Q1 2025 Clarus Corp Earnings Call
[music].
Discussed Clarist Corporations, Financial Results for the First Quarter, and did March 31, 2025.
Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders, CFO Mike Yates, President of Black Diamond Equipment, Neil Fiske, and the company's external director of investor relations, Matt Berkowitz. Following the remarks, we'll open the call for your questions.
Speaker Change: 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 Security's Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead.
Speaker Change: Thank you. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, then we will make these statements under the safe harbor provisions of the Private Security's litigation reform act.
Speaker Change: These four looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
Speaker Change: These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation are different materially from those expressed or implied by the forward-looking statements.
Speaker Change: 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 reports filed with the SEC.
Speaker Change: I'd like to remind everyone this call will be available for replay starting at 7pm 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 clariscorp.com.
Thank you.
Speaker Change: Afternoon, and thank you for joining Clarissa's earnings call to review our results for the first quarter of 2025.
Speaker Change: I am joined today by our chief financial officer, Mike Yates, to recover our overall performance and our adventure segment, as well as Neil Fiske, who will discuss our outdoor segment.
Speaker Change: During the first quarter, we remain focused on executing against our strategic roadmap and position in Clarice for profitable growth over the long term.
Speaker Change: Despite an increasingly challenging consumer backdrop across the global consumer market, C1 net sales of $60.4 million were above expectations.
Speaker Change: Our teams have continued to take important steps thus far in 2025 to further strengthen the core and outdoor and investor-scale adventure.
Speaker Change: Amrometum in the outdoor segment has been driven by our success prioritizing Black Diamond's best and most profitable styles.
Speaker Change: Overall, Q1 financial results were in line with our plan, which reflected our expectations of softer market conditions compared to the prior year period.
Speaker Change: We continue to benefit from product simplification and SKU rationalization initiatives, providing our customers with clear product differentiation and segmentation.
Speaker Change: The Black Diamond Organization is healthier than ever, and the hard work of the prior two years to simplify the business and right size our inventory has better positioned us to whether turbulent periods.
Speaker Change: A key bright spot has been the strong feedback we have heard from our partners regarding our revamped
Speaker Change: Supported by a new approach to apparel and enhanced creative direction, we see opportunities to continue to capitalize on Black Diamond's well-defined brand equity.
Speaker Change: At Adventure, we experienced significant revenue declines as compared to the prior year period, in large part due to discrete shipments that were either delayed or we elected to forego in 2025.
Speaker Change: Michael provides specifics, but we continue to see revenue from one OEM customer get pushed out while they restart production.
Mike Yates: I am pleased to say that orders recently began to flow again.
Mike Yates: Additionally, we cleared a significant amount of slow-moving and aged inventory through an off-priced retailer in the U.S. in Q1, 2020, which did not recur this quarter.
Mike Yates: In our core Australian market, we continue to manage through lower order levels at a historically key retailer, which has been partially offset by growth in certain specialty accounts.
Mike Yates: Excluding the impact of these three customers, we saw overall sales, flat, and adventure over the comparable period which we believe reflects the strength of our brands, even in difficult market conditions.
Mike Yates: I would also like to point out the change in our adventure leadership.
Mike Yates: We have a new segment leader recently promoting Trip Wicoff to head the business.
Mike Yates: Triple joint Clarus last year to strengthen our U.S. business for adventure segments.
Mike Yates: and has made an immediate impact driving critical progress, revamping the organizational structure, bringing on new team members in key positions and changing the go-to-market approach.
Mike Yates: Grip is an industry veteran with over 20 years of deep operating experience and cedar leadership roles at the Club of Businesses.
Mike Yates: He has a wealth of knowledge focused on guiding brands of our size and executing their next phase of growth.
Mike Yates: As part of the global leadership team since joining, it understands the importance of our core Australian market to the success of adventure and possesses a unique view on compelling long-term growth opportunities in other regions.
Mike Yates: He will be splitting his time between the US and Australia headquarters.
Speaker Change: We believe Trip is the right leader for adventure to reach its full potential moving forward.
Speaker Change: Outgoing leader Matt Hayward will depart the company and we thank him for his contribution during his time with Clarus.
Speaker Change: Mathew Hayward, and establishing the foundation for the adventure segment.
Piring excellent new talent in developing new brand-hearted texture.
Speaker Change: Court to this has been the development of a comprehensive new multi-year product plan across the portfolio and entirely new commercialization process.
that will continue to guide us.
Speaker Change: We thank Matt for his contributions and leadership and wish him success in his future endeavors.
Speaker Change: Moving to the big picture, the primary question, as we approach the remainder of the year, is how macro conditions will evolve. As Michael details shortly, driven by growing economic uncertainty due to the
Speaker Change: While we believe we have effective countermeasures to mitigate a portion of the impact from the tariffs, we cannot predict how these tariffs might affect consumer sentiment and demand, making it very difficult to confidently forecast.
