Clarus - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $60.4M, down 13% YoY but above internal expectations; adjusted EBITDA was $(0.8)M and adjusted EPS was $(0.02) as Outdoor strength partly offset a sharp Adventure decline.
• Management withdrew FY2025 guidance (revenue, adj. EBITDA, capex, FCF) citing tariff-driven macro uncertainty; dividend of $0.025/share was maintained ahead of the print.
• Versus S&P Global consensus, revenue was a beat (+$3.9M), EPS was a miss (−$0.03), and EBITDA missed as consensus expected positive EBITDA; non-GAAP definitions and promotional mix drove variance (see Estimates Context) (*Values retrieved from S&P Global).
• Key call themes: tariff mitigation and accelerated re-sourcing out of China (6–9 months); Black Diamond apparel bookings up 50% in U.S. and 30% in Europe; Adventure headwinds concentrated in three accounts; PIEPS divestiture signed at €7.8M, expected to close by Q3 2025.

What Went Well and What Went Wrong

What Went Well

• Outdoor delivered above-plan revenue ($44.3M) with strength in apparel and hardgoods; adjusted EBITDA +$1.7M despite macro softness.
• Order book momentum: Black Diamond fall/winter apparel bookings up ~50% in U.S. and ~30% in Europe; new BD e-commerce site launched in April.
• Balance sheet resilience: cash $41.3M, nearly debt-free except $1.9M RockyMounts obligation; free cash flow improved to $(3.3)M from $(18.3)M YoY.
• Quote: “Q1 net sales of $60.4 million were above expectations…strengthening the core of our Outdoor segment” — Executive Chairman Warren Kanders.
• Quote: “We see a healthy order book for our fall/winter season, with apparel bookings up 30% in Europe and 50% in North America.” — Black Diamond President Neil Fiske.

What Went Wrong

• Adventure revenue fell 28% to $16.1M, driven by demand declines at global OEM, Australian wholesale, and lapse of a large U.S. off-price sale in Q1’24; segment adj. EBITDA was $(0.2)M.
• Gross margin compressed to 34.4% (adj. 34.6%) on higher discontinued merchandise (including PFAS inventory clearance) and North America promotional effort; Adventure mix (MAXTRAX volumes down >$1M) weighed on margin.
• Guidance withdrawn due to tariff uncertainty; management highlighted potential $3.5–$4.0M near-term margin hit at BD even after price actions; accelerated re-sourcing required.
• Analyst concern: discontinued merchandise accounted for ~80–90 bps of Outdoor GM pressure; $2.7M DM in Q1 vs ~$2.1M prior year, increasing mix from 5.8% to 7.5%.

Transcript

Operator (participant)

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the first quarter ended March 31, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders, CFO, Yates, President of Black Diamond Equipment, Neil Fiske, and the company's External Director of Investor Relations, Matt Berkowitz. Following the remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's Safe Harbor Statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead.

Matthew Berkowitz (External Director of Investor Relations)

Thank you. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we will make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 P.M. Eastern Time tonight.

A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Now, I'd like to turn the call over to Clarus's Executive Chairman, Warren Kanders.

Warren Kanders (Executive Chairman)

Good afternoon, and thank you for joining Clarus's earnings call to review our results for the first quarter of 2025. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our overall performance and our adventure segment, as well as Neil Fiske, who will discuss our outdoor segment. During the first quarter, we remained focused on executing against our strategic roadmap and positioning Clarus for profitable growth over the long term. Despite an increasingly challenging consumer backdrop across the global consumer market, Q1 net sales of $60.4 million were above expectations. Our teams have continued to take important steps thus far in 2025 to further strengthen the core at outdoor and invest-to-scale adventure. Our momentum in the outdoor segment has been driven by our success prioritizing Black Diamond's best and most profitable styles.

Overall, Q1 financial results were in line with our plan, which reflected our expectations of softer market conditions compared to the prior year period. We continued to benefit from product simplification and SKU rationalization initiatives, providing our customers with clear product differentiation and segmentation. The Black Diamond organization is healthier than ever, and the hard work of the prior two years to simplify the business and right-size our inventory has better positioned us to weather turbulent periods. A key bright spot has been the strong feedback we have heard from our partners regarding our revamped apparel line. Supported by a new approach to apparel and enhanced creative direction, we see opportunities to continue to capitalize on Black Diamond's well-defined brand equity.

At Adventure, we experienced significant revenue declines as compared to the prior year period, in large part due to discrete shipments that were either delayed or we elected to forego in 2025. Michael provides specifics, but we continue to see revenue from one OEM customer get pushed out while they restart production. I am pleased to say that orders recently began to flow again. Additionally, we cleared a significant amount of slow-moving and aged inventory through an off-price retailer in the U.S. in Q1 2024, which did not recur this quarter. In our core Australian market, we continue to manage through lower order levels at a historically key retailer, which has been partially offset by growth in certain specialty accounts.

