Solo Brands, Inc. Q2 FY2024 earnings call

• Strategic plan: In-depth strategic analysis confirmed brand opportunities, strong brands, premium segments, and building scalable infrastructure. - Consumer insight: Over 2,000 consumers surveyed; Solo Stove had high Net Promoter Score, Chubbies has premium customers with high household income. - Product innovation: Hired new executives for DTC and product development, planning new products starting 2025, enhancing product development ecosystem. - Omnichannel distribution: 50% of consumers buy in physical stores; expanding retail partnerships, opening 3 new Chubbies stores in Q2 with plans for 2 more by year-end. - Operational efficiency: Fulfillment centers have >99% picking accuracy, procurement collaborating with suppliers, new delivery contract signed to reduce costs.

Second quarter sales were $131.6 million, increasing 0.5% compared to a year ago. Direct-to-consumer revenues declined 0.9% to $98.8 million primarily due to lower site traffic. Retail revenues increased 4.8% to $32.8 million driven by growth with strategic retail partners. Gross margin decreased 60 basis points to 62.8%, primarily due to inventory fair value impact from 2023 acquisitions; adjusted gross margin was 63.6% flat to last year. Selling, general, and administrative expenses increased to $70.8 million, or 53.8% of sales. Second quarter net loss was $4 million, adjusted net income was $6.1 million, adjusted EBITDA was $15.5 million with a 11.7% margin.

• Fiscal 2024 revenue expected in the range of $470 million to $490 million. - Adjusted EBITDA margin expected in the range of 9% to 10%. - Third quarter expected to be most challenging due to difficult comparisons; fourth quarter expected strongest with first full funnel marketing campaign starting in August and small product launches.

• Macro environment challenges impacting consumer demand for large ticket items. - Softer-than-expected traffic in direct channel. - Increased promotional environment and retailer destocking affecting margins.

Q: Thinking about the risk of a sharper macro turndown, can you drive the strategic plan in a hard-landing scenario?

A: We have high gross margins and EBITDA margins, balance sheet allows investment, focus on innovation, better execution, and expanding TAM via consumer insights.

Q: Update on promotional environment and its impact on bundling?

A: Used bundling to offset promotions, factored in heightened discounting into guidance, aiming for less promotional environment.

Q: Insights on Chubbies wholesale appetite?

A: Chubbies is a strong brand with growth in key retailers like DICK's Sporting Goods, expanding into new categories.

Q: Sample size of consumer survey for Solo Stove?

A: Over 2,200 consumers surveyed, double-blind, including existing, lapsed, new, and non-interested consumers.

Q: Competition from China and impact?

A: Macro impact, marketplaces expand market, we still dominate, will reinvent market with new products.

Q: Color on Solo Stove wholesale?

A: Continued growth runway, not in some channels, investing in retail sales team for better plans and execution.

Q: Color on DTC marketing?

A: Adjusting marketing mix, starting Snoop campaign in August, migrating to conversion-focused plan, changing website platform for better shopping experience.