Solo Brands (DTC) 14 Mar 242023 Q4 Earnings call transcript

Hello, everyone, and welcome to Solo Brands, Incorporated Fourth Quarter and Fiscal 2023 Financial Results. My name is Emily, and I'll be facilitating your call today. [Operator Instructions]I will now turn the call over to our host, Bruce Williams, Managing Director at ICR. Please go ahead, Bruce.

Good morning, everyone, and thank you for joining the call to discuss Solo Brands' fourth quarter results, which we released this morning and can be found on the Investor Relations section of our website at investors.solobrands.com.Today's call will be hosted by Chief Executive Officer, Chris Metz; and Chief Financial Officer, Laura Coffey.

Litigation I call remind within current may of Private started, remarks that the management get XXXX the this of on contain Securities expectations. we want based everyone to management's meaning that Before are Act on Reform forward-looking statements our uncertainties, future differ These include, events forward-looking and differ some our implied results could and which those regarding also and may could of risks from predictions, statements statements. performance, those business involve or or estimates, expectations, developments outside of may financial targets control plans cause be materially substantial expressed such mentioned.These by actual limitation, materially that and including without results anticipated and objectives, to actual from discussed the These our in risks and filings SEC. uncertainties, are others, with among to of these these undue not at Form XX-K place a discussion you our annual on encourage available our these reliance portion be on for review the report of soon-to-be-filed filings investors website and on forward-looking including statements. risks, should We investors.solobrands.com.You will are statements obligation today, for and them revise except as made new of no information or update required any by to as we law. undertake only These also will and income these adjusted, adjusted, are non-GAAP to operating our with will earnings to are Chris. believe Investors comparability over to our earnings that our most peer in financial of contain be our portion measures companies.Reconciliation measures, measures to turn call of of assist release, as and as at adjusted, the our generate I'd including facilitate evaluating and gross ability of indicators our margin, core measures GAAP per the net available these share investors.solobrands.com.Now adjusted period-to-period past like as and results website in consistency we which results to the comparisons of which included certain comparable non-GAAP diluted margin earnings, EBITDA call EBITDA This performance adjusted and useful provide supplemental definitions

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a Officer People added to talent. recently all us to also Chief have help we our as our of brands upgrade continue We across

business I and entrepreneurial allows of We cycles that Stove we through most still year plan owned are to grow momentum. to is and ways. built one starting Chubbies Solo to Chubbies best channel big back in young anything can't distinct high-growth can seen a business. It in into have All retail take these its acknowledge of both early experience wholesale great brands a high but direct business I'm significant flourish.We Solo that create the platforms focused direct culture are its creating growth and strong today me at up-and-coming our apparel and the exciting like both value and execute that lot haven't be by I way.Turning level. of Chubbies will to their and improve Solo an the supporting very get Chubbies years one XXXX the strategic we yet Chubbies excited and in performance channels. relatively guidance we time, business. is ways. with room in of win Personally, now and continues to direct will emerging do confident grow, to our that multi-brand allowing into is of have need brands believe with I that them very tremendous know balanced and off Stove I in Solo customer our the has investments retail strategy factored coming plan. America a new in X brands Stove we core these believe to and of and and some to our footprint. Stove in believe history the leads a with will a it winning male

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to be potential confirm strategic will front strength TAM upside of distribution I'm the our my I businesses are and great we tremendous in Stove of leading we In closing, the and days, excited and entrepreneurial the company us. followings customers. with here our Solo an work, by without channel of part of our early These profitability.In tremendous As each full have are that this have incredibly diluting believe and spirit brands, by been impressed loved have Chubbies. core for

do the in and terms of lot to time. call done, recognize it long-term.Now consistent work the to the to us some I of lay build over We're Laura. I'll a working people, take growth capabilities turn be to that infrastructure However, will processes to foundation there's over for deliver and the

and Chris, Thank everyone. you, good morning,

outlook because initially start drawn to but time came with was company, XXXX. brands. to excitement my growth.Today, wanted team these the I for Chris. of here its be our discuss will such short to Solo customers results to its Brands I of with by why have story, business phase knew be company Once passion about fiscal at fourth me the I'm saying provide a the incredible our thrilled understand and company's Solo unique next the digital-first quarter quickly I the the I a model, learned in I of part part I of and Let for

was growth a compared in our For in partially due sales ago. offset that The direct-to-consumer the to quarter, to a the decline was decline in by XX.X% $XXX.X year sales weakness million, were wholesale. channel

