Clarus Corporation Common Stock 2026 Q2 Earnings Call

Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we will make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 P.M. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website at claruscorp.com.

Now I'd like to turn the call over to Clarus's Executive Chairman, Warren Kanders.

Good afternoon, and thank you for joining Clarus' earnings call to review our results for the second quarter. I am joined today by our CFO, Michael Yates, who will provide a financial update, including Adventure segment performance, as well as Neil Fiske, who will discuss our Outdoor segment. Overall, our second quarter performance reflected continued operational execution and simplification. Mike will discuss the IEEPA tariff refund, which we recognized during the quarter, which lifted earnings and gross margin. Excluding that benefit, our underlying results across both Outdoor and Adventure were solid and reflect progress across our overall earnings profile. At Outdoor, second quarter revenue, margin, and EBITDA all increased year-over-year, evidence of the team's hard work concentrating inventory on our highest volume, highest margin products. Our big three Outdoor categories of Mountain, Climb, and Apparel drove 95% of total segment revenues.

Apparel is a key pillar of our long-term strategy. Our product continues to resonate with the consumer as we delivered Apparel sales growth for the fifth consecutive quarter. With cleaner inventory, less discounting, and a shift toward a full price model, we are well positioned to drive improved profitability at Outdoor. At Adventure, we've improved the organizational shape to capture more margin as the business rescales. While second quarter sales did not meet our expectations, ongoing pricing actions and cost controls have paid off. Second quarter gross margin improved 420 basis points year-over-year. We continue to balance rigorous cost discipline with targeted investments. During the second quarter, we completed the bolt-on acquisition of certain assets and liabilities of ONWRD Supply Co., enhancing our portfolio mix with complementary high margin in-vehicle accessories.

I would also like to highlight that we executed share repurchases during the second quarter under our $50 million buyback program. We bought back 153,331 shares for approximately $400,000, or $2.292 per share. We believe these repurchases represented an attractive use of capital. We maintain approximately $42.4 million under our program and will continue to assess buyback opportunities while preserving financial strength and flexibility to make strategic investments. Turning to guidance, despite continued geopolitical and macro uncertainty across the global outdoor market, we still expect Clarus' full-year revenue to fall within our previously provided guidance range. Including the IEEPA refund and certain other factors Mike will detail shortly, we now expect 2026 adjusted EBITDA to range between $12 million and $13 million. Before passing it over to Neil, I will briefly touch on the review of strategic alternatives we announced in May.

We continue to explore a range of potential actions aimed at unlocking value more effectively than the market is currently recognizing today. We have retained Jefferies as our financial advisor to assist in this process. Potential alternatives could include the sale of all or part of the business or other strategic or financial transactions involving the company. Please note that we will not be answering any questions or commenting further on our strategic review process until additional disclosure is appropriate or required. With that, thank you for being with us today. I will turn the call over to Neil Fiske.

Thanks, Warren. Turning to slide six, I will review the Outdoor segment's second quarter performance and our expectations heading into the remainder of 2026. Overall, Black Diamond had a strong Q2 with revenue margin and EBITDA all well ahead of prior year as our strategy of simplification, focus, and business reshaping continues to pay off. Note, my remarks exclude our divested PIEPS business from the prior year to provide more comparable results. Total revenues for the quarter were up 9.1%, reflecting growth in all regions and across our major categories. Our big three segments of Mountain, Climb, and Apparel drove 95% of total revenues and grew 9.5%. The takeaway is clear. The core of our business is healthy and growing. For the quarter, Mountain was ahead 7.4% versus prior year. The Climb segment posted a very strong 13.5% growth rate. Apparel was up 7.4% for the quarter.

Notably for Apparel, inline sales were ahead a robust 22.9%, while clearance and discontinued merchandise was down 61%, showing a much healthier full price business and fewer markdowns. We're seeing excellent response and building momentum for our revamped Apparel offering. Gross margin is also a good story for the quarter, although a more complicated one with the ever-changing situation on tariffs. We received $6.1 million in tariff refunds in Q2, which lifted our gross margins to 52.0% versus 34.9% in the prior year. Even without the tariff refund, however, gross margins improved 160 basis points to 36.5% compared to the prior year period. The improvement reflects the progress we've made in the quality of our inventory, our focus on our most profitable categories, less discounting, and a more full price premium business model.

Second quarter selling general and administrative expenses were $13.8 million compared to $13.7 million in the same year ago quarter. Second quarter 2026 expenses reflect higher marketing costs. Other operating expenses for the quarter included a benefit of $1.4 million for CPSC legal adjustments, which Mike will address shortly. Adjusted EBITDA for the second quarter came in at $9.0 million. Putting aside the tariff refund and the CPSC legal adjustment, adjusted EBITDA for the quarter would have been $1.5 million compared to $0.3 million in the prior year period. Inventory ended the quarter at $72.2 million, up 12% versus the prior year period. The increase reflects the growth of the business and the build for what we expect to be a strong second half. Turning to results by region and channel. North America wholesale grew 0.5% on top of 4.8% growth in Q1.

North America digital direct-to-consumer, which represents 17.7% of the region's revenue, was up 5.7% on the top line, with much healthier margins and less discounting. EU wholesale was up 25.3% in dollars and 16.7% in constant currency. EU digital D2C, which represents 5.3% of the region's revenue, was down 10.6% in constant currency as we pulled back on promotional activity and less profitable transactions. Our international distributor channel was up 10.6% for the quarter. In sum, we are pleased with our results in Q2 and for the first half. Our strategy is paying off. Execution continues to improve. Product and marketing are resonating with the consumer. Our relationships in the wholesale channel have never been stronger. Our big three categories have real momentum. We feel confident going into the second half, mindful that the conflict in the Middle East remains a major geopolitical and business risk.

I'd like to congratulate and thank our teams around the world for all their hard work, passion, and skill in driving these results. With that, I'll turn it over to CFO, Mike Yates.

Thank you, Neil, and good afternoon, everyone. On today's call, I'll provide an update on the Adventure segment and then conclude with a summary of our Q2 financial results, followed by the question and answer session. Starting with Adventure. As expected, our top-line results in Q2 were pressured by a challenging market in both North America and Australia. In North America, initiatives to reach new customers have not met expectations. The one positive in the North American market remains the RockyMounts business, where we continue to see solid demand. With a new product introduction, we expect RockyMounts to remain on a growth trajectory. In Australia, where we had previously noted a difficult outlook, sales were better than forecast, despite consumers dealing with higher fuel prices and elevated interest rates. RockyMounts continues to be a bright spot in Australia, showing increased traction.

In Europe and Asia, brand penetration is also improving as we delivered double-digit growth in France, Germany, the U.K., and Japan. Although that strength was not sufficient to offset weaknesses in our larger markets, an important point to make about the softer sales is that we believe that the decline has been market-driven rather than share-driven. Against this backdrop, we continue to focus on what we can control, driving margin expansion, maintaining cost discipline, and improving operational efficiency. Gross margin hit 41.5% in Q2, up 420 basis points compared to the prior period. Our SG&A continues to be managed tightly and was down $0.6 million compared to the prior period. Specifically, headcount is down 20% and the cost base is 11% lighter. The business is above break even on materially lower revenue.