Earnings call transcript: Solo Brands reports Q1 2025 revenue decline, stock plummets

Solo Brands Inc. (DTC) reported a decline in revenue for the first quarter of 2025, with total net sales falling by 9.5% year-over-year to $77.3 million. The company’s stock reacted negatively, dropping 16% to $0.102 after the earnings announcement. The results were accompanied by a GAAP net loss of $12.2 million, though this marked a 65% reduction from the previous quarter. According to InvestingPro data, the company maintains impressive gross profit margins despite operational challenges, with a Financial Health Score of 1.92, rated as ’FAIR’. Despite the challenges, Solo Brands is focusing on product innovation and operational restructuring to stabilize performance.

Key Takeaways

• Solo Brands’ Q1 2025 net sales decreased by 9.5% year-over-year.
• The stock price fell 16% following the earnings report.
• The company is reducing its reliance on China-sourced products.
• New product launches are anticipated to impact financials positively in Q4.
• Ongoing debt restructuring and NYSE listing compliance efforts are underway.

Company Performance

Solo Brands faced a challenging quarter with a notable decrease in net sales. The decline is attributed to reduced discounting in the Solo Stove segment, although the Chubby segment saw a significant sales increase of 43.9%. With a beta of 1.43, the stock shows higher volatility than the market average. The company is navigating a difficult retail environment, compounded by trade tariffs impacting its supply chain. InvestingPro analysis reveals the company operates with a significant debt burden, which adds complexity to its current challenges. Subscribers can access 16 additional ProTips and comprehensive financial metrics on the platform.

Financial Highlights

• Revenue: $77.3 million, down 9.5% year-over-year
• Adjusted gross profit: $42.8 million, representing 55.4% of net sales
• GAAP net loss: $12.2 million, a 65% reduction from Q4
• Adjusted net loss: $4.7 million
• Adjusted EBITDA: $3.5 million, 4.5% of net sales
• Cash and cash equivalents: $2.6 million
• Total outstanding debt: $427.9 million

Earnings vs. Forecast

The earnings per share (EPS) forecast was set at $0.0001, with revenue expected to reach approximately $85.08 million. The actual revenue of $77.3 million fell short of expectations, contributing to the negative market reaction. The company has experienced EPS downgrades in the past 90 days, with two downward revisions.

Market Reaction

Solo Brands’ stock dropped 16% following the earnings release, closing at $0.102. This decline places the stock near its 52-week low, reflecting investor concerns over the company’s ability to meet revenue forecasts and manage its debt load. The company’s current ratio of 0.05 and Altman Z-Score of -341.44 indicate significant financial stress. According to InvestingPro’s Fair Value analysis, the stock appears to be trading below its intrinsic value. The broader market and sector trends have also been challenging, further impacting the stock’s performance. Discover more detailed valuation metrics and expert analysis in the Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Solo Brands aims to stabilize performance in the second half of 2024, with no planned acquisitions in 2025. The company is working on NYSE listing compliance and ongoing debt restructuring negotiations. Five new products are planned for the Solo Stove segment in 2024, with the Windchill 47 cooler launching this week.

Executive Commentary

CEO John Larson emphasized the company’s focus on linking marketing investments to profit generation, stating, "We are working to directly tie our marketing investments to profit generation." CFO Laura Coffey highlighted the challenges posed by tariffs, noting, "Tariffs are having a significant impact on our industry and our business." Larson also shared the company’s commitment to innovation, saying, "Our broader vision is to fuel our brands by delivering new innovative products."

Risks and Challenges

• Trade tariffs continue to impact the supply chain and cost structure.
• High levels of outstanding debt pose financial risks.
• The company’s reliance on China-sourced products is being addressed, but transitions may take time.
• Market saturation and competitive pressures in the outdoor products sector.
• Economic uncertainties and consumer spending patterns could affect future sales.

Solo Brands did not hold a Q&A session during the earnings call due to ongoing debt restructuring discussions, leaving some analyst questions unanswered.

Full transcript - Solo Brands Inc (DTC) Q1 2025:

Conference Operator: Good morning, and welcome to the Solo Brands First Quarter twenty twenty five Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mark Anderson, Senior Director, Treasury and Investor Relations. Please go ahead.

Mark Anderson, Senior Director, Treasury and Investor Relations, Solo Brands: Thank you, and good morning, everyone. We appreciate your joining us for the Solo Brands conference call to review the first quarter twenty twenty five results. Joining me on the call today are the company’s Interim President and Chief Executive Officer, John Larson and Chief Financial Officer, Laura Coffey. This call is being webcast and can be accessed through the Investors portion of our website at investors.solobrands.com. Today’s conference call will be recorded.

