Clarus - Earnings Call - Q1 2013
May 6, 2013
Transcript
Speaker 0
Good afternoon, everyone participating in today's conference call to discuss Black Diamond's Financial Results for the First Quarter Ended March 3133. Joining us today are Black Diamond's Vice President and CEO, Mr. Peter Metcalf and the company's Interim CFO and Vice President of Finance, Mr. Aaron Cuney. Following their remarks, we'll open the call for your questions.
Before we go further, I would like to take a moment to read the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides more important cautions regarding forward looking statements. Please note that during this conference call, the company may use words such as appears, anticipates, believes, plans, expects, intends, future and similar expressions which constitute forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties. The company cautions you that forward looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward looking statements. Potential risks and uncertainties that could cause actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward looking statements used in this conference call include, but are not limited to, the overall level of consumer spending on the company's product general economic conditions and other factors affecting consumer confidence disruption and volatility in the global capital and credit markets the financial strength of the company's customers and the company's ability to implement its growth strategy the company's ability to successfully integrate and grow acquisitions the company's exposure to product liability or product warranty claims and other loss contingencies the stability of the company's manufacturing facilities and foreign suppliers the company's ability to protect trademark and other intellectual product rights fluctuations in the price, availability and quality of raw material and contracted products foreign currency fluctuations the company's ability to utilize its net operating loss and carry forwards in legal regulatory, political and economic risks in international markets.
More information on potential factors that could affect the company's financial results is included from time to time in company's public reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10 ks, quarterly reports on Form 10 Q and current reports on Form eight ks. All forward looking statements included in this conference call are based upon information available to the company as of the date of this conference call and speak only as of the date hereof. The company assumes no obligation to update any forward looking statements to reflect events or circumstances after the date of this conference call. I'd like to remind everyone that this call will be available for replay through May 2033, starting at eight p. M.
Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.blackdiamondinc.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Black Diamond Incorporated is strictly prohibited. Now, I would like to turn the call over to the Chief Executive Officer of Black Diamond, Mr. Peter Metcalf.
Sir, please go ahead.
Speaker 1
Thank you, Michela, and good afternoon, everyone. As you saw at the close of the market today, we issued a press release announcing our financial results for the first quarter ended March 3133. For the quarter Black Diamond grew sales 10% to a record $51,000,000 which is in line with our expectations for the first quarter of twenty thirteen. This double digit sales growth is in spite of colder snowier late winter season that delayed some higher margins in spring and summer product sales, which typically occur in the first quarter. Last year as an example, we realized an earlier start to spring in 2012.
First quarter twenty thirteen sales comparisons are also negatively impacted by a weakening Japanese yen U. S. Dollar relationship and the anticipated transition of our Gregory business into Japan from A and F Japan, our former Japanese distributor to our own distribution business. We expect the real benefit of this transition to begin in the second half of twenty thirteen with significantly better comparable sales growth. In large part, we attribute our double digit sales growth to the quality of Black Diamond strengthening global distribution platform, its product variety and its seasonal diversity.
For the first half and full year of 2013, our guidance remains unchanged, which implies that we anticipate healthy organic growth from our active outdoor brands in both the second quarter and the second half of the year. We expect POC and Black Diamond apparel to be our highest growth drivers with the most positive impact in margins. As we have discussed in prior calls, relative to initial sales levels in 2013, we expect to make significant operating expense investments in growth initiatives such as apparel marketing and launch expense as well as in POP's Spring twenty fourteen Road collection. We also remain enthusiastic about our 2013 apparel launch which is expected to be in stores this fall. Before I comment further, I'd like to turn the call over to our Interim CFO and Vice President of Finance, Aaron Cooney, who will take us through some details of our financial results for the first quarter.
Following Aaron's remarks, I'll return to discuss some additional insights and open the call for your questions.
Speaker 2
Aaron? Thanks Peter and good afternoon everyone. Our total sales in the first quarter of twenty thirteen increased 10% to $51,000,000 compared to $46,400,000 during the same year ago quarter. The increase is largely attributed to the addition of POC and PEEPS which were both acquired in the second half of twenty twelve. Our sales growth was partially offset by the comparative decline in Gregory's Japanese business due to the transition from A and F that Peter just mentioned.
The foreign exchange markets continue to experience volatility and Black Diamond operates across multiple currencies primarily the U. S. Dollar, the euro, the yen and Swiss franc. Due to the weakening of foreign currencies against the U. S.
Dollar, we experienced a decrease in sales of approximately 30 basis points during the first quarter. On a constant dollar basis, which excludes the foreign currency impacts at POC, PEEPS and BD Japan, sales increased approximately 10.3% for the quarter. If you look at Gregory Japan however, during the first quarter the U. S. Dollar strengthened more than 20% against the yen and this has had a negative impact on both sales and gross margin for our new Gregory distribution business.
