Clarus Corporation

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Claire's Corporation's financial results for the first quarter ended March 31, 2020. Joining us today are Claire's Corporation's President, John Wolbert, Chief Administrative Officer and CFO, Aaron Cuney, and the company's External Director of Investor Relations, Cody Sloth. Following their remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Slaw as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Angela. Please note that during this call, the company may use words such as appears, anticipates, believes, plans, expects, intends, future, and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on the company's expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties. The company cautions you that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this call include but are not limited to the overall level of consumer demand on the company's products, general economic conditions, and other factors affecting consumer confidence, preferences, and behavior, disruption and volatility in the global currency, capital, and credit markets, Financial strength of the company's customers, the company's ability to implement its business strategy, the ability of the company to execute and integrate acquisitions, the impact that global climate change trends may have on the company and its suppliers and customers, the company's exposure to product liability or product warranty claims and other lost contingencies, disruptions and other impacts to the company's business as a result of the COVID-19 global pandemic, and government actions and restrictive measures implemented in response, stability of the company's manufacturing facilities and suppliers, as well as consumer demand for our products in light of disease epidemics and health-related concerns such as the COVID-19 global pandemic, changes in governmental regulation, legislation, or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra segment and the possession and use of firearms and ammunition by our customers, The company's ability to protect patents, trademarks, and other intellectual property rights, any breaches of or interruptions in our information systems, fluctuations in the price, availability, and quality of raw materials and contracted products, as well as foreign currency fluctuations, the company's ability to utilize its net operating loss carry forwards, changes in tax laws and liabilities, tariffs, legal, regulatory, political, and economic risks, and the company's ability to declare a dividend. More information on potential factors that could affect the company's financial results is included from time to time in the company's public reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. All forward-looking statements included in this call are based upon information available to the company as of the date of this call and speak only as the date hereof. www.clariscorp.com Any redistribution, retransmission, or rebroadcast of this call in any way without the express written consent of CLARIS is strictly prohibited. Now I'd like to turn the call over to the President of CLARIS, John Walbrecht. John?

Thank you, Cody, and good afternoon, everyone. I'd like to open the call by recognizing the amazing efforts of each of our employees as we navigate the COVID-19 pandemic from a position of strength. Our global team has shown exceptional leadership and collaboration as we address this unprecedented event. I'm also extremely proud of how the morale of our employees has been unwavering as each person demonstrates a high degree of engagement in our various business activities. Throughout our history, in both good times and in bad, Claris has attacked our business with a climber's mentality. In climbing, One is faced with adversity on every ascent. Weather can be unpredictable and holds can be fickle. But with experience, determination and a good belay partner, one can overcome the wall's adversity. We are approaching the current business environment with the same mentality. Focusing on our core tribe consumer will help both Black Diamond and Sierra continue to strengthen our community and drive momentum for our brands. We believe we are well prepared as any company to weather the storm as we continue to push towards our goals. We began 2020 with great momentum after record financial results last year. However, in the final few weeks of the quarter, our black down in brand experienced a dramatic global slowdown as our retail partners shut their doors and canceled their open orders due to COVID-19. Leading up to that point, our revenue and earnings were trending in line with our expectations for the quarter. These declines were somewhat offset by improving demand in our Sierra business late in the quarter, which highlights our product diversity, but in no way made our results immune to the pandemic. At the onset of the virus, we devised a plan to focus on three things. First and most importantly, our people. Second, the preservation of brand equity. and third, maximizing liquidity, which together we believe will make us emerge as an even stronger company. First is our people. Since mid-March, we have enabled all office employees to work remotely, and this has minimal disruption to our overall operations. For those employees at Sierra and those that work in the distribution that have been deemed essential, we have implemented significant health checks and precautionary measures to protect their well-being. In addition, we have reiterated our commitment to what we call our Top Rope Fund. While in existence for a while, this fund was created to help our employees dealing with hardships. Times like these represent the reason the fund was started and we are more than happy to support our employees in their needs. Our second focus has been the preservation of brand equity. In light of the world crisis, like the one we are facing now, moving product quickly at the expense of margin is often the strategy of less diversified and less durable brands, but one we will not pursue. For Claris, brand equity amongst the core consumer is our lifeblood. We are supporting our retail partners through a difficult period, and this includes the integrity of our pricing. Our supply chain and distribution are operating well, enabling continued shipments to our wholesale and distributor partners in those channels and geographies that still remain open. In our direct-to-consumer business, Q1 sales were up 16%. Our overall direct-to-consumer strategy, which encompasses our websites and both our strategic physical locations, continued to perform well and reinforces the initiative into the future. We continue to experience improved activation in our e-commerce channel due to more effective