Speaker Change: Our focus is on controlling what we can and in that regard we have taken decisive actions to maintain our competitive positioning and Clarus' financial strength overall.
Speaker Change: Deported by a balance sheet was zero third party bank debt, we are committed to taking a prudent approach to capital allocation and managing our businesses to drive long term market share gains while delivering sustainable value for Clarus shareholders. With that, thank you for being with us today and I will turn the call over to Neil.
Neil Fiske: Thanks, Foreign. Turning to slide six, I will review the outdoor segments, Q1 performance and our expectations for the remainder of 2025.
Speaker Change: Overall, Q1 results exceeded our plan and expectations for the quarter from a top-line perspective, while adjusted EBITDA was in line with our goal, and I'm pleased with the continued progress on our strategic initiatives.
Speaker Change: Absent Terrace, we would be affirming our 2025 top line expectations that we share during our call in early March.
Speaker Change: But of course, a lot has changed since then. That's the wild card in all of this.
Speaker Change: Like every company, we are confronting tremendous uncertainty and the adverse impacts of the new administration's tariff and trade policies.
Speaker Change: Thankfully, the hard work we've done to simplify, focus, and restructure the business over the last two years puts us in a better position to absorb the shock and come out the other side even stronger.
I'll come back to the tariff topic shortly.
Speaker Change: For the quarter, revenue came in at 44.3 million. Compared to prior year, sales were down 5.70% or 2.7 million, due to two factors we had expected.
Speaker Change: First, the planned decline in our ski business from the exit of bindings and the pullback and snow safety, both of which were part of our simplification and product rationalization process.
Speaker Change: and second, the shift of IGD revenue to more optimal delivery timing in Q4 of 2024.
Speaker Change: It's important to note that we made the decision to push out more discontinued merchandise in Q1 as a defensive move against macroeconomic uncertainty and potentially we can consume
Speaker Change: By Region and Channel, North America wholesale was down 7.3%, the biggest driver of which was a 38% decline in the ski category in the region.
Speaker Change: North America, digital D to C was down 7%, but delivered more gross profit dollars in channel contribution margin than in the prior year period.
Speaker Change: Europe wholesale was down a more modest 2.7 percent, while Europe's digital D to C was at 10.7 percent.
Speaker Change: International distributor markets for down 21.4% due to the more optimal timing shift of deliveries into Q4 of last year.
Speaker Change: We expect to get some pickup in Q2 with a corresponding decrease in Q3 from the new delivery cadence as we delivered more of the fall assortment a month earlier in this year than in the past.
Crosse Margin, for the quarter, was down 80 basis points.
Speaker Change: to prior year due to the higher mechs and quantity of discontinued merchandise.
Speaker Change: Plus a couple of cost orientations which we don't expect to continue in Q2.
Speaker Change: and the efforts to right-size our cost structure over the past few years.
Speaker Change: Inventory ended the quarter in great shape, down 3.5% to prior year period at 60.6 million and with 74% of the value in our best A-styles, which is where we want to see the mix.
Speaker Change: Adjusted EBITDAF for the quarter came in at 1.7 million, down 1.2 million to prior year due to the lower gross margin and lower top line volume year over year.
Mike Yates: We continue to make excellent progress on our key initiatives. We completed the strategic review of our peeps, snow safety business with the announced signing of the sale agreement today, which michael detailed further.
Mike Yates: We see a healthy order book for our fall winter season, with a Carol bookings up 30% in Europe , and up 50% in North America.
Mike Yates: We successfully launched our new Black Diamond e-commerce site this past April .
Mike Yates: A marketing message is sharper and more differentiated as we saw with our very successful, born from the climbing life campaign this spring.
Mike Yates: Operating expenses continue to come down as a percentage of sales, another 40 basis points
Mike Yates: Headcount is now more than 25% lower than during the first quarter of 2023 when I first stepped into the role.
Mike Yates: Inventory Productivity continues to improve with a better match between Supply and Demand.
Mike Yates: While we are confident in both our strategic direction and performance through Q1,
Mike Yates: We are also in a completely different world than at the beginning of the year.
Mike Yates: The chaos and certainty and supply chain disruption threatened to take a heavy toll not only on business operations but on consumer confidence as well.
Mike Yates: Let me address the biggest of these factors which is tariffs.
Mike Yates: As we see it, there are really three groups of tariffs that impact or potentially impact our business.
Mike Yates: First, the 10% universal tariff and the 25% tariff on steel and aluminum products which are in place now.
Mike Yates: We believe these are likely to stick and so we have taken up price accordingly and proportionately as of May 5th.
Second, the term of tariffs of 145% . . . . . . . . . . .
These are simply untenable and unsustainable.
Mike Yates: Thankfully, we've been working over the years to reduce our exposure to China's source products.
Mike Yates: China represents about 25% of our merchandise costs today and even before the tariff wars, we are working on a plan to resource into other countries by the end of 2026.
Mike Yates: Now we are accelerating those efforts and expect to have new country of origin production up and running by Q4 this year.