Said differently, we sell product in yen and convert those yen back to U. S. Dollars at what is now an approximately 20% discount to our December 31 estimates. Gross margin in the first quarter of twenty thirteen was 37.7% compared to 40.1% in the same period last year. The two forty basis point decline was primarily due to a higher percentage of lower margin winter season product mix and a higher level of closeout and promotional activity on winter seasonal inventory as a result of the slow start to the twenty twelve-twenty thirteen winter season.
While this has had a positive impact on our overall winter inventory levels, it had a negative impact on first quarter gross margin. You may recall that during the first quarter of twenty twelve, we reported 19% sales growth and higher than anticipated gross margin due to the early arrival of spring and sooner than anticipated sales of higher margin spring and summer product. This year we are confident that we will move more spring and summer product in the second quarter which has been our historical experience. The strengthening U. S.
Dollar yen relationship also had a negative impact on gross margin. In addition, during the first quarter, we began the commercial manufacturing of several new products with substantial ramp up costs including skis, the Camelot CX4 and another version of the award winning Magnetron Carabiner. SG and A expenses in the first quarter of twenty thirteen increased 52% to $20,900,000 compared to the same quarter last year, primarily due to the inclusion of SG and A at POC, PEEPS and BD Japan as well as continued investment towards our most important strategic initiatives such as apparel and our global infrastructure to support both current and future growth. Now turning to our balance sheet. We had $4,100,000 of cash at March 3133 compared to $5,100,000 at the end of twenty twelve.
Non cash working capital increased approximately $1,700,000 to $74,900,000 Total inventory decreased to $55,100,000 from $60,700,000 at December 3132. As we discussed on our Q4 earnings call, North America was yet again impacted by an unseasonably warm and dry start to the winter season, which left us with modestly higher winter seasonal inventory. While we moved through a significant portion in the first quarter as the late winter arrived, we continue to hold certain types of big ticket winter merchandise, but do not expect it to have a material impact on our business in the remainder of 2013. Much of this merchandise is in line inventory and is expected to carry over into next season. We are actively moving discontinued models now and expect to have cleaned up the vast majority of this inventory position prior to the start of the fall twenty thirteen season.
Although it has taken time and will continue to take time, we believe the health of our inventory is improving and the various internal initiatives implemented throughout the organization are beginning to manifest themselves more prominently. We expect to continue managing our working capital throughout 2013 and still anticipate seeing both accounts receivable and inventory
Speaker 1
at a lower rate than our expected sales growth for 2013. At March 3133, we had $13,400,000 outstanding on our $30,000,000 revolving credit line with Zions Bank compared to $20,000,000 at December 3132. Total debt both long and short term stood at $41,500,000 which includes $16,200,000 of 5% subordinated notes due in 2017. As we outlined in our last conference call on March eleven of twenty thirteen, during Q1, we entered into an amended and restated loan agreement with Zions Bank, increasing our commitment by $20,000,000 to $55,000,000 and extend the maturity of our line of credit to March of twenty sixteen. We remain very pleased with our long term partnership with Zions Bank and believe that there is still room to grow.
This completes the financial portion of our presentation. Now I'll turn the call back over to Peter. Thank you, Aaron. As I said in my opening remarks, we generated double digit sales growth in what remains a volatile consumer and reactive wholesale environment. Most of the world where Black Diamond does business experience an extended late winter, especially compared to the same quarter last year with a lack of winter conditions kicked off the springsummer business earlier than expected.
In fact, Q1 last year was record setting with double digit sales growth for Black Diamond Equipment and Gregory. Although this prolonged winter helped clear out retail inventory channels, it impacted our top line sales because the first quarter is typically not strong for fall winter gear sales with the exception of ASABs. The prolonged winter also impacted our gross margins due to product mix variances as well as promotional activities for our winter gear in North America and Europe. While we still have more discounted merchandise, we do not expect for it to have this level of impact in the remainder of 2013. In addition, we experienced a significant year over year decline in Gregory's Japanese business in Q1 due to the expected transition from A and F.
You will recall, we acquired the Japanese distribution assets of Gregory from A and F. And on January 1, we began to assume all of its sales, marketing and distribution functions in Japan. However, during the quarter A and F still had inventory moving through the channels and we experienced a sales disruption, which we anticipated and had integrated into our internal budget. Purely for your perspective, Gregory Japan accounted for approximately 10% of our sales in the first quarter of twenty twelve. Despite this level of volatility, Black Diamond continues to compete well at retail, which we attribute to our global operating platform and innovative products.
In fact, within some of our major retailers, we continue to outperform most of the categories in which we compete. We continue to see Black Diamond's growth exceeding the overall growth rate of an already healthy outdoor equipment industry and we remain confident in our ability to capture additional market share throughout 2013 and beyond. Our direct to consumer business reported another quarter of solid double digit growth and we continue to be pleased with our team's execution in this channel. We are tracking to launch our new website before the end of the second quarter. As we've mentioned, one of Black Diamond's greatest competitive advantages is our seasonal sales balance and our product strength across 33 related categories.
We believe this asset along with the operational and marketing investments we plan to continue making in between 2013 will allow our brand awareness and market share to expand globally. While we have more limited visibility into POC and PEETS due to their relatively larger dependence on ASAP sales and weather conditions, we are optimistic about our outlook due to their brand momentum and innovative product offering. We are also dealing with a global retail marketplace that is more reticent to make order commitments on the scale they have in the past and we are evaluating and adjusting to this behavior. During Q1, we launched our fall twenty thirteen preseason sales program and are very encouraged by the overall results. Most categories are in line with the market historical booking rates and a few categories are reflective of an evolving industry strategy among the largest dealers to modestly shift in more ASAP versus preseason weighted approach to buying.
Taken as a whole, we still feel comfortable with our growth expectations through the first half of twenty thirteen and the full year. POC is gearing up for an impressive launch of its new spring twenty fourteen collection that takes them into the road category. This is cycling's largest and most vibrant niche and POC's expansion into this has been part of its well thought out growth strategy for over half a dozen years. This is being developed from all perspectives as far more than just the line extension. This is a material strategic objective that carries with it the opportunity for major growth and continued brand ascendancy.
Thus far, are performing in line with our integration schedule for both POC and PEEPS. We've made solid progress at both the European operations of PEEPS and POC relative to supply chain, IT and finance. We expect the benefit of these integrations to manifest themselves into higher margins in 2014 as these organizations begin to sell direct to retail in both North America and Europe to some of Black Diamond's existing distribution channels and by utilizing our existing North American and European operating platform. Last and by no means least, our global apparel initiative remains well on track and we are looking forward to its expected consumer launch this September. Fall inventory is arriving in our warehouse and the consumer marketing campaign is nearly finalized.
We have just completed a significant round of new hires in product design, management and development and we look forward to announcing them to our investors in the trade when and as appropriate. In addition, we recently finalized the spring twenty fourteen apparel collection and gave our key North American and European retailers a sneak peek. We continue to be very encouraged with their reception. What is especially gratifying is that fall twenty thirteen is now sold out and spring which represents our entrance into the outdoor inspired lifestyle sportswear is being well received by the trade. The category has challenged and repelled quite a few established fallwinter outdoor apparel brands, so the initial enthusiastic reception is especially gratifying.
The tight Spring fourteen collection consists of approximately 40 styles and 150 SKUs with a primary focus in summer alpinism and modern crag wear. We are employing both high-tech synthetic cotton and merino blend fabrics for line of sportswear that will look to sharpen the deck of the brewpub as it will perform on a mountain crag or summer peak bag. To conclude our remarks this afternoon, I want to reiterate the following. First, our first quarter was in line with expectations at slightly lower average gross margins due to product mix, closeout in promotional activities and a weakening yen U. S.
Dollar relationship. Two, our first half and full year sales expectations remain unchanged with first half sales expected to be between 90,000,000 and 95,000,000 and full year twenty thirteen sales expected to be between $216,000,000 and $221,000,000 These ranges imply very significant year over year growth of between 2238% for the second quarter and between 2326% for the full year. For 2014, we continue to manage towards an expected 20% sales increase with accelerating profitability. Thirdly, 2013 is expected to be an investment year primarily in the organic growth of our brands and apparel, but also in the integration of POC and PEETS. And fourthly, we remain enthusiastic about 2013 as the consumer launch year for apparel and the trade launch year for POC's Road collection.
We look forward to 2014 as the year we expect continued double digit organic sales growth and the benefit of scale, integration and operating leverage in our business. Thank you. And at this time, I'd like to open up the call for questions.
Speaker 0
Ladies and gentlemen, we will now begin the question and answer session. We now begin the Our first question comes from the line of Sean Naughton from Piper Jaffray. Please go ahead.
Speaker 3
Hi, good afternoon and thanks for taking the questions. You talked a little bit about the impact of later spring weather and also some Gregory sales in Japan as a little bit of an impact. It possible to put some numbers on that behind how much those impacts hurt you in Q1? And then maybe just give us an idea about the visibility you have to hit the first half sales guidance or the visibility that you have into that that you're reiterating here today on that 90,000,000 to $95,000,000
Speaker 1
Hey Sean, this is Peter. I'll start off and let Aaron add to this. But if I understand your question it is what was the impact in the first quarter on the various brands? Just the delayed shipments in the quarter and then also the Gregory sales. Yes, okay.
We don't and I'm sorry to say this but for competitive reasons we're not going to break out each of the brands and how they do. However, what I can share with you is that for the first quarter we're obviously impressed. So we certainly were impressed with how POC did in the first quarter delivering its first spring goods and continuing to sell through on winter products. And the rest of the brands did perform as we had anticipated that they would. When it comes now to the second quarter and let me add one more thing and that is there's no question that we were like much of the industry buffeted by what was unseasonably cold weather, a late in winter and the lack of any sign of spring in Europe in our primary markets of Europe and North America.