Excluding the impact of these three customers, we saw overall sales flat in Adventure over the comparable period, which we believe reflects the strength of our brands even in difficult market conditions. I would also like to point out the change in our Adventure leadership. We have a new segment leader, recently promoting Tripp Wyckoff to head the business. Tripp joined Clarus last year to strengthen our US business for the Adventure segment and has made an immediate impact, driving critical progress, revamping the organizational structure, bringing on new team members in key positions, and changing the go-to-market approach. Tripp is an industry veteran with over 20 years of deep operating experience in senior leadership roles at global businesses. He has a wealth of knowledge focused on guiding brands of our size and executing their next phase of growth.

As part of the global leadership team since joining, Tripp understands the importance of our core Australian market to the success of Adventure and possesses a unique view on compelling long-term growth opportunities in other regions. He will be splitting his time between the U.S. and Australia headquarters. We believe Tripp is the right leader for Adventure to reach its full potential moving forward. Outgoing leader, Matt Hayward, will depart the company, and we thank him for his contribution during his time with Clarus. Matt played a key role in establishing the foundation for the Adventure segment, hiring excellent new talent, and developing new brand architecture. Core to this has been the development of a comprehensive new multi-year product plan across the portfolio and entirely new commercialization process that will continue to guide us. We thank Matt for his contributions and leadership and wish him success in his future endeavors.

Moving to the big picture, the primary question as we approach the remainder of the year is how macro conditions will evolve. As Michael details shortly, driven by growing economic uncertainty due to the US trade policy, we have withdrawn our full-year guidance. While we believe we have effective countermeasures to mitigate a portion of the impact from the tariffs, we cannot predict how these tariffs might affect consumer sentiment and demand, making it very difficult to confidently forecast. Our focus is on controlling what we can, and in that regard, we have taken decisive actions to maintain our competitive positioning and Clarus's financial strength overall. Supported by a balance sheet with zero third-party bank debt, we are committed to taking a prudent approach to capital allocation and managing our businesses to drive long-term market share gains while delivering sustainable value for Clarus shareholders.

With that, thank you for being with us today, and I will turn the call over to Neil.

Neil Fiske (President of Black Diamond Equipment)

Thanks, Warren. Turning to slide six, I will review the Outdoor segment's Q1 performance and our expectations for the remainder of 2025. Overall, Q1 results exceeded our plan and expectations for the quarter from a top-line perspective, while adjusted EBITDA was in line with our goal, and I'm pleased with the continued progress on our strategic initiatives. Absent tariffs, we would be affirming our 2025 top-line expectations that we shared during our call in early March. Of course, a lot has changed since then. That's the wild card in all of this. Like every company, we are confronting tremendous uncertainty and the adverse impacts of the new administration's tariff and trade policies. Thankfully, the hard work we've done to simplify, focus, and restructure the business over the last two years puts us in a better position to absorb the shock and come out the other side even stronger.

I'll come back to the tariff topic shortly. For the quarter, revenue came in at $44.3 million. Compared to prior year, sales were down 5.7% or $2.7 million due to two factors we had expected. First, the planned decline in our ski business from the exit of bindings and the pullback in snow safety, both of which were part of our simplification and product rationalization process. Second, the shift of IGD revenue to more optimal delivery timing in Q4 of 2024. It's important to note that we made the decision to push out more discontinued merchandise in Q1 as a defensive move against macroeconomic uncertainty and potentially weakened consumer sentiment. By region and channel, North America wholesale was down 7.3%, the biggest driver of which was a 38% decline in the ski category in the region.

North America digital D2C was down 7% but delivered more gross profit dollars and channel contribution margin than in the prior year period. Europe wholesale was down a more modest 2.7%, while Europe digital D2C was up 10.7%. International distributor markets were down 21.4% due to the more optimal timing shift of deliveries into Q4 of last year. We expect to get some pickup in Q2 with a corresponding decrease in Q3 from the new delivery cadence as we deliver more of the fall assortment a month earlier in this year than in the past. Gross margin for the quarter was down 80 basis points to prior year due to the higher mix and quantity of discontinued merchandise, plus a couple of cost variances which we do not expect to continue in Q2.

Operating expenses, excluding restructuring charges, were down 7.3%, reflecting the benefits of our simplified and more focused business and the efforts to right-size our cost structure over the past few years. Inventories ended the quarter in great shape, down 3.5% to prior year period at $60.6 million and with 74% of the value in our best A styles, which is where we want to see the mix. Adjusted EBITDA for the quarter came in at $1.7 million, down $1.2 million to prior year due to the lower gross margin and lower top-line volume year over year. We continue to make excellent progress on our key initiatives. We completed the strategic review of our Pieps snow safety business with the announced signing of the sale agreement today, which Michael will detail further.

We see a healthy order book for our fall-winter season, with apparel bookings up 30% in Europe and up 50% in North America. We successfully launched our new Black Diamond e-commerce site this past April. Our marketing message is sharper and more differentiated, as we saw with our very successful Born from the Climbing Life campaign this spring. Operating expenses continue to come down as a percentage of sales, another 40 basis points this quarter. Headcount is now more than 25% lower than during the first quarter of 2023 when I first stepped into the role. Inventory productivity continues to improve with a better match between supply and demand. While we are confident in both our strategic direction and performance through Q1, we are also in a completely different world than at the beginning of the year.

The chaos, uncertainty, and supply chain disruption threaten to take a heavy toll not only on business operations but on consumer confidence as well. Let me address the biggest of these factors, which is tariffs. As we see it, there are really three groups of tariffs that impact or potentially impact our business. First, the 10% universal tariff and the 25% tariff on steel and aluminum products, which are in place now. We believe these are likely to stick, and so we have taken up price accordingly and proportionally as of May 5. Second, the China tariffs of 145%. These are simply untenable and unsustainable. Thankfully, we've been working over the years to reduce our exposure to China-sourced products. China represents about 25% of our merchandise costs today, and even before the tariff wars, we are working on a plan to resource into other countries by the end of 2026.

Now we are accelerating those efforts and expect to have new country of origin production up and running by Q4 this year. We believe it will take us six to nine months to complete the move out of China. The good news is that we are looking at a very defined period of impact. During this transition period, we are limiting price increases on China-sourced products, in most cases to around 10%, in order to protect consumer demand and our market share. We look at this potential margin hit as transitory and short-term in nature. The third category is reciprocal tariffs, which have been postponed until July 8. Until we have greater clarity on the outcome of trade negotiations currently underway, there is simply no way to predict or plan for this group of trade surcharges. What does all this mean in terms of economic impact?

We break it down this way. We estimate that the gross impact, absent any pricing action, would be $7.5 million-$8 million of exposure for Black Diamond for the remainder of the year. Pricing actions we have implemented as of May 5th are expected to reduce that exposure to $3.5 million-$4 million and essentially cover the 10% universal and 25% steel and aluminum tariffs. If we can accelerate our China exit plan, we can further reduce this net exposure by about $1 million-$2 million in the back half of the year. Of course, if there is a favorable negotiation outcome with China, our exposure would drop proportionally. Our primary goal in all of this is to protect supply, fill orders, and possibly gain share as the market shakes out.

The silver lining here is a very real possibility that we come through this in an even stronger competitive position. The fundamentals of our strategy are more important than ever, and I'm confident that we are well positioned to take on the challenges ahead and grateful for the tremendous effort by our teams to adapt quickly to such an uncertain and rapidly changing environment. With that, let me turn it back to Mike.

Mike Yates (CEO)

Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide some brief comments on the Adventure segment, and then we'll conclude with a detailed summary of our Q1 financial results, followed by the Q&A session. I'm on slide seven. Our Q1 Adventure results continue to be affected by near-term pressure on the business. As we have discussed previously, we have made significant investments that we are committed to maintaining to realize the long-term potential that we believe is achievable with our existing Adventure brands. We are excited to have added the Rocky Mounts business to our portfolio, which is an ideal complement to Rhino-Rack. The brand is fully integrated, and the product line performed well in Q1. Additionally, after a broad corporate realignment last year within Adventure, the new leadership appointment Warren referenced of Tripp Wyckoff is a step forward to take the business to the next level.

Among his 20 years of industry experience, including time at Thule here in the U.S., where he grew the brand significantly in the peak periods and was primarily responsible for bringing the market, global initiatives, and building one-on-one customer relationships. Regarding tariffs and the effect on the Adventure business, I would note that while nearly all of the Adventure products are sourced from Australia and China based on full year 2024 revenue, over 80% of Adventure's revenue is outside the United States. The tariffs have a limited impact on a relative basis. Nevertheless, we have been evaluating new strategies for our China-sourced products, given that our U.S. business is exposed. We are proactively working with our suppliers and are confident in our ability to move significant manufacturing out of China by 2026.

I'd like to spend a minute diving into key customer mix shifts that weren't outlined within the Adventure business during the quarter. We had three customers account for $6.5 million of Adventure revenue in the first quarter of 2024 that only generated $1.1 million of revenue in the first quarter of 2025. This, coupled with lower recovery board sales of approximately $1 million, which was partially offset by incremental Rhino-Rack revenue sales to specialty customers, accounts for the decline over the prior year. Of the three customers, we believe that two, our OEM partner and an Australian big box auto part chain, will normalize on an ongoing basis, but not to the same level as 2024. The third customer, a U.S. off-price retailer, we don't expect to be part of our go-to-market strategy moving forward.

