Solo Brands, Inc. (DTC)·Q3 2024 Earnings Summary

Executive Summary

• Q3 2024 net sales were $94.1M, down 14.7% YoY, as DTC softness and lack of product newness weighed on traffic; reported gross margin compressed to 41.8% due to an $18.7M IcyBreeze inventory write-down, while adjusted gross margin remained strong at 61.9% .
• The quarter included significant non-cash charges: $43.2M impairment at IcyBreeze and a $25.0M goodwill impairment at Solo Stove, plus ~$14.8M contract terminations, driving GAAP EPS to $(1.19); adjusted EPS was $0.02 and adjusted EBITDA $6.5M (6.9% margin) .
• Management reaffirmed FY24 guidance: revenue $470–$490M and adjusted EBITDA margin 9–10%, citing encouraging early Q4 trends and accelerating retail momentum (incl. 130-store test at a national retailer) .
• Strategic actions: winding down IcyBreeze, consolidating ISLE/Oru into a water sports division, and pivoting marketing to full-funnel (Snoop “Blunt Marketing” campaign) to stabilize DTC ahead of a Salesforce-based site relaunch in early 2025 .
• Stock narrative catalysts: reaffirmed guidance into peak season and visible retail expansion vs. large impairment headline; near-term trading likely driven by holiday sell-through, promotional intensity, and DTC conversion improvements flagged by management .

What Went Well and What Went Wrong

• What Went Well
  • Retail strength ex-2023 barter: retail segment up ~10% YoY excluding the $7.2M one-time barter credit benefited last year; management highlighted strong retailer excitement and door expansion .
  • Adjusted margin resilience: despite charges, adjusted gross margin was 61.9% (vs. 62.0% LY), and adjusted EBITDA of $6.5M with 6.9% margin showed core profitability amid reset actions .
  • Strategic focus and talent build: new leadership across sales, product, and DTC; full-funnel marketing with Snoop and major sports partnerships (Islanders jersey patch; NFL co-branded products) to drive awareness and retail sell-through .
• What Went Wrong
  • DTC softness and warmer fall weather: lower site traffic and unseasonably warm fall pressured demand in big-ticket durables; DTC revenue was down 15.5% YoY to $64.5M .
  • Large non-cash and contract charges: $43.2M IcyBreeze impairment, $25.0M Solo Stove goodwill impairment, ~$14.8M contract terminations, plus $18.7M IcyBreeze inventory write-down—driving GAAP net loss of $111.5M .
  • Higher interest costs: interest expense rose to $3.7M (+$0.9M YoY) on higher rates and average debt balances, and SG&A increased due to contingent consideration marks and marketing write-offs .

Financial Results

Segment/channel breakdown

KPIs and balance sheet snapshot

Notes:

• Q3 margins were temporarily suppressed by an $18.7M IcyBreeze inventory write-down within COGS; adjusted metrics exclude restructuring-related inventory and tooling depreciation .

Guidance Changes

Rationale: Management cited softer DTC demand and macro pressures in Q2, then reaffirmed the lowered FY guide in Q3 on encouraging early Q4 trends and retail momentum .

Earnings Call Themes & Trends

Management Commentary

• “Our third quarter results were in line with our expectations despite a continued challenging macroeconomic backdrop for big ticket consumer durable items…we took decisive measures to address factors that were hindering our growth” — Chris Metz, CEO .
• “We are encouraged by our early sales trends [in Q4]…we feel good about how we are positioned and are reaffirming our full year guidance for 2024.” — Chris Metz .
• “We made significant progress…took several onetime charges…approximately $74 million are non-cash.” — Laura Coffey, CFO .
• “We made the decision this quarter to wind down our IcyBreeze reporting unit…take a non-cash charge to write-down the inventory and related goodwill and intangible assets this quarter.” — Chris Metz .
• “We now have an entirely new leadership team…we have jettisoned poor performing partners and agencies and have replaced them with industry-leading firms.” — Chris Metz .

Q&A Highlights

• DTC inflection path: Stabilize in H1 2025 and return to more normalized growth in H2 2025 alongside the Salesforce relaunch and innovation; deep consumer research informs channel mix (about 50% prefer in-store) .
• Retail organization build: Added head of sales and national account managers, analytics, and merchandising capabilities to scale multichannel retail partnerships and improve sell-through .
• Q4 setup: September was soft on warm weather, but early Q4 seasonal normalization increased traffic and interest; promotional activity expected to be heavy around Black Friday/Cyber Monday, embedded in margin expectations .
• Snoop campaign metrics: Early signs of higher traffic, AOV, and ROAS from full-funnel execution versus last year’s approach .
• Chubbies: Continued strong performance and retail expansion; NFL licensing program rolling out, with fast early sell-outs online .

Estimates Context

• S&P Global Wall Street consensus estimates were unavailable via our data connection for DTC due to a missing CIQ mapping (Primary EPS, Revenue, EBITDA, and target price could not be retrieved). As a result, estimate comparisons cannot be presented; analysis is anchored on company-reported results and FY24 guidance ranges [SpgiEstimatesError].
• Implication: With Q3 adjusted EBITDA margin at 6.9% and adjusted gross margin at 61.9%, FY guidance (9–10% adjusted EBITDA margin) requires robust Q4 execution, consistent with management’s emphasis on seasonal strength and promotional cadence; non-cash impairments materially distort GAAP EPS in Q3 but do not impact adjusted metrics .

Key Takeaways for Investors

• Core margin quality intact: Adjusted gross margin held at ~62% despite heavy charges; adjusted EBITDA positive, indicating durable unit economics once non-cash and clean-up items fade .
• Q4 is pivotal: Early trend improvement plus planned promotions should drive seasonally peak revenue; guidance reaffirmation sets a high bar for holiday sell-through and DTC conversion .
• Retail momentum is a lever: 130-store national test and broader channel build (marketplaces, club, big box) support diversified growth as DTC stabilizes .
• Portfolio rationalization: IcyBreeze wind-down and ISLE/Oru consolidation improve focus and profitability profile; expect near-adjacent category entries to expand TAM in 2025 .
• Marketing mix shift: Full-funnel strategy and major sports tie-ins (Islanders jersey patch, NFL collabs) should lift brand equity and retail sell-through while reducing reliance on everyday discounting over time .
• Watch interest expense and working capital: Higher rates and debt balances lifted interest costs; AP increased with reset actions—monitor cash conversion and covenant compliance (management stated compliance) .
• Near-term trading lens: Headline impairments may overhang GAAP optics; focus on adjusted margins, Q4 volume, promotional depth, and retail door performance as primary stock drivers .

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Additional Data References:

• Q3 2024 earnings press release and 8-K: financials, guidance, non-GAAP reconciliations .
• Q3 2024 earnings call transcript: strategy, marketing, DTC/retail commentary, Q&A .
• Q2 2024 8-K and call: lowered FY guidance; retail growth; adjusted margin context .
• Q1 2024 8-K and call: initial FY guidance; DTC/retail trends; talent and marketing agency shift .