Clarus Corporation Q2 FY2025 earnings call

Key Points

• Simplified organizational structure and product offering to position for sustainable growth.
• Sold PIEPS snow safety brand and intellectual property for $9.1 million, aligning with simplification strategy.
• Outdoor segment showed improved financials in Q2 with sales, margins, and adjusted EBITDA increasing despite choppy consumer sentiment. Focused on raising product margins and improving inventory quality.
• Adventure segment reengaged with key customers, simplified cost structure, but faced soft demand in certain legacy retailers and OEM accounts.
• Implemented tariff mitigation plan at Outdoor, including price increases, vendor concessions, and inventory pull-forwards; expected tariff impact on earnings for 2025 is $3.4 million even after mitigation.
• Progress in inventory composition at Outdoor with less discounted merchandise and more focus on profitable A styles.

Outdoor Segment

• Q2 revenue: $36.5 million, up 2.1% from prior year. Excluding FX impact, revenue up 3.9% in current dollars and 2.3% in constant currency.
• Gross margin: 34.9%, up 80 basis points. Excluding FX, gross margins would have expanded further.
• Adjusted EBITDA: Loss of $213,000; excluding PIEPS adjusted EBITDA loss, Black Diamond's adjusted EBITDA in Q2 was $303,000.

Adventure Segment

• Global wholesale and direct-to-consumer up ~8%, but sales down year-over-year due to ~$3.1 million drop in customer-specific OEM sales.
• Adjusted gross margin: 37.3% in Q2, down from 40.3% in the same period last year.

Guidance

• Clarus elected not to provide guidance for Q3 or full year 2025 due to ongoing uncertainty related to tariffs, consumer sentiment, and macroeconomic conditions. Difficulty in effectively forecasting in the current environment led to the decision to remain cautious.

Risks

• Uncertain macro environment, including evolving tariff policies and consumer behavior.
• Softness in direct-to-consumer performance and site traffic at Outdoor due to consumer pullback post-Liberation Day.
• Continued deterioration of legacy OEM accounts at Adventure.
• FX fluctuations impacting financial results, with a loss on FX contracts of ~$447,000 in Q2 and projected $1.4 million loss for the year if exchange rate is $1.15.

Q: Anna Glaessgen asked about Adventure's fitments and growth prospects.

A: Mike Yates responded focusing on fitting top vehicles, rationalizing NPD, and restructuring the team for a more nimble structure.

Q: Matt Koranda inquired about PIEPS and Adventure's Australian market.

A: Mike Yates discussed PIEPS' contribution and the timeline for lapping the Adventure segment's OEM sales headwind in the back half.

Q: Mark Smith asked about country exposure on tariffs and RockyMounts' performance.

A: Mike Yates detailed country-wise tariff exposure and expressed excitement about RockyMounts' performance and potential.

Q: Alex Douglas questioned gross margin and inventory.

A: Michael J. Yates and Neil Fiske discussed gross margin trends, tariff impacts, and inventory management towards reducing inventory by year-end.