Mike Yates: We believe it will take us six to nine months to complete the move out of China.
Mike Yates: So the good news is that we are looking at a very defined period of impact.
Mike Yates: During this transition period, we are limiting price increases on China's source products in most cases to around 10% in order to protect consumer demand in our market share.
Mike Yates: We look at this potential margin-head as transitory and short-term in nature.
Mike Yates: The third category is reciprocal tariffs, which have been postponed until July 8th. Until we have greater clarity on the outcome of trade negotiations currently underway, there is simply no way to predict a plan for this group of trade surcharges. [inaudible]
Mike Yates: So what does all this mean in terms of economic impact?
Mike Yates: We break it down this way. We estimate that the gross impact absent any price in action.
Mike Yates: would be seven and a half to eight million of exposure for Black Diamond for the remainder of the year.
Mike Yates: Pricing actions we have implemented as of May 5th are expected to reduce that exposure to 3.5 to 4 million and essentially cover the 10% universal and 25% steel and aluminum tariffs.
Mike Yates: If we can accelerate our China exit plan, we can further reduce this net exposure by about one to two million in the back half of the year.
Mike Yates: and of course, if there's a favorable negotiation outcome with China, our exposure would drop proportionally.
Mike Yates: Our primary goal in all of this is to protect supply, fill orders and possibly gain share as the market shakes out.
Mike Yates: The silver lining here is a very real possibility that we come through this in an even stronger competitive position.
Mike Yates: The fundamentals of our strategy are more important than ever, and I'm confident that we are well positioned to take on the challenges ahead and grateful for the tremendous effort by our teams to adapt quickly to such an uncertain and rapidly changing environment.
With that, let me turn it back to Mike. Thank you.
Mike Yates: Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide some brief comments on the adventure segment, and then we'll conclude with a detailed summary of our Q1 financial results followed by the Q&A session.
Simon Slyth Seven
Mike Yates: A Q1 adventure results continue to be affected by near-term pressure on the business.
Mike Yates: As we have discussed previously, we have made significant investments that we are committed to maintaining to realize the long-term potential that we believe is achievable with our existing
Mike Yates: We are excited to have added the Rocky Mounts business to our portfolio, which is an ideal complement to Rhino Rec.
Mike Yates: The brand is fully integrated and the product client performed well in Q1.
Speaker Change: Additionally, after a broad, corporate realignment last year with an adventure, the new leadership appointment warned reference of trip flight coffee to the steps forward to take the business to the next level.
Speaker Change: Among his 20 years of industry experience, including time at Tully, here in the U.S., where he grew the brand significantly in the peak periods and was primarily responsible for bringing the market global initiatives and building one-on-one customer relationships.
Regardine Terrace, [inaudible]
Speaker Change: An effect on the venture business, I would note that well, nearly all of the venture products are sourced from Australia and China, based on full year 2024 revenue. Over 80% of the venture's revenue is outside the United States. So the tariffs have a limited impact on a relative basis.
Speaker Change: Nevertheless, we have been evaluating new strategies for our China source products given that our US businesses exposed.
Speaker Change: We are gradually working with our suppliers and our confidence and our ability to move significant manufacturing out of China by 2020-26.
Speaker Change: I'd like to spend a minute diving into key customer mix shifts that weren't outlined.
Speaker Change: with an adventure business during the quarter. We had three customers account for $6.5 million of adventure revenue in the first quarter of 2024 that only generated 1.1 million of revenue in the first quarter of 2025.
Speaker Change: Bess coupled with low recovery board sales of approximately $1 million.
Speaker Change: which was partially offset by incremental Rhino revenue sales to special account customers accounts for the decline.
over the prior year.
Speaker Change: of the recustomers. We believe that two are OEM partner and an Australian big box auto park chain will normalize on an ongoing basis.
Speaker Change: but not to the same level as 2024. The third customer, a US off-priced retailer, we don't expect to be part of our go-to-market strategy moving forward.
Speaker Change: We continue to make inroads with new customers across all product categories, including increasing bike rack doors from 300 to 800 in the first quarter of 2025.
Speaker Change: They've also worked to expand our global reach, adding new customers in the UAE and Africa while improving distribution agreements in Germany and the UK.
Speaker Change: Likewise, our OEM approach is taking root, with new RFQs coming through primarily in Australia and New Zealand.
Speaker Change: Both of these market opportunities will take some time to develop as the sales lead cycles are longer than those on the consumer side.
Speaker Change: Let me now turn to the Consolidated and Segment Financial Review on Slide 8.
Speaker Change: 1st quarter sales were 60.4 million compared to 69.3 million in the prior year 1st quarter. The 13th percent decline in total sales was driven by a decrease in adventures segment of 28 percent and a decrease in the outdoor segment of 6 percent.
Speaker Change: FX with a 1.3 million headwind in the quarter, and the acquisition impact from Rocky Mons was a 1.3 million tailwind in the first quarter.
Speaker Change: This was the first full quarter of revenue for the Rocky Mounts acquisition.
