John Walbrecht, who became chief executive at Black Diamond in October, told analysts last month that the group is ready to scale up again, after a year of downsizing and other restructuring measures.
Walbrecht made the comments in a conference call to discuss a mixed fourth quarter for the Black Diamond group, as its sales dipped by 6 percent to $41.4 million. They were off by 2 percent in constant currencies, due to unseasonably dry European weather that affected sales of ski products, and measures to scale back Black Diamond’s apparel range.
However, sales of Black Diamond Equipment’s climbing and mountain equipment products improved strongly in the quarter. The chief executive pointed to strong sell-through of carabiners, climbing accessories, trekking poles and packs, among other items.
U.S. sales were off by 2.3 percent to $21.9 million, while international sales dropped by 10.0 percent to $19.5 million. Tensions around Britain’s departure from the European Union impacted the group’s U.K. business, but northern and southern Europe performed strongly in constant currencies, due to rapid replenishment and strong sell-through.
The group’s own retail business was up by 19 percent in constant currencies for the quarter, and a potential upside for this year is that Black Diamond launched its own online store across Europe in March. Sales to distributors advanced by 12 percent for the quarter, again in constant currencies, with improved inventory levels in several key distributor markets.
Walbrecht said that the refocused approach of the apparel range appeared to be paying off, with strong sell-through in the fourth quarter, which continued for spring to date and for fall orders.
Black Diamond’s gross product margin shrank by 4.4 percentage points to 29.1 percent for the last quarter, with 2.9 percentage points of decrease from exchange rate changes. Other factors included changes in the mix and costs related to the repatriation of manufacturing to the U.S. The group incurred some restructuring charges associated with the closure of its legal entity in China. Small restructuring charges are anticipated for the formal liquidation and removal of the Chinese operation again this year, even though the group no longer has any ongoing manufacturing of its own in the country.
The group’s net loss from continuing operations amounted to $1.4 million, compared with a loss of $31.7 million for the same quarter in 2015, which included a goodwill impairment charge of $29.5 million. The reference to continuing operations is due to the fact that the company sold the Poc brand in 2015.
The U.S. outdoor group’s underlying sales were flat for the year but they contracted in reported terms to $148.2 million, down from $155.3 million. U.S. sales climbed by 2.2 percent to $76.1 million but international sales shrank by 10.8 percent to 72.1 million. Black Diamond’s gross margin shrank by 5.4 percentage points to 29.5 percent, with currency headwinds accounting for a drop of 3.3 percentage points. Despite cost reductions, the group suffered an adjusted net loss from continuing operations of $2.6 million for the year, compared with $0.8 million in 2015.
The year was marked by Black Diamond’s strategy to downsize its operations, in order to adjust to the smaller size of the business after its divestments. The company then strove to create a robust revenue base on which to build after the scaling back. It duly eliminated $8.6 million of sales, general and administrative expenses, while inventory on hand was reduced to $45.4 million.
While speaking with customers after his arrival last year, Walbrecht repeatedly heard that they had become less engaged with Black Diamond because the group’s acquisitions appeared to cause distraction. The growth plan for this year thus includes more focus and investment in the products for which Black Diamond Equipment is most strongly recognized.
The group also wants to reinforce its brand equity through innovation in adjacent product categories. Black Diamond moved forward to this spring the launch of a range of lighting products previously intended to be launched in 2018.
The current spring season is featuring an expanded ranges of trekking poles and harnesses, and it marks the first sell-through period for Black Diamond’s ropes. For the second half, the group is gearing up for the launch of an award-winning glove, skiing products and climbing footwear. For this move into footwear, Black Diamond is starting with a test in the U.S. and could then expand its distribution next year.
Another leg of the plan calls for targeted investments in marketing, for which Black Diamond has added about $1 million to its marketing budget. Among other projects, the group is seizing on the popularity of climbing gyms. It has agreed a partnership with the Innsbruck Climbing Center from 2017 through 2022, including branding around the gym, staff wearing Black Diamond gear and a branded store inside the center. Black Diamond is also sponsoring the Climbing World Championships in September 2018 and the Junior World Championships in September 2017. Marketing support in the second half of this year will mark Black Diamond’s launch into television advertising.
Black Diamond is projecting a sales rise of 3 to 7 percent for this year, to reach a level between $153 million and $158 million. The increase should range between 4 percent and 7 percent in constant currencies. The gross margin is predicted to move up by 3 to 4 percentage points to between 32.5 percent and 29.5 percent, thanks to reduced levels of discontinued merchandise, lower manufacturing costs, more efficient operations due to the shift to its own manufacturing facilities and supply chain improvements, and a more judicious mix of products and distribution.