So after a winter that came very late, dealers are somewhat skittish about taking in inventory when they don't absolutely need it. And so we saw some retailers certainly not ASAP ing and some pushing back scheduled delivery dates or cutting up those orders to take smaller amounts of that. When it comes to our visibility looking forward now in this second quarter, I think the reason we have the confidence we do in giving the guidance that we do which is to say we're sticking with our guidance is we have very good bookings for Gregory and Black Diamond. Peach is certainly not a player in the second quarter by any means and POC has pretty solid bookings as well though it is a more ASAP dependent business, but that's just the nature of cycling. But looking at the brand momentum that it has, the brand momentum that POC had coming out of winter and I'm sure you've seen those numbers of their market share ascendancy that POC had, we have a fairly high level of confidence in our ability to perform within the range of the guidance that we have given out.
Speaker 3
Okay. And then I guess just on the last call you talked a little bit about the European market as relatively stable as much as it can be at this point in time and that retail inventory positions look pretty clean over there. How would you characterize kind of the order book and how that came together really for fall of this year and holiday?
Speaker 1
Sure. Good question, Sean. Are you speaking specifically of Europe? Yes, just in
Speaker 3
the European market. That's correct.
Speaker 1
Yes. We were really quite impressed with all our brands and how well they did perform in Europe. The fact that it was a late winter there and a robust late winter. And what I mean by that here in North America where we're speaking, it was just cold and late, but it never really materialized into a great winter. Europe as I'm sure you're aware had a ended up having a very strong late winter.
As a matter of fact, I just got an email from one of our salespeople in the Dolomites out of Ordesa, Val Gardena. He said that in his lifetime he can't remember this much snow in the mountains at this point in time, but the season ended brilliantly. The result of that was a lot of inventory was clear out at Europe. Retailers were able to sell a reasonable amount of that actually at a reasonable margin because people were there still skiing. There's late ski holidays in Europe that we don't have here.
And as a result our order book for Black Diamond, for Gregory, for POC and PEEPS has continued to build right up to this week. And at this point I think it's fair to say that we have quite a high level of confidence in those bookings how they firmed up and how they relate to the guidance that we're giving.
Speaker 3
Okay, great. Well, best of luck in the rest of the second half. Good luck.
Speaker 1
Sean. Thank
Speaker 0
you. And our next question comes from the line of Camilo Lyon from Canaccord Genuity. Please go ahead.
Speaker 4
Thanks and good afternoon gentlemen. I wanted to just follow-up on the what happened in the first quarter with respect to some of these delayed shipments. Did you experience any cancellations for spring deliveries or is this a deferral of that product that should start to flow through here in Q2? Yes,
Speaker 1
great question. Fundamentally, we've gotten some delays. I don't think we've had any meaningful cancellations at this point in time.
Speaker 4
Okay, great to hear. And then just on inventory, I would have expected with the longer lasting colder weather that the inventory position would have been a little bit more in line with the sales growth. Maybe you can just talk about the puts and takes on the inventory. Were there some or with other shifts in the inventory position that masks some of the other parts of your inventory position. Again, guess if this refers to more what you're carrying over what you did carry over from the winter fourth quarter that I would have presumed would have sold in the first quarter?
Speaker 2
Yes, good question. This is Aaron. Our inventory levels actually came in fairly well with where we anticipated being. They did decrease from the $60,000,000 to $55,000,000 which is a pretty good decrease for us during Q1. And as we look out into the future, as mentioned, inventory levels will continue to follow the historical seasonal trends and will increase, but at a lower sales rate.
So when we look at inventory, we do believe that we are increasing the overall health of our inventory position and that you'll see relative levels of inventory decrease.
Speaker 4
Did this Q1 inventory include receipts for the apparel?
Speaker 1
No. No, not in Q1.
Speaker 5
Okay.
Speaker 4
And then just with regards to the full year guidance, I think last quarter you talked about the 40% to 41% gross margin. Is there any change to that outlook?
Speaker 1
No, we are sticking with that guidance of 40% to 41% gross margins. I should add though, let add to that that is exclusive of exchange rate fluctuations, which we just can't anticipate what they could be or not be. But separate from exchange rate fluctuations, we are sticking with our 40% to 41% guidance on our gross margins for the year. And if you look at our product mixes, first quarter for the reasons that I think we've already shared in this call were challenged. But as you go forward now we're moving into the second quarter with a summer product line that has traditional or this have and has had traditionally a higher margin, set of margins attached to those.
We'll have less DM and promotional issues to deal with. And then as we go to the second half of the year, we also get the benefit of higher margins on apparel. There'll be less closeouts and we have POC and PEEPS which those are big seasons for both of those companies and they do have higher margins as well.
Speaker 4
And correct me if I'm wrong, but Gregory should also be a higher margin contribution in the back half as well, right?
Speaker 1
Absolutely. With Japan coming on, yes, that is part of the calculation.
