Following eight years of explosive growth that saw the number of federally licensed manufacturers more than triple, the firearms industry poised for consolidation.

Sales data from SSI Data show year-over-year sales of firearms declined in the high single digits in December, compared with a 16.4-percent decline in federal background checks made through the NICS system run by the FBI. Sales of centerfire, semi-automatic rifles, including modern sporting rifles, or MSRs, fell 21.6 percent. The declines marked a sharp reversal in such sales, which had been doubling and tripling in the eight weeks leading into the election thanks in part to California’s new ban on MSR sales, which took effect January 1.

December marked the first time SSI Data has reported a year-over-year decline in monthly sales in two years and the first time the FBI has reported such a decline in NICS checks in two years.

“There were a lot of background checks for Black Friday, but from what we can see sales were not nearly as robust in the wake of the election,” said SSI Data Client Solutions Specialist Odie Tucker. “There was this huge demand fueled over the last eight years due to uncertainty over gun rights, but there is actually a large amount of uncertainty now about demand.”

A Rash Of Discounting
The sharp deceleration resulted in a spike in discounting last month as big-box retailers and other dealers who loaded up on MSRs and other firearms in anticipation of a Clinton victory shifted to clearance mode.

“We saw some of the big boxes do some pretty strong discounting after the election, particularly after Thanksgiving,” said Larry Hyatt of Hyatt Guns in Charlotte, NC. “Unless their buying is a lot different than ours, they are selling at cost.”

Hyatt Guns stocked up on MSRs and ammunition going into the election but “did not go hog wild,” figuring that even if the Democrats took the White House and Senate they would need at least 18 months to get new gun legislation before Congress. By the third week of December, however, Hyatt’s buying Sports Inc. was advising its members to enter “inventory reduction mode.”

“We think demand for MSRs will diminish,” said Hyatt. “The fear of a gun law passing because of an event is going to diminish some. We want to have less inventory because we think cash will be more important next year.”

A quick check in early January showed Cabela’s, Gander Mountain and Sportsman’s Guide offering discounts in the 10 to 15 percent range on a selection of entry level MSRs from such brands as American Tactical Imports, Smith & Wesson, Anderson, Ruger, Troy and Mossberg.

The Obama Boom
There is no denying that the firearms industry flourished during the Obama Administration. In the seven fiscal years ended September 30, 2015, the annual average growth rate (AAGR) of firearms production accelerated to 14 percent from the 5 percent seen during the preceding seven fiscal years, ATF data show.

The era was marked by volatility, which most analysts attribute to a perception that the risk of tighter gun control was significantly higher under the Obama Administration. This made consumers highly sensitive to any news that might lead to restriction of MSR sales.

In December 2015, for instance, NICS background checks surged by 1 million, or 43.5 percent, from a year earlier in the wake of a mass shooting in San Bernardino, CA. SSI Data figures show total gun sales grew by nearly a third that month, while sales of MSRs more than tripled. The week after a gunman killed 49 people at a gay nightclub in Orlando last June, MSR sales surged tenfold and NICS checks swelled by 600,000, or 40 percent. By year end, MSR sales were up high double digits for the second consecutive year, according to SSI Data.

“What you are dealing with is an extremely responsive market,” said Tucker of SSI Data. “Almost crazy responsive, because it swings both ways.”

All of the top 10 days for NCIS checks have occurred since 2012 and seven of those occurred between Thanksgiving and Christmas, according to FBI data. Even after the Republicans gained control of the Senate in the 2014 mid-term elections, dealers could count on spikes in traffic and sales following news of gun violence or new laws restricting gun sales and ownership.

The MSR Assemblers
Toward the end of Obama’s seventh year in office, the number of federally licensed firearms manufacturers had reached nearly 10,500, up from just 3,000 when he took office.

Some of that growth came from a cottage industry that sprang up to meet demand for entry-level MSRs, which are sold for $600 to $700 at retail. Entrepreneurs who could obtain licenses were able to launch their own brands simply by assembling receivers, barrels, rails, stocks and other components purchased on the open market.

While MSR sales have certainly been driven by consumers’ fear of terrorism and gun control, the rifles continue to gain popularity among target shooters and younger hunters, as evidenced by the growing array of such rifles being offered with Kryptec camouflage designs.

“It’s the most accessorizable firearm platform out there,” said Thomas Carlson, director of marketing communications for Daniels Defense, which is working through a three-month backlog of orders for its high-end MSRs. “You can buy a DD MSR and put any rail or barrel you’d like on it. That’s really why it’s so popular and why the accessories markets is so hot.”

The Big Boys Move In
The problem for the MSR assemblers is that demand now appears to be dropping even as competition from major gun manufacturers is rising, said SSI Data’s Tucker.

“There are a good deal of manufacturers who owe their existence entirely to the boom,” he said. “Many have never operated in a declining market.”

Savage Arms, a hunting rifle brand owned by Vista Outdoor Inc., launched its first line of MSRs at SHOT Show. The line includes four rifles ranging in price from $850 to $2,300.

“The CapEx and R&D to be able to develop a full line of modern sporting rifles is de minimis,” Vista Outdoor CEO Mark DeYoung told analysts in November. “It is an easy way for us to support our customers that are looking for those kinds of long gun solutions and do it in a very low investment approach.”

Remington Outdoor Co. said it increased production of lower-priced MSRs, including a new entry-level rifle from Bushmaster, in the third quarter to respond to demand for lower-priced rifles. Last May, the company announced it would close a factory in Kentucky and move its product equipment to a plant in Alabama to drive down costs.

In early November, Sturm Ruger & Company Inc. reported unit sell-through of its products by distributors grew faster than NICS check, indicating it gained market share for the second consecutive quarter.

Daniels Defense, which dwells at the high end of the market, is moving forward with plans to double production of MSRs, rail systems and accessories from 2015 levels at its plant in Georgia.

Overstoring
Excluding pawnbrokers or collectors, the country added nearly 8,000 federally licensed firearms dealers from 2009 to 2015, or nearly 70 percent of the number lost during the preceding seven years.

Hyatt Guns President Larry Hyatt estimates that eight new indoor handgun ranges with showrooms and seven big-box stores opened in the span of a few years in the Charlotte-Gastonia-Concord metropolitan statistical area where his store competes. Dick’s Sporting Goods, Cabela’s, Bass Pro Shops, Academy and Gander Mountain all operate in the region, which is home to about 2.5 million people.

“We now have 16 big-box competitors with showrooms,” said Hyatt, a second-generation owner-operator who plans to hand off the business to his son Mitch this year. “So we had a lot of growth in gun sales, but a lot of huge retailers opened, so there was not a great benefit to individual retailers.”

The Hyatts expect gun sales to still be good this year, but not as brisk as they were in 2015 and 2016. If demand falls more than 10 percent, though, things could get ugly fast. “My feeling is that with the internet and the over-expansion of retail, we are in store for a rough ride, particularly on margins,” he said.

Based on conversations with colleagues across the industry, Carlson foresees a broad slowdown in MSR sales in July and August.

“I think a lot of small assemblers will go away and we will see larger companies compete for shelf space,” he said. “It’s going to come down to how aggressive the larger companies get spending on marketing and public relations.”

Carlson said a purge might be healthy given the poor customer service offered by many startups. Still, he was among many expecting a very upbeat vibe at SHOT Show. “I think everyone in our industry is breathing a sigh of relief because as much as I disagree with [Trump] on many things, he is not coming after our jobs and livelihood.”

Photo courtesy Remington Arms

Vail Resorts Inc. (NYSE:MTN) reported gross margin improved at its retail and rental business in the quarter ended October 31, indicating the liquidation of more than 500 Sports Authority and Sport Chalet stores had little impact on specialty ski and snowboard dealers’ pre-season sales.

The company reported retail sales at its nearly 200 outdoor specialty stores grew $3.7 million, or 13.2 percent, while rental revenue rose by $400,000, or 8.8 percent. Retail cost of sales rose 11.7 percent to $42 million, implying a gross margin of 49.6 percent compared with 49.1 percent a year earlier.

Vail Resorts attributed the growth primarily to strong sales at pre-ski season sales events at its stores in Colorado, Lake Tahoe and San Francisco, where it operates the Any Mountain chain.

The results appear to validate the view that specialty ski and snowboard dealers would see little impact from the liquidation of Sports Authority and Sport Chalet because those chains carried little to no premium products.

Vail Resorts CEO Robert Katz said the expansion of its summer Epic Discovery program to Vail and Heavenly near Lake Tahoe drove up visitation, revenues and profits at its 11 U.S. resorts. The Epic Discovery program, which Vail Resorts launched at Breckenridge in 2015, refers to a plan to invest tens of millions of dollars in canopy tours, alpine coast rides, mountain biking trails and other amenities to draw tourists to Vail Resorts mountain resorts during the summer months.

While earnings before income taxes, depreciation and amortization, or EBITDA, from those operations fell a little short of projections due to construction delays, Katz said he was encouraged by how guests responded.

“The enthusiasm that we saw from our guests, the passion for it, the number of people coming up the hill, the increases in EBITDA, visitation and everything were outstanding,” Katz said. “Candidly, I think it gives us more confidence about the growth that we can have in this area.”

Despite the growth, the company’s operating loss increased 4.4 percent to $90.5 million compared with the fiscal first quarter of 2015 due to the October acquisition of the massive Whistler Blackcomb resort in British Columbia.

Excluding Whistler Blackcomb and the company’s recently acquired Perisher resort in Australia, Vail Resorts’ season pass sales were up 16 percent in units and 18 percent in dollars as of December 4 compared with a year earlier. Season ticket sales across all 13 of the company’s mountain resorts are on track to hit 650,000 units. Lodging bookings are running slightly ahead of a year ago in the United States, and are trending well ahead of last year at Whistler Blackcomb thanks to outstanding early season conditions and an attractive Canadian dollar exchange rate relative to the U.S. dollar and strong momentum from last season, when visits rebounded following an unusually warm 2014/15 winter in the region.

All these factors prompted Vail Resorts to increase its fiscal 2017 forecast for EBITDA to $567 million to $597 million, up from the $482 million to $518 million forecast September 26.

“While November was a fairly warm month for our U.S. resorts, colder temperatures and snowfall returned during Thanksgiving and all of our destination resorts are now offering a terrific early season experience,” Katz said. “We are particularly happy to note that early season conditions at Whistler Blackcomb are very good with over 10.5 feet of snowfall already recorded this season.”

Photo courtesy Vail Resorts

The General Accounting Office confirmed December 7 that it will review how the Foreign Trade Zone (FTZ) Board reviews applications involving textile imports in what marks a victory for The Coleman Company’s efforts to launch a new line of Made-in-USA life preservers.

“We accepted the request,” GAO’s Managing Director of Public Affairs told SGB in an email in reference to requests made by congressmen acting on the company’s behalf. “The work is expected to get underway in the next few months.”

A dozen members of Congress have urged the GAO to undertake the review since August, a year after Coleman asked the FTZ Board for permission to import textiles at lower duty rates to an FTZ sub-zone operated at its factory in Sauk Rapids, MN, which makes personal flotation devices, or PFD’s, sold under the Stearns and other brands. In an August 22 letter addressed to GAO Inspector General Dodaro, five Congressmen noted: “Certain manufacturers have expressed concern that it does not appear to them that the FTZ Board is conducting full evaluations based on the regulations in certain cases, specifically those involving textile inputs.” The number of congressmen pushing for the review grew to 12 in September when seven more wrote a follow-up letter to Dodaro.

While neither letter mentions Coleman, a source who helped draft the letters confirmed it was sent on behalf of the company. Of the 12 congressmen, three represent Minnesota and three Kansas, where Coleman manufactures coolers. Another four are from Colorado where Coleman is headquartered. The August 22 letter also cites a letter from the National Association of Foreign-Trade Zones (NAFTZ) that Coleman had forwarded to FTZ Board Executive Secretary Andrew McGilvray in November 2015 and included in its FTZ application for Sauk Rapids. The letter, which was sent to the secretaries of commerce and treasury, who sit on the FTZ Board, expressed concerns over inconsistencies in the approval process for applications involving textile imports.

As reported by SGB, Coleman sought approval from the FTZ Board in August 2015 to import fabrics at the 4.5-percent duty rate Stearns’ competitors pay on finished PFDs they import into the United States. Without approval, Coleman would have to pay the standing 14.9-percent duty rate on imported polyester and nylon fabrics – even though it wants to use them to create up to 40 new manufacturing jobs at the Sauk Rapids factory.

The GAO decision comes more than eight months after the FTZ Board held a hearing at Coleman’s request to hear objections to the company’s application from the South Carolina textile company Milliken & Co., the National Council of Textile Organizations (NCTO) and two other domestic textile organizations. The group persuaded the FTZ Board to delay the hearing last November just days before it was scheduled to occur, despite Coleman’s insistence that it was unable to find a viable U.S. supplier of the fabrics.

“In making a net economic benefit analysis it is critical for the FTZ Board to recognize that if PFDs are imported, 100 percent of the inputs are foreign sourced, resulting in a losing situation for our constituents and U.S. manufacturing in general,” Rep. Tom Emmer of Minnesota wrote in a letter of support submitted to the FTZ Board last year. “Thus, granting of production authority will not cost a single American job; it will only create them.”

Milliken has not returned repeated phone calls and emails seeking comment on the case and an NCTO spokesman reached last month was brief: “While we do not comment on pending matters, suffice it to say we would not have gone to the trouble of opposing this without good reason,” NCTO Director of Public Affairs Lloyd Wood told SGB on November 7.

The case has raised concerns about transparency, according to Erik Autor, president of the International Association of Foreign Trade Zones.

“In the case of a few specific industries (e.g., textiles and apparel), we have heard concerns that the FTZ Board’s reasons for denying a zone application were unclear and the views of certain interest groups often appear to lack factual-based analysis and have taken precedence over consideration of net economic benefits and public interest,” Autor wrote in a November 3 email to SGB.

On December 7, Newell Brands was advertising 14 open positions at Coleman’s Stearns plant in Sauk Rapids, although it was not known whether those were tied to expanded production or a routine increase in production.

Photo courtesy Coleman/Stearns

Direct-to-consumer sales and internet referrals to brick-and-mortar dealers have been declining steadily at Bodycraft over the last three years, and the company’s president Alan Gore could not be more pleased.

“Any time we get a dealer who says ‘we are not getting sales from you,’ we say ‘Hallelujah,'” said Gore, noting that the metrics signal the Ohio manufacturer of treadmills, stationary bicycles, elliptical trainers and other exercise equipment is succeeding in pushing online customers to its dealers. As part of that initiative, Bodycraft opted two years ago to begin sharing profits from its online DTC sales with brick-and-mortar dealers who meet certain criteria.

