Clarus Corp. Q1 FY2025 earnings call

• Focused on executing strategic roadmap for profitable growth despite challenging consumer backdrop. Q1 net sales of $60.4 million were above expectations.
• Black Diamond's outdoor segment benefited from prioritizing best and most profitable styles, with strong feedback on revamped apparel line. Apparel bookings up 30% in Europe and 50% in North America for fall winter season.
• Adventure segment faced revenue issues due to discrete shipments, inventory clearance, and lower order levels in key markets. New leadership Trip Wyckoff appointed to drive adventure segment growth.
• Completed strategic review of PEEPS snow safety business and announced its divestiture. Accelerating reshoring of manufacturing from China to other countries to mitigate tariff impacts.
• Implemented price actions to offset tariffs, with plans to reduce exposure to China-sourced products by Q4 2025.

Outdoor Segment

• Q1 revenue: $44.3 million. Compared to prior year, down 5.7% ($2.7 million) due to planned decline in ski business and shift of IGD revenue. North America wholesale down 7.3%, Europe wholesale down 2.7%, Europe digital D2C up 10.7%, international distributor markets down 21.4%. Gross margin down 80 basis points. Adjusted EBITDA for the quarter came in at $1.7 million, down $1.2 million from prior year.

Adventure Segment

• Q1 revenue: $16.1 million, down 28% compared to prior year. Primarily due to significant decline in performance at three specific customers and lower recovery board sales. Gross margins negatively impacted by promotional sales efforts and brand mix issues in Australia.

Revenue contribution: Outdoor segment contributed $44.3 million out of $60.4 million total net sales (73.3% of total), Adventure segment contributed $16.1 million (26.7% of total).

• Withdrew full-year guidance due to uncertainty from US trade policy. Cannot confidently forecast due to unknown impacts on consumer sentiment and demand.
• Accelerating initiatives to reshore production from China to other countries, aiming to complete move by early 2026.
• Implemented price actions to offset permanent tariffs, with plans to further reduce exposure by accelerating reshoring efforts.

• Tariffs impact: Uncertainty around 145% tariffs and reciprocal tariffs, potential margin hit from China-sourced products.
• Supply chain uncertainty: Disruption from trade policies affecting production and distribution.
• Consumer sentiment: Potential weakening due to economic uncertainty, impacting demand.
• Legal matters: Ongoing Section 16 securities litigation and CPSC/DOJ investigations related to Black Diamond products.

Q: Concern about cancellations due to tariffs on Black Diamond goods.

A: No cancellations seen, inventory positioned well to fulfill orders, and no interruption in deliveries foreseen. Margin hit of $3.5 to $4 million expected this year to protect market share.

Q: Size of promotionality impact on gross margin in segments.

A: Unfavorable merchandise mix in both segments, with 7.5% discontinued merchandise mix in Q1 this year vs 5.8% last year, impacting gross margin by 80-90 basis points.

Q: Run rate of PEEPS business.

A: PEEPS did about $5 million of revenue annually, EBITDA around breakeven in Q1, with revenue expected to be small in subsequent quarters after divestiture.

Q: Outlook for international outdoor apparel fall winter orders.

A: Strong preseason orders, with US up 50% and international up 30% on apparel line, indicating positive back half potential.