Speaker 4
Okay. And then just for clarification purposes on Q1, could you guys quantify the gross margin puts and takes yen impact, Gregory impact? That would be think that would be helpful to just decipher what the shifts were within the quarter, what the impacts were within the quarter that presumably won't or will lessen or will continue to be as it may be with currency and the other parts?
Speaker 2
Yes. So when you look at Q1's gross margin, was 37.7% and last year was 40.1%. So that gives you a good a pretty good contrast as to a highly balanced or a more heavily weighted lower margin winter seasonal product quarter versus a more springsummer weighted quarter. And based off of what we saw with the discounts, with the closeouts and just the overall product mix that's what was driving the lower gross margins.
Speaker 4
So maybe asked another way, if we exclude how about just yen impact? How much was the currency impact? Because that seems to have been that's certainly something that I don't think was anticipated, but seemed to have caused pretty significant disruptions. Is there any way to isolate what that gross margin impact was?
Speaker 2
Yes. We were as it relates to the yen, we do hedge a certain portion of our yen exposures as we do with all foreign currency exposures. But you're looking at about a 30 to 40 basis point impact related to gross margin just due to the yen.
Speaker 4
Okay. That's helpful. So the biggest bucket still remains by and large the clearance activity that happened?
Speaker 1
There's no question that there was a significant amount of winter DM product that we wanted to clear out the fact that it stayed cold and snowy, retailers were moving it, it was the perfect opportunity to move it.
Speaker 4
Got it. Okay, great. Thanks for the info and good luck for the rest of the year.
Speaker 1
Thanks, Camilo. Appreciate it.
Speaker 0
Thank you. And our next question comes from Joseph Altobello with Oppenheimer and Company. Please go ahead. Hi, this is Christina in for Joe. I was just wondering if you could give us an update on your CFO search?
Speaker 1
Yes. Hi, Christina. This is Peter. And yes, I'd be glad to do that. So first off, I want everyone here on this call to know that we will make a public announcement when appropriate.
But as you know we have contracted with Egon Zender to do a nationwide search, they're diligently working on it and we are interviewing candidates. But I think that the most important message that I want to communicate to the investor and analyst community here in this call today is that we don't have a void here at Black Diamond. We haven't skipped a beat. Aaron Kurney is acting as the Interim CFO and he has been a very strong and capable VP of Finance and he leads a very strong global team. As a matter of fact, even at the end of the first quarter when we it was clear we had some margin erosion because of the sell off of DM and promo product.
It was Aaron who quickly organized the global team to make sure that we aligned expenses with the slight reduction in margin. And I also want to add that Black Diamond has a very active and financially sophisticated Board of Directors that includes our Executive Chairman, Warren Kanders our Executive Vice Chairman, Rob Schiller as well as Mike Hennig who is a former Senior Managing Partner at E and Y Phil Duff, former CFO of Morgan Stanley and they are very aware of the financial strategy. They input on it and they monitor it. So we're in good speed here, but it was the proper thing for this board to engage in a very significant search with Robert's departure of which Aaron is one of those candidates.
Speaker 0
Great. Thank you so much.
Speaker 6
You're welcome.
Speaker 0
Thank you. And our next question comes from the line of Sean McGowan from Needham. Please go ahead.
Speaker 6
Hi, guys. Can you hear me? I'm on a cell phone in Phoenix. Can you hear me?
Speaker 1
Yes. Hi, Sean. We can hear you.
Speaker 6
Okay. Great. Thanks. I have a couple of questions. One, I think you've made it clear Peter that the sales in the quarter met your expectations.
Would you say the same in the aggregate for your gross margins or was that in fact less than you had expected for the quarter?
Speaker 1
Yes. The things thanks Sean. Mean, yes, the sales did meet in aggregate our expectation. Expenses we held nicely as per expectations and then some and gross margins were a bit below our expectation.
Speaker 6
Okay. Just wanted to clarify that. What do you think we should expect to see the Japanese business kind of back to well, put it this way not reflecting the shift in distribution? Is that second quarter or third quarter or fourth quarter?
Speaker 1
When you ask that you're referring to sales. I mean you're not talking about the FX, right?
Speaker 6
No, no, no. I'm referring to the Gregory Mountain distribution shift.
Speaker 1
Yes. It's the second half of the year. We are very I mean, we're very confident and this is what our internal numbers show and what we're counting on is a return to normalcy after the DM that was cleared out by the former distributors cleared through and we're established there. So that's what we're showing and we are quite confident of that.
Speaker 6
Okay, thanks. When last year in the end of winter, I guess, eleventh, last 12, we saw some decent pretty good first quarter, but the return inventory last year really came around, I think, by the year late in the year. So given the comments that you made about the weather in the first quarter of this year, do you expect that same kind of thing where you kind get through it and it's okay, but there's still some inventory left and we wind up hearing about it next year or do you think it will be taken care of fairly soon?
