While looking for possible new investments inside and outside the outdoor sector, Black Diamond Inc. (BD) has decided to simplify its structure following the sale of Gregory Mountain Products and Poc in the past two years. The reorganization, which should entail restructuring charges of $3.5 million in the next 15 months, will affect its head office in Salt Lake City as well as its expensive European office in Switzerland.
We understand that the European office will be moved to another country inside the European Union, mostly likely to Germany, to cope with the high and unpredictable value of the Swiss franc. All or some of its 40 employees in Switzerland would be offered to relocate to the new venue, so the move would likely lead to a reduction in the head count and the overheads.
There are no plans to change the current agency network in Europe. On the other hand, BD has been working for about one year on a more unified price structure in Europe, and it is looking for better ways to address key accounts, specialty retailers and other retail channels.
The group's management told investors last month that some of the company's products are not competitively priced in the region. Its prices tend to be lower in Southern Europe, where Decathlon is a dominant player in the market, than in other parts of the continent.
The European reorganization progam has been led over the past few weeks by Tim Bantle, the former president of the Black Diamond Equipment (BDE) brand. On a more global scale, the reorganization of the group is being supervised by its newly appointed president, Mark Ritchie.
Ritchie will also take the place of Peter Metcalf, founder of BD, when he retires as chief executive on Dec. 31, after 25 years with the company. Ritchie has been with BD for 21 years, acting most recently as chief operating officer. Zeena Freeman, who had joined the group as president in August 2014, had been designated as Metcalf's likely successor as CEO, but she resigned last June, as previously reported.
Ritchie's main task will be to return BD to its cost structure of four years ago, when the brand still generated an operating margin of 10 percent before amortization (Ebitda), excluding corporate costs.
Warren Kandler, who will remain executive chairman of the group, noted that the group had created additional infrastructure to support its objective of reaching annual sales of $500 million by 2015, with an additional $250 million coming from apparel. BD's apparel line has not sold well, and it will be downsized. With only BDE and Pieps left in the group's brand portfolio, sales from continuing operations are now expected to be around $160 million this year, compared with $158.3 million in 2014.
On the other hand, Rothschild, which helped the company to sell Poc to Investcorp for 1.9 times annual sales, has been asked to find new opportunities for the acquisition of high-quality operations with an enterprise value of between $250 million and $500 million. The board is proposing a new $30 million stock buyback program, but Kandler said it prefers to use about $100 million in available cash to finance takeovers.
Acquisitions would allow BD to make use of its remaining non-operating tax loss carryforwards (NOL) of about $167 million. The company has taken a tax provision of $48.4 million for non-use of its NOLs that has caused it to report a net loss of $48,119,000 for the third quarter ended Sept. 30 against net income of $20,403,000. On an adjusted basis, excluding the tax provision and other charges, adjusted net profit on continuing operations grew by 10 percent to $2.6 million.
The company's continuing operations generated revenues of $39.3 million for the third quarter, down by 11 percent in dollars and by 5 percent in local currencies from the year-ago period. The gross margin fell by 3.4 percentage points to 36.0, although it would have risen by 0.4 points if currencies had remained the same.
In reported dollars, sales declined by 3 percent to $17.2 million in the U.S. and by 16 percent to $17.6 million elsewhere, with lower volumes in Southern Europe, Russia and Japan. European sales were more or less flat on a currency-neutral basis.