Shares of Clarus Corporation (NASDAQ:CLAR) have struggled following a short-lived pandemic-era surge where shares briefly reached a $1 billion market value. The stock is down more than 25% over the past year, with an even deeper decline from its 2021 all-time.
The outdoor and adventure gear specialist, recognized for its leadership in niche categories like rock-climbing equipment, 4-wheeling accessories, and vehicle rooftop storage devices is attempting to manage shifting demand and weaker sales.
The good news is that some early signs of a turnaround highlighted the company’s latest results. Efforts to refocus the business toward core strengths in support of margins point to an improved outlook. With a debt-free balance sheet and climbing profitability, CLAR deserves a closer look.
CLAR Q1 Earnings Recap
Clarus reported first-quarter earnings in early May, with a GAAP EPS of $0.57, up from $0.04 in the prior-year quarter. Revenue of $69.3 million was down by 1.3% year over year.
Even with the top-line weakness, the story was a stronger adjusted gross margin which reached 36.9%, an 80 basis point improvement from Q1 2023. A shifting sales mix and leaner inventory strategy drove the trend. An effort at cost control was evident as SG&A expenses declined by 4.1% y/y.
The result is that the adjusted EBITDA of $2.0 million this quarter climbed by 78% from $1.1 million in the period last year.
source: company IR
Clarus is attempting to make a bigger push into the U.S. compared to its historically stronger position in Europe. Q1 domestic sales climbed by 17%, helping to balance an 11% decline internationally.
Clarus is attempting to move away from apparel merchandising to instead prioritize value-added categories. This direction falls within a “Fewer, Bigger, Better” initiative within the company’s strategic priority which appears to be paying off. Notably, wholesale activity has picked up, with signs of improvement in North America.
source: company IR
Management comments during the earnings conference call projected optimism for improving conditions. In terms of guidance, Clarus is targeting full-year revenue between $270 and $280 million, which represents a 4% decline at the midpoint from 2023. This considers the ongoing product mix rationalization, with a new round of operating momentum expected entering 2025.
More favorably, the company is forecasting 2024 adjusted EBITDA between $16 and $18 million, a sharp improvement compared to the $1.2 million result in 2023 as margins ramp up.
Clarus benefits from a solid balance sheet, with $47.5 million in cash against effectively zero debt. Keep in mind, the company also pays a regular quarterly dividend of $0.025 per share which represents an approximate $4 million annual payout, yielding a modest 1.5%.
What’s Next for CLAR?
When thinking about where the stock price for Clarus Corp is headed, the first step for a sustained rally will be signs that growth is rebounding. Even as the company appears to have found some success in lifting earnings to start 2024, stronger operational momentum will be important as a sign of brand health.
The attraction here is the company’s pure-play exposure to unique product categories within the outdoor and adventure markets. Ultimately, the opportunity is to position itself as a premium consumer option, gathering both a loyal customer following and a reputation of high quality.
Through the strategic initiatives in place, Clarus has set a target to grow sales by more than 30% through 2026 with a higher cash flow conversion and ramp-up in earnings.
source: company IR
That outlook begins to form the current consensus, where the market is forecasting 2024 EPS of $0.28 more than doubling to $0.58 by fiscal 2025.
The 1-year forward P/E of 11.5x stands out as compelling for a business with this type of potential growth momentum. Naturally, if this path plays out, the trend could be a strong tailwind for the stock as part of the bullish thesis.
source: company IR
At the same time, we believe some caution is warranted given the level of work from Clarus that still needs to be done. Setting lofty targets is always welcomed by investors, but hitting those targets is easier said than done.
We can point to the challenging backdrop for related “outdoor lifestyle” such as the recreational vehicle (“RVs”) market, where leaders like THOR Industries, Inc. (THO) have lowered their outlook for annual shipments. The sense is that high interest rates and stubborn inflation continue to pressure consumer demand for these types of discretionary purchases.
Stocks in this segment including names like Camping World Holdings, Inc. (CWH), Johnson Outdoors Inc. (JOUT), and even YETI Holdings, Inc. (YETI) have underperformed the broader market. The risk to consider for Clarus is the potential for economic conditions to deteriorate, forcing a reassessment of the earnings trajectory.
Final Thoughts
Clarus is off to a solid start in 2024, but that’s not enough for us to build a bullish conviction on the stock.
We’ll want to see a continuation of trends over the next few quarters to confirm growth has stabilized toward more sustainable profitability. For now, we rate shares as a hold and will keep this one on our radar for signs of stronger trends going forward.
Read the full article here