Solo Brands Inc

Solo Brands, Inc. (NYSE: DTC) is a direct-to-consumer (DTC) platform that operates through four outdoor lifestyle brands, which include Solo Stove, Oru Kayak (Oru), ISLE Paddle Boards (ISLE), and Chubbies apparel. The Company's brands develop products and market them directly to customers primarily through e-commerce channels. Its Solo Stoves include the Lite, Titan, and Campfire.

Recent Financial and Business Updates:

• Operating Results for the Three Months Ended June 30, 2023
  • Net Sales Decline: In the second quarter of 2023, net sales saw a 3.7% decrease, amounting to USD 130.9 million, in comparison to USