Inside The Call: Solo Brands Aces First Quarterly Report
In its first quarterly report since its publication on October 28, Solo Brands announced that its sales climbed 138.3% in the third quarter ended September 30, thanks to the strength of its four brands: Chubbies, Isle Paddle Boards, Oru Kayak and Solo Stove.
“Our third quarter results reflect the strong momentum in our business across all of our brands with Solo Stove, our primary growth driver, continuing to drive solid growth through our attractive product offerings and distinctive marketing,” said John Merris, CEO of Solo Brands. . “The investments we have made in our supply chain position us well to continue to generate strong revenues and profitability in 2021.”
Sales for the quarter were $ 69.4 million from $ 29.1 million a year ago, helped by strong results across all channels. In its IPO filing documents, the Southlake, Texas-based company predicted sales of between $ 66.9 million and $ 69.3 million.
DTC revenues climbed 119.6% to $ 58.1 million, while wholesale revenues rose 323.4% to $ 11.4 million. The gains were mainly due to an increase in total orders of 104.7%, with the average order value increasing by 3.9%.
In a conference call with analysts, Samuel Simmons, CFO, said, “We believe the increase in the number of orders is mainly due to the positive response from our increased spending on our digital marketing strategy, to the growing brand awareness and increased demand for outdoor recreation. and lifestyle leisure products.
The gains partly reflect the acquisitions of Oru Kayak in May 2021, Isle in August 2021 and Chubbies in September 2021.
Net income reached $ 2.1 million, down 79.4% from $ 10.3 million in the third quarter of last year.
On an adjusted basis, excluding one-off impacts primarily related to acquisitions and IPO-related transactions, profit reached $ 15.8 million, up 39.7% from $ 11.3 million last year. Adjusted EBITDA increased 56.7% to $ 18.2 million from $ 11.6 million in the third quarter of last year.
Adjusted gross margin decreased to 67.0%, as expected, from 71.8%, the decrease being attributed to higher freight rates and higher logistics costs. The reported gross margin was 59.1% versus 71.3%.
At the end of the third quarter, inventories stood at $ 113.6 million, compared to $ 14.3 million as of December 31. The increase reflects a strong inventory position across all brands, including brands acquired in 2021.
Simmons said, “We are delighted with the efforts of our team across our brands to build inventory throughout the year to meet our growing demand. Despite supply chain imbalances affecting many companies, we are well positioned with the level, composition and quantities of inventory on hand. As a result, we’re in excellent shape to deliver a top-notch experience for our customers from order to delivery over the holidays and until next year. “
Looking ahead, Simmons said “the holiday season has started well” and the company has raised its forecast for the full year, which calls for:
- Total revenue will range between $ 344 million and $ 352 million, compared to $ 177.5 million on a pro forma basis in 2020; and
- Adjusted EBITDA between $ 107 million and $ 109 million, compared to $ 61.0 million for fiscal 2020.
During the call, Merris went deeper into Solo Brands’ business model.
“The primary attributes of our platform are (1) our direct connection to our customer community, (2) our innovative product development capabilities, and (3) our scalable global infrastructure,” said Merris.
“Our e-commerce platform gives us the ability to have a direct relationship with our customers, and we know our customers are our most influential brand advocates. “
He noted that word-of-mouth referrals drove 45% of new customers to Solo Stove through June 30, which was held until the third quarter. He added, “We are using our strong customer engagement to leverage our extensive first-party consumer data to improve our marketing effectiveness, increase customer engagement, and retain and repeat purchases. “
Consumer insights are applied to digital ads and email strategies of all brands, while also supporting product development capabilities, ”said Merris. He said: “Our customers tell us what they like, what they don’t like and what they want us to develop. “
As a result, approximately 80% of Solo Brands’ revenue was generated from new products launched in 2019, and the company has a repeat purchase rate of 36% from its customers.