prior a compared the AOV orders increased For $XXX.X compared due to were year new of at $XXX.X X%. In million. launches the ago in product million $XXX.X lack channel, sales fourth million declined significant to million and XX.X% quarter the marginally the direct revenues $XXX.X declined XX.X% to compared year, to year.Total the to

continued $XXX.X growth to average to For declined million. compared the respectively. and by increased and driven in channel compared decline order attributable to $XXX.X X.X% year, million to with orders partners. was million, $XX.X to value total revenue of XX.X% direct million X.X% our Wholesale $XX decreases The revenues XX.X%, strategic

the are the are to period. XXX% comparable growth in we growth We year-over-year pleased see as lapping

prior wholesale XX.X% million XX.X%. lower decreased margin. year, margin revenues offset points declined in grew XXX to the quarter $XX.X freight basis channel costs. year due Fourth compared XX million partially basis shift, to mix For XX.X%.Turning gross margin the gross and $XXX.X to were gross full to to by points Adjusted

the quarter year, direct to $X.X the reduction a adjustments margins in and mix expense related For along due expenses and the the ago. compared XX.X% million the XX% to decrease compared to channel in XX of shift. during year points bonuses, mix a channel customer to sales was purchase basis marketing to and XX.X% $XX lower for of shift million businesses reflect accounting to sales, increased variable costs basis advertising offset to general a related costs.As Adjusted fixed margins increase partially to to gross ago the with gross declined due XXX million relates quarter. to administrative by mostly to from Selling, percentage performance-based year XX.X% to SG&A acquired wholesale. points increased costs declined compared XX.X%, decreased The which to primarily $XX.X a

was was expense. offset distribution year, by million. million and SG&A partially advertising marketing $XXX.X to to shipping and The SG&A in lower For compared $XXX.X the higher decrease costs, due

units for and million a basis million. an Fourth to $XXX ISLE and quarter of Oru XX sales, As to impairment net to the ISLE Stove, assets. $XXX.X million of which $XX.X percentage charge $XXX SG&A during reporting and the of XX.X%. points recorded was Oru loss related million goodwill quarter, related intangible We Solo increased

the of facility December and the The We $XX.X leaving was Our on income net at was to agreement. million.Turning million $XX.X $XXX million the and million. $XX.X cash loss as was At adjusted outstanding balance we capacity borrowing our million net credit adjusted $XX.X million equivalents. year million period, income $XX term credit cash the was of and with borrowings Adjusted $XX.X of facility under adjusted under in EBITDA was sheet. had in $XXX.X net million. the million, $XX.X revolving Full million loan XX, availability. end revolving had EBITDA $XXX

ago. and compared We our down Inventory Xx XXXX continue to a position to have strong at net year. for of was leverage the at XX.X% liquidity end the million, $XXX.X year

focused management.Moving pleased remain outlook. level inventory and quality our are of We the will with inventory and on to disciplined

position opportunity we are front in need growth. tremendous for While about in recognize the people us, excited we of invest we the to us and processes long-term to

we management year, vision. of us to upcoming our execute the Over company the out build the and the enable to architecture will team

be $XXX For range we to $XXX expect fiscal XXXX, to million. in million the of revenue

long-term. investments we of adjusted our expect full range the be necessary for for We XX% to EBITDA as year to XX% the make the to in support the business

trends second we initiatives additional to While provide benefit on revenue to the expect for primarily we are expect the fourth historical quarter. of the and some the quarter, not first cadence year.For sales first the color to And would us quarterly full second providing patterns quarterly be to like will be the the cadence for quarter. to half guidance, the that similar year similar half for we in to due year, new the I the

year, our of we our second the As we existing will spend experience continuation begin expense marketing Chris half will we exit of to of in And mentioned, first are while half our marketing to new contracts. believe benefits we that to the in inefficient due restructuring deleverage realize partnerships. as the we continue partnerships the

growth. people to In support addition, our in we long-term help are investing

that will call investment EBITDA lower margins, quarter will to smallest giving margins seasonally our operator As fourth increased the than that, occur in begin turn spend be quarter.With to Q&A. the revenue now such, quarter I will meaningfully first the over

from Instructions] Randy [Operator with comes Our first today question Jefferies. Konik

you you're perspectives should my the should but the distribution guess I business, distribution between where question, model strategic want Again, your you about you go give I perspective to think and optimal when on the between how Yes. to preliminary is about be understanding first what Chris, on through distribution wholesale? a us get of channels? maybe going review, think be think direct your just