Speaker Change: Clarus' first quarter revenue of $60.4 million was above our Q1 guidance of $56 million.
Speaker Change: Sales did decline year over year as anticipated, as we can execute it on our simplification strategy and continue to deal with a tough macro economy.
Speaker Change: At Adventure, first quarter revenue of 16.1 million was short of our expectations and down compared to the prior year. The 28% decline in revenue at adventures nearly all related to the significant decline in the year over year performance at the three specific accounts.
that I and Warren just highlight.
Head Outdoor. .
First quarter sales were 44.3 million down 6% year over year.
Speaker Change: The decursors due to our continued efforts around product simplification, skewer rationalization strategy.
Speaker Change: specifically the lower revenue from ski bindings and no safety that Neil mentioned. This combined with the plant impact from the shift of the IGD revenues out of the first core with the primary drivers of the lower revenue and outdoor.
Speaker Change: This decrease was partially offset by high revenue from our high margin A and B styles consistent with our simplification strategy. The 44.3 million in outdoor revenue exceeded our expectations.
Speaker Change: Due to strength within our peril and hard-good categories compared to our budgeted expectations.
Speaker Change: This beat includes approximately 1.8 million of revenue at peace that was not contemplated in our previous guidance.
Speaker Change: The gross margin rate in the first quarter was 34.4% compared to 35.9% in the prior year quarter. Gross margin was adversely impacted in the quarter by lower volumes and unfavorable product mix at both outdoor and adventure.
Speaker Change: Specifically, the unfavorable product mix at outdoor was related to high levels of discontinued merchandise that was sold by a promotional pricing during the quarter, including the majority of the remaining PFAS inventory.
Speaker Change: Dunn-Pavable Product Mixed Adventure was primarily driven by promotional sales efforts in North American Market, which combined with the lower wholesale volumes at both Rhino Rack and Max Rack and Australia, drove the decline in gross margin compared to the prior quarter.
Speaker Change: Adjusted gross margin reflects which reflects inventory fair value adjustments of $120,000 associated with the Rocky Month purchase accounting was $34.6 for the quarter compared to $36.9% in the year ago quarter.
Speaker Change: First quarter, styling general and administrative expenses were 26.6 million compared to 28.2 million or down 6% versus the same year ago quarter.
Speaker Change: The decrease was primarily due to lower retail expenses because of our decision to close them profitable retail stores and outdoor.
Speaker Change: as well as lower wage expense, lower marketing costs, and a successful implementation of other expense reduction initiatives to manage costs across both segments.
Adjusted EBITDA in the first quarter was a loss of…
Speaker Change: $800,000, or an adjusted EBITDA margin of a negative 1.3%. The first quarter 2025 consolidated adjusted EBITDA of 800,000 negative was short of our guide, Brick Evans.
Speaker Change: Our Adjusted EBITDA is Adjusted for Ammarization Expense, Disposal of Internally Developed Software, Restructuring Charges, Transaction Cost, Stock Compensation Expenses, and Inventory Fair Value of Purchase
Speaker Change: Additionally, beginning the first quarter of 2024, we adjusted legal costs associated with the Section 16B litigation and a Consumer Product Safety Commission DOJ matter.
Speaker Change: Known as the CPSC and DOJ manner. These legal costs were $625,000 in the first quarter of 2025.
Speaker Change: First quarter, adjusted to give EBITDAB by segment was a negative $200,000 at adventure and 1.7 million positive at outdoor. Adjusted corporate costs were 2.3 million in the first quarter of 2025.
Next, let me shift to liquidity.
Speaker Change: at March 31, 2025, Cash and Cash Equilibance were 41.3 million compared to 45.4 million at December 31, 2024.
Speaker Change: Total debt on March 31, 2025 was 1.9 million. This debt is related to an obligation associated with the Rocky Bounce Acquisition, which is payable on December of 2025. We have no other third-party debt of standing.
Speaker Change: Three cash flow defined as net cash provided by operating activities, less capital expenditures, for the first quarter of 2025 was a use of $3.3 million compared to a use of $18.3 million in the price of your quarter.
Speaker Change: The significant improvement in free cash flow was expected and is consistent with my prior commentary that the prior year's drain on cash would not reoccur.
regarding our cash balance.
Speaker Change: We have successfully completed the sale of an asset which will further increase our cash on hand upon completion. Today, we announce that we've entered into an agreement to divest our peeps, no safety brand for 7.8 million euros.
Speaker Change: This follows a comprehensive strategic review process launched last fall, and we are pleased with the outcome of a competitive process that recognizes the values of Pete's brand, its intellectual property, and its exceptional people.
Speaker Change: Vista Vetsch, Churchill, is aligned with Clarus' prioritization of simplifying the business and rationalizing our product categories.