prospecting and retargeting in order to drive higher levels of site traffic. We prioritized full price selling with a focus on storytelling, using our athletes to capture the consumer's interest during their increased time at home and online. The consumer is looking for newness and an optimism of a brand message and BD delivered. While still strong, Q1 top line growth in our direct business wasn't as robust as it could have been due to the sudden COVID related demand shocks, but it was what Thank you for joining us today. to carry more weight in 2020 as a percentage of our total sales offsetting some of the weaknesses that will be felt at traditional retail. Finally, we have focused on our liquidity which was strong leading into the crisis. Aaron will speak about this in more detail momentarily but at the end of the first quarter we had nearly $13 million in cash and access to approximately $28 million in incremental liquidity with a modest long-term debt balance that we are comfortable servicing. I'll now take a few moments to discuss our perspective on the macroeconomic environment and additional details of how Claris will leverage its strength to succeed moving forward. At the moment it is difficult to know when normalized business returns and I doubt there will be one playbook applicable to all regions. But what we do expect is for the consumer to remain loyal to authentic brands that stay true to the core even during a crisis like this. While this is already shown in our DNA at Claris, we believe there are other attributes of our business that play well into the dynamic environment we are currently facing. First, given the uncertain retail landscape, we believe being a super fan brand owner represents a distinctive advantage for Claris. In past crises, our core tribe has shown to be very loyal to our brand. Over the last three plus years that we have been together as a team, we have focused on our innovate and accelerate playbook, regardless of the market dynamics. This playbook includes further strengthening our brand's market positioning by investing in product innovation, sales and marketing, and pursuing new long-term revenue opportunities. As an example, just last week we announced Thank you very much. Our playbook also has included bolstering our global distribution network and flexible supply chains that we have built over many decades, increasing manufacturing capabilities at Sierra, and driving efficiencies throughout our operations. We believe this provides the structural elements to benefit from what we believe will be increased staycations, higher levels of interest in health, wellness, and the outdoors. We also think these mega trends play well when the consumer heads back outside after many weeks under stay-at-home ordinances. Second, we have a diverse portfolio of products across geographies and channels with over 100 years of combined brand equity. Our offering spans 30 single product categories, and there is no single one that accounts for more than 15% of our annual sales. Thank you for joining us. is an equipment that is non-perishable and viewed as necessities for our activity-based consumers. These products are not driven by seasonal fads, but instead are rooted in best-in-class design, engineering, testing, and functional feature sets that enable the user to have his or her best days in the mountains. We have market leading positions within most of our equipment categories Supported by highly engineered product that is backed by an unmatched heritage ingrained in the sports that we serve. Third, we have a strong and growing direct-to-consumer business. Our focus on the consumer through our direct business over the past two years is now providing us a competitive advantage. Consumers have started to spend even more time online and our team has done an excellent job authentically connecting with our consumers to build even stronger long-term brand affinity. We will continue to invest in a robust direct-to-consumer sales engine to help grow the brand in key markets and in the digital space where consumer targeting, advertising, and storytelling can quickly bring relevant scale to businesses like ours with such compelling products. Fourth, due to our discipline across the different businesses, we have been able to create operationally in both Black Diamond and Sierra Brands. For Black Diamond, as part of our mitigation efforts in response to COVID-19 pandemic, we have reallocated and eliminated over $9 million in SG&A. This has accelerated our shift towards a more digital presence, sharpened our focus on key product categories, and improved operational efficiencies and driven a tighter connection with our distribution and supply partners. For Sierra, during the last two years, we have focused on improving efficiencies and increased capacity. In fact, over this time, capacity has increased by approximately 30%. Lastly, we will continue to leverage the strength of our balance sheet as we evaluate our long-term growth opportunities. As we have previously discussed, our primary focus is to maximize the organic growth and profitability of our brands. We strongly believe this will provide the highest level of returns on invested capital. We also take a strategic and disciplined approach to our capital allocation. We regularly evaluate opportunities to acquire similar superfan brands to complement our portfolio and where we can deploy our unique innovate and accelerate brand strategy. While we will be sensitive to the market and economic environments as well as our leverage, We expect to target acquisitions over the long term that provide access to new product groups and consumer channels or can diversify us within the outdoor and consumer markets. Superfan brands not only have leading product market share and brand strength among diehard consumers but also provide recurring revenue, sustainable margins, and strong cash flow to be accretive to our earnings. They must be well-run businesses. This will ensure we are enhancing value of the company and continue to be careful steward of the shareholder capital along with funding our quarterly dividend and repurchasing of our common stock. Ultimately, we believe our diversified brand portfolio, global distribution platform, and fast growing direct channel is well positioned to navigate the current challenges and evolving consumer landscape. Above all, We have great confidence in our team's ability to ascend the unprecedented times. It is in our DNA. It is simply who we are. With that, I'll now turn the call over to Aaron Cooney, our Chief Financial Officer, who will provide additional commentary on our performance in the first quarter, as well as provide more details on our game plan for the rest of the year. Thanks, Aaron.