Please be advised that any time sensitive information may no longer be accurate as of any replay or transcript reading date. I would also like to remind you that the statements in today’s discussion that are not historical facts, including statements about expectations, future events, financial performance, debt restructuring and liquidity, negotiations with lenders, turnaround efforts, strategic transformation goals and future growth are forward looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements, by their nature, are uncertain and outside of the company’s control. Actual results may differ materially from those expressed or implied. Please refer to today’s earnings press release for our disclosures on forward looking statements.

These factors and other risks and uncertainties are described in detail in the company’s filings with the Securities and Exchange Commission. Total Brands assumes no obligation to publicly update or revise any forward looking statements. Management will refer to non GAAP measures and reconciliations to the nearest GAAP measures are included at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form eight ks. Now I would like to turn the call over to John Larson.

John Larson, Interim President and Chief Executive Officer, Solo Brands: Good morning, and thank you all for joining us in reviewing Solo Brands’ first quarter results. Today, I’ll start by addressing the NYSE trading suspension and briefly comment on our debt restructuring progress. Then Laura will report on first quarter results and provide an update on our tariff mitigation plans. Lastly, I will return to discuss our profit focused transformation plan. First, concerning the NYSE suspension announcement last month, we recently appealed the NYSE’s determination and have a plan to regain compliance.

If we are successful, we expect that the NYSE trading suspension on our common stock will be listed. Trading of our common stock is currently conducted through the OTC Markets under the ticker symbol DTCB. We believe that the planned actions to improve our results will position us to resume our NYSE listing. We are also working closely with the lenders under our credit agreement along with our advisors to address Solo Brands debt structure. As part of our restructuring plan, we have developed an operational financial plan for both near and long term that are expected to drive profitability and cash flow improvements.

We will update you on some of these initiatives today. As we navigate the transition, I am encouraged by our progress and efforts to leverage our entrepreneurial culture at Solo Brands for building and scaling our outdoor lifestyle portfolio. My optimism about the business is growing as we execute initiatives and begin to achieve milestones in our multi year strategic plans. Turning to first quarter results, we are pleased to report that Chubby segment results were strong. First quarter sales of our Chubby’s brand grew 43.9% with the segment EBITDA margin expanding to 26.5% of sales.

Chubby’s has built a close knit community customer advocates and loyal fans who love the products, customer service and customer experience that this brand delivers. As expected, sales in the solo stove segment declined primarily in response to our elimination of extensive discounting and promotion in our DTC channel. I will discuss this more in a moment. Even after implementing these changes, our consolidated bottom line results in Q1 for Solo brands exceeded last year for both February and March. This gives us confidence that our profitability focus is beginning to yield results.

Our broader vision is to fuel our brands by delivering new innovative products and a differentiated experience to further transform one time customers into lifelong customers. The Board and management are aligned and the team is working diligently to improve the near term and long term business trajectory. After Laura walks through the detailed financial analysis, I will return to discuss key strategic initiatives. Laura?

Laura Coffey, Chief Financial Officer, Solo Brands: Thank you, John, and good morning, everyone. Before I walk through the first quarter results, I want to cover trade policy developments including tariff updates. Tariffs are having a significant impact on our industry and our business. While tariffs did not impact our first quarter results, we have taken proactive steps to offset incremental costs that are expected to affect us starting in the second quarter. First, we are diversifying our manufacturing footprint where possible and reducing our reliance on China sourced products starting with our June 1 production.

This includes expanding to suppliers in lower tariff countries where feasible and we are beginning to explore near shore options and U. S. Production alternatives. We are also taking some pricing actions that John will discuss further in a moment. Finally, as we mentioned during our last earnings call, we have identified and are starting to implement significant performance improvements, efficiencies and cost reduction initiatives to improve financial performance and mitigate tariffs.

The first quarter’s total net sales were 77,300,000.0 down 9.5% from the prior year. As John mentioned, Chubby segment sales grew by 43.9% contributing to an incremental $13,000,000 in sales this quarter through a combination of expansion at retail and an increase in direct to consumer or DTC channel sales. The Solo Stove segment sales were down $25,300,000 which more than offset sales increases at Chubby’s. Solo Stove segment sales declined from prior year as expected based on planned realignment with retail partners to leverage a coordinated promotional approach. A lack of new product launches also impact Solostone’s results, which John will discuss, as well as our strategic partner initiatives to address channel pricing and our decision to eliminate low profit relationships at retail.