It’s easy to dismiss these partnerships given the nature of Bodycraft’s products, which don’t tend to sell well online because they are expensive to ship and can be difficult to assemble. Yet the tactic is spreading among a handful of second- and third-tier active lifestyle brands eager to win shelf space with select independent specialty retailers.

Dollars And Data
Under an “Elite Dealer” program unveiled last month, Ibex Outdoor Clothing dealers can receive 10 percent of ibex.com sales initiated within their market areas beginning January 1, 2017.

Ibex Vice President of Sales Scott Parr hopes the revenue split persuades independent specialty retailers to partner more closely with Ibex to build their own businesses, despite growing suspicion of brands that sell direct to consumer online. Specifically, he wants to share ibex.com’s sales data to show retailers which Ibex products consumers are buying in their region. Ibex.com will also insert postcards in its own shipments referring customers to their nearest Ibex Elite dealers.

Parr said Ibex is the first company he has worked for using its DTC sales data in this way. It’s a way to balance the realities of DTC with the resistance to it.

“It was hard to have those conversations with retailers who felt that we were competing with them,” Parr said. “So I was looking for a way to overcome that as we seek to build wholesale business in 2017, and felt this was a really good way to improve communication around a discussion of consumer behavior. If they know what consumers in their community are buying, they will be more successful.”

Membership Perks
Parr said he got the idea for DTC revenue split from Louis Garneau Sports, which launched its “HUB Dealer” program in June to boost sales of its bicycles and cycling gear to independent bicycle dealers (IBDs). IBDs who meet minimum order requirements for selected model year 2017 products will be eligible for a share of Garneau’s online sales of custom team, club and consumer products originating in their territory. Garneau still sells its bicycles exclusively through IBDs and other retailers. HUB dealers are also entitled to stock rotation for underperforming inventory, in-store merchandising to optimize sell-through, special pricing and terms on custom dealer apparel, in-depth product sales training and priority access to new Garneau styles.

“When you walk into a  HUB store we want to see a major presence similar to a concept store experience,” explained David Cathcart, director of U.S. and international sales for Louis Garneau Sports. The launch of the program comes amid reports that the growing dominance of Trek Bicycle Corp., Specialized Bicycle Components and Giant USA in IBD bicycle sales is now spilling over into apparel, footwear, parts and accessories, leaving the more than 1,000 vendors that exhibit at Interbike to fight over a shrinking slice of the market.

While it’s way too soon to know whether such programs will spread, they signal continued appreciation for the important role independent specialty retailers play in building brands. They may emerge as a useful tactic among the growing number of DTC-only brands being enabled by the internet. Specialty retailers will need to pay particularly close attention to the details, including exactly what and how much they have to buy to qualify and how brands will allocate their online revenues in markets with multiple participating dealers.

Brands, meanwhile, will continue to hedge their bets.

“We are cognizant of where the market may go,” said Gore, of Bodycraft, which earns about 10 percent of revenues selling directly to consumers online via either its own site of Internet-only dealers. “If there comes a day when we need to pivot to more DTC sales, we are prepared for that.”

Photo courtesy Ibex

Canada’s Sport Chek retail chain sustained its impressive same-store sales growth in the third quarter ended October 1, despite currency headwinds and lackluster sales in the nation’s oil patch.

Same-store sales at Sport Chek’s 192 owned and franchised stores rose 7.7 percent on top of an 8.8-percent gain reported in the third quarter of 2015. That drove same-store sales at parent company Canadian Tire Corp.’s FGL Sports network of 429 corporate and franchised stores up 6.2 percent, on top of 7 percent a year earlier.

FGL Sports’ retail network also includes 92 Sports Experts, 67 Atmosphere outdoor specialty and 98 other owned and franchised stores. Altogether, the network’s retail sales grew 8.5 percent on top of 6.5 percent growth a year earlier. FGL Sports revenue, which consists of sales of merchandize, fulfillment and other services to franchisees, as well as retail sales through corporate-owned stores, increased 2.8 percent to CAD606.1 million. Wholesale revenues, however, rose just 0.5 percent to CAD298 per square foot, due to lower shipments to franchisees, who reduced orders due to the amount of winter gear carried over from first quarter of the year.

Oil Patch Shows Life
Sales at Canadian Tire Corp.’s Mark’s chain, which sells workwear, casual apparel and footwear through 382 locations, grew 4.4 percent compared with the third quarter of 2015. Same-store sales grew 4.3 percent versus last year’s 0.2 percent decline. While the results reflect the decision by Mark’s to expand its offering of casual footwear and apparel styles to offset a sharp drop in work wear sales, they also appear to signal improving conditions in Alberta’s oil patch, Canadian Tire Corp. President and CEO Stephen Wetmore said.

Canadian Tire Corp. reported all its retail businesses, including 499 Canadian Tire general merchandise stores, 91 PartSource auto parts stores and 296 Canadian Tire gas stations, contributed to a 154-basis-point increase in retail gross margin.

CapEx Forecast Slashed
Analysts focused most of their questions during Canadian Tire’s November 10 earnings call on the company’s decision to slash its capital spending forecast for the fiscal year to between $475 million and $500 million versus between $625 million and $650 million.

Wetmore attributed about $100 million of the reduction to lower IT spending, but said the company has shifted much of that money into a reserve fund that will be used to implement productivity projects that have proven themselves within Canadian Tire Corp.’s network of nearly 1,700 stores.

For instance, Sports Chek, which has led the company’s digital transformation, recently launched a same-day delivery pilot program and is in the process of implementing an order management system already in use by Mark’s, to determine whether it’s more efficient to fulfill orders from stores or distribution centers. The remaining $50 million in reduced capital spending reflects lower spending on new stores, renovations and other brick-and-mortar projects, following a five-year CAD3 billion capital spending binge that added 2 million square feet of retail space and remodeled dozens of Sport Chek stores.

“We are taking the time now to see, certainly, between a general fleet renovation versus a Hero store renovation, and what’s a better return for us and a better customer experience at the same time,” said FGL Sports President Duncan Fulton.

Photo courtesy Sport Chek

Strong sales of firearms and ammunition enabled Vista Outdoor Inc. (NYSE:VSTO) to more than double profits in the quarter ended October 2 despite deeper discounting at its Outdoor Products segment.

The Utah-based company reported sales in its fiscal second quarter grew 24 percent to $684 million compared with the prior-year quarter. Approximately 80 percent of the growth came from business acquired by its Outdoor Products segment, with the balance coming from organic sales, which grew 5 percent thanks largely to demand for its ammunition and long guns.

Net income jumped 121 percent to $73.2 million, or $1.22 per fully diluted share, compared to 52 cents in the prior-year quarter. Adjusted EPS was 74 cents, compared to 63 cents in the prior-year quarter and Wall Street’s consensus estimate of 61 cents.

Shooting Sports sales grew 7 percent to $364 million compared with the prior-year quarter, due to strong sales across both its ammunition and firearms business that were boosted by an acceleration in international sales to allied countries. Gross profit grew 11 percent to reach 28 percent of sales compared with 27.2 percent a year earlier, thanks to higher volume and product mix.

CEO Mark DeYoung said unusually warm weather has since delayed migration of game and water fowl and slowed sales of hunting gear. He said the company has seen no impact from the pending merger of Bass Pro Shops and Cabela’s.

