Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenues increased modestly year-over-year, with a notable 4.8% growth in wholesale revenues.
- Generated healthy low double-digit EBITDA margins despite planned investments in people, processes, and capabilities.
- Strong brand loyalty and high Net Promoter Scores, particularly for Solo Stove, which is in the top 1 percentile in the outdoor goods market.
- Significant opportunities identified for market share growth and expansion into additional categories.
- Investments in new talent and infrastructure, including a new Senior Vice President of Direct-to-Consumer E-commerce and a new Senior Vice President of Product Development, to drive long-term growth.
Negative Points
- Direct-to-consumer revenues declined by 0.9%, with softer-than-expected traffic through the direct channel.
- Gross margin decreased by 60 basis points to 62.8%, primarily due to inventory fair value impact from 2023 acquisitions.
- Increased SG&A expenses, rising to 53.8% of sales from 48.5% a year ago, due to higher distribution, marketing, and IT costs.
- Second quarter net loss of $4 million, despite adjusted net income of $6.1 million and adjusted EBITDA of $15.5 million.
- Updated guidance reflects a cautious outlook due to challenging macroeconomic conditions and softer quarter-to-date trends.
Q & A Highlights
Q: Chris, thinking about the risk of a sharper macro turndown in the U.S., can you still drive this new long-term strategic plan in a hard-landing scenario? And if so, what gives you that confidence?
A: Christopher Metz, CEO: We are in the deepest part of our turnaround, generating historically high gross margins in the low 60s and EBITDA margins of 9% to 10%. Our balance sheet allows us to continue investing while generating returns. Our strategic plan includes innovation and better execution, which should drive improvements regardless of macroeconomic conditions.
Q: Could you give us an update on the promotional environment and how it is informing your decision to drive bundling and potential peer discounting?
A: Christopher Metz, CEO: We have used bundling to offset promotions and discounts. Our gross margin line reflects this strategy. We aim to create an environment with less promotional activity and more value for consumers. Our back half guidance factors in the current promotional environment.
Q: Can you speak to the appetite from retailers to take on or expand the Chubbies brand?
A: Christopher Metz, CEO: Chubbies is one of the most exciting young men's apparel brands in the U.S. today. We have grown with door count gains and strong POS from key retailers. We are expanding into new categories and partnering with retailers like DICK's Sporting Goods and SCHEELS.
Q: Are you seeing shifts within the mix for Solo Stove, such as trading down or underperformance at the lower end?
A: Christopher Metz, CEO: Our average order value remains strong due to bundling, which creates value for consumers and drives higher order values without compressing margins. We continue to drive bundles as a way to create value despite a weakening environment.
Q: Were the 2,000 consumers surveyed past buyers or a random sample?
A: Christopher Metz, CEO: The survey included a broad array of demographics, including existing, lapsed, and new consumers, as well as those not interested in the category. The Net Promoter Score was incredibly high, indicating strong brand strength and permission to expand into adjacent categories.
Q: Are you seeing any new or outsized competition, mainly from China?
A: Christopher Metz, CEO: The competition from less-expensive Chinese products is more macro. We are still predominantly the market leader. The competition drives more consumer interest, which can help us. We plan to continue reinventing the market with new products in 2025 and beyond.
Q: Any additional color on Solo Stove in wholesale? Are you losing any partners or partner doors?
A: Christopher Metz, CEO: We have a lot of runway in wholesale and retail channels. We are not in some channels like home improvement centers, which presents growth opportunities. We are investing in our retail sales team to better plan and execute with key customers.
Q: Any color on the new marketing agency or strategies to strengthen DTC sales?
A: Christopher Metz, CEO: We have adjusted our marketing mix to drive better efficiency. Our new 360-degree marketing campaign will fuel activation plans across various channels. We are also improving our online shopping experience with a new platform to enhance consumer engagement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