Addressing innovation in all brands, Merris noted that Solo Stove, known for its fireplaces, camping stoves, grills and accessories, has just entered a new category with Solo Stove Pie, a pizza oven for pizza. ‘backyard. He said, “We are delighted to offer this new product offering to our customers and believe we can disrupt this category and continue to be a key player in the growing outdoor living space.
Solo Stove also saw an “overwhelmingly positive” initial response to the introduction of fireplaces in a series of colors. Merris said, “Our customers told us they wanted more color options beyond the natural stainless steel finish. We’ve worked hard to find a coating that doesn’t melt or chip in the heat of a secondary burn, which burns much hotter than a typical campfire.
Oru Kayak recently presented a black kayak which sold out quickly. Merris said the brand continues to capitalize as the inventor of the folding origami kayak. He said: “Today we have five different kayak models that are suitable for all major use cases and we see a huge opportunity to continue to introduce novice kayakers to the sport.”
Isle Paddle Boards, founded in Southern California in 2004, were one of the first brands to sell surfboards on the Internet. Merris said, “Today Isle has evolved to sell rigid, inflatable paddleboards that can fold into a backpack, making it easy to carry while maintaining quality and performance. “
Merris said that Chubbies, a manufacturer of casual and athletic wear, started the shorter crotch trend almost 10 years ago but is particularly known for their engagement on social media. Most notably, over the past 12 months, Chubbies has developed a social network on TikTok with over 1.6 million followers. Merris said, “Chubbies is not a transactional clothing company, but rather a relationship-driven brand that caters to customers and friends alike.”
The DTC model also helps Solo Brands maintain strong adjusted gross margins above 60%. The contribution of key internal functions such as supply chain warehousing, order fulfillment and marketing generates operational leverage that supports profitability.
“We have built a powerful DTC e-commerce platform for our existing and future brands,” said Merris. “I am happy to say that we are a plug and play platform that has been able to generate significant leverage in the areas of marketing and advertising, shipping and order fulfillment and human capital. “
Merris outlined five growth strategies.
- Accelerate organic growth: Merris said Solo Brands had “significant organic growth margin” within its four existing brands by building brand awareness and acquiring new customers. He said, “We see the total addressable-only market for Solo Stove in the US as 76 million households, and Solo Stove only has about one and a half percent market penetration in that market. Additionally, we see a huge TAM (Total Addressable Market) and untapped opportunity to increase domestic market penetration in our other brands. “
- Use the efficiency of the ladder and platform: Significant investments in its supply chain infrastructure, customer service, and digital marketing platform have added significant scale. It integrated order fulfillment in 2018 and opened three warehouses to improve shipping and order picking times and overall reduce fulfillment costs. Merris said: “We have been able to generate platform efficiencies by generating significant leverage on EBITDA and a better customer experience. “
- International expansion: In August, the company launched a Solo Stove website in Canada and partnered with Oru Kayak, which had a presence in Canada, to increase awareness. Solo Stove generated more revenue in August in Canada than in August during its first six years in the United States. In October, a distribution center opened in Rotterdam, the Netherlands, to serve the European market, and it launched a European website. Merris said Solo Brands sees a “tremendous opportunity to expand our brands internationally by replicating our successful national DTC model.”
- Strategic acquisitions: Merris said Solo Brands has a “clearly defined brand accelerator model” and continues to assess opportunities. He said: “We are looking for passionate brands with awesome digital communities and strong emotional connections to our customers. We are an acquirer of choice favorable to the founders and wish to partner with brands which are creators of categories and which have developed a significant competitive gap in their respective categories.
- Channel extension: While the focus is on DTC, having a presence in retail meets the needs of consumers looking for the in-person experience, Merris said. Solo Brands sees an opportunity to grow with strategic partners including REI, Ace Hardware and Dick’s Sporting Goods, and strategic retail could reach 15-20% of overall sales over the next five years. Internally, Solo Brands operates seven stores in Chubbies, Isle and a recently opened Solo Stove Opportunities is also planned for corporate sales.
Photo courtesy of Solo Stove