor and adventure segment and results will be referred to as continuing operations.
Fourth quarter sales from continuing operations were $76 $5 million compared to $73 8 million in the prior year fourth quarter.
And largely by the strength in our adventure segment with strengthened adventure was.
Partially offset by softness in the European region at outdoor consistent with the softness we discussed.
During our last call.
On a reported basis sales were up three 6% on a constant currency basis sales were up three 8%.
FX was not material in the fourth quarter as you can see.
Our adventure segment saw its best quarter of the year sales increased 43% to $26 4 million or $26 6 million on a constant currency basis.
<unk> to $18 5 million in year ago quarter.
This increase reflects.
Increased sales in the Australian market and the benefit of the tread outdoors acquisition announced during the fourth quarter.
<unk> contributed approximately $1 $7 million of revenue in the fourth quarter.
The adventure business has started to benefit from various initiatives, including they tried acquisition new product development, new customers and a new global leadership.
Global leadership team under the direction of Matt Matt Heyward.
New channels, new products and new customers will be critical as we grow adventure in 2024, and we are excited to introduce Matt Hayward at our Investor Day, as Laurent mentioned on Monday March 11 to share ambition for adventure in more detail.
Sales in the outdoor segment.
<unk> was $50 1 million or $50 million.
On a constant currency basis compared to $55 3 million in the year ago quarter. The decline primarily reflected continued challenging market conditions in both north and North America and the European wholesale market.
Well, the unseasonably warm winter weather.
Notably however, we are beginning to see the wholesale market stabilized both in North America, and Europe, our business simplification initiatives initiatives are beginning to take hold as we operate in the first quarter of 2020 for.
This process and the benefits from our simplification journey will be ongoing throughout 2024.
Good news is the North American wholesale market is stabilizing.
However, our direct to consumer channels still are very highly promotional.
Market continues to work through excess inventory levels.
During the fourth quarter, we made some adjustments to our retail strategy, which is part of our D to C business.
As Warren alluded to.
We closed four retail location.
However, we also opened a new location in Seattle, Washington area and are committed to opening flagship retail store in Seattle, Seattle area as well.
The Seattle Metro area has proven to be a highly attractive market based on strong DTC E. Commerce sales based on the demographics, we would view.
Moving to consolidated gross margin in the fourth quarter.
Gross margin was 28, 9% compared to 37, 2% in the year ago quarter.
The decrease in gross margin was primarily due to a $4 2 million.
Dollar inventory reserve write off at the outdoor segment during the fourth quarter.
The bulk of this reserve resulted from our category review and product simplification process that.
S K used from around 14000 to under 10000.
Another material contributor to the reserve, whereas the recently announced Pete that regulation change.
Deepak is an evolving industry issue that we'll be dealing with throughout 2020 for DFAST is a chemical used in many products to create the waterproof benefit found in many outdoor goods, including our apparel.
Certain states in the USA have banned the sale product containing Pete that beginning in 2025, and some large retailers would no longer accept or purchase any product for pizza beginning this summer.
We're actively managing their end of life of a product containing P. Fast during 2024, but depending on our execution and the market reaction to these regulatory changes we may have further exposure to pizza huts inventory during 2024.
Exposures, both inventory on hand, and commitments to buy inventory containing PFS from our vendors.
Other than the P fast risk, we believe we have right sized and properly valued or inventory at outdoor.
Based on this fourth quarter action.
Inventory ended the year at outdoor of $64 8 million total inventory.
Continuing operations was $91 million.
Gross margin at the adventure segment improved to 38, 1% from 31, 7% in the year ago quarter.
This increase was due to cost out initiatives to right size the business earlier in the year as well as lower freight cost.
Adjusted gross margin in the fourth quarter.
Was 29.0% compared to 37, two in the year ago quarter related to inventory step up due to the tread outdoors acquisition.
Selling general and administrative expenses in the fourth quarter were $37 million.
Compared to $29 9 million same year ago quarter. The increase was attributable to the outdoor segment with higher legal and marketing expenses compared to the prior year.
Loss from continuing operations in the fourth quarter of 2023 was $7 2 million.
A loss of <unk> 19 per diluted share compared to a net loss from continuing operations of $83 3 million or $2.25 per diluted share in the year ago quarter.
Net loss in the fourth quarter included $1 5 million of one off charges related to restructuring and transaction costs as well as the $4 $2 million inventory reserve.
Net loss in the fourth quarter of 2000 2022 included a noncash impairment charge of $92 3 billion in the adventure segment.
