Solo Brands, parent company of Solo Stove, Oru Kayak, Isle, and Chubbies, posted solid first quarter results, with net sales increasing 7% to $88.2 million for the three-month period ended March 31, 2023.
The growth was driven by strength in the wholesale channel due in part to new strategic retail partnerships.
“We are extremely pleased with our performance this quarter,” said John Merris, CEO of Solo Brands, during a conference call with analysts.
“Despite a volatile macro environment, we managed our business prudently and generated solid gross profit and healthy EBITDA margins.”
Merris went on to say the Grapevine, Texas-based company is still in the early stages of its “story” and its household penetration remains low.
“We believe we have significant whitespace ahead,” he added.
The company’s growth strategy includes investing in product innovation, wholesale penetration, and international expansion.
Wholesale Momentum
Wholesale revenue increased 52.3% to $33.5 million compared to the same period last year.
That strength in the wholesale channel reflected increasing demand for the company’s products and deepening relationships with retail partners, according to Solo Brands CFO Somer Webb.
“During the quarter we experienced stronger-than-expected reorder volume from our retail partners as replenishment orders occurred earlier than forecasted,” she said.
Last quarter, the company reported wholesale fourth-quarter revenue rose 196.4% from the year-ago period to $36.5 million.
Merris said the company planned on the strong wholesale trends continuing in the current quarter, and it will know more about sell-through as it moves through the second quarter of 2023.
So far, conversations with Solo’s wholesale partners have been “very positive,” Merris said.
“Our focus is on growing our market share with our existing partners by expanding into new doors and increasing shelf space with existing doors,” he said.
The company is keeping a close eye on its sell-through rate, he added, and replenishment behavior is positive for wholesale and getting faster.
With Costco specifically, he spoke about how Solo is considering bundles and exclusives for the store.
“You’re seeing us leaning into partnerships more with our retailers and giving them a better line of sight to what we’re running around the promotional period,” Merris said.
DTC Performance
Solo’s wholesale momentum allowed it to reduce promotions in its direct-to-consumer channel, where it saw inconsistent traffic trends.
Direct-to-consumer revenue decreased 9.1% to $54.8 million in the first quarter of 2022, which Merris said was in line with expectations.
“When we say in line with expectations, it’s not because we were expecting some massive decline in consumer traffic because of the macro (economic factors), but more because of our own internal behaviors in the way that we were spending on advertising,” he added.
“The strength in our wholesale channel allowed us to be less promotional than the same period in the prior year without negatively impacting overall new customer acquisition.”
Merris also pointed out that Q2 is generally a higher-traffic DTC quarter, with Q1 and Q3 more focused on the wholesale side.
“As wholesale continues to strengthen, we think this is a really healthy thing for our business,” he said. “It’s allowing us to be more strategic and calculated in our advertising spend.”
However, online DTC is still the company’s largest distribution channel. Solo Brands is forecasting that 75% of its business will come through DTC channels.
Innovation, Products
Solo’s new products and innovation continue to be a draw for both new and existing customers, which is reflected in its consistently high referral and repeat purchase rates, according to Merris.
New products are drawing customers and legacy offerings are maintaining a solid foundation for the company, Merris added.
“We have a history of continuous product innovation focused on delivering high-quality products for our customers,” he said.
Merris also highlighted customer service and differentiated experiences as keys to continued success.
“People are looking for experiences and how they’re spending with us seems to be indicative of people wanting to invest in experiences,” he said.
The company is forecasting total revenue to range between $520 million and $540 million for 2023.
Brand Performance
Merris said Chubbies selling at Dick’s Sporting Goods has been a “bright spot” for the company.
“If you’ve walked through a Dick’s Sporting Goods store in the last couple of months, you’ve probably seen the men’s feature swim wall, which is essentially a big beautiful Chubbies display that has been very successful,” he added.
As for Solo Stove, Merris highlighted the tabletop firepit product Mesa that sells for under $100 as an accessible product.
“So we feel that we’ve now attracted people to the brand that have smaller spaces that may not have been able to participate with a larger product,” he said.
Those customers are then becoming fans of the brand and shopping within the Solo ecosystem, Merris added.
Q1 2023 Compared to Q1 2022
Net sales: Up 7.3% to $88.2 million. The increase was primarily driven by new strategic partnerships and continued market penetration within the wholesale sales channel.
Gross margin: Up 2.3% to 61.7% due to less promotional pricing within the DTC channel.
Net income: Jumped 129% to $0.9 million. Adjusted net income excluding special items fell 6.5% to $10.3 million.