We continue to make inroads with new customers across all product categories, including increasing bike rack doors from 300 to 800 in the first quarter of 2025. We have also worked to expand our global reach, adding new customers in the UAE and Africa while improving distribution agreements in Germany and the U.K. Likewise, our OEM approach is taking root, with new RFQs coming through primarily in Australia and New Zealand. Both of these market opportunities will take some time to develop as the sales lead cycles are longer than those on the consumer side. Let me now turn to the consolidated and segment financial review on slide eight. First quarter sales were $60.4 million compared to $69.3 million in the prior year first quarter. The 13% decline in total sales was driven by a decrease in Adventure's segment of 28% and a decrease in the Outdoor segment of 6%.

Operator (participant)

FX was a $1.3 million headwind in the quarter, and the acquisition impact from Rocky Mounts was a $1.3 million tailwind in the first quarter. This was the first full quarter of revenue for the Rocky Mounts acquisition. Clarus's first quarter revenue of $60.4 million was above our Q1 guidance of $56 million. Sales did decline year over year as anticipated as we executed on our simplification strategy and continued to deal with a tough macroeconomy. At Adventure, first quarter revenue of $16.1 million was short of our expectations and down compared to the prior year. The 28% decline in revenue at Adventure is nearly all related to the significant decline in year-over-year performance at the three specific accounts that I and Warren just highlighted. At Outdoor, first quarter sales were $44.3 million, down 6% year-over-year.

The decrease was due to our continued efforts around product simplification and SKU rationalization strategy, specifically the lower revenue from ski bindings and snow safety that Neil mentioned. This combined with the planned impact from the shift of the IGD revenues out of the first quarter were the primary drivers of the lower revenue at Outdoor. This decrease was partially offset by higher revenue from our high-margin A and B styles, consistent with our simplification strategy. The $44.3 million in Outdoor revenue exceeded our expectations due to strength within our apparel and hard good categories compared to our budgeted expectations. This beat includes approximately $1.8 million of revenue at Pieps that was not contemplated in our previous guidance. The gross margin rate in the first quarter was 34.4% compared to 35.9% in the prior year quarter.

Gross margin was adversely impacted in the quarter by lower volumes and unfavorable product mix at both Outdoor and Adventure. Specifically, the unfavorable product mix at Outdoor was related to high levels of discontinued merchandise that was sold by a promotional pricing during the quarter, including the majority of the remaining PFAS inventory. The unfavorable product mix at Adventure was primarily driven by promotional sales efforts in the North American market, which combined with the lower wholesale volumes at both Rhino-Rack and Maxtrax in Australia drove the decline in gross margin compared to the prior year quarter. Adjusted gross margin, which reflects inventory fair value adjustments of $120,000 associated with the Rocky Mounts purchase accounting, was 34.6% for the quarter compared to 36.9% in the year-ago quarter. First quarter selling, general and administrative expenses were $26.6 million compared to $28.2 million, or down 6% versus the same year-ago quarter.

The decrease was primarily due to lower retail expenses because of our decision to close unprofitable retail stores at Outdoor, as well as lower wage expense, lower marketing costs, and the successful implementation of other expense reduction initiatives to manage costs across both segments. Adjusted EBITDA in the first quarter was a loss of $800,000, or an adjusted EBITDA margin of negative 1.3%. The first quarter 2025 consolidated adjusted EBITDA of $800,000 negative was short of our guide of breakeven. Our adjusted EBITDA is adjusted for amortization expense, disposal of internally developed software, restructuring charges, transaction costs, stock compensation expenses, and inventory fair value of purchase accounting. Additionally, beginning the first quarter of 2024, we adjusted legal costs associated with the Section 16B litigation and the Consumer Product Safety Commission DOJ matter, known as the CPSC and DOJ matter. These legal costs were $625,000 in the first quarter of 2025.

First quarter adjusted EBITDA by segment was a negative $200,000 at Adventure and $1.7 million positive at Outdoor. Adjusted corporate costs were $2.3 million in the first quarter of 2025. Next, let me shift to liquidity. At March 31, 2025, cash and cash equivalents were $41.3 million compared to $45.4 million at December 31, 2024. Total debt on March 31, 2025, was $1.9 million. This debt is related to an obligation associated with the Rocky Mounts acquisition, which is payable in December of 2025. We have no other third-party debt outstanding. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the first quarter of 2025, was a use of $3.3 million compared to a use of $18.3 million in the prior year quarter.

There's a significant improvement in free cash flow was expected and is consistent with my prior commentary that the prior year's drain on cash would not reoccur. Regarding our cash balance, we have successfully completed the sale of an asset, which will further increase our cash on hand upon completion. Today, we announce that we've entered into an agreement to divest our Pieps snow safety brand for EUR 7.8 million. This follows a comprehensive strategic review process launched last fall, and we are pleased with the outcome of a competitive process that recognized the value of the Pieps brand, its intellectual property, and its exceptional people. This divestiture is aligned with Clarus's prioritization of simplifying the business and rationalizing our product categories.

