Clarus (CLAR)

Outdoor lifestyle and equipment company Clarus (NASDAQ:CLAR) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 12.8% year on year to $60.43 million. Its non-GAAP loss of $0.02 per share was $0.03 below analysts’ consensus estimates.

Company Overview

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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Clarus’s sales grew at a weak 2.9% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Clarus’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 17.4% annually.

This quarter, Clarus’s revenue fell by 12.8% year on year to $60.43 million but beat Wall Street’s estimates by 7.5%.

Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Clarus’s operating margin has been trending down over the last 12 months and averaged negative 17.7% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.

Clarus’s operating margin was negative 11.2% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Clarus, its EPS declined by 16.6% annually over the last five years while its revenue grew by 2.9%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q1, Clarus reported EPS at negative $0.02, in line with the same quarter last year. This print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Clarus has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.2%, lousy for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Clarus’s five-year average ROIC was negative 7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Clarus’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Clarus is a well-capitalized company with $41.32 million of cash and $1.92 million of debt on its balance sheet. This $39.4 million net cash position is 30.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Clarus beat analysts’ revenue expectations this quarter. On the other hand, its EPS and EBITDA missed, and it pulled its guidance due to tariff uncertainty. Overall, this was a weaker quarter. The stock remained flat at $3.50 immediately following the results.

Updated: May 15, 2025 at 10:04 PM EDT

Before investing in or passing on Clarus, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We cheer for all companies serving everyday consumers, but in the case of Clarus, we’ll be cheering from the sidelines. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. 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 a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Clarus’s EV-to-EBITDA ratio based on the next 12 months is 8.2x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $4.29 on the company (compared to the current share price of $3.25).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.