During the first quarter, we generated adjusted gross profit of $42,800,000 or 55.4% of net sales compared to 59.5% for the prior year quarter. Gross margin pressure was primarily due to channel mix shifts between retail and DTC sales that impacted margins in the quarter compared to the prior year. Selling, general and administrative expenses were $39,000,000 in the quarter, down $9,400,000 compared to last year’s first quarter. The execution of our initiatives decreased SG and A, which primarily consisted of lower advertising and marketing spend as well as lower variable costs associated with DTC sales. We also recorded $5,800,000 in one time restructuring, contract termination and impairment charges in the quarter as we implemented strategic initiatives of resizing our operating structure.

Based on our strategic work, our first quarter GAAP net loss was significantly reduced to 12,200,000 down over 65% from the fourth quarter. The adjusted net loss was $4,700,000 excluding after tax restructuring and non recurring charges. Adjusted EBITDA for the quarter was $3,500,000 with a margin of 4.5% of net sales compared to last year’s first quarter of $4,300,000 or 5% of net sales. Please refer to our earnings release for reconciliation tables to the most comparable GAAP measure. Turning to the company’s financial position and balance sheet.

We continue to manage working capital closely and ended the quarter with inventories of $103,100,000 down from $108,600,000 at fiscal year end twenty twenty four. As of March 31, cash and cash equivalents were $2.00 6,000,000 and total debt total outstanding debt classified as current was $427,900,000 As we discussed last quarter, we expect to report non compliance with certain financial covenants under the credit agreement that governs our term loan and revolver. And as such, we continue to report a going concern disclaimer in our Form 10 Q filed today. We continue to follow a conservative capital allocation strategy, which includes careful cash management to execute our transformation plan and we are taking actions to create stability in 2025 with no planned acquisition. With that, I would like to turn it back to John.

John Larson, Interim President and Chief Executive Officer, Solo Brands: Thank you, Laura. Early in the first quarter, search teams were launched to help execute a disciplined transformation of our company. These teams were responsible for identifying opportunities and mitigating risks to help ensure the delivery of our financial objectives. The first team was focused on organizational design. We told you last quarter about our headcount reductions in January, and we made further cuts in April.

We also eliminated open positions, adjusted our bonus structure and suspended our four zero one match until further notice. These are hard but necessary decisions. We have also continued to work on rightsizing our facilities and distribution footprint. Our second team is focused on marketing effectiveness. We have eliminated several large legacy marketing programs from last year.

We are also focused on a return on ad spend as a critical metric. Our marketing team led by our CMO, Liz Van Zura is incorporating a contribution margin analysis model to inform our return on ad spend targets. In addition, we are actively eliminating unprofitable sponsorships. As you can tell, we are working to directly tie our marketing investments to profit generation and will adjust as appropriate. Our third team was focused on pricing strategies.

We are aware that conflicts arose in the solo stove retail channel due to our heavy promotional approach in our DTC channel last year. We have now revised our promotional calendar so that our DTC channel and retail partners are fully aligned. Although this significantly impacted Solo Stoves direct to consumer results, this is a necessary change to align our direct to consumer strategy with our key retail partners. In addition, we are implementing a strategic repricing of our portfolio where warranted and terminating low profit retail programs. Our fourth team was focused on product innovation.

We believe that product innovation plays a critical role on our strategy. While Chubbies and Watersports have continued to innovate with some great new products, we are excited to share that we have stepped up the innovation in our Solo Stove division with five new products launching this year, beginning with the introduction of our new Windchill 47 cooler hitting the markets this week. We anticipate these new product launches to ramp up this summer with more visible financial impacts expected in Q4. With these premium brand launches, we will be intentionally less promotional. We also plan to bring our best strategic retail partners into the newness by way of some exceptional exclusive products in the future.

We are tracking and reviewing the company’s aggressive profit focused initiatives weekly and recognize that measuring our progress is critically important. Also, we expect that establishing consistent repeatable processes will enhance and accelerate operational efficiencies today and in the future. We will amplify new product launches with thoughtful marketing spend to generate sustainable returns. This is a metrics based mindset that we anticipate will drive improving profitability at Solo Brands. We are still in the early innings, but our vision is clear.

We have adjusted our business approach and culture to deliver improved bottom line results. As we execute our measured value accretive initiatives, we expect to stabilize our performance in the second half of the year. Since we are working with our lenders on addressing the company’s debt structure, we know that a Q and A session would require us to say no comment a lot. So we are holding off answering investor questions until we can speak about the details. Thank you for continuing to follow our company and taking this journey with us.

We look forward to providing operational and financial updates on the company as we progress. Have a great day.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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