Speaker Change: Turning to our outlook. As you heard from Warren, we are withdrawing the company's previously issue full year 2025 revenue, adjusting EBITDA capital expenditures and free cash flow guidance.
this is that reflective of the results to date. [inaudible]
Speaker Change: but rather the uncertain environment stemming from the U.S. global trade policies, the potential impact on consumer demand, and the potential impact from this uncertainty on our adjusted EVA dot and free cash flow. This environment is just too unpredictable from which to forecast future financial performance effectively.
Speaker Change: With that said, as we approach the balance of the year, we are confident in our strategic plan, and proactively working with our teams, zunders, shipping partners in real time to mitigate the impact from these trade policies on our P&O.
Neil Fiske: In addition to the price actions as Neil outlined, we are accelerating initiatives to resource into countries other than China.
Neil Fiske: Even prior to the current trade war, we have been working over the years to reduce our manufacturing base in China and believe we can't complete our move out by early 2026. As I mentioned already, adventure sources nearly all of their products from China and Australia.
Speaker Change: Blake Diamond, sources approximately 25% from China, 31% from Taiwan, 15% from Vietnam, 12% from the Philippines, and the remainder from elsewhere.
Speaker Change: Overall, we are actively implementing solutions to offset the cost impact of tariffs. Specifically are working with our vendors in negotiating concessions. We have taken price actions where we believe the higher cost are permanent and we continue to value other countries of origin strategies to source our products.
Speaker Change: We're taking a long-term view, such that these businesses can emerge in an even stronger competitive position once the uncertainty from these trade policy subsides.
Speaker Change: Before turning the call over to the Q&A, I'd like to provide an update on outstanding section 16B, security litigation matters that the company is pursuing. We continue to proceed in our lawsuit against fact-trading LLC and Mr. Horace A. Padilla.
Speaker Change: In March of this year, the court apined in favor of the defendants and granted some rejudgment for the defendants. We are appealing this ruling to the appellate court.
Speaker Change: We also filed a lawsuit against caption management and its related entities in controlled persons.
Speaker Change: 25th of 2024 and reply papers were filed in August of 2024. In March of this year the court denied the defendant's motion to dismiss and instructed the parties to proceed with the discovery process.
Speaker Change: On November 7th, 2024, the company was notified by the CPSC that they referred the unresolved batter of Black Diamond to the Department of Justice. In January of 2025, the DOJ served the company in Black Diamond's Grand Jury subpoenas, requesting various categories, documents relating to Black Diamond's Avalanche Beacons. As of May 8th, 2025, we continue to cooperate with the request from the DOJ.
Speaker Change: Additionally, on March 13, 2025, the company received a letter from the CPSC with questioning various categories of documents and information in connection with a new investigation into
Speaker Change: Light Diamond, sold products that were subject to a recall. The company is cooperating with this investigation.
Taking a step back.
Looking at both adventure and outdoor.
Speaker Change: We see Claire today as well positioned to drive sustainable, profitable growth despite the uncertain macro climate currently caused by the uncertain date from the U.S. trade policy.
Speaker Change: supported by talented teams globally in a strong balance sheet. We look forward to more incremental progress advancing our turnaround in 2025 and delivering significant long-term value for the closed shareholders.
At this point, operator, we are ready to take questions.
Speaker Change: Thank you. At this time, we will conduct the question and answer session.
Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Please stand by. Bye.
Speaker Change: Our first question comes from Peter McGoldrick from Stifle. Your line is open.
All right, thanks for taking my questions.
Peter Mcgoldrick: Hey, how you doing? Neil, you mentioned black diamond guidance would have been reaffirmed if not for macro uncertainty. So I'm curious if the level of care has impact from China is causing any cancellations in...
in the product you bring into the United States.
Neil Fiske: No cancellations as of this point. It's a great question, Peter. Let me sort of describe our thinking and approach on this.
So, I think our first…
Neil Fiske: Our first principle here is to contain the impact of the chime in impacts.
Neil Fiske: and make the duration as short as possible. So all efforts into accelerating or plan transition out of China. We think that will be a six to nine month period to complete that.
Neil Fiske: Our our approaches to maintain our supply even if we have to take a short-term hit on margin in order to keep our market share keep our products on the pegs that they occupy and not not go backwards.
So you'll see us protect.
Neil Fiske: Deliveries of, in particular, our headlamps, a couple models of climbing helmets that's really sort of the extent of what's exposed here, as well as a couple models of our climb shoes.
Neil Fiske: But we'll continue to bring those in. We positioned our inventory quite well ahead of the tariffs, so we can ride that for a little bit.
Neil Fiske: As Mike mentioned, having reshaped our inventory to get 74% of the NRA styles puts us in a better position from the start to fulfill orders.
Neil Fiske: It's clearly very early still, given that we took those price actions earlier in May. Just a little more than a week ago.
Neil Fiske: So, I think we're going to have to wait and see on the price impacts, but net net in terms of supply, no interruption that we foresee at this point in time will continue to...
Neil Fiske: Protector of Market Chair, Deliverer of Products, and the margin associated with that is...
about three and a half to four million.