Speaker 1
So just to answer your question completely, the challenge of eleven-twelve was there was some benefits to it too. It was a challenging winter because it was it never materialized, but the fact that it never materialized and spring showed up in January meant we jumped very quickly to spring. So the benefit to that was as you saw in the numbers last spring was the first quarter was up 16% strong margins, but it was a really inappropriate time to be moving any winter inventory in a non winter mode. The benefit that we had from this year to a certain extent in Europe and here was a much better opportunity to move it and that's what we have done. And as I said earlier in this call, we moved the material amount of it, it's not everything.
We will continue to move some in this quarter and next and to the end of the year, but we feel that by the end of this year it would be in a very nice position. We feel that the next three quarters it's a very manageable amount and we are going into the next winter with a higher level of confidence about the inventory and what's left of old inventory than a year ago coming into this year. It
Speaker 6
sounds like that's certainly the case for winter merchandise, but do you feel like there's any risk of spring merchandise hanging over and it's getting to this point next year or a couple of months earlier than this point next year and not being able to move through just because there's some inventory clog or you don't think that's going to happen?
Speaker 1
Yes, it's also a good question. One of Black Diamond strengths is that and I include all brands in this is that the amount of seasonal inventory we have is I think you know it's pretty modest meaning most of the product line carries through for a number of years, not everything. I mean you have to continue to cycle, but it is not like a lot of apparel lines where you are turning the majority of it. So we're not overly concerned, but yes we are watching that and we are managing the inventory more tightly today than we have in the past just because we want we don't want to be caught with any kind of meaningful DM bulge in the system. I think some of this so we are managing it more tightly.
We're watching it. It is a product season that just generates less DM than winter because more of it carries through for a number of years. And then I think the probably the third thing to say is that it's very early still to make a comment overall on how the spring is going to be. It seems to be warming up in a lot of parts of the country and a lot of retailers seem to be excited. There's good innovative product in the line.
We continue to be guardedly optimistic that the seasons kick in as it has year after year after year and that we are going to have a reasonable season. And as I shared earlier when asked, we have solid bookings. Some of those were pushed into this a little bit later into the second quarter, but we do have them and that's another reason for our guarded optimism.
Speaker 6
Pretty toasty here in Phoenix, that's for sure, at least it has been late. Yes, a couple of other questions. So at this point, have some visibility on how apparel shipments are going to go. Can you give us some picture of where we're to see the bulk of those shipments this year? Is it going to be in the fourth quarter or kind of split between the third and the fourth?
Speaker 1
The apparel as I mentioned is filling the warehouse. We have promised retailers we would ship it to them complete by September 1. What we are considering right now is to most likely is to go ahead and ship in mid August a large bulk of it because they want it and they're excited about it. So that would be that a significant amount of this apparel would be then shipping in August, September with a much lesser amount in the fourth quarter.
Speaker 6
Okay. That's very helpful. Thanks. And last question, I know you can't predict currency certainly at the beginning of the year, but your are sticking to your guidance regarding gross margin, regarding sales, is that predicated on a return of FX rates back to what you had thought at the beginning of the year? Or is that based on where we are right now?
And based on what we have right now, would you still make the same comments about guidance?
Speaker 1
I'm going to turn that one over to Aaron who studied this very carefully to comment on.
Speaker 2
Yes, good question. And we are still standing by our full year revenue guidance and gross margin guidance as of right now.
Speaker 6
And those assumptions are based on what for foreign exchange? So where we are today or some other rate different from where we are today?
Speaker 2
More of where we ended March 31 and where we are as of today.
Speaker 6
Okay, perfect. Thank you.
Speaker 1
Thanks, Sean. Thank
Speaker 0
you. And our next question comes from the line of Andrew Burns from D. A. Davidson. Please go ahead.
Speaker 7
Thanks. Good afternoon. I had a question on POC and the entry into the Road category. Could you talk about these are new points of distribution outside of the normal mountain bike specialty shops. Can you talk about how quickly POC can grow in that channel and what kind of investments in sales force and infrastructure are required to get in a bigger way into this new category?
Speaker 1
Yes. Hi, Andrew. I don't think I'm going to break it down in specific dollars, but what I will share with you is that yes, there are different channels, not completely as you know, but yes, we want POC to be in the leading bike shops that are leaders in road like here in Salt Lake, it would be like Contender or Milk Creek. And you have that throughout Europe and elsewhere where we want POC to be. POC hired recently a new wheel sales manager, a Canadian with a lifetime of experience in the cycling industry, Peter Appleton, who's on board working very diligently.
He's been on board since really I think December and moved over to Europe in January and is really the architect with the global sales manager Lewis in architecting this, but they are laying out. I don't want to reveal it all now because we're going to do this formally. The strategy of what shops we want to be and we certainly want to be in the world's leading bike shops to launch this that are road shops, racing shops and we will be We are looking for some new sales agents and reps. We are also in the process of doing a major overhaul in various markets of distributors to agents or to reps evaluating them and that sort of thing. But I will share with you that yes, it is a significant investment in dollars, in marketing, in sales and those are in the numbers that the pro form a numbers and guidance that we're currently giving.