“We are increasing our store presence and increasing our share of shelf with both of those key retailers, so we aren’t at this point at all concerned, nor do we have any indication of challenges with Cabela’s or Bass Pro from that transaction,” DeYoung said.

Sharp Discounting At Bushnell
Outdoor Products sales grew 51 percent to $321 million due primarily to approximately $106 million of sales from acquisitions, including the Giro, Bell and Blackburn cycling and Camp Chef outdoor cooking brands. Organic sales grew approximately 1 percent from the prior-year quarter, thanks largely to increased sales in tactical products, hydration systems, shooting accessories and eye wear, partially offset by a decrease in optics and increased promotional activities across the segment. The segment owns 49 brands.

Approximately $32 million in gross profit from acquisitions offset a 10-percent decline at the rest of the segment, which slashed prices to protect market share amid liquidation sales at more than 500 Sports Authority and Sport Chalet stores, officials said. While gross margin rose 80 basis points to 28 percent compared with a year earlier, the figures implied a substantial decline in gross margin at Bushnell, which generated the bulk of the segment’s organic sales during the quarter.

Bushnell’s challenges increased October 24 when a bankruptcy court approved plans to liquidate 59 of 89 remaining Golfsmith stores that sell the brand’s popular range finders.

“Due to the ongoing challenging retail environment, this will likely continue in the second half of the fiscal year,” said DeYoung, adding that the promotional activity pulled revenue into the fiscal second quarter at the expense of the third.

Trump’s Calming Effect
DeYoung said that while Donald Trump’s election to the presidency is likely to quell fears of gun control laws that spurred sales of modern sporting rifles (MSRs) and some handguns throughout the Obama administration, a return to more normal buying patterns bodes well for the industry.

The company’s Savage Arms brand, which focuses primarily on rim fire and bolt-action rifles popular with hunters, plans to launch its first line of MSRs at The SHOT Show in the first quarter.

“Savage is a modern sporting arms company and this is a perfect fit for us,” said DeYoung. “The CapEx and R&D to be able to develop a full line of modern sporting rifles is de minimis. It is an easy way for us to support our customers that are looking for those kinds of long gun solutions and do it in a very low investment approach.”

He said the line will differentiate itself with features consistent with Savage’s reputation for accuracy, innovation and value.

“We believe [the line] will be very attractive to that market and allow us to carve out a portion of that business and take market share,” he said.

Photo courtesy Camp Chef

Winter apparel and footwear brands did not get much help from Europe in the third quarter, according to the continent’s largest online fashion retailer.

Zalando SE reported a late start to winter in its core German-speaking, or DACH, markets slowed sell-through of winter apparel, footwear and accessories compared with a year earlier, particularly men’s product.

“This is specifically difficult for the men’s category, because male customers tend to be more need-based in their fashion shopping behavior,” noted Zalando’s Management Board Member Rubin Ritter during the company’s earnings call November 10.

The German company, which carries dozens of global athletic and outdoor brands, reported sales grew 17.1 and 21.9 percent during the third quarter and nine months ended September 30, following growth of 42.2 and 34.9 percent a year earlier. While third-quarter growth lagged inventory growth of 19 percent, executives remain confident they will hit their 20 to 25 percent annual growth rate this year, and upped their guidance on full-year adjusted earnings before income taxes (EBIT) margin.

In the DACH region, Zalando sales grew 10 percent despite reports that fashion sales in Germany declined 16 percent in September,  Ritter said. He attributed the growth to a larger assortment of lower priced items launched to lure younger consumers and its growing Partner Program, which now includes 150 brands, including Adidas, Converse, Eastpak, Nike, Puma, Reebok and Vans.

“Whenever we are sold out on a particularly attractive style of Adidas and, as you know, they are, actually, quite successful at the moment, we have the option to backfill that item through the partner program and, therefore, guarantee a much higher level of availability, which has significantly grown the turnover of Adidas on our platform,” Ritter said.

Zalando currently offers about 200,000 fashion items, but Ritter has said he would like to quintuple that number by entering other categories.

Active customers grew by 2 million to 19.2 million compared with the third quarter of 2015 and, on average, those customers placed a record 3.4 orders and spent €213 each during the quarter, up 12 percent from a year earlier. Average sales was flat at €63.

Though Amazon launched its first TV commercials in Germany during the quarter, Ritter played down its rival’s growing focus on fashion.

“We are really focused on on-season items, whereas Amazon has a huge share of off-season items, which actually means that for the current season our overlap is in the area of 20 percent in terms of assortment,” he said. “Secondly, it’s about curation and recommendation. Amazon is serving specifically search-based use cases, whereas we think when people buy fashion and want to be inspired, the use cases look quite different.”

Zalando’s adjusted EBIT margin swung to 2.3 percent of revenues in the quarter, compared to negative 3.3 percent a year earlier and its forecast of 5 to 6 percent for the full year. About 3 percentage points of the improvement came from gains in efficiency at fulfillment centers. Lower marketing costs relative to sales, better pricing from vendors, less discounting due to improved sourcing and lower credit card fraud also contributed to better margins.

“In the third quarter, we have been driving more promotional activity in the rest of Europe, because here we saw better elasticity, and better effect on giving discounts or doing promotional activity, as compared to DACH,” Ritter said.

Zalando earned all its profits from the DACH region and broke even in the rest of Europe during the quarter.

Photo courtesy Zalando

Despite reduced discounting and improving inventory levels at Dorel Sport’s Cycling Sports Group (CSG), the parent of Cannondale, GT and Schwinn bicycles expects sales to continue to fall in the fourth quarter.

“We are expecting a significant change in IBD (independent bike dealers) retailers’ purchasing patterns with fourth quarter orders moving to the first quarter of 2017,” said Martin Schwartz, president and CEO of Dorel Industries Inc. (TSX:DII.B) during the company’s earnings call November 3. “Therefore it is expected that there will be a reduction in second-half CSG shipments, which should result in year-over-year growth in the first half of 2017.”

The company reported that Dorel Sports’ third-quarter revenue reached $250.7 million, ended September 30, down 5.9 percent compared with the third quarter of 2015, or -6.2 percent in currency-neutral terms. Organic revenue, which excludes the impact of changes in exchange rates and a shift in how the company recognizes overseas revenues, declined by 10.7 percent.

Traditionally, Dorel Sports and other bike vendors have offered incentives such as pre-season discounts and dating to persuade dealers to take up to 60 percent of their orders for the next model year in the third and fourth quarter. But when U.S. vendors’ bike inventories swelled to 140 percent of normal last January, they responded by offering deep discounts last March to make room for incoming model year 2017 bikes.

“With the discounting that occurred in the spring, they have kind of woken up this year and said, why would I want to take in such a big commitment so early, if I can wait and see if there is any discounting,” Dorel Industries’ CFO Jeffrey Schwartz said of IBDs. “So they are buying still, but they are not buying the bulk of their commitments before they need them. I don’t foresee this year as a time when the IBDs are going to load up and stock their warehouses. They would rather ask to keep the goods in our warehouse.”

Dorel Sports has responded by entering 2017 with less inventory than normal, and Schwartz said it appears the company’s competitors followed suit. Bicycle Products Supplier Association estimates U.S. bike vendors’ inventories were up just 20 percent on September 30 compared with a year earlier, versus 40 percent at the end of January, he said.