Turning to our outlook, as you heard from Warren, we are withdrawing the company's previously issued full year 2025 revenue, adjusted EBITDA, capital expenditures, and free cash flow guidance. This is not reflective of the results to date, but rather the uncertain environment stemming from the U.S. global trade policies, the potential impact on consumer demand, and the potential impact from this uncertainty on our adjusted EBITDA and free cash flow. This environment is just too unpredictable from which to forecast future financial performance effectively. With that said, as we approach the balance of the year, we are confident in our strategic plan and proactively working with our teams, vendors, shipping partners in real time to mitigate the impact from these trade policies on our P&L. In addition to the price actions, as Neil outlined, we are accelerating initiatives to resource into countries other than China.

Even prior to the current trade war, we have been working over the years to reduce our manufacturing base in China and believe we can complete our move-out by early 2026. As I mentioned already, Adventure sources nearly all of their products from China and Australia. Black Diamond sources approximately 25% from China, 31% from Taiwan, 15% from Vietnam, 12% from the Philippines, and the remainder from elsewhere. Overall, we are actively implementing solutions to offset the cost impact of tariffs, specifically our working with our vendors and negotiating concessions. We have taken price actions where we believe the higher costs are permanent, and we continue to value other countries' origin strategies to source our products. We're taking a long-term view such that these businesses can emerge in an even stronger competitive position once the uncertainty from these trade policies subsides.

Before turning the call over to the Q&A, I'd like to provide an update on outstanding Section 16B securities litigation matters that the company is pursuing. We continue to proceed in our lawsuit against FAP Trading LLC and Mr. Harish A. Padilla. In March of this year, the court opined in favor of the defendants and granted summary judgment for the defendants. We are appealing this ruling to the appellate court. We also filed a lawsuit against Caption Management and its related entities and control persons. Those defendants filed a motion to dismiss on June 27, 2024. We filed opposition papers on July 25, 2024, and reply papers were filed in August of 2024. In March of this year, the court denied the defendants' motion to dismiss and instructed the parties to proceed with the discovery process.

On November 7, 2024, the company was notified by the CPSC that they referred the unresolved matter with Black Diamond to the Department of Justice. In January of 2025, the DOJ served the company and Black Diamond with grand jury subpoenas requesting various categories of documents related to Black Diamond's avalanche beacons. As of May 8, 2025, we continue to cooperate with the request from the DOJ. Additionally, on March 13, 2025, the company received a letter from the CPSC requesting various categories of documents and information in connection with a new investigation into whether Black Diamond sold products that were subject to a recall. The company is cooperating with this investigation. Taking a step back, looking at both Adventure and Outdoor, we see Clarus today as well-positioned to drive sustainable, profitable growth despite the uncertain macroclimate currently caused by the uncertainty from the U.S. trade policy.

Supported by talented teams globally and a strong balance sheet, we look forward to more incremental progress advancing our turnaround in 2025 and delivering significant long-term value for the Clarus shareholders. At this point, operator, we are ready to take questions.

Thank you. At this time, we will conduct the question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please stand by. Our first question comes from Peter McGoldrick from Stifel. Your line is open.

Peter McGoldrick (VP of Equity Research)

Hi. Thanks for taking my question.

Neil Fiske (President of Black Diamond Equipment)

Hey, how are you doing?

Peter McGoldrick (VP of Equity Research)

Neil, you mentioned Black Diamond guidance would have been reaffirmed, if not for macro uncertainty.

I'm curious if the level of tariff impact from China is causing any cancellations in the products you bring into the United States.

Neil Fiske (President of Black Diamond Equipment)

No cancellations as of this point. It's a great question, Peter. Let me sort of describe our thinking and approach on this. I think our first principle here is to contain the impact of the China impacts and make the duration as short as possible. All efforts into accelerating our planned transition out of China, we think that will be a six- to nine-month period to complete that, number one. Number two, given that it's a relatively short duration in the scheme of things, our approach is to maintain our supply, even if we have to take a short-term hit on margin in order to keep our market share, keep our products on the pegs that they occupy, and not go backwards.

You'll see us protect deliveries of, in particular, our headlamps, a couple models of climbing helmets. That's really sort of the extent of what's exposed here, as well as a couple models of our climb shoes. We'll continue to bring those in. We've positioned our inventory quite well ahead of the tariffs, so we can ride that for a little bit. As Mike mentioned, having reshaped our inventory to get 74% of it in our A styles puts us in a better position from the start to fulfill orders. At this point, we don't see an impact on deliveries to our customers, and we haven't seen any fallout yet in the fall and winter order books from our pricing actions, although it's clearly very early still, given that we took those price actions earlier in May, just a little more than a week ago.