question. and you the Sure. for thank Yes, absolutely, Randy,

right of both prepared defining of it's the both about think I channels.So the So channels. believe your what my as you in to are so need have a retail our In were that against company from our good to digitally either all, need And want competing channel in first for aren't efforts. resources tailored need strategic need online and because good although harmonized also will been, growth each be each channel. in majority well. against I of brand, build still a there's don't lot we everywhere. or. born grow channels off work be We of don't products represent come the growing. the of not we can native retail job a direct-to-consumer ourselves for these go-to-market We TAMs frankly, appropriately capabilities part channels both that should start both room a I to continue we it's sales to channels call saying they That's discussed developing I partners. in and strategic our in to a pick approach not to and that in the believe that do we that that by are retail, or be to we partners of I able better for so remarks be And for and important channel, will

to So to strategic continue that going be very grow. it's we'll

look during -- kind and of we digestion much from Chubbies year still type now when and of out of the give lack fourth any or in with of be COVID would digesting marketing kind some of or the the then us the differential you are the and How marketing, impressions just cycle your Solo. Brands? efficacy need effective truly more question Maybe perked some digestion of growth lack Solo's particularly And right versus versus between the difficulties effective some other quarter are of a of the where Solo we're last for lower marketing question Understood. at of for in up profile the COVID demand a of that. gains is

Sure.

if it product about truthful hangover think would that a I goods consumer durable every for say there's less during than I Randy, COVID COVID So succeeded be that just didn't those years.

to a was, more goods many durable people think goods We the travel, to the and off calendar number lot there of consumer attractions was to service-based of those, of nature.I shift of into the we'll out see their attractions. hospitality, as was So their and of There of to through years here that. think into consumer start reached of it high cabin they goods, the are things spend of frankly, one of was, I who that as gradually them me bottoming homes, a a move switched certainly from But a of. role. seeing high durable XXXX. And were restaurants, that came for COVID starting companies coming off and shift out we're back one one X we're fever get year walking we a a

and many easily is affordable for some many consumers second It's around in its the part products, was lower of what question that the we price and effective a more and of But you of marketing. it's brand. your Chubbies wasn't Chubbies quite point of Now consumable a capabilities have target. as because of the core

spend. what first that our firms my days contributing or that is to haven't is in Stove the we believe so with direct-to-consumer have Solo And deep XX of marketing large factor certain think capabilities call within I the fact piece areas lack revenue.First, see declining a thereof across the in experience biggest full funnel partnered I that I marketing I

we as targeted as a and need And be. digital as to not we've result, so effective marketing been spend in as our

we in look Now address firms prepared in and allow tremendous the the the to do Solo we remarks. the that But mirror think realize talent we What control my is to partnerships to ourselves this build have we changes secondly, augment develop. begun I need with at to this us to opportunity will better. discussed within we've externally a recent our in destiny Stove that

in So them parallel. both of done will be

think the pit. be fire that didn't I'd to if remiss were fact is we of the product like contributing innovation XX product Now past as born entirely and I innovator, categories new XX months a you created it, we as about factor the mention a over also the months lack well.And

our question a going I've at you my assure innovation entire some about driving bring back spent for that going can priority Now but to will consumer and take various goods strength to us. to this product companies time, career durable we be big It's it, I no business. it's

Our Ryan next question from with Craig-Hallum. Sigdahl comes

A couple on retail.

how So relative out but expectations, was the our curious, quarter to guess, realize checks those turned inventory. and I internal internal your I low necessarily demand weren't and indicated expectations, there

inventory there? why what Target, It the the was on there's the seasonal I more feedback test? like shift seems still there. So shelves on product not And then following guess, secondly,

have shelf I slow that just So is permanent or you space there? earned some sell-through guess, a

I and I'd improvements elements like more, frankly, to to I'd some our I of see frankly, in then on. see make there's elements like position like and like, Well, first that all, there's us, mean, that focus on retail. elements I there's us

encouraging. been checks, to our of by at some also but your couple last when years, it's your best we've that's across think buy that probably increasing frankly channels, the thing. you and key I same is open the it's see point of seeing inventory think point look in retailers.So dollars, overall, in And on inventory encouraging inventory, we evidenced we're the the at I

those we're see to we to strategically. the We partner want but it that doors. we drive to and first want to retail, us is our priority want -- continue you'll doors performance do Then the within Now and to take expand make secondly, in that priority that to ways. partnered different doors third new that looking be customers, And customers new strategic then attract those in sense. other we we with would are core would at our think already a consumer doors increase take

you mentioned Target. Now

it's an was it if have experience into mix initial for Target a the get was very product We was I first consumer Target. think test of we think Target, Target. And for -- of so product lot that And all, of us.And placed the didn't those right one shops that we strategic for very, that us well. do accounts at I can within

you're time I Black at so be targeted that a periods to and Cyber like different SKU to potentially for to point Monday in the group looking as product, buying the is And assortment think really make going particularly we we're work really, holiday the with Friday, that of consumer price year. sure our looking