Despite these headwinds, Dorel Sports was able to boost adjusted operating profit, which excludes impairment losses, restructuring and other costs, by 0.9 percent to $10.9 million compared with the third quarter of 2015.

Pacific Cycle, a division of Dorel Sports that supplies Walmart and other mass merchandisers,  contributed the most to those gains thanks to new products and logistics efficiencies. By year end, the division will relocate most of its distribution operations from Illinois to a facility operated by Dorel’s ready-to-assemble furniture segment in Savannah, GA. Dorel is expanding the center to ship a growing collection of products to retailers and consumers. Online sales accounted for 44 percent of the home furnishing segment’s revenue in the quarter, up from 37 percent in the third quarter of 2015.

“Pacific Cycle had a solid quarter,” Schwartz said. “Operating profits increased considerably with Schwinn’s new models and updated look. We are looking for an even better 2017.”

In Brazil, where the currency stabilized, bike manufacturer and distributor Caloi was able to pass through price increases. Improving inventory levels enabled CSG to reduce discounts on its model year 2017 bikes, including the Cannondale SuperX and CAADX cyclocross bikes featuring the brand’s proprietary carbon frame and disc brakes, an overhauled BMX freestyle line from GT, and Schwinn models that will launch at retail in the first quarter of next year. The segment, which also includes the Sugoi and Sombrio apparel and Fabric parts and accessories brands, reduced working capital and increased cash flow from a year earlier.

Through the first nine months of the year, Dorel Sports’ adjusted operating profit declined by 34.9 percent to $21.4 million, but executives expect adjusted earnings to continue improving.

“For the sports segment overall, we believe the positive trend on adjusted operating profit will continue in the fourth quarter, which will result in improved earnings compared to last year’s fourth quarter,” Schwartz said.

Photo courtesy Cannondale

Intrawest Resorts Holdings Inc. (NYSE:SNOW), which owns Steamboat, Stratton and four other mountain resorts, cut losses at its mountain segment by nearly $3 million in the quarter ended September 30 thanks to growing summer visits.

The company grew revenue at its mountain segment by $4.2 million, or 8.5 percent, to $54 million. Adjusted EBITDA improved by $2.7 million, or 13.1 percent, to a loss of $18.1 million.

Nearly 60 percent of the sales increase came from lodging and food and beverage operations, which accounted for about half of Intrawest’s mountain revenue during the quarter. Revenues from lift and retail and rental operations, which better reflect spending on outdoor activities and gear, reached $4.75 million and $7.60 million, up 19 and 2 percent respectively.

Sales of season passes and other “frequency products” for the upcoming winter ski and snowboard season were up 12.4 percent compared to a year earlier. Excluding free children passes, unit sales increased 9.5 percent. Winter reservations at Canadian Mountain Holidays, which is the largest heli-ski operator in North America, were up 8.6 percent in dollar terms.

Intrawest owns Steamboat and Winter Park resorts in Colorado, Stratton in Vermont, Snowshoe in West Virginia, Tremblant in Quebec and Blue Mountain in Ontario, Canada.

Photo courtesy Steamboat/Intrawest

As younger adventurers flock to trailers and RVs to make their lives mobile, outdoor brands eye a slice of the market.

When SylvanSport suggested that Chad Carlson’s Woodland Travel Center in Grand Rapids, MI consider selling its line of adventure trailers, he was resistant.

As an Airstream dealer, Woodland Travel Center is perched at the premium end of the RV business and Carlson did not want to tarnish his showroom with a pop-up camper.

“At first I did not want to carry it,” Carlson said of the SylvanSport GO. “And then I saw it at a show and said, ‘holy crap! This is best product I’ve ever seen.’ The tooling is better than Airstream. I’ve sold 50 of them this year, and I just started carrying them.” The dealership has also signed on as a Thule dealer so it can sell and install the Swedish brand’s bicycle, kayak and other gear carriers on the trailers.

“It’s the same customer looking at the Airstream or Sprinter vans. They probably have a household income of $140,000 to $170,000, and the SylvanSport is a relatively inexpensive vehicle to carry their expensive toys.”

The trailers, which Woodland displays carrying kayaks, are drawing a new type of customer to the store, Carlson said, perhaps representing a foot in the door for outdoor brands to explore the RV market. “It’s opening up a lot of other activities along lines we did not anticipate,” he said.

Outdoor Outlier
Carlson is clearly an outlier within the RV industry. Visit campingworld.com, the online store for the country’s largest chain of RV supply stores, and you will be hard pressed to find any kayaks, bikes or tents priced above $450, nor any brands you would find in an outdoor specialty shop.

While campingworld.com lists 125 items under “Bikes/Bike Racks & Carriers,” that includes scooters, golf carts, wheelchairs and hitch mounts from Husky and other mass-market brands. Of 1,250 RV & Camping products listed, just 56, including folding bikes from Dahon and tents from Coleman, Sportz Camo, Gazelle, Gunnison and PahHaQue, sell for more than $250. The Camping & Tailgating section includes propane appliances, an electric leaf blower and fist-shaped foam beverage coolers emblazoned with NFL team logos.

“The RV Channel has had a nice bit of growth in recent years which, from what we can gather, is due in part to their recovery from the 2008/09 market collapse,” noted Thule spokesman Chris Ritchie. “Other than the economy recovering and folks spending more of their disposable income on travel by way of RV’s, it’s hard to say what the major driver is since we are somewhat of a small player in this channel here in the U.S.”

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” background_image=”https://sgbonline.com/wp-content/uploads/2016/11/A.jpg” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”on” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” background_color=”#ffffff” custom_padding=”300px||300px|”][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_image admin_label=”Image” show_in_lightbox=”off” url_new_window=”off” use_overlay=”off” animation=”left” sticky=”off” align=”left” force_fullwidth=”off” always_center_on_mobile=”on” use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [/et_pb_image][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_margin=”-35px||-35px|”]

Overcoming “An Elitist Bias”
Carlson’s enthusiasm for SylvanSport represents a huge and untapped opportunity, according to Frank Hugelmeyer, who took the reins as president of the RV Industry Association in 2015 after 14 years of serving in the same role at Outdoor Industry Association.

“Not too long ago, attendees at the Outdoor Retailer show acted like owning a four-wheel-drive vehicle was a federal offense,” Hugelmeyer said. “The truth is, all sorts of people are using some sort of recreational vehicle to access the outdoors and haul gear. Whether you look at fifth-wheel trailers, pop-up campers or Class-C and Class-A motorhomes, RVs are all filled with active-lifestyle gear. The crossover has been high for a long time, and the opportunity of different brands to tap into those markets is virgin territory.”

RV sales reached a record $16.5 billion in the United States last year after shipments grew 4.9 percent on top of three years of back-to-back double-digit growth. Much of that growth is being driven by young, active families buying pop-up campers, tear-drop and fifth-wheel trailers, Hugelmeyer said days after returning from the California RV Show.

“The average boat owner in America is 53,” noted Hugelmeyer. “The average age of an RV owner is 45 and going down. This is as robust, diverse and exciting a market as anywhere and it all ties toward going outside and going on an adventure, whether that’s tailgating at your favorite ball game or going outdoors. But no company has really taken the opportunity to tap into this market in a meaningful way because of an elitist bias.”

Tom Dempsey’s Venn Diagram
That’s music to the ears of Tom Dempsey, who founded SylvanSport in Brevard, NC to reach consumers he felt were not being served by either outdoor or RV brands.