Adjusted loss from continuing operations.
With a net loss of $2 8 million or seven cents per diluted share compared to adjusted income from continuing operations of $4 4 million or <unk> 11.
Per diluted share in the year ago quarter.
Okay.
Adjusted EBITDA in the fourth quarter was a negative $3 5 million.
Or an adjusted EBITDA margin of negative four 5%. This compares to $3 6 million or an adjusted EBITDA margin of four 9% in the same year ago quarter. The.
The decline in adjusted EBITDA was primarily driven by continuing challenging market conditions that outdoor and increasingly inventory reserves at outdoor and higher legal and marketing expenses.
By segment adjusted EBITDA was negative $4 $6 million at outdoor primary due to the inventory reserve of $4 2 million in the fourth quarter adjusted EBITDA and adventure for the fourth quarter was $3 $9 million or 14, 8%.
Let me shift now over to liquidity at December 31, 2023, cash and cash equivalents were $11 3 million compared to $12 million at December 31, 2022.
Total debt.
<unk> 31, 2023, with a $119 8 million compared to $139 million at the end of 2022.
After the closing of the sale pursuit in sport last week, our total debt today is zero.
The credit agreement was terminated and repaid in full at closing.
Cash of approximately $43 million is on our balance sheet as of today.
We expect to realize a gain on the sale of precision sport in the first quarter of 2020 for a gain will be recognized through discontinued operations.
Expected cash tax expenses, only expected to be $2 million to $3 million, allowing us to maintain most of the net cash realized from the sale of precision sport.
Free cash flow defined as net cash provided by operating it operating activities less capital expenditures for fourth quarter of 2023 was $13 3 million compared to $30 3 million in the prior year quarter.
These pre cash flow results include both continuing and discontinued operating results.
As a reminder, we have NOL carryforwards for U S federal income tax purposes.
Seven $7 million at December 31, 2023.
Company expected expects to utilize all of the remaining Nols in their entirety in 2024.
Claris.
Utilized $103 million of NOL during the ownership period.
<unk> sports from 2017 to 2023.
Let me share a few additional thoughts regarding capital allocation, adding to Warren's comments, our near term capital allocation strategy.
<unk> organic growth through reinvestment in our existing businesses.
Beyond organic growth, we will pay our quarterly dividend and selectively look at smaller bolt on M&A opportunities to add to our adventure business.
We did in the fourth quarter with the purchase of tread.
Otherwise throughout 2024, we will continue to focus.
On cash generation through our continued right sizing of inventory and growth of our businesses with the intent of letting cash grow on our balance sheet as we work on growing improving the profitability of our existing businesses.
So if we're looking forward to our financial guidance I would like to highlight that we continue to proceed in our lawsuit against <unk>.
Trading LLC and Mr. Harsh a padilla.
The parties conducted expert depositions on February 29th March one and March six of 2024.
At this time there is no further discovery to be conducted.
<unk> submitted a joint letter to the court on March 13th dating among other things whether or not they plan to file a motion for summary judgment.
Council for the parties are required to meet in person to discuss settlement within 14 days of the closing of discovery.
The parties are required to submit a joint pretrial order within 30 days of the closing of discovery or if a summary judgment motion has been filed within 30 days of a decision on such motion.
Included in our earnings for the year was approximately $1 4 million of legal and related cost associated with this lawsuit.
The company also intends to file similar complaints against apparel Lux volatility advisors LP and caption management LLC.
Moving onto our outlook for 2024 weeks.
We expect 2024 sales to range between 270 million to $280 million and adjusted EBITDA from continuing operations of approximately 16 million to $18 million or an adjusted EBITDA margin of six 2% at the midpoint of revenue and adjusted EBITDA.
We expect capital out capital expenditures to range between $4 million and $5 million and free cash flow to range between 18 and $20 million for the full year 2024.
First quarter sales are expected to be between 64 and $66 million and adjusted EBITDA is expected to be between one and $2 million.
Our outlook does not include any expense or ongoing litigation specifically relating to that matter are further increases in <unk> related inventory reserves, but it does reflect the early result of our effort to achieve less complexity better margins and a streamlined business as we grow our outdoor and adventure segment.
And.
As we look forward to 2024, I'd like to reinforce what warrants set about the monetization of precision sports segment.
During our ownership our precision sport the segment returned nearly $270 million of cash to claris.
We believe this was a very successful outcome.