There's a significant step up in marketing dollars, sales dollars this year just to get this launch right.
Speaker 7
Great. That's helpful. And then a question on the outerwear category. It's been brutal for the last two seasons now. It sounds like it really didn't impact your initial launch, but we hear increasingly from specialty retailers that want to place smaller outerwear buys, potentially try to do at once orders if possible in the season.
Has this have these last two seasons changed your either long term planning for the apparel business or how you expect the business to grow given the recent two seasons? Thanks.
Speaker 1
Yes, good question. So first off Andrew, yes I mean we're very, very aware of the challenge that has been out there with two tough back to back winters for the apparel industry in the outdoor space. That said, we continue to get solid feedback from our retail partners that it is in part that challenge that is really making it incumbent upon them to try new lines where they can have an exclusive, where there can be some excitement and they're not competing against the big boxes, the big online players, the department stores, etcetera. They're very keen more than ever to have something that differentiates them. So relative to fall thirteen in the launch, there's no issues there.
We're just not in part big enough and we're exciting enough to see a problem. Likewise for spring, response has been superb. I think for sure we are counting on us to have to commit real effort to the fall fourteen which is already in the process of getting finalized in order to get the growth we want. But right now based upon the response we're getting, the bookings that we have, we continue to believe that the numbers that we have put out there are achievable, but they're certainly not giving. They will require the continued transformation of this company globally from the world's leading outdoor gear and equipment specialty brand to one of the world's leading gear and equipment specialty brands and apparel brands and all aspects of this business are steadily changing.
How we're thinking about it, the salespeople we have, how we're structuring sales groups in Europe, in North America, how we're doing it in Asia. So we're aware of the challenge, we're addressing it, we're transforming the organization and we're we think we're up the challenge.
Speaker 6
Great. Thanks and good luck.
Speaker 1
Thanks, Andrew.
Speaker 0
Thank you. And our next question comes from the line of Rob Young with William Smith. Please go ahead.
Speaker 5
Hey, good afternoon guys.
Speaker 1
Hey, Rob.
Speaker 6
I was wondering if
Speaker 5
you can maybe just comment a little bit more broadly on the POC and PEEPS acquisitions and how they're performing. I know that it hasn't been a significant significant amount of time, but how they're performing relative to your original expectations?
Speaker 1
Sure. I'll be glad to address that and then we can even talk a little bit about integration if you want. But let me begin by saying both POC and PEEPS continue to manifest their brand strength and solid positioning in the marketplace. POC continues to gain market share and impress us with innovative products most notably now the new road bike collection for spring twenty fourteen. I'm sure that you look at some of the SI8 data and just the leapfrogging that did in both goggles and especially helmets in this past winter and they have been a tough marketplace, but POC moved up dramatically in market share positions in both of those.
And I think you're aware that it is both and SIA POC launched some amazing and truly innovative new products especially in racing helmets that will probably change the FIS requirement and standard because of it. Three new goggles that are just knockouts, the new body armor to go with that. So that momentum combined with this road bike launch, the response to the mountain bike and time trial collection that was launched last year. We continue to be very excited by POC and where it can go and where it is going and I should add to that that the integrations are continuing to go as planned. And then with Pete's, the belief in Pete's is being affirmed that it was and is a leader, but because of a very limited distribution sales and marketing, it held number one market share in Germany and Austria, but was barely measurable in any other place because they had made no investments.
We're doing the conversions in North America and in selected European markets. Peeps launched at ISPO and at OR with us because we are putting it through the BD channels, set of new beacons that were very well received. We have some new price points that are very attractive. So there's spots we're getting to that is very positive, but this was Pete's because it is a winter product line and by the time we closed on in October, we couldn't really impact anything it was doing in winter twelvethirteen. So the proof is in the pudding which is fall thirteen into January, February 14 and we're very optimistic on that.
Speaker 5
Okay. And are you able to attract any new hires with those two acquisitions or are you seeing any material attrition going on as a result of those transactions at all?
Speaker 1
Are you talking specifically within POC and PEEPS? Yes. Yes. Okay. So as you know our strategy is an integration strategy.
So all the outwardly facing components of the brand we consider that using a biological term its own vibrant ecosystem and we want a group of people there who are 20 fourseven absolutely committed to that brand designing the world's most innovative and most beautiful product, the marketing, knockout marketing, solid sales, etcetera. And so for both POC and PEEPS, those in most cases that has remained and in POC we've actually added a few people in that area. And then conversely the backroom operational areas, we have lost some people but not because they left on their own. We've had to request that they leave in a very gracious and respectful manner because we're integrating and part of the plan here is number one. The key goal was to provide an incredibly verdant, vibrant and powerful platform and the wherewithal for these two brands and two companies to grow globally far quicker than they could on their own.
And in a small part, but not an insignificant part was to also integrate the back rooms to get rid of those folks and systems we no longer needed and integrate them onto the BD Inc. Global platform. So we're continuing to do that a steady rate and we have let people go as I said in a very appropriate and proper way. So the numbers are shrinking, but we have not lost anyone at either of those two companies that we had not asked to leave.
Speaker 5
Okay. Okay. I appreciate that. And then one quick one on from a modeling perspective. Once you get through 2013 and 2014 kind of the higher OpEx investment periods and you move into 2015 and I know that's a little ways away.
But is there any way that you can help us out on in terms of what level of kind of a maintenance operating expense growth line should look like maybe relative to sales?
Speaker 1
For POC or PEEPS for the BD?
Speaker 5
More just company in general, total company in general.
Speaker 1
I'm going to have to pass that on to Aaron.
Speaker 6
Okay.
Speaker 2
Yes. So in thinking about 2015 and beyond, we've given quite a bit of guidance related to our cost structure for 2013 and also the incremental 10,000,000 to $12,000,000 for 2014. And when we think about 2015 and beyond, once again we are looking to have our profitability accelerate where we're looking at EBIT or operating income margins of low double digits into the outer years. So hopefully that can give you some direction as to think about your modeling in terms of OpEx and that growth or what would be required.
Speaker 5
Okay. No, that's extremely helpful. Well, appreciate it. Thank you very much for taking my call.
Speaker 1
Thanks, Rob.
Speaker 0
Thank you. From the line of Lee Giordano from Imperial Capital. Please go ahead.
Speaker 1
Yes, thanks. Good afternoon, everybody. Can you talk a little more about new product innovation, how some
Speaker 3
of your new products are performing and if there's anything in particular excited about coming up over the next six to twelve months particularly in the climb and in the ski category and also maybe at Gregory as well if you could touch on that? Thanks.
Speaker 1
Lee, think you cracked up a little bit but it's Lee, right? Yes, it's Lee. Hi, Chris. Okay. Hi.
Yes, you're cracking up a little bit on us. So you wanted me to talk about innovation. So yes, mean all of our brands have been defined by innovation. As a matter of fact, they define innovation in the industry. That's what makes these brands so iconic and they've been doing it for most of their lives.
So when it comes to ski, well certainly Black Diamond launched a very innovative line of high profile new products at the winter trade shows, a brand new ski line, made it our own sea factory, new constructions, new designs, very well received. We launched the FMX, a very high performance free tour ski boot. They got great receptions, new line of poles. We launched with Pete's a new line of two additional transceivers and niches that we had not been competing in. We launched quite a few new gloves and mittens that were very well received as well.
On the POC side as I mentioned a moment ago, POC launched the next generation ski racing helmet which is what put POC on the map by redefining safety, bringing a higher level of protection to ski racers and that is why every ski racer and child ski racer around the world likes to wear POC for the higher level of protection as well as just the beauty of the product. And at ISPO, POC launched the next generation of ski racing helmet. We believe that the FIS may actually make that design and that design innovation standard here in a few years. We believe that would be very well do very well. And then as I mentioned a moment ago, line of beautiful European made goggles, new body armor using some new materials that no one else has been using for higher level of flexibility and protection.
On the Gregory side of the equation, Gregory launched at the trade shows its first real winter line of product which was a very shrewd strategic move because the Gregory line had been much more of a spring summer line and this brought buyers in Europe and in North America and Asia into the booth to place orders versus just ASAPing. So that worked well. So that's really what transpired with those brands. Coming into spring trade shows, all of the brands are doing unique launches. Peeps has got an upgrade to the global finder.
Gregory has a very beautiful collection of upgraded and new packs which you just have to come to the trade show. In August we'll have a day for analysts for you to come see this. BD has an array of new climbing products that I think are very exciting and will continue to help drive our business. And then for POC, it's the road collection that is really, really exciting. Because I said it's not just some new innovations, it's not line extensions, it's not replacement product that is innovative.
It's really a strategic objective to move into the largest most vibrant fastest growing segment in road riding. And then as we look into the coming seasons, we're not yet talking about what those innovations are, but I will assure you that in all of our companies we have a really inspired passionate world class group of designers and engineers working on next generation products in all categories and we're working out several years at any one time. So that's one thing I can say about BD Inc. And our brands is that I don't think we'll ever let our consumer retailers down relative to the level of excitement and anticipation they have to come twice a year to the trade shows and see how we're going to surprise them, bring excitement to the shop floor and bring customers into their establishments. That's great.
Thank you.
Speaker 0
Thank you. And at this time, I'm showing no further questions in my queue. This concludes our question and answer session. And I would now like to turn the conference back over to Mr. Metcalfe for closing comments.
Speaker 1
Okay, Michaella, thanks. In conclusion, I'll just say that Q1 is no better representation as to why we manage our company in two six month seasons. This quarter's results were in line with our expectations and we continue to expect compounded annual revenue growth from existing categories consistent with our five year growth plan. We categories such as apparel and organic growth of our strategic acquisitions as additive and in the long term could be larger than our base business today. I look forward to speaking with all of you soon again.
Thank you.
Speaker 0
Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.