Dempsey said he began thinking about that opportunity in the early 1990s after taking his first job out of college as a product developer at The Coleman Company. At the time, Coleman was still making its pop-up campers, which are now manufactured by Dutchman Manufacturing. “Coleman was the first outdoor-gear company to venture into the RV space in the 1960s,” Dempsey recalled. “I remember thinking, these are interesting, but I’ll never use them.”

Dempsey went on to design kayaks at North Carolina-based Watermark and serve as president of North Carolina Liquid Logic before founding SylvanSport in 2004. In meetings with potential employees, suppliers, dealers and investors he would draw a Venn diagram with the overlap between the two circles representing the customers shared by active outdoor and RV brands that SylvanSport would target. “It’s always baffled me that it has historically always been two different communities,” he said.

SylvanSport brought its first trailer to market in 2008 just as consumer credit — the lifeblood of the RV industry — was drying up in the wake of the U.S. housing collapse. Six years later, more than two dozen RV dealers have signed on as SylvanSport dealers in the United States and Dempsey’s vision is catching on with other RV manufacturers, including Winnebago Industries Inc.

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” background_image=”https://sgbonline.com/wp-content/uploads/2016/11/Winnebago_ConcepAdventureVehicle.jpg” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”on” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_image admin_label=”Image” show_in_lightbox=”off” url_new_window=”off” use_overlay=”off” animation=”left” sticky=”off” align=”left” force_fullwidth=”off” always_center_on_mobile=”on” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_margin=”300px||300px|”] [/et_pb_image][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_margin=”-35px||-35px|”]

Winnebago Joins Outdoor Retailer
“Winnebago’s senior managers came to visit us and I asked them, ‘have you ever heard of the Outdoor Retailer show?’ And they said no,” Dempsey said. “I took them on a walk through the show and they were absolutely floored.”

In 2014, Winnebago exhibited in a small area between the north entrance to the Salt Palace Convention Center and the New Exhibitor Pavilion. It has since expanded the space twice, and this past year debuted a concept adventure vehicle marketed toward the outdoor crowd.

“They are exhibiting there for the same reason I’m in business,” Dempsey said. “They recognize that the next generation of RV owners are all the folks walking around the halls of OR and outdoor stores now.”

Whether Outdoor Retailer’s active lifestyle brands reciprocate by exhibiting at RV shows remains to be seen. Either way, Hugelmeyer thinks entrepreneurs will emerge to fill the niche. Brands like Tepui Tents and Yakima, offering pop-up-tent setups on the top of vehicles, for example, are making some noise in the space.

“The reality is you have a lot of very entrepreneurial, innovative companies serving a wide range of markets,” Hugelmeyer said, “and they are not biased as to who they invite into the tent.”

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]

Fox Factory Holding Corp.’s (Nasdaq:FOXF) raised its earnings guidance for 2016 Wednesday, citing growing confidence that manufacturers will buy more of its forks, shocks and seat posts to equip model year 2018 bikes.

The company now expects non-GAAP adjusted earnings per diluted share in the range of $1.19 to $1.23, up from $1.10 to $1.19 forecast August 3. Fox Factory narrowed its revenue forecast to $395.5 million to $401.5 million from $387 million to $402 million.

While much of the earnings growth will come from its power sports segment, executives said they also expect bike manufacturers to put more of Fox Factory, Race Face and Easton components on model year 2018 bikes that will hit the market starting next spring.

“The thing that gives me confidence is our own order book,” said CEO Larry Enterline. “What we see in both bike and powered vehicles has enabled us to raise that guidance. Even in challenging conditions, I think we’ve done well with [bicycle] product. We see it being a pretty good contributor across the product lines. Some of our new products there, seat posts have been well received.”

The relatively rosy forecast was surprising given flat sales at the company’s bicycle segment in the third quarter and what executives described as challenging conditions in the independent bicycle dealer (IBD) channel worldwide.

In the United States, bicycle shipments declined 8 percent from a year ago through the first nine months of the year, according to the Bicycle Product Suppliers Association (BPSA). Fox Factory, by contrast, reported sales at its bicycle segment were up 6.8 percent for the same period.

“We see high-end mountain, where we primarily participate, as holding up quite a bit better than that,” Enterline said.

Enterline noted that “inventories have come back into line” in Europe and “the U.S. is going okay.” He added, “China and Asia have been clearly probably the most impacted. That’s not a lot of our sales fortunately, but we did have some great growth over there that we’ve seen flat.”

Executives expect a long list of victories by its downhill and cross country athletes will drive aftermarket and OEM sales of its mountain biking forks and shocks in the fourth quarter and into 2017.

“We are pleased with our products’ spec positions in model year 2017 and we expect to continue to gain spec in model year 2018 as our planned product line is being met favorably by our OEM customers,” said Mario Galasso, executive vice president for business development.

Galasso also noted Fox Factory’s growing sales of e-bike specific suspension products, which are designed to work with stiffer chassis and damping and heavier tires. “We believe that there’s incremental units coming by way of the e-Bike,” said Galasso, adding that the segment will inevitably eat into sales of standard pedal mountain bikes. “It’s been one of the fastest growing areas of development for the bike industry for the last few years.”

The Subaru Sea Otter Classic held the first e-mountain bike race in the United States this year and plans to expand the event next year with help from Bosch e-Bike Systems and Haibike, two German brands that spearheaded the category in Europe.

Fox Factory also plans to expand its Rhythm line of suspension products, which it launched last year to address the sub-$2,500 mountain bike market. The company is still studying how to bring back the Italian Marzocchi brand it acquired in 2015 at a price point just below Rhythm.

Race Face and Easton, which Fox Factory acquired in December 2014, are also growing their OEM sales. Fox Factory announced a year ago that it was accelerating integration of Race Face/Easton after it became clear they would hit the high end of earnings targets stipulated in an earn out agreement. All three brands exhibited together at Eurobike and Sea Otter this year for the first time.

“We’re doing some colors and graphics that tie the fork, shocks, seat posts, crank bars, grips together,” said Enterline of efforts to integrate the businesses. “So it’s on track.”

Photo courtesy Fox Factory

Sturm Ruger & Company Inc. (NYSE:RGR) reported net sales and earnings growth accelerated in the third quarter 2016 as gun dealers and the company’s distributors stocked up in anticipation of a quadrennial spike in gun sales that has accompanied recent presidential elections.

The growth came in handguns and modern sporting rifles that are more sensitive to the gun-control debate, rather than traditional hunting rifles, where demand has been soft.

“The hunting season never really materialized as most people thought it would,” said President and Chief Operating Officer Christopher Killoy. “A lot of consumers spent their discretionary income dollars on concealed-carry products and modern sporting rifles.”

Sturm Ruger reported net sales surged 34 percent to $161.4 million during the third quarter, ended October 1, versus a year ago, while net income came in at $19.1 million, or $1.03 per diluted share, up 66 percent.

The company estimated unit sell-through of its products by independent distributors to retailers increased 21 percent, again outpacing growth in criminal background checks. Those grew 16 percent during the period, according to National Instant Criminal Background Check System figures adjusted by the National Shooting Sports Foundation. Distributor sales of Sturm Ruger products grew 20 percent in the second quarter and 18 percent in the first half.