And the <unk> of the value creation potential of our businesses and the team to lead them.
Cited about our new positioning I think per plate outdoor business and believe we have a strategy in place today to deliver growth and profitability in 2024 and beyond.
At this point operator.
We're ready to take questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Okay.
Our first question comes from Laurent <unk> with BNP Paribas you May proceed.
Good afternoon, and thank you very much for taking my question.
Wanted to ask about.
The Investor day for next week.
I don't know if you can share any highlights.
Ahead of the meeting, but should we anticipate three to five year targets.
Uh huh.
Next week.
Yes, yes, that's a good question. So we will be going through all of the segments.
Next week, and we'll be providing you.
With three year.
Outlooks for our businesses for each one of them.
Super Helpful. And then and then on the tread business I don't think you quantified the size of it.
Whether it was the announcement in today's press release, just so that we can understand the organic.
Revenues.
How much did it contribute in the fourth quarter I think it is de minimis, but but more importantly, how do we think about tread.
Context of FY, 'twenty, four revenues of $2 $70 million to $280 million.
I think you'll hear more about that from that Hayward next week.
We're not going to break out specifically the various.
Brands, but he'll take you through.
The automotive as a single segment.
Okay fair enough.
I think Andy kinetic and he can speak to it and there'll be able to speak to kind of the.
Kind of the margin complexion.
The various businesses and how it all rolls up.
Okay Fair enough and then maybe just on the guidance for the midpoint of EBITDA margins.
EBITDA margins of six two.
I think that's roughly 600 basis point improvement over last year is that driven drill.
Driven by gross margin or SG&A efficiencies and then second part of that multi part question.
The piece that the magnitude of PFS.
I recall tell me if I'm wrong here, but I thought apparel was like 15% about door. So it seems like it's a small business, but if you could clarify just how big the apparel business as we think about this <unk> situation.
Sure sure Laura what kind of work backwards Youre right apparel is about 15% of our business.
So.
It has historically been about 30% to $40 million.
Outdoor.
Yes.
As I had mentioned it.
The risk here in 'twenty four as both the inventory they have on hand and commitments, we have to purchase inventory it really comes down to our execution.
How well, we execute here selling and how well the market absorbs.
What essentially is the waterproofing product.
Yes, just before.
I just wanted to say this fiscal.
Just before.
We talk to the first part of your question. So everybody has this PFS issue right now.
The technology for PFS is is a very good technology, but it's not I mean.
These are superb products and in some cases.
In many cases actually the.
The alternative approaches for waterproofing.
Aren't as good.
So we believe at this point, we believe that we will be able to move.
Move our inventory.
That we have the chiefess related.
But given.
The fact that everybody's got the same.
And in the market.
Has the same issue.
There could be a supply, but so we are being cautious.
About it I mean, it's it would be.
The numbers aren't aren't large but it's.
It's a minor it's a minor risk we do think actually prospectively.
In a year's time these.
Products will be desired by consumers.
Just because of the.
Kind of what they performed.
Mike do you want to ask scripts, yes of course, yes.
And with regards to kind of guidance next year, most all of that improvement that you are.
Referenced right.
All at the gross profit level right.
<unk>.
As you recall during 2023, there were so so much promotional pricing in place.
Margins were hit pretty significantly.
The promotional pricing, we see a recovery.
From a price.
Stability in 'twenty, four and from some margin enhancements at the gross profit level that both the outdoor and more importantly, the adventure business are focused on.
Very helpful. Thank you very much for taking my questions.
Sure.
Thank you.
One moment for questions.
Our next question comes from Matt Koranda with Roth them Cam you May proceed.
Hey, guys.
I guess a few from me wanted to focus on the 2024 outlook that you've provided.
For the roughly $275 million in revenue are you willing to just kind of roughly split out the assumptions between outdoor and adventure. It just looks like a veteran has been growing nicely, even if you strip out tread.
Like some really healthy organic growth in the fourth quarter I would assume we can probably maybe not pull forward that rate of growth, but we can probably pull forward some growth, which would suggest that outdoor is declining so why the decline after kind of a down year in 'twenty three or we are shedding.
Some unprofitable revenue that sounded like that was what you were alluding to so maybe just the split there in just a little bit more around the puts and takes of growth at outdoor and adventure.
Yeah, Matt. Thanks. Thanks. Good question, you pretty much nailed that though yes I expect.
To grow we're not going to give specific guidance today by segment.
Youll see.
On Monday, we will talk a little bit more in detail about.
