The stock market valuation of Black Diamond Inc. shot up by 37 percent to $315 million after the company reported strong progress in sales and margins and announced that it has retained two financial advisers to lead the exploration of “a full range of strategic alternatives” for each its remaining brands: Black Diamond, POC and PIEPS. The statement was taken to mean that each of the three brands is now up for sale.
Noting that it got a 2.3 multiple of revenues from the sale of Gregory Mountain Products to Samsonite last June, the group's management said its board of directors felt that this was a logical next step in its efforts to unlock value for the company's shareholders at a time when “premium active lifestyle and outdoor brands are selling at historically high levels, and there is a scarcity of authentic branded assets available to strategic acquirers.”
In the process, Black Diamond expects to utilize the balance of the net operating loss (NOL) tax carryforwards of about $167 million it has accumulated in the past to offset the expected gains from any disposals. The company pointed out that it has not set a timetable for the completion of the strategic review, which will be conducted through Rothschild Inc. and Robert W. Baird & Co. It does not intend to comment further on the review process at this stage and there is no certainty that it will result in a transaction, the company added. It may be able to shed some light in April or May on the review process, which should be completed during the second quarter.
The $84.1 million sale of Gregory resulted in extraordinary income of $23,128,000 for Black Diamond in the past financial year, which led it to post a net profit of $14,007,000 against a loss of $5,870,000 in the previous year, although its income tax benefits declined to $3,551,000 from $5,369,000.
After restructuring charges of $3,583,000, the group booked an operating loss of $9,762,000, down sharply from the loss of $14,274,000 endured in 2013. Adjusted operating earnings before amortization (Ebitda) reached $2.9 million and compared with a loss of $1.6 million in 2013.
The group's revenues were up by 14.9 percent to $193.1 million for the year, with an increase of 16 percent in local currencies. In terms of dollars, they rose by 13.4 percent to $77.4 million in the U.S. and by 15.9 percent to $115.7 million in the rest of the world. The gross margin widened to 38.8 percent from 36.3 percent, despite a negative impact of 0.5 percentage points from the stronger dollar. In the previous year, the gross margin would have been 37.2 percent without a $1.5 million charge from a product recall for PIEPS.
For the fourth quarter, the group reported a 36 percent increase in adjusted net income from continuing operations to $3.1 million. Adjusted Ebitda rose by 37 percent to $3.4 million, after investments in strategic initiatives such as the transition of some POC distributorships to in-house operations and the continued roll-out of the brand's new road cycling collection.
After non-cash charges of $3.1 million and $1.0 million in restructuring costs, the company actually booked a net loss from continuing operations of $927,000 for the quarter, compared with net income of $546,000. The charges were much higher than the $1.7 million in extraordinary items of the year-ago period. Also, the company incurred taxes of $635,000 against a tax credit of $1,179,000 in the same quarter a year ago.
Sales went up by 10 percent to $59.4 million in the quarter, and they were 13 percent higher in terms of constant currencies. In terms of dollars, they grew by 11 percent in the U.S. and by 8 percent elsewhere. The management attributed the increase mainly to the continued growth of Black Diamond apparel, with the addition of a women's line, an increase in pre-season bookings for POC, especially in North America, and restocking of winter seasonal orders.
The quarterly gross margin improved by 1.60 percentage points to 39.0 percent despite a negative foreign exchange impact of 1.75 percentage points. The main factors were a more favorable mix of high-margin products and higher-margin sales channels.
By the end of the year, Black Diamond had $40.9 million in cash and marketable securities, versus $4.5 million at the end of 2013. Net debt was brought down from $38.0 million to $22.4 million in the course of the year.
The management is forecasting a sales increase of 8 percent to $208 million for this year, with growth of 11 percent in constant currencies, and a gross margin of around 40 percent. The company will invest in its omni-channel strategy, focusing on brand awaness, emerging channels and emerging markets.