Sturm Ruger attributed its growth to four factors, including three that drove sales in the previous quarter: stronger-than-normal industry demand during the summer, likely bolstered by the political campaigns for the November elections; strong demand for certain new products; and increased production of several products in strong demand. The fourth driver was greater availability of rimfire ammunition, which spurred demand for Sturm Ruger’s 10/22 rifle and other rimfire firearms.

Sturm Ruger carried 20,000 more firearms in its inventory at the end of the quarter, while distributors’ inventories of its firearms grew by approximately 54,000 units.

Photo courtesy Sturm Ruger

Even as Black Diamond Inc.’s stock (NYSE:BDE) emerges as a way for investors to profit from the proliferation of climbing gyms, the company has scratched other outdoor equipment brands from its acquisition shopping list, a top executive told investors Monday.

“It remains our intention to, at the appropriate time, acquire high-quality, durable cash-flow producing assets with expected enterprise values in the range of $250 million to $500 million,” said new Black Diamond Brand President John Walbrecht during the company’s third quarter earnings call. “At this time we expect to invest in assets unrelated to outdoor equipment in order to diversify our business.”

Since November 2015, the company has said that it was on another acquisition hunt, despite past criticism from investors (the stock has hovered around its historical lows) that it mishandled previous acquisitions such as Poc Sports and Gregory Mountain Products. The statement also comes amid double-digit growth in hardgoods sales in the specialty outdoor retail channel and the proliferation of climbing gyms, where Black Diamond’s climbing harnesses, carabiners, helmets and other core climbing and mountain products are sold.

Black Diamond’s share prices rose more than 5 percent in early morning trading November 1 on news the company’s sales and earnings for the third quarter ended September 30 exceeding Wall Street’s modest expectations. Those sales came in essentially flat at $39.4 million, but were up 8 percent in currency-neutral terms. As in the second quarter, executives stressed sales would have grown faster if not for constraints at the company’s Salt Lake City equipment factory.

Reduced Administrative Costs
The company also significantly cut its third-quarter net loss to a decline of $400,000, or a negative 1 cent per diluted share, versus a net loss of $50.8 million, or $1.55 per diluted share, a year ago, largely thanks to a 19-percent reduction in its selling, general and administrative expenses as it realized savings from its restructuring to a smaller company following the sales of Poc and Gregory. And in a bid to cut $9.5 million in annual expenses, Black Diamond over the last year has repatriated manufacturing of most of its equipment from China to its headquarters in Salt Lake City, relocated its European headquarters from Switzerland to Austria and dialed back its aggressive expansion in apparel.

Adjusted net income from continuing operations, which excludes non-cash charges and the cost of closing a factory in China and moving its European headquarters, came to $1.7 million, or 6 cents per diluted share, compared to $700,000 and 2 cents per diluted share a year earlier. On average, four Wall Street analysts who follow the stock had expected Black Diamond to break even in adjusted terms on sales of $37.6 million.

“Our larger key dealers continue to drive strong sellthrough of our products and despite the noise in the overall retail landscape today, we continue to characterize our North American dealer base as solid,” said Walbrecht, who joined the company a month ago after a brief stint heading up Columbia Sportswear’s Mountain Hardwear brand.

In North America, growth was driven by Black Diamond’s reentry into the rope market, the launch of four new headlamps and its Helio carbon skis and poles, which are being made in Europe. Sales of Cirque backcountry ski packs, PIEPS micro beacons and an updated version of the iProbe avalanche probe also contributed to growth.

In Europe, Black Diamond was able to catch up on back orders for climbing hardware during the quarter even as it fulfilled at-once orders for replenishment sales. While Black Diamond’s European ski dealers remain cautious due to disappointing winter weather, Walbrecht said bookings are strong for next spring when the brand will launch its first full-body harness for kids, a rechargeable version of the Iota headlamp, updated trekking poles and more accessories aimed at gym climbers.

In the rest of the world, distributors opened three new Black Diamond Equipment-branded gyms in the United Kingdom, two in Sweden and one in Germany, all containing Black Diamond shop-in-shops. A climbing gym in Beijing is also installing a Black Diamond branded concept shop.

Despite the positive demand, Black Diamond’s gross margin fell 470 basis points to 31.3 percent, with product mix, higher manufacturing costs and inventory clearance accounting for about 60 percent of the decline and exchange rates accounting for the rest. While Black Diamond pays for the bulk of its inventory in U. S. dollars, approximately 40 percent of its global sales are denominated in the euro and other foreign currencies such as the Canadian dollar, Swiss franc, British pound and Norwegian krone.

The company ended the third quarter — when inventory levels typically peak — with inventory at $45.3 million, or 17 percent below year-ago levels. The $9 million reduction was nearly twice its $5 million goal for the year. Much of the improvement came from eliminating safety stocks accumulated last year to ensure timely deliveries as it repatriated manufacturing from China.

Affirming Outlook
The company still expects sales to decline by as much as $10 million, or 6.4 percent this year from $155.4 million last year, which would equate to flat to 3-percent growth in currency-neutral terms. Gross margin is expected to come in around 30 percent (33.5 percent currency neutral), due largely to costs incurred repatriating manufacturing, including two expensive recalls in the second quarter. The forecast anticipates a slight decline in fourth-quarter sales primarily due to a narrower apparel offering, which is expected to offset growth in climbing and mountain product sales.

Walbrecht, who is known more for building brands than cutting costs, outlined a number of initiatives to boost Black Diamond’s retail presence during the upcoming holiday shopping season. In North America, the company is sending point-of-sale kits to 150 of its top dealers and installing 11 brand windows and six custom shop-in-shop installations in key U.S. specialty retailers and climbing gyms.

He confirmed the company will discuss entering adjacent climbing and mountain categories in spring 2018 when it meets with key retailers at the Outdoor Retailer show in January.

“And based on the response, the feedback we get, we will look at opportunities that our retailers believe are right for Black Diamond and for them,” he said.

In the meantime, he is optimistic Black Diamond can catch up with demand for its core climbing and mountaineering gear by the end of the year.

“We believe that the recall and quality concerns from earlier in the year are behind us and that our overall manufacturing operations are greatly improved,” Walbrecht said. “Suffice it that the demand doesn’t get further ahead of where we are at from a supply plan. That was the first perfect storm this season.”

Photo courtesy Black Diamond

Newell Brands Inc. (NYSE:NWL) reported organic sales at its Outdoor Solutions segment, excluding brands marked for sale, declined 3.2 percent in the third quarter as growth at Pure Fishing was more than offset by declines at Coleman.

“Coleman continues to be a challenge,” Newell CEO Mike Polk said of the company’s $1 billion-plus flagship outdoor brand. “We’re going to lose share this year related to distribution. We’ve gone back into a number of customers and gotten the distribution we lost back for 2017.”

Polk added that one of the segment’s other larger brands, outdoor apparel brand Marmot, “is dealing with the macro issues associated with both apparel and the consequences of last year’s warm weather.”

Newell Brands was formed this year by the merger of Jarden Corp. and Newell Rubbermaid Inc. Jarden Corp. included a $2.74-billion-a-year Outdoor Solutions segment that owns more than 50 sporting  goods brands. Newell said Friday that, including results from Jostens, which Jarden acquired in November 2015, sales at the Outdoor Solutions segment increased 12.1 percent.

Still, the group generated an operating loss of $18.7 million, as solid business performance was more than offset by inventory step-up, integration and other costs related to the merger. Integration costs included investing to open two new design hubs in Chicago and New York, increasing investment in brand research and creating a new global e-commerce division that has been tasked with generating $1 billion in new revenue by 2020 across all the company’s segments and distribution channels.

