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Solo Brands, Inc. (DTC)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 revenue rose 0.5% year over year to $131.6M, but GAAP diluted EPS declined to $(0.05); adjusted EPS was $0.04 and adjusted EBITDA margin was 11.7% as investments in talent, processes, and IT elevated SG&A and other operating expenses .
  • Retail channel delivered 4.8% growth to $32.8M while direct-to-consumer (DTC) declined 0.9% to $98.8M; gross margin fell 60 bps to 62.8% due to inventory fair value write-ups from 2023 acquisitions, with adjusted gross margin flat at 63.6% .
  • Management lowered FY2024 guidance to revenue $470–$490M and adjusted EBITDA margin 9–10% amid softer Q3-to-date demand and tough retail comps (including a $7.2M one-time trade credit in Q3’23), but emphasized strategic plan execution and a large full-funnel marketing campaign starting in August .
  • Stock reaction catalysts: guidance cut (top-line and margin), confirmation of near-term DTC softness, and commentary that Q3 will be the most challenging quarter; counterpoints include sequential DTC stabilization, retail strength, inventory down 11.3% y/y, and readiness to launch new products in 2025 .

What Went Well and What Went Wrong

What Went Well

  • Retail growth: “Revenues increased 4.8%… driven by an increased order volume… continued growth with our strategic retail partners,” with retail revenue up to $32.8M .
  • Strategic plan and brand strength: CEO highlighted high NPS, premium customer demographics (Solo Stove avg household income ~$200k), and TAM expansion opportunities informed by deep consumer insights .
  • Operational leverage and supply chain: >99% picking accuracy, improved delivery cost contracts, and procurement productivity to offset inflationary pressures .

What Went Wrong

  • DTC softness and macro headwinds: Quarter-to-date Q3 traffic weaker than expected; DTC declined 0.9% in Q2 and faces pressure from consumer selectivity in large-ticket durables .
  • Margin and cost pressure: Gross margin down 60 bps on inventory fair value write-ups; SG&A up 11.5% y/y due to higher marketing, distribution, professional fees, IT, and management transition costs; other op ex up 49.3% .
  • Guidance cut: FY2024 revenue lowered to $470–$490M and adjusted EBITDA margin to 9–10% given softer demand and difficult Q3 comps, signaling near-term earnings pressure .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$165.3 $85.3 $131.6
GAAP Diluted EPS ($)$(2.14) $(0.06) $(0.05)
Adjusted EPS ($)$0.13 $0.03 $0.04
Gross Margin (%)58.3% 59.2% 62.8%
Adjusted Gross Margin (%)58.9% 59.3% 63.6%
Adjusted EBITDA ($USD Millions)$14.9 $4.3 $15.5
Adjusted EBITDA Margin (%)9.0% 5.0% 11.7%

Channel breakdown (Q2 year over year and sequential context):

  • Q2 2024 vs Q2 2023: | Sales Channel | Q2 2023 ($M) | Q2 2024 ($M) | YoY Change | |---------------|--------------|--------------|------------| | Direct-to-Consumer | $99.7 | $98.8 | (0.9%) | | Retail (formerly Wholesale) | $31.3 | $32.8 | +4.8% |

  • Sequential reference (Q1 to Q2 2024): | Sales Channel | Q1 2024 ($M) | Q2 2024 ($M) | Seq Commentary | |---------------|--------------|--------------|----------------| | Direct-to-Consumer | $51.0 | $98.8 | Seasonality and sequential DTC improvement noted by mgmt | | Retail/Wholesale | $34.3 | $32.8 | Retail grew y/y in Q2; Q1 strength came amid strategic partners |

Additional KPIs and balance sheet:

KPIQ1 2024Q2 2024
Cash & Equivalents ($M)$15.4 $20.1
Inventory ($M)$112.3 $100.8
Revolver Outstanding ($M)$82.0 $75.0
Term Loan Outstanding ($M)$90.0 $88.8
Revolver Availability ($M)$267.4 $274.4
Net Leverage Ratio (x)—3.3x
SG&A as % of Sales56.7% 53.8%
Free Cash Flow YTD ($M)—$(8.1) (H1)

Notes:

  • Adjusted metrics exclude items like inventory fair value write-ups, tooling depreciation, equity-based comp, transition costs, and other non-core expenses; see reconciliations .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2024$490–$510 $470–$490 Lowered
Adjusted EBITDA Margin (%)FY 202410%–12% 9%–10% Lowered

Management context:

  • Q3 expected to be “most challenging” due to tough retail comparisons and current DTC trends; lapping a one-time $7.2M retail trade credit recognized in Q3’23 .
  • ~60% of annual business expected in back half; launch of full-funnel marketing campaign in August and several small product launches support Q4 seasonality .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023)Previous Mentions (Q1 2024)Current Period (Q2 2024)Trend
DTC stabilizationIdentified need to fix DTC; stressed marketing efficacy and product innovation gaps DTC decline improved from -21% (Q4) to -6.8% (Q1) DTC down 0.9% y/y; sequential improvement but Q3-to-date softness Improving but near-term soft
Retail partnershipsGrowth with strategic partners; door expansion priority Door count ramp (DICK’S 350→700; Tractor Supply 100→1,500) Retail up 4.8% y/y; appetite remains strong; expanding channels not yet penetrated Positive momentum
Marketing overhaulReplace agencies; full-funnel focus; better conversion New world-class agency; improved ROAS; full-funnel plan Full-funnel “Blunt Marketing” with Snoop/Warren G; launch Aug 20 Execution phase
Product innovationBuild 3–5 year roadmap; adjacencies Emphasis on Solo Stove innovation New SVP Product Dev; pipeline to expand TAM starting 2025 Building toward 2025
Bundling/promotions——Bundling offsets promotions; higher fulfillment/shipping costs noted Mixed: value vs costs
Macro/tariffs/competitionCOVID hangover in durables —Macro softness; marketplaces/China seen expanding market more than hurting Headwind but manageable
Owned retail (Chubbies)Emerging footprintMomentum; Mall of America store; balanced omnichannel 3 new stores in Q2; plan to 12 by year-end; strong openings Expansion
Supply chain/fulfillmentStrength and accuracy emphasized —>99% pick accuracy; delivery cost improvements; procurement offsets inflation Operational leverage
TAM expansion——Consumer insights suggest 4–5x TAM via adjacencies; premium demographics Strategic opportunity

Management Commentary

  • CEO: “We are pleased with our second quarter results… strong retail sales and sequential improvement in our direct-to-consumer business… investing in talent and systems… near-term environment remains quite challenging… lowering our full year 2024 guidance” .
  • Consumer insights: Solo Stove NPS “top 1 percentile” in outdoor goods; premium household income profiles; multi-year product pipeline to expand TAM beyond fire pits/pizza ovens beginning 2025 .
  • Omnichannel: “About 50% of consumers are purchasing their products in physical stores… strategy of partnering with the right retailers… will continue to selectively open owned retail footprint within Chubbies” .
  • CFO: “Adjusted EBITDA margin was 11.7%… net leverage ratio was 3.3x… inventory… down 11.3% from a year ago… we now expect adjusted EBITDA margin to be in the range of 9% to 10%… third quarter to be our most challenging” .

Q&A Highlights

  • Macro resilience and plan continuity: Management expects execution improvements (site refresh, better campaigns) to drive results even in a hard-landing scenario; insights support pricing power and TAM expansion .
  • Promotions and bundling: Elevated industry promotions factored into outlook; bundling provides consumer value and sustains AOV but increases fulfillment costs .
  • Chubbies retail appetite: Strong POS and expanding retail presence (e.g., DICK’S House of Sport, SCHEELS); initial success in broader categories beyond swim .
  • Solo Stove mix/AOV: AOV remains strong due to bundling; focus on value without margin erosion .
  • Competition: Marketplace/China products expand category awareness; Solo Stove remains category leader and plans to “reinvent” with newness .
  • Retail execution: Building retail sales team, planning channel-specific products, synchronized sell-through marketing to improve 2025 outcomes .
  • Marketing changes: Full-funnel campaign cadence (awareness in August, conversion in Q4); site migration to Salesforce to improve shopping experience .

Estimates Context

  • Wall Street consensus via S&P Global was unavailable for DTC due to missing CIQ mapping; therefore, we cannot provide a formal comparison vs consensus for Q2 or FY24 (consensus unavailable).
  • Internally, management noted first-half performance exceeded internal expectations, but quarter-to-date trends softened, driving the guidance reduction; we expect sell-side models to reflect lower revenue and adjusted EBITDA margin ranges after Q2 .

Key Takeaways for Investors

  • Near-term caution: Guidance cut and Q3 softness set up a challenging next print; expect estimate revisions lower and heightened sensitivity to Q3 trends.
  • Sequential DTC stabilization with structural fixes (site, marketing, talent) is underway; monitor conversion improvements and ROAS in H2 .
  • Retail strength and channel expansion underpin resilience; watch door growth, category breadth, and margin mix impacts .
  • Margin offsets: Operational leverage (fulfillment, procurement, delivery costs) aims to counter bundling-driven cost pressure; adjusted gross margin flat y/y despite write-ups .
  • Inventory and liquidity healthy: Inventory down y/y, revolver availability ample, net leverage 3.3x; provides flexibility to execute turnaround and fund marketing/product initiatives .
  • 2025 catalyst path: Multi-year product pipeline and TAM-expanding adjacencies could be a re-rating driver if execution and H2 demand turn, particularly with full-funnel campaign support .
  • Trading setup: Near-term risk skewed to the downside on Q3 commentary; upside later in H2 if campaign increases conversion and small product launches drive Q4 seasonality .