Neil Fiske: And again, the way we look at it is we'll take that three and a half to four million hit.
Neil Fiske: This year, in order to protect our market share, and then buy-
out of China.
Neil Fiske: Where those impacts are coming from. And if we can accelerate that migration into Q3 of this year, that 4 million could drop to 3 or possibly 2 million impact. But we'll just have to see how fast we can move. We'll see you next week.
Is that sending it to your question?
The date of the six to nine months for which you would be out of China for the BD goods and then you could accelerate that and the swing factor there is.
One-to-two million dollars of profit, correct? [inaudible]
N25 is correct
Thank you.
Speaker Change: Vas, okay. And then I guess I'm curious on the promotionality of the two segments. There was unfavorable merch margin mix in each. So can you size those headwinds to gross margin?
Speaker Change: In each segment and the visibility of progression given current and market demand, does that dissipate given the current market dynamics absent the tariff impacts that flow through?
Yes, Peter's mic.
Speaker Change: Discontinued merchandise in Q1 this year versus last year. This year, it was...
7.5% of our mix last year was 5.8%
So you can see both in absolute.
Speaker Change: Dollars, and as percentage of the total, it was higher.
Speaker Change: and this was very much part of our strategy given the uncertainty of the year.
to pull him up a more graduated...
Speaker Change: Program across the year forward into the first quarter, and make sure that we're not trying to move discontinued merchandise in a week or two.
Speaker Change: Consumer Environment. So, very much a timing play on our part.
Speaker Change: and then as Mike mentioned, and by the way, that would account for all of the year over year decline in gross margin rate at black diamond, so 80-90 basis point impact from that.
Speaker Change: and then relative to our expectations. There were some timing impacts of things that will either will reverse over the course of the year and...
on the DM front end.
Speaker Change: Some issues that we think are either timing related or contained in the first quarter. So, we feel pretty good about...
Speaker Change: Still are margin progression for the rest of the year and feel really good coming out of the first quarter that our mentors are clean in the best quality products and that should allow margins to continue to lift over the course of the year. [inaudible]
So...
Speaker Change: So I'll hand out the adventure. Yes, the adventure of gross margins were negatively impacted by the mix as well. In the prepared remarks, Peter, I mentioned promotional sales efforts in the North American market. We have some inventory that we're trying to move and do aggressive and that was a drain on realized gross margin there. It's also combined with.
Speaker Change: Brand-Mex over in Australia. We talked about lower volume at the Rhino Rack and Max Tracks business.
Speaker Change: The volume at MaxTracks was down over a million dollars year over year and their gross margin is accretive to the segment's average so when they were down that mix.
also brought their margin down correspondingly.
Speaker Change: Going forward, we expect that to recover. We expect those margins to rebound back to
Speaker Change: More traditional experience that we've seen at Adventure through the prior course.
Thank you.
Speaker Change: I appreciate that. And then one on peeps as that business goes away after this third quarter. Can you give us a sort of a run rate of annualized contribution to revenue, gross margin, and evita?
Yes, so in the first quarter, which they...
Speaker Change: You know, the business is lumpy due to the nature of the product, right? [inaudible]
Speaker Change: Avalanche, Snowbeacon. The first quarter, I think I, in the prepared remarks I mentioned at 1.8 million of revenue. Either that was a round break even.
So, you know, by divesting this, I think it...
Adam Erickley becomes...
Speaker Change: Gross Margin, and even that Margin accretive. In the second quarter of revenue historically has been...
Speaker Change: A very small, you know, a third of the first quarters amount, so I want to expect that to be a big number at all here in the second quarter, and then at some point in the third quarter of the transactional close. Annually, heep studs about $5 million a revenue.
Thank you very much. Thank you.
Speaker Change: Very helpful. Last one for me, there's some strong numbers from international outdoor apparel for fall winter. What is the size of that business? Just thinking of what that could mean for the back-ass.
Thank you.
Neil Fiske: Well, I think I'll let Neil comment, but we're seeing strong demand on the new apparel line. I think in the prepared remarks, we mentioned the US is up 50% in international's up 30% on the fall of preseason orders. You know, that's a direct result of a lot of work that the teams put in to update in
Speaker Change: Kroler Moore, Edgey to the apparel, but that's a positive, a significant positive from my perspective as we look forward for the BD business.
Speaker Change: So, in that order book, the US was up 50 percent, so that's not...
Not the international part [inaudible]
Speaker Change: and then Europe was up in that order book, 30%. So we took our two biggest regions.
Speaker Change: in reference there, the US F-50, Europe F-30. IGD is also up, we didn't give that specific number, I don't have it in front of me, but it's a smaller part of the overall, a problem next, so.
Speaker Change: Up that helps. And apparel, overall in the mix, is trending towards about 25% of the total.
Thank you very much.
Thank you.
Speaker Change: Our next question comes from Mark Smith from Lake Street. Your line is open.
Thank you.
Speaker Change: Hi guys, sorry if I missed this earlier, but can you quantify or speak to it all how much the sales and outdoor of this discontinued inventory, how much that boosted sales during the quarter?