“We do not envision a huge movement forward on direct-to-consumer except in the Yankee Candle business and in selected other businesses, like Marmot and potentially Coleman, and Baby & Parenting,” Polk said. “The reality is that the vast majority of that growth is going to come from brick-and-mortar dot-coms and pure play dot-coms.”

Newell announced plans October 4 to sell about 10 percent of its portfolio, including its winter sports business and a collection of other smaller brands within the Outdoor Solutions Segment; the Heaters, Humidifiers and Fans business within the Consumer Solutions Segment; and the Rubbermaid Consumer Storage business within the Home Solutions segment. The company’s other six segments are Writing, Commercial Products, Branded Consumables, Process Solutions and Tools, the latter of which it has agreed to sell to Stanley Black & Decker Inc. for $1.95 billion.

Outdoor Solutions businesses being sold include: K2 Sports, the Marker, Volkl and Dalbello alpine ski brands and Squadra, which designs and manufactures custom cycling and triathlon apparel. K2 Sports includes K2, 51/50, Morrow and Ride snowboards; K2 and Line skis and Full Tilt ski boots; Atlas, Powderidge and Tubbs snowshoes; Madshus cross-country skis; Backcountry Access avalanche safety gear and K2 in-line skates; and Zoot triathlon running shoes.

Continuing brands that Newell plans to hold onto in the Outdoor Solutions group include Coleman, Marmot, Abu Garcia, Berkley, Shakespeare and nine other fishing brands, Rawlings baseball, basketball and softball game-related product lines, Campingaz, ExOfficio travel apparel, Stearns watersports gear and Jostens, which makes yearbooks, jewelry and other products for K-12 and college schools and scholastic and professional sports teams.

Photo courtesy Marmot

Columbia Sportswear Company’s (Nasdaq:COLM) recent growth tear came to an abrupt end in the third quarter of 2016, as U.S. retailers pushed back deliveries of fall and winter goods to the fourth quarter in order to mitigate the risk of another mild winter.

For keen industry observers, the trend at Columbia, VF Corp.’s The North Face and other outdoor brands of late shouldn’t be a big surprise. A bad (warm) winter, such as that of 2015, tends to hit vendors the following year. And that time is now.

Columbia reported net sales reached $745.7 million for the quarter ended September 30, 2016, a 3-percent decline compared with 14-percent growth reported in the third quarter of 2015, when retailers in the northeastern U.S. loaded up on winter gear following an extremely cold 2014 season. Net income totaled $83.6 million, or $1.18 per diluted share, which while roughly 8 percent below a year earlier, still beat Wall Street estimates by a penny.

Later shipments of U.S. wholesale advance orders and the bankruptcies of Sports Authority, Sport Chalet, Bob’s Stores and Eastern Mountain Sports also contributed to a difficult comparison to the third quarter of 2015, when a favorable shift in timing of shipments drove a 26-percent increase in U.S. net sales, a 14-percent increase in consolidated net sales and a 39-percent increase in consolidated net income. Company officials said the bankruptcies shaved about 4 percent from Columbia Sportswear’s U.S. revenue in the quarter and are expected to reduce its U.S. revenue by 2 percent and total consolidated revenue by about 1 percent for the fiscal year.

“The North American marketplace looks and feels very different than it did one year ago, including weak consumer traffic across the brick-and-mortar retail landscape, lingering effects of wholesale customer bankruptcies and a glut of competitor brands in liquidation channels,” said CEO Tim Boyle.

In the U.S., consolidated net sales declined 6 percent to $484.8 million, as a low-double-digit percentage decline in wholesale revenue was only partially offset by a mid-teen percentage increase in direct-to-consumer (DTC) sales. Business in Canada declined 3 percent.

Better Results Abroad
Meanwhile, the story overseas was slightly better. In the Europe, Middle East and Africa (EMEA) region, sales grew 8 percent thanks to high-20-percent growth in the direct business in Europe, which was partially offset by a low-30-percent decline in net sales to EMEA distributors. In the Latin America, Asia Pacific (LAAP) region, net sales grew 3 percent, or 1 percent currency-neutral, consisting of mid-teen percentage growth in Japan (low-single-digit decline currency neutral) and high-single-digit percentage growth in China (mid-teen currency neutral), partially offset by a low-20-percent net sales decline in Korea and a high-single-digit percentage decline in net sales to LAAP distributors.

“The Korean marketplace continues to struggle to absorb a large industry-wide inventory overhang caused by a shift in consumer preference away from the outdoor sector in that country,” Boyle said. “We are currently expecting the industry-wide glut to continue, and make it very unlikely for us return to growth through at least 2017.”

Brand Breakdown
The Columbia brand’s net sales fell 4 percent to $587.3 million in the third quarter compared to a year ago, but are expected to grow 4 percent for the full fiscal year. Sorel’s sales increased 2 percent to $87.6 million amid soft wholesale orders, supply chain issues that pushed deliveries into the fourth quarter and a slight impact from the retail bankruptcies. Sorel sales are expected to grow 6 percent for the full fiscal year. As of October 27, Columbia and Sorel had sold about 80 percent of their fall/winter product, which is normal for this time of year, said CFO Tom Cusick.

Prana’s net sales increased 11 percent to $38.1 million on top of 22-percent growth in the year-earlier quarter. The yoga/climbing-inspired brand is expected to grow fiscal-year sales by 14 percent. At Mountain Hardwear, which has been hit especially hard by the consolidation in Korea, net sales declined 12 percent to $30.5 million, and are forecast to decline 10 percent during the full fiscal year.

By product category, global apparel, accessories & equipment net sales decreased 4 percent to $574.1 million and footwear net sales were essentially flat at $171.6 million.

The company ended the quarter with consolidated inventories of $588 million, or 8 percent higher than a year earlier, with the increase consisting primarily of current fall 2016 product.

Updated 2016 Financial Outlook
Columbia Sportswear now expects full-year 2016 net sales growth of approximately 4 percent, what could be seen as a slight pullback from its previous forecast of mid-single-digit growth. The estimate, as it did previously, includes less than 1 percentage point negative effect from changes in foreign currency exchange rates, on a base of 2015 net sales of $2.33 billion.

The company’s gross margin growth forecast remained unchanged at 10 basis points, with selling, general and administrative (SG&A) expenses still expected to increase slightly faster than net sales. However, company officials noted that all anticipated growth in operating income and earnings is concentrated in the fourth quarter, and the forecast assumes normal seasonal weather globally. That makes it heavily dependent on DTC sales in the United States. The forecast anticipates overall DTC sales, which include the company’s online sales as well as sales from full-price brick-and-mortar stores and factory outlets, will account for 38 percent of revenue this year and less than 50 percent in the fourth quarter.

Boyle said sell-through rates in both its wholesale and DTC channels are comparable with prior periods and “about where we want to be globally.” Other assumptions regarding the forecast include continued DTC growth of 20 percent in Europe and a successful launch of Columbia’s OutDry Extreme ECO rain shell.

Based on those assumptions, the company expects operating income to increase up to 4 percent with an operating margin of 10.7 percent. The company trimmed its forecast for earnings per diluted share by 5 cents to $2.55 to $2.65, including a 26 cent impact from currency headwinds, compared with $2.45 in fiscal 2015.

Photo courtesy Columbia