I think we're going to have to wait and see on the price impacts. Net-net, in terms of supply, no interruption that we foresee at this point in time. We'll continue to protect our market share, deliver our products. The margin hit associated with that is about $3.5 million-$4 million. Again, the way we look at it is we'll take that $3.5 million-$4 million hit this year in order to protect our market share. By second quarter of next year, we should be out of China where those impacts are coming from. If we can accelerate that migration into Q3 of this year, that $4 million could drop to $3 million or possibly $2 million of impact. We'll just have to see how fast we can move. Does that answer your question?

Peter McGoldrick (VP of Equity Research)

It definitely does.

Yeah, I was curious on you provided the clarification that Q2 2026 is the targeted date of the six to nine months for which you would be out of China for the BD goods. And then you could accelerate that. The swing factor there is $1 million-$2 million of profit, correct?

Neil Fiske (President of Black Diamond Equipment)

In 2025, correct.

In 2025. Okay. I guess I'm curious on the promotionality of the two segments. There was unfavorable margin mix in each. Can you size those headwinds to gross margin in each segment and the visibility to progression given current and market demand? Does that dissipate given the current market dynamics absent the tariff impacts that flow through?

Mike Yates (CEO)

Yeah. Peter, it's Mike, you want to cover Black Diamond? Go ahead, Neil.

Neil Fiske (President of Black Diamond Equipment)

I can if you want.

Mike Yates (CEO)

Go ahead.

Neil Fiske (President of Black Diamond Equipment)

I think, Peter, maybe to give you a sense of the % of discontinued merchandise in Q1 this year versus last year. This year, it was 7.5% of our mix. Last year was 5.8%. You can see both in absolute dollars and as a % of the total, it was higher. This was very much part of our strategy given the uncertainty of the year to pull a more graduated program across the year forward into the first quarter and make sure that we're not trying to move discontinued merchandise in a weaker consumer environment. Very much a timing play on our part. As Mike mentioned, and by the way, that would account for all of the year-over-year decline in gross margin rate at Black Diamond. 80-90 basis point impact from that.

Relative to our expectations, there were some timing impacts of things that will either reverse over the course of the year or were contained to the first quarter. Margin was a little lower than our expectation, but mostly because of actions we took on the DM front and some issues that we think are either timing-related or contained to the first quarter. We feel pretty good about still our margin progression for the rest of the year and feel really good coming out of the first quarter that our inventories are clean and the best quality products. That should allow margins to continue to lift over the course of the year.

Mike Yates (CEO)

I'll handle the adventure. Yes, adventure gross margins were negatively impacted by mix as well. In the prepared remarks, Peter, I mentioned promotional sales efforts in the North American market.

We have some inventory that we're trying to move, and we were aggressive. That was a drain on realized gross margin there. It's also combined with brand mix over in Australia. We talked about lower volume at the Rhino-Rack and Maxtrax business. The volume at Maxtrax was down over $1 million year over year, and their gross margin is accretive to the segment's average. When they were down, that mix also brought their margin down correspondingly. Going forward, we expect that to recover, right? We expect those margins to rebound back to more traditional experience that we've seen at Adventure through the prior quarters.

Peter McGoldrick (VP of Equity Research)

I appreciate that. And then one on Pieps, as that business goes away after the third quarter, could you give us sort of a run rate of annualized contribution to revenue, gross margin, and EBITDA?

Mike Yates (CEO)

Yeah. In the first quarter, which is, the business is lumpy due to the nature of the product, right? Avalanche, snow beacon. The first quarter, I think in the prepared remarks, I mentioned $1.8 million of revenue. EBITDA was around break-even. By divesting this, I think it automatically becomes gross margin and EBITDA margin accretive. In the second quarter, revenue historically has been very small, a third of the first quarter's amount. I would not expect that to be a big number at all here in the second quarter. At some point in the third quarter, the transaction will close. Annually, Pieps does about $5 million of revenue.

Peter McGoldrick (VP of Equity Research)

Very helpful. Last one for me. There are some strong numbers from international outdoor apparel for fall/winter. What is the size of that business, just thinking of what that could mean for the back half?

I think I'll let Neil comment, but we're seeing strong demand on the new apparel line. I think in the prepared remarks, we mentioned the U.S. is up 50% and international is up 30% on the pre-season orders. That's a direct result of a lot of work that the teams put in to update and put a little more edge into the apparel. That's a positive, a significant positive from my perspective as we look forward for the BD business. Neil, what would you add?

Neil Fiske (President of Black Diamond Equipment)

No, one point of clarity. Looking at the fall/winter order book is kind of what we were referencing so that those orders start to deliver in July through December. In that order book, the U.S. was up 50%. That's not the international part. Then Europe was up in that order book 30%.

We took our two biggest regions in reference there. The US up 50%, Europe up 30%. IGD is also up. We did not give that specific number. I do not have it in front of me, but it is a smaller part of the overall apparel mix. I hope that helps. Apparel overall in the mix is trending towards about 25% of the total.

Peter McGoldrick (VP of Equity Research)

Thank you very much.