James Duffy, Peter McGoldrick, Michael Yates
Um...
We sold in the first quarter.
2.7 million a discontinued merchandise at Outdoor, 2.7 million.
Now that's time.
Speaker Change: That's not an entire boost, right? We always sell DMs, so the total was 2.7.
Speaker Change: And like I mentioned, I mentioned that the vast majority of that was the remaining PFAS in the
Speaker Change: Henry, but go ahead, Neil Wittler, J.I. I was going to say, you're over a year, the quantum on that is about $600,000 more than part of the year.
is like seven and a half percent versus seven. Yeah. [inaudible]
Neil Fiske: Okay, and we can probably do the math and Neil, you just spoke to kind of the impact. I think you said 80 to 90 basis point impact on gross profit margin from from these sales.
Correct.
Thank you. Thank you. Thank you.
Speaker Change: Okay, perfect. One thing we haven't talked about much, but I just wanted to ask about, it's just kind of the strategy around back diamond stores, where are we at today and any future movements, maybe we should look at on the storefront.
James Duffy, Matthew Koranda, Michael Yates, Mark Smith, Peter McGoldrick,
Err, you're not allowed to talk about the news yet? Yeah, go ahead, take a talk about the news
Speaker Change: So first, let me just say kind of our philosophy on what the role of our company and stores are.
Speaker Change: Or Is, which is basically to have a limited number of stores that can be the full expression of the brand and give us learning labs.
Speaker Change: of real-time information for what's working, what we can build on, what we need to edit. And so it's primarily getting the full expression of the brand out there, getting the learning that we can then translate into sales strategies for our wholesale channel.
Speaker Change: They're not intended to be a substantial part of our revenue or driver of our revenue.
Speaker Change: I would say that our store base now is relatively flat and will continue to be in the 8, 9, 10 store sort of range for the foreseeable future.
Speaker Change: That said, within that defined footprint of company on retail, we have opened up a flagship store in Seattle.
Speaker Change: to, as I said, be the full expression of the brand number one, a learning lab for us number two, but also in that region it's part of our strategy really to broaden the black diamond brand.
from really technical climbing to broader mountaineering.
Speaker Change: and of course, the Pacific Northwest, who started the home of...
Speaker Change: of Matt Nearing in the United States, and so we wanted to have...
Speaker Change: a flagship store in that region that could really give us some learning associated with.
Speaker Change: Bowling out, Black Diamond is a mountaineering brim, and as part of that, we have a...
Speaker Change: They're an interesting partnership with Renere Mount Nearing, which is I think the largest Skype service in the United States, based.
Speaker Change: of course on not-renear, but they have 70 guides all over the world from Denali, I guess, McKinley now to...
Speaker Change: Akin Koglone, Kodapatsi, and the big peaks around the world. So there are 70 guides who are now all in black diamond gear, head to toe. And so that's also a part of why we wanted to have...
Speaker Change: a cupidium store in the Pacific North West to really be able to build on that partnership.
Speaker Change: In a similar vein, our story of Jackson Hole, Wyoming is not only a retail store, but it's also a platform for our partnership with the Jackson Hole Mountain Guides.
and if you were able to visit the...
Speaker Change: Storin Jackson, it looks great, but there's now a corner of that store where the Jackson Hole Mountain Guides.
Speaker Change: actually post-op and they sell trips from the gear checks and they interact with their customers and ours and it's been a really productive partnership so far and we're seeing a nice lift to our retail business from it.
Speaker Change: But it's very much intended to be a community-based store with a tight partnership with one of the leading God companies in that region.
Okay. Great. Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from Anna Glaessgen from B. Riley Securities. Your line is open.
James Good afternoon, thanks for taking my question.
Speaker Change: I'd like to touch on the adventure distribution in the US in light of the commentary around that off-priced retailer. Can you update us on?
Speaker Change: What distribution looks like here, and as you navigate the migration of the supply from China, should we expect distribution gains this year, or is that kind of on hold in light of the cherishing environment? Thank you.
Sure, Anna, this is Mike. Last year, we...we...we...we... We...we...we...we...
Speaker Change: Under Trip's leadership, we made a decision not to pursue that discount channel that's done.
Speaker Change: that we had to push some revenue through last year for the adventure of product, the RhinoRap product.
Speaker Change: So that didn't anniversary this year, right? That's the year over year change. As we think about this going forward, whether it's bike racks or refracts, right? We're leaning into a specially distribution channel, right? Whether that's rack stores that are focused for automobiles and SUVs or bicycle shops that are focused on bike racks, right? We're leaning more into those types of channels than...
then I'll say mass retailers, especially mass discount retailers.
Speaker Change: and that's where I mentioned, you know, with the bike racks, we've expanded, you know, with the addition of, um...
Speaker Change: Rocky Mounds is a product line within our portfolio here in the U.S. We expanded our doors from 300 doors a year ago to 800 doors because of the success and the desire to have the Rocky Mounds product brings that they are so well-established products. That's it.
