COVID-19 Headwinds Hit Clarus’ Black Diamond, Sierra Brands

Clarus Corp., parent of Black Diamond Equipment and Sierra Bullets among other assets, reported sales for the first quarter of $53.6 million, a 12.4 percent decline from the same quarter a year ago. Revenue missed Wall Street’s expectations by $1.4 million.

The company’s net income was $0.04 million, or 0 cents per diluted share, compared to $3.8 million, or 12 cents per diluted share, a year ago. Wall Street estimated EPS of 4 cents.

Black Diamond sales were down 13 percent due solely to the COVID-19-related demand freeze in the final weeks of the quarter. Sierra sales were down 12 percent, While sales in Sierra were also down, the demand environment has improved since the beginning of 2020. Sales in the company’s direct-to-consumer channel were up 16 percent. On a constant currency basis, total sales were down 12 percent.

“We began the year with great momentum after record financial results in 2019,” said Clarus President John Walbrecht. “However, in the final weeks of the quarter, our Black Diamond business experienced a dramatic global slowdown as our retail partners shut their doors and canceled open orders due to the COVID-19 pandemic. Leading up to that point, our revenue and earnings were trending in line with our expectations for the quarter. These declines were somewhat offset by improving demand in our Sierra business late in the quarter, which highlights our product diversity, but in no way made our results immune to the pandemic.

“At the onset of the virus, we devised a plan to focus on three things—our people, the preservation of brand equity, and maximizing liquidity which, together, we believe will make us emerge as an even stronger company. At the end of the first quarter, we had nearly $13 million in cash and access to approximately $28 million in incremental liquidity with a modest long-term debt balance that we are comfortable servicing.

“Over the last three-plus years that we have been together as a team, we have focused on our ‘innovate and accelerate’ playbook regardless of market dynamics. This playbook includes further strengthening our brands’ market positioning by investing in product innovation, sales and marketing, and pursuing new, long-term revenue opportunities. It has also included the bolstering of our global distribution network and flexible supply chains that we have built over many decades, increasing our manufacturing capacity at Sierra, and driving efficiencies throughout our operations. We believe this provides the structural elements to benefit from what we believe, at least in the near-term, will be increased staycations and higher levels of interest in health, wellness and the outdoors. We also think these mega-trends play well when the consumer heads back outside after many weeks under stay-at-home ordinances.

“In addition, while apparel and footwear are key strategic initiatives where we believe substantial growth opportunities exist, it is important to note that they currently represent 14 percent of our business. The remaining 86 percent is equipment that is non-perishable and viewed as a necessity for our activity-based-consumer.

“Due to our discipline across the different businesses, we have been able to create optionality in both the Black Diamond and Sierra brands. For Black Diamond, as part of our mitigation efforts in response to the COVID-19 pandemic, we have re-allocated and eliminated over $9 million in SG&A. This has accelerated our shift towards a more digital presence, sharpened our focus on key product categories, improved operational efficiencies, and driven a tighter connection with our distribution and supply partners. For Sierra, during the last two years, we have focused on improving efficiencies and increasing capacity. In fact, over this time, capacity has increased by approximately 30 percent.

“Ultimately, we believe our diversified brand portfolio, global distribution platform and the fast-growing direct channel is well-positioned to navigate the current challenges and evolving consumer landscape.”