Black Diamond saw profits and margins dive further in the second quarter, as the company faced foreign exchange challenges and higher manufacturing costs. The American maker of climbing gear and apparel posted revenues from continuing operations down by 3.0 percent over the year-ago quarter to $29.1 million. Excluding the impact of currency fluctuations, sales were up slightly to $30.2 million. This came after a difficult first quarter, when sales fell by 9.0 percent to $38.2 million and the gross margin dipped by 6.7 percentage points.
The company said that despite record factory output levels in May and June, the manufacturing activities that were repatriated from China back to Salt Lake City continued to operate at higher costs, further impacting gross margin. Black Diamond has since taken new steps to improve, manage and measure factory efficiencies, as indicated further down in this article.
Despite these issues, Black Diamond said that the quarter saw continued growth in North America, with revenues gaining 4.1 percent to $36.3 million. This was driven by increased sales in the climbing and mountain categories. Trekking and lighting products gained market share, according to the management.
Sales abroad dropped by 16.2 percent to $31.1 million. In Europe, foreign currency exchange rates had a negative impact of approximately 9.0 percentage points on the business. Company officials say that BD is enjoying particularly strong growth in the Nordic countries and the U.K., however.
The company soft-launched e-commerce in Europe to test demand and expects to launch a comprehensive direct-to-consumer strategy in the region in the near future.
The management said that the early signs of stabilization seen during the last quarter in its independent global distributor business, which includes large markets in Asia, continued through the second quarter. It mentioned low double-digit growth in sales to foreign distributors, particularly in South Korea and Japan, after a long period of consolidation in the industry.
The gross margin tumbled by 6.4 percentage points to 28.6 percent, partly due to a headwind of 2.5 percentage points from foreign currencies. Excluding the impact of foreign exchange, the gross margin was 31.1 percent. The margin was also negatively impacted by an unfavorable mix of lower margin products, on top of higher manufacturing costs.
The net loss from continuing operations increased by 15.8 percent to $3.2 million. Adjusted operating results before amortization (Ebitda) before cash items showed a loss of $2.3 million, up from a loss of $1.9 million in the year-ago period.
Reaffirming its expectations, Black Diamond said its revenues for the year should be flat or up by 3 percent at the most. As a result of higher manufacturing costs, the gross margin should be approximately 30.0 percent as compared to 34.9 percent in 2015.
The management promises that its manufacturing woes will be fixed by the beginning of next year. Company officials noted that only about 200 of the 1.6 million carabiners shipped and recalled were found defective.
In a move intended to address its manufacturing problems, Black Diamond announced the appointment of Rick Vance as director of quality, overseeing the company's quality policy, control and processes. He come from Petzl America, where he was responsible for quality control and managed the Petzl Technical Institute as its technical director. Prior to that, he worked as a mechanical engineer for the U.S. Naval Surface Warfare Center and as a senior research engineer for the Harold K. Dunn MD Orthopeaedic Research Institute.
The reorganization being undetaken is expected to result in higher gross margins and improved response time.
Meanwhile, the move of the European head office from Switzerland to Austria has already started to pay off in terms of operating costs. The staff has been reduced from 55 to 21 employees with more accountability and greater motivation than before, including five people who previously worked for Burton Snowboards in the same city of Innsbruck. They speak nine languages and come from 13 countries.
A recent important move was the development of a unified price list for the European market. There were previously 17 of them.