Speaker Change: It's just that many more bike shops compared to what we had done historically.
Got it. Thanks. And then turn to Black Byland.
Speaker Change: Yeah, I'm sure some perspective on the price increases you've taken thus far and how that compares to key competitors. Is there a sense that most have already taken price, or are you earlier on that timeline? Thanks.
Speaker Change: Yeah, we're definitely earlier on the timeline. Our philosophy on this was hit it head-on, the super transparent with our consumers and with our trade partners.
and so we went out with…
Speaker Change: Communication towards the end of April , letting our trade partners and our consumers know we would be taking the price up.
Speaker Change: on May 5th, so we give him some time to adjust.
Thank you.
Speaker Change: and so, I think we were among the first and the outdoor industry did.
Thank you.
Go out with a very explicit position.
We...
Speaker Change: Ty that back to the tariffs that we believe will sick.
Speaker Change: and obviously there's a whole bunch of uncertainty around that, but we think that 10% universal tariff will stick.
and likely the steel and aluminum 25% will stick.
and so we took prices up accordingly to essentially offset.
Speaker Change: that 10% universal tariff and the 25% aluminum. What we couldn't offset, of course, was...
Speaker Change: The 145% on China, and that was the exposure I talked about earlier. But the first trance of the 10% and the 25% on steel and aluminum we have covered in our price increases.
and we're just now starting to see.
Speaker Change: Let's give it a little bit more time to see where the discussions on reciprocal tariffs come out.
Speaker Change: Some are starting to break with their own price increases. I would think…
Speaker Change: It's going to play out over the next two to three months still, but we should start to see more and more companies taking price. Some might decide to hold for a little bit.
Speaker Change: But the outdoor industry in total has not really passed on a lot of the inflationary pressures that have existed in the industry over the years, and so I don't think there's a lot of room.
Speaker Change: to hold and take the margins. I think people are going to have to follow the tariff shot.
Great, thanks Neal.
Thank you.
Speaker Change: Our next question comes from Joseph Gonzalez from Roth Capital Partners. Your line is open.
Speaker Change: I just think of her taking my question. I just wanted to see if you guys can talk a little bit further on, um, tariffs.
Speaker Change: I know you guys are already spoken a lot towards their pricing medications, but anyway, we're thinking about medication efforts around vendor negotiations at all. Just not offset completely, but kind of take a little bit from, say, a continued 145 terrorist throughout the year.
if that continues to play out.
Yeah, hey, Joseph Mike, it's Mike here, um...
We've talked a lot about pricing, yes. We actually, um...
Speaker Change: Ben, engaged with our vendors for concessions. We're also looking at changing country of origin and moving from outside to other lower cost areas, or that may have a lower tariff, like Neil discussed, getting out of China. We're looking at all different types of mitigating efforts, right? So those...
Speaker Change: You know, some of those vendor concessions you are asking about, we had actually had, that was one of the first things we had done back in March and February and Neil, Neil, you can confirm that, right? We were, we were, we were.
Pursuing Knows
Speaker Change: Right? As we feared the tariffs, the wild cardiness was on April 2nd, the degree of tariffs that the percentages that were introduced that...
Speaker Change: and his meals discussed in great detail. We think that 10% and 25% stuff is permanent, that 10% is kind of permanent. At least that's the way we're moving forward with that. Hence we've done this pricing action to cover that. The other hopefully there are negotiations. Hopefully those all subside. And therefore, in the short term we're going to absorb the impact of that into our gross margin. But yes, we are considering all different types of countermeasures. And we've been pursuing them.
as I've mentioned.
Speaker Change: I appreciate the color there and then just switching gears I want to talk about any capital allocation plans given the divestiture
Speaker Change: You know, with the 8 million around the Eurocash infusion to your current cash balance around 41 million that puts us at...
Speaker Change: Probably close to 50. Anything that you guys can just talk about if you're looking at buying another segment or potential, are there possible capital allocations channels that you're looking at?
Speaker Change: Yeah, I think for Lauren, you want to press that? Yeah, I'm going to address that. Thanks Mike. Yeah, I think, you know, it's going to take away. We're waiting at regulatory approval in Austria, so that's going to take a little bit of time. But, you know, it's. Yeah. Yeah. Yeah. Yeah.
Speaker Change: When you understand better, what the tariff and business impacts possibly could be. And so at this point, I think we're just going to hold on to our cash, just invest it in treasuries and see where it goes.
Speaker Change: But it will certainly update to you know the next time we report.
Speaker Change: Did I appreciate that? Thank you for taking my questions.
Thank you.
Speaker Change: This concludes the question and answer session. I would now like to turn it back to Mike Yates for closing remarks.
Speaker Change: Okay, thank you very much. I want to thank everyone for attending the call this afternoon, and most importantly, you continue support and interest in Clarus. We look forward to updating you on our results again next quarter. Again, thank you very much.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.