Operator (participant)

Thank you. Our next question comes from Mark Smith from Lake Street. Your line is open.

Mark Smith (Senior Research Analyst)

Hi, guys. Sorry if I missed this earlier, but can you quantify or speak to at all how much the sales in outdoor of this discontinued inventory, how much that boosted sales during the quarter?

Mike Yates (CEO)

We sold in the first quarter $2.7 million of discontinued merchandise at outdoor, $2.7 million. Now, that is not an entire boost, right? We always sell DM. The total was $2.7 million.

Like I mentioned, I mentioned that a vast majority of that was the remaining PFAS inventory. Go ahead, Neil, what would you add to that?

Neil Fiske (President of Black Diamond Equipment)

I was going to say year over year, the quantum on that is about $600,000 more than per year out of that 2.7.

Mike Yates (CEO)

Yeah. It is like 7.5% versus yeah. Yeah.

Mark Smith (Senior Research Analyst)

Okay. We can probably do the math. Neil, you just spoke to kind of the impact. I think you said 80 to 90 basis point impact on gross profit margin from these sales.

Neil Fiske (President of Black Diamond Equipment)

Correct.

Mark Smith (Senior Research Analyst)

Okay. Perfect. One thing we have not talked about much, but I just wanted to ask about was just kind of the strategy around Black Diamond stores. Where are we at today and any future movements maybe we should look at on the storefront?

Mike Yates (CEO)

Sure. Mike, do you [Crosstalk] want to talk about that?

Yeah. Go ahead. Talk about the new Seattle store.

Neil Fiske (President of Black Diamond Equipment)

First, let me just say kind of our philosophy on what the role of our company-owned stores is, which is basically to have a limited number of stores that can be the full expression of the brand and give us learning labs of real-time information of what's working, what we can build on, what we need to edit.

It is primarily getting the full expression of the brand out there, getting the learning that we can then translate into sales strategies for our wholesale channel. They are not intended to be a substantial part of our revenue or driver of our revenue. I would say that our store base now is relatively flat and will continue to be in the 8-10 store sort of range for the foreseeable future.

That said, within that kind of defined footprint of company-owned retail, we have opened up a flagship store in Seattle to, as I said, be the full expression of the brand, number one, a learning lab for us, number two. Also in that region, it's part of our strategy really to broaden the Black Diamond brand from really technical climb into broader mountaineering. Of course, the Pacific Northwest is sort of the home of mountaineering in the United States. We wanted to have a flagship store in that region that could really give us some learning associated with building out Black Diamond as a mountaineering brand. As part of that, we have a very interesting partnership with Rainier Mountaineering, which is, I think, the largest guide service in the United States based, of course, on Mount Rainier.

They have 70 guides all over the world from Denali, or I guess McKinley now, to Aconcagua and Cotopaxi and the big peaks around the world. Those 70 guides are now all in Black Diamond gear head to toe. That is also part of why we wanted to have a company-owned store in the Pacific Northwest to really be able to build on that partnership. The other one, by the way, that I would highlight, which is in a similar vein, our store in Jackson Hole, Wyoming, is not only a retail store, but it is also a platform for our partnership with the Jackson Hole Mountain Guides.

If you were able to visit the store in Jackson, it looks great, but there's now a corner of that store where the Jackson Hole Mountain Guides actually post up and they sell trips and they do gear checks and they interact with their customers and ours. It's been a really productive partnership so far, and we're seeing a nice lift to our retail business from it. It's very much intended to be a community-based store with a tight partnership with one of the leading guide companies in that region.

Mark Smith (Senior Research Analyst)

Okay. Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Anna Glaessgen from B. Riley Securities. Your line is open.

Anna Glaessgen (Senior Research Analyst)

Hey, good afternoon. Thanks for taking my question. First, I'd like to touch on the adventure distribution in the U.S. in light of the commentary around that off-price retailer.

Can you update us on what distribution looks like here? As you navigate the migration of the supply from China, should we expect distribution gains this year, or is that kind of on hold in light of the tariff environment? Thanks.

Mike Yates (CEO)

Sure, Anna. This is Mike. Last year, under Tripp's leadership, we made a decision not to pursue that discount channel that we had pushed some revenue through last year for the Adventure product and Rhino-Rack product. That did not anniversary this year, right? That is the year-over-year change. As we think about this going forward, whether it is bike racks or roof racks, we are leaning into the specialty distribution channel, right? Whether that is rack stores that are focused for automobiles and SUVs or bicycle shops that are focused on bike racks, right?

We're leaning more into those types of channels than, I'll say, mass retailers, especially mass discount retailers. That's where I mentioned with the bike racks, we've expanded with the addition of Rocky Mounts as a product line within our portfolio here in the US. We expanded our doors from 300 doors a year ago to 800 doors, right, because of adding the success and the desire to have the Rocky Mounts product brings, right? They are so well-established product that gets us into that many more bike shops compared to what we had done historically.