Great. And as sale -- review then considered interpretation of a to business. water as sound being strategic the full my company I you sports, it going the on, core that's guess, at is doesn't that. the least within Then just that's or

thoughts specific are? and your any guess what I So plans there

company we relates me imagine, The back growth many things sales me given comment you to might whatever. there's a strong in on to consumer things attributes, not and got affirmatively, needs to question can iconic But you it tell for so this this as that a and or -- Well, to on brought fix as this that's sale. and don't Board be company affinity they've terrific put track. mandate what fixed take is of no I brand

ought make sports contribute more of to we're didn't these support want It's say big I brands forward not brands. early not that, think I on because track and the going the on. the can give of say to want our outstanding saying where that core on great Stove that was focusing to just and that meaningful investors firm.It's X ought continue we simply that -- to X are we're we Chubbies taking have is didn't water valuation businesses my in term. in of to value our and I return the going growth just or for didn't greatest near it to Now creation we're assessment themselves comment part to that businesses that

worth, we that it's Good luck, strategy. guys. what For with agree

you. Thank Yes.

next Bender with The comes Citi. Chasen question from

I in new roles hoping Congrats also noted loop here guidance. from on spending you're on the systems, the talent. EBITDA magnitude talk you you mind about how the in about to just compression? just process you You way the you're But of here. was margin maybe thinking could the can the marketing beyond Do all. comment spending? unpacking Laura, investments you

Sure. Thanks for question. the

As we start with, sales and hard and Chris down to from to down said today. took we look in sat bottoms our very guidance I to a guys to build do and guidance, tops up, when out XXXX to off EBITDA provide you

With we to quarter, fourth in and how we quickly the to together needed had the performance act that on and pull year. the things we decisively knew look towards rest the of

ROAS year, a been first and marketing little quarter. looking that we've we sure that. the -- of we on we efficient be can for that making return to we to real back hope year, unwrap This don't effective the decisions with we to we quarter for firm X, want honest, we're make We our to we full in time for a still contract been investment a are a in more we we creating said the tried his efficient if able lot spending that us. with have sure regards marketing, level know good to And gave a is we -- have get didn't spending marketing we're With Chris to that give marketing make guidance while not ourselves. our do remarks, as dollars, in exit.It's I'm and marketing. give we engaged -- full So -- frankly, of color we to quite how that

track. act on team And #X We've so in to a that's very back priority get this to quickly. this place we're that why is their got having new

much that add in, because And impact -- you as fact the emphasize Laura's that first to we've able first quarter as to and been the that say we here is walked the into the quarter but I'll baked just there expect. we're quarter comments not might was I wouldn't

And marketing that's we so see the here. some an effective would on as point Laura's as it, not like ongoing to change continual spend, of

your versus going spend historical see So help. question on more and We're look to I to spend, rates. just it marketing wouldn't with spend effectively marketing in change different channels more

understand but something that things, that dovetailing side the for I onset? of M&A? for the the more Laura, the I of guess, allocation could more thoughts some or centered then brands provide whether tag on kind the -- or or could focus water business? near-term maybe and the just the that Understood. potentially for But sports on can is you see color. And we the team capital businesses I you on both fixing the question core be of were priorities -- Appreciate might M&A on prior Chris comment just this. from transformative sale, not Or other tuck-ins be maybe

it's Yes, a good question.

front allocation of as mind have business always top myself and capital We're any a that it lead. And the take capital priority. is we that for stewards I of so us, investors and given

excited it we it final of year, I when record lot was -- last led Laura drove, the looked is results at level. cash A stated stated, one we the was the inventory by things see me most reductions. the you which that a So at generation of

has inventory think years in is the XX do. that's about you And a about a are terms organization.We can to really that's packages. but organization not this fulfillment environment. my didn't easy experience, onesie-twosie of over talk to of sales reduce -- lot facilities hard XX.X% our tell DXC, how in much, it in advantages declining our rates accuracy is we accurate do terrific shipments. And one So fulfillment a of that this never we I In of

some it's of on to specifically assets Difficulty] and is focus as of But it an your -- Difficulty]. best So I've squarely organization. one strengthening seen the relates in [Technical [Technical our allocation, the it's building

tuck-in out as take of on may we're call [Technical Difficulty]. that Now to the cash that and [Technical we historically [Technical make what to continue near to a We're see part going inventory TerraFlame. adjacencies conversions not example EBITDA perfect to is Difficulty] that, sense.Now acquisitions going Difficulty] we

quarter fit first first it And a May able -- year's in almost small, is because it's perfect that to a full year. And So worth just of but we the last were small sales. Stove. we a bought business, in Solo for was in quarter, TerraFlame of generate simply the

into If integrate you able look website website, the on itself. to our it we're

of having on generate of eyeballs from company looking their millions sales to product customers. we're day at it, at went a to from Stove Solo the thousand able every and hundred couple kind So website core their looking