Where we see the business is going but adventure, we'll grow it should grow.
In outdoor will actually shrink, but thats a direct result of some of the simplification and the SKU reduction and leaning into our best products and it's a journey that we're going through here in 'twenty four to kind of.
Turn to the outdoor business around but.
That's your view and your assumptions are spot.
Yeah, Matt.
Neal will take you through.
<unk>.
From start to finish what he found.
Howard.
Processing that.
<unk>.
How the.
What the what the future looks like.
But.
One of the things I had to do was.
Really to look at.
SKU rationalization and you'll see that in <unk>.
Quite a bit of detail and by virtue of that we will shrink the revenues somewhat.
But.
Margins.
Will improve.
Quite.
<unk> and I think.
When he goes through the plan and you look at the the.
EBITDA margin progression over the next couple of years I think it all will come into focus.
Okay. That's helpful.
And then just I guess the bigger broader question that I know, we're going to get here is basically the guidance has revenue down at the midpoint year over year, but EBITDA pretty healthily.
And I guess that implies.
Doing away with some unprofitable bid.
Mess and removing structural costs I know you mentioned most of the improvement is going to come from gross margin.
But maybe just help us square all of that and are there I guess are there corporate costs that can come out now that <unk>.
Precision is no longer part of the portfolio here.
Yes, so what we're getting into all of that on Monday.
To provide all of the detail that youre going to need to put together.
Accurate models.
The corporate overheads.
Will be coming down.
During the course of the year.
That's our expectation as we are.
<unk>.
Yes.
Some of the things that we've had in place.
We're able to reset.
The other thing that as you know, we've given some guidance to what our.
Legal expense has been for the 16 b.
Trading issue and.
We have baked in.
Our guidance for this year.
The appropriate amount of legal expense.
To continue to pursue.
Not just a <unk> issue against.
Half trading but also.
As Mike said, we will be filing complaints against both parallax.
And caption.
So that's built into the numbers for now.
Obviously, what's not built into the numbers is obviously any interest income.
We'll get on our cash balances, which is now.
Or are they going to plus 5% rate.
Okay that makes sense.
And then.
I guess the PFS commentary can we just nailed down and maybe I missed it but did you guys quantify the exposure. There. Obviously there is there some sort of inventory, which sounds minimal, but then the more interesting or maybe the thing I'm more interested in understanding is the vendor question. You mentioned, maybe there is some commitments from them.
Minimum purchases and stuff like that maybe just any way to think about that.
I mean I think go ahead.
Mike I was going to say, we didn't quantify it it all depends.
It could be three.
Three to $4 million to $5 million, but it depends how we execute that that's why we're bringing it up right how the market absorbs this work.
Product, but as long as we work through this more than alluded to it's waterproof shell.
Great.
It's all green product.
It's all great product.
We're just.
Highlighting it because it is a it is conceivably a risk to our numbers. We don't think I would say at this point, we don't think it's it's.
Material risk.
But we're just highlighting again because every other company in the World also has <unk> issue and so depending upon to how that.
How that all processes through.
Maybe a little more challenging.
For us to sell.
Product, but again, we believe that product, we believe that product.
Yeah.
People made.
By this now because they won't be able to get it in the future and it is better.
The waterproofing with PFS is better than.
The other technologies that are out there that we would have to use.
And Matt.
Matt the charge that we took.
We did take a charge in the fourth quarter related to PFS and that was for.
Commitments to take product that would that we said no. We don't want any more of this so we didn't want to compound our problem.
So that's that's key to understand I think is what youre trying to get to.
The inventory on hand, or the inventory being built already is where the exposure is and as long as we execute and move that inventory through our channels.
As Warren said, we don't think it'll be material, but in the same breath. If for some reason were not able to move that inventory.
Sure.
We wanted to be upfront with the situation because we do believe we've adjusted our inventory to the appropriate level, but if we do have the issue and Thats 24, we didn't want to ask you asking questions sort of street asking question, but I thought you wrote down your inventory to the right levels at the end of <unk>.
Last year. So this is the one thing that's out there that could potentially be at risk, but it's as.
As we said we think is a very good inventory very good product that should move but.
And we did take a charge in the fourth quarter for the stuff that we were committed to buy that we haven't been bought yet and that's that's.
We put a line in the sand from that perspective. So the risk is just inventory on hand in inventory that's been built.
That we have to take still.
Okay, that's clear.
Just timing.
Potential risks there it sounds like you've got to sell it.
Retail by summer roughly.
I would think so bye bye bye third quarter.
Max Okay, Maggie most of it most of it will go through the second quarter.
Okay, Great guys I'll take the rest upon thank you.
Thank you.
One moment for questions.
Our next question goes from an aggression with B Riley you May proceed.
Hello Anna.
Hey, good afternoon.
Thanks for taking my question.
I guess encouraging to hear that you're starting to see some stabilization at wholesale in North America.
I guess would.
Would you characterize their inventory levels now as having been mostly appropriately normalize then and to what extend out to 2024 okay.
And so I guess when would you expect that to normalize and what's being assumed in the 2020 core guide.
Well.
I'll answer that.
It's normalizing.
It's normalizing.
So.
Yeah.
We're working on things or things are getting better.
<unk>.
We don't believe that.
Our retail partners are fully stocked.
At a normalized level yet.
Got it so I guess why wouldn't you expect sell in and sell through to become more balanced.
We're actually seeing I would sell in <unk>.
Prove on a year over year basis week over week basis that here in the first quarter compared to first quarter last year and it's more than just mentioned I think that that's starting to take hold here in the first half.
Half of the year.
Normalized <unk> for the back half.
Yeah, we've youll hear from Neil and I don't want to steal his thunder.
Changes that you've made.
But what I can say is that.
Or are people are on it now.
We are actively pointing out to art.
To our retail partners, where theyre short.
And.
We're pushing them too.
Fill out the assortments in their shelves and that seems to be.
That seems to be working.
But.
They are.
The body is cautious right now and.
So I think that's I think that's.
I think that's part of it but.
Our view our view is is that.
We're looking forward to we're looking forward to it.
Great great.
Great Summer and.
We think that.
That's kind of the still and will accelerate.
And we have.
We have the we have the right inventory too.
To achieve those goals.
I think you'll hear about that.
Got it.
I'm trying to kind of the commentary around promotions and DTC, specifically is that a function of mix or no excuse.
Skews more towards apparel and footwear wholesale exposure or is that a function of.
Closing some of those retail locations and just clearing that inventory.
Or something else.
Morris.
In the marketplace.
Mike.
Yes.
Like do we lose him.
Yes.
Did you hear my answer I'm, sorry about that.
We lost you Mike can you just I'm sorry, I said, it's it's the former Ana it's the.
Apparel, the promotional pricing in the marketplace for apparel right now.
All throughout.
Q3, Q4 was extremely strong.
That's really the main driver.
Got it let me comment Monday, Thanks, Scott.
Thanks, Okay.
Thank you.
One moment for questions.
Our next question comes from Mark Smith with Lake Street, You May proceed.
Hi, guys.
First question, Mark I, just want to confirm.
The EBITDA guidance that you guys gave for 2004 here that is stripping out and excluding all of your one time items, including the legal expense expected in some of these lawsuits is that correct.
The EBIT guidance.
The EBITDA guidance of $16 million to $18 million full year guidance.
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It does not include significant cost associated with the legal legal costs, that's what I said in my statements.
Prepared remarks.
Okay.
And then it sounds like a Monday, you guys will walk through a little bit some of the kind of corporate overhead as well as kind of total SG&A outlook.
Does it seem like in the near term here this kind of $30 million range on total SG&A seems like about the right range here in the near term.
Yes, so thats a little high but.
It's a little less than that but you're in the ballpark.
Okay.
And then the last question for me was just.
If you could call out I haven't seen it yet or maybe I missed it.
Impact from FX and currency here in the quarter and then kind of your outlook. If you will for 24.
No.
The comments I made in the prepared remarks that FX was completely immaterial during the quarter during the fourth quarter.
Our <unk>.
<unk> forecast for this year is based on exchange rates here.
From a few weeks ago, so not significantly different.
Then what kind of business has been functioning that throughout the third and fourth quarter of this past year.
Excellent. Thank you.
Thank you I would now like to turn the call back over to Mike Yates for any closing remarks.
Thank you. Thank you for your interest in Claris and we appreciate everyone's questions and we look forward to spending more time with you next week in New York City for our Investor Day.
Sure.
Both Warren and I are excited to have Matt Hayward speak in depth about the adventure business and Neil Fiske to spend.
Equal time walking through.
His plans edition for the outdoor business. So we thank you for your continued interest in Claris and look forward to speaking and seeing many of you next week in New York.
Thank you for your participation you may now disconnect.
Thank you.
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