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Clarus (NASDAQ:CLAR) Reports Sales Below Analyst Estimates In Q4 Earnings


Full Report / March 07, 2024

Outdoor lifestyle and equipment company Clarus (NASDAQ:CLAR). missed analysts' expectations in Q4 FY2023, with revenue down 26.6% year on year to $76.5 million. The company's full-year revenue guidance of $275 million at the midpoint also came in 20.5% below analysts' estimates. It made a non-GAAP loss of $0.07 per share, down from its profit of $0.20 per share in the same quarter last year.

Clarus (CLAR) Q4 FY2023 Highlights:

  • Revenue: $76.5 million vs analyst estimates of $83.83 million (8.7% miss)
  • EPS (non-GAAP): -$0.07 vs analyst estimates of $0.10 (-$0.17 miss)
  • Management's revenue guidance for the upcoming financial year 2024 is $275 million at the midpoint, missing analyst estimates by 20.5% and implying -23.1% growth (vs -20.3% in FY2023)
  • Gross Margin (GAAP): 28.9%, down from 34.6% in the same quarter last year
  • Market Capitalization: $213.3 million

Initially a financial services business, Clarus (NASDAQ:CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.

The company was founded in 1991, but after recognizing the potential of the outdoor equipment market, pivoted to meet the needs of adventure enthusiasts in 2002.

Today, Clarus offers products across several brands, including Black Diamond Equipment, Sierra Bullets, PIEPS, and SKINourishment. Its brands sell goods such as advanced climbing gear, ski equipment, precision ammunition, and skincare products tailored for outdoor environments.

Clarus generates revenue through a multi-faceted approach, leveraging a direct salesforce, extensive retail partnerships, and an e-commerce platform to sell its products. This strategy allows the company to reach a diverse and global consumer base.

Leisure Products

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Select competitors in the outdoor and recreation space include The North Face (owned by NYSE:VFC), Johnson Outdoors (NASDAQ:JOUT), and Smith & Wesson (NASDAQ:SWBI).

Sales Growth

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Clarus's annualized revenue growth rate of 11% over the last five years was mediocre for a consumer discretionary business. Clarus Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Clarus's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 2.4% over the last two years.

This quarter, Clarus missed Wall Street's estimates and reported a rather uninspiring 26.6% year-on-year revenue decline, generating $76.5 million of revenue. Looking ahead, Wall Street expects revenue to decline 5.9% over the next 12 months.

Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Given the consumer discretionary industry's volatile demand characteristics, unprofitable companies should be scrutinized. Over the last two years, Clarus's high expenses have contributed to an average operating margin of negative 8.8%. Clarus Operating Margin (GAAP)

This quarter, Clarus generated an operating profit margin of negative 13.2%, up 72.7 percentage points year on year.

Over the next 12 months, Wall Street expects Clarus to become profitable. Analysts are expecting the company’s LTM operating margin of negative 1.1% to rise to positive 4%.

EPS

We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. Clarus EPS (Adjusted)

Over the last five years, Clarus's EPS dropped 58.5%, translating into 9.6% annualized declines. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends or consumer preferences. Consumer discretionary companies are particularly exposed to this, leaving a low margin of safety around the company (making the stock susceptible to large downward swings).

In Q4, Clarus reported EPS at negative $0.07, down from $0.20 in the same quarter a year ago. This print unfortunately missed analysts' estimates. Over the next 12 months, Wall Street expects Clarus to grow its earnings. Analysts are projecting its LTM EPS of $0.38 to climb by 71.1% to $0.66.

Key Takeaways from Clarus's Q4 Results

We struggled to find many strong positives in these results. Its full-year revenue guidance missed and its revenue fell short of Wall Street's estimates. Overall, this was a mediocre quarter for Clarus. The stock is flat after reporting and currently trades at $5.27 per share.

Is Now The Time?

Clarus may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Clarus, we'll be cheering from the sidelines. Its revenue growth has been mediocre over the last five years, and analysts expect growth to deteriorate from here. And while its projected EPS for the next year implies the company's fundamentals will improve, the downside is its declining EPS over the last five years makes it hard to trust. On top of that, its operating margins reveal poor profitability compared to other consumer discretionary companies.

Clarus's price-to-earnings ratio based on the next 12 months is 8.0x. While the price is reasonable and there are some things to like about Clarus, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $7.25 per share right before these results (compared to the current share price of $5.27).

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