But core that make types be those that our element our only be we of are of strengthening would sense and look foundation the other the that perfect businesses. to are can brands our acquisitions capital allocation tuck-in So would beyond the small, accretive highly in just and are investors. that for that building at

Our with next Anna from Glaessgen comes question Riley. B.

Chris. Chris And hear team. to the from and Nice welcome you, Laura, to

Thank you.

My expect are question being to on we first Should at point return we to of in What is guidance. terms -- channel? assumed year? the that the in what's DTC some growth

Well...

ahead. Go Yes.

color guidance. good so But mean imagine, provide I the Laura guidance on the and to it's being in, can Anna new -- just as some way-- may you coming difficult provided needing I Yes, previously.

that things was guidance make really the best Board one to it on quickly pushed the into really Laura really, that is I the we estimate. give our of business the and is sure best, So and get

Now of DXC historically, retail we've what X/X call kind business. or driven wholesale X/X, we

almost past the this quarter, sales hard comp.The of which fourth say we fourth in fairness million quarter have year off we will quarter, the XX% but an XXXX. business was I into And a to I did XXXX. extremely think think would split previous fourth the continue to as do growth that very in over think look way XXXX, a team, DXC $XXX is we our about in challenging I I came was

that we understand there's soon, reverse that Laura to trends next those So why, coming to this change I didn't number And perform our off And well. a comp, and those likely in to of team aren't have quarter is dug trends. that's quarter. job anytime or reasons and but

to move start through to business. of you So a strengthening see I each as see going you're the us think quarters, DXC

but also of period highly one us product it in we get time into going as DXC the as take manufacturing, some see in some I in It's results to flywheel would well. there's our through improvements consumer move the to the products, caution improvements get So take year, new direct-to-consumer. get quarter get to product going. will some time our through business.The my to year, going those to it's to that take that I into see time, we on to fact to going flywheel get this only understand development start that holiday to That developing the warehouse, the as insights that confident feed our development you're is in but in in the system, you're fourth it to into marketing I'm thing it career hallmarks the into

to a one Great. Great possible on hear That's in the level did be strong for put me. the growth Would finer saw? Chubbies it how year. of that, really they And another to helpful. point

that more from to teens like I towards want to of I we're of for our excited I consumer, think following how through say apparel the the excited still young the But XXs and something I'm some okay, late the is from want do what go have walked So from is getting create stretches we what one the male more this an leadership to minds everything the learning And that. it -- investor down capabilities, I team, I here. I'm better you'll between And performing future, mean is a there, as see is community Anna, forward out look Chubbies the connect was transparency kind this it's brands with and they that when consumer.And we this things try and see. they suffice late about that audience beyond. thinking, that reporting the how to about and is of businesses, that the audience. in, our we that X and around to one to we as of We're Stove. our do analysts I first

I our male way. see retail a swath it can I I walk customers we about who core in the brand. it the of our strategic big we're of as of So it are it's -- media some a And go audience, see and as in putting see the through place. can footprint following. in about can merchandising it and retail they're social that you so very, prominent showing very some excited

So results of you'll start to see us share break seeing forward. out this the in a we're and going that business little bit some more

Great.

Looking forward to it.

comes question next Genuity. from with Our Canaccord McNamara Brian

awareness I'm you viral mean, sales if away any from a had that Solo brand took off, First curious terms deliver positives didn't QX I campaign and that in in would immediate building celebrity impact agency? results. marketing of Stove it continue will endorsement the or with you sales expect And an year? has it marketing this in the change particular, to that on have in ended

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Yes.

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Yes. Thank you.

so no the further I'll Officer, call hand conclude. have questions, to to back We Chief Chris Metz, Executive

We Thank and support just a is got appreciate you, so our dedicated fourth XXXX continued delivering and call you. that you've you quarter for that everyone, the focused our here know earnings Thank you, guidance team operator. for on And attending call. much. thank

you and everyone, for may lines. disconnect call, joining our you, Thank concludes This us today. your now