Solo Brands (NYSE:DTC) Exceeds Q1 Expectations, Provides Encouraging Full-Year Guidance

Radek Strnad /
2024/05/09 7:07 am EDT

Outdoor lifestyle and recreational products company Solo Brands (NYSE:DTC) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue down 3.3% year on year to $85.32 million. The company's full-year revenue guidance of $500 million at the midpoint also came in 1% above analysts' estimates. It made a non-GAAP profit of $0.03 per share, down from its profit of $0.16 per share in the same quarter last year.

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Solo Brands (DTC) Q1 CY2024 Highlights:

  • Revenue: $85.32 million vs analyst estimates of $78 million (9.4% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of -$0.01 ($0.04 beat)
  • The company reconfirmed its revenue guidance for the full year of $500 million at the midpoint
  • Gross Margin (GAAP): 59.2%, down from 61.7% in the same quarter last year
  • Free Cash Flow was -$20.91 million, down from $21.11 million in the previous quarter
  • Market Capitalization: $114.5 million

“We are pleased with our first quarter results as sales and adjusted EBITDA came in ahead of our expectations driven by strong performance in our wholesale channel. We were encouraged to see sales trends accelerate as we moved through the quarter,” said Chris Metz, Chief Executive Officer of Solo Brands.

Started through a Kickstarter campaign, Solo Brands (NYSE:DTC) is a provider of outdoor and recreational products.

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.

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. Solo Brands's annualized revenue growth rate of 38.7% over the last three years was incredible for a consumer discretionary business. Solo Brands Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Solo Brands's recent history shows its momentum has slowed as its annualized revenue growth of 8.6% over the last two years is below its three-year trend.

We can dig even further into the company's revenue dynamics by analyzing its most important segments, Direct-to-Consumer and Wholesale, which are 59.8% and 40.2% of revenue. Over the last two years, Solo Brands's Direct-to-Consumer revenue (direct sales to customers) averaged 5.9% year-on-year growth while its Wholesale revenue (sales to retailers) averaged 59.9% growth.

This quarter, Solo Brands's revenue fell 3.3% year on year to $85.32 million but beat Wall Street's estimates by 9.4%. Looking ahead, Wall Street expects sales to grow 1.2% over the next 12 months, an acceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Solo Brands has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 8.2%, subpar for a consumer discretionary business.

Solo Brands Free Cash Flow Margin

Solo Brands burned through $20.91 million of cash in Q1, equivalent to a negative 24.5% margin. This caught our eye as the company shifted from cash flow positive in the same quarter last year to cash flow negative this quarter.

Key Takeaways from Solo Brands's Q1 Results

We were impressed by Solo Brands revenue and EPS beats versus expectations. On the other hand, its operating margin missed. Overall, we think this was still a fine quarter. The stock is flat after reporting and currently trades at $1.98 per share.

Solo Brands may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.