Clarus (CLAR)

Outdoor lifestyle and equipment company Clarus (NASDAQ:CLAR) reported Q1 CY2025 results topping the market’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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. 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 poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. 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 remain flat over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Clarus, its EPS declined by 16.5% 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, down from $0 in 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.

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.

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 1.3%, lousy for a consumer discretionary business.

Clarus burned through $3.25 million of cash in Q1, equivalent to a negative 5.4% margin. The company’s cash burn was similar to its $18.26 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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.

Companies with more cash than debt have lower 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 32.3% 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 adjusted operating income missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $3.18 immediately following the results.

Updated: June 14, 2025 at 11:05 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Clarus, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping consumers, but in the case of Clarus, we’re out. 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 9.1x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $4.29 on the company (compared to the current share price of $3.55).

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.