Anna Glaessgen (Senior Research Analyst)

Got it. Thanks. Turning to Black Diamond, Neil, can you share some perspective on the price increases you've taken thus far and how that compares to key competitors? Is there a sense that most have already taken price, or are you earlier on that timeline? Thanks.

Neil Fiske (President of Black Diamond Equipment)

Yeah. We're definitely earlier on the timeline. Our philosophy on this was hit it head-on, be super transparent with our consumers and with our trade partners. We went out with communication towards the end of April, letting our trade partners and our consumers know we would be taking the price up on May 5th. We gave them some time to adjust. I think we were among the first in the outdoor industry to go out with a very explicit position. We tied that back to the tariffs that we believe will stick. Obviously, there's a whole bunch of uncertainty around that, but we think the 10% universal tariff will stick. Likely, the steel and aluminum 25% will stick. We took prices up accordingly to essentially offset that 10% universal tariff and the 25% aluminum.

What we couldn't offset, of course, was the 145% on China. That was the exposure I talked about earlier. The first tranche of the 10% and the 25% on steel and aluminum, we have covered in our price increases. We're just now starting to see various companies take a position. Some are still, let's give it a little bit more time, see where the discussions on reciprocal tariffs come out. Some are starting to break with their own price increases. I would think it's going to play out over the next two to three months still. We should start to see more and more companies taking price. Some might decide to hold for a little bit. The outdoor industry in total has not really passed on a lot of the inflationary pressures that have existed in the industry over the years.

I do not think there is a lot of room to hold and take the margin hit. I think people are going to have to follow the tariffs up.

Anna Glaessgen (Senior Research Analyst)

Great. Thanks, Neil. And Mike.

Neil Fiske (President of Black Diamond Equipment)

You're welcome.

Operator (participant)

Thank you. Our next question comes from Joseph Gonzalez from ROTH Capital Partners. Your line is open.

Joseph Gonzalez (Equity Research Associate)

Hi, guys. Thank you for taking my question. Just wanted to see if you guys can talk a little bit further on tariffs. I know you guys have already spoken a lot towards the pricing mitigation. But any way we are thinking about mitigation efforts around vendor negotiations at all, just to not offset completely, but kind of take a little bit from, say, a continued 145 tariff throughout the year if that continues to play out.

Mike Yates (CEO)

Yeah. Hey, Joseph. Mike here.

We've looked and we continue to look at all different ways to mitigate and countermeasure the tariff situation. We've talked a lot about pricing. Yes, we've been engaged with our vendors for concessions. We're also looking at changing country of origin and moving outside of to other lower-cost areas or that may have a lower tariff, like Neil discussed, like getting out of China, right? We are looking at all different types of mitigating efforts, right? Some of those vendor concessions you are asking about, we had actually had that was one of the first things we had done back in March and in February. Neil, you can confirm that, right? We were pursuing those, right, as we feared the tariffs. The wildcard in this was on April 2, the degree of tariffs and the percentages that were introduced that, and as Neil's discussed in great detail, right?

We think the 10% and 25% stuff is permanent. The 10% is kind of permanent. At least that's the way we're moving forward with that, hence we've done this pricing action to cover that. The other, hopefully, there are negotiations. Hopefully, those all subside. Therefore, in the short term, we're going to absorb the impact of that into our gross margin. Yes, we are considering all different types of countermeasures, and we've been pursuing them, as I've mentioned.

Joseph Gonzalez (Equity Research Associate)

Got it. I appreciate the color there. Just switching gears, I want to talk about any capital allocation plans given the divestiture with the EUR 8 million around the Euro cash infusion to your current cash balance around $41 million. That puts us at probably close to $50 million.

Anything that you guys can just talk about if you're looking at buying another segment or potential other possible capital allocation channels that you're looking at?

Neil Fiske (President of Black Diamond Equipment)

Yeah. I think for the [Crosstalk] $200,000. Yeah, I'm going to address that. Thanks, Mike. Yeah, I think it's going to take we're waiting on regulatory approval in Austria, so that's going to take a little bit of time. We need to understand better what the kind of what the tariff and business impacts possibly could be. At this point, I think we're just going to hold on our cash, hold on to our cash, just invest it in treasuries and see where it goes. We'll certainly update you the next time we report.

Joseph Gonzalez (Equity Research Associate)

Got it. I appreciate that. Thank you for taking my questions.

Operator (participant)

Thank you.

Neil Fiske (President of Black Diamond Equipment)

You bet.

Operator (participant)

This concludes the question and answer session.

I would now like to turn it back to Mike Yates for closing remarks.

Mike Yates (CEO)

Okay. Thank you very much. I want to thank everyone for attending the call this afternoon and, most importantly, your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. Again, thank you very much. Thank you for your participation in today's conference.

Operator (participant)

This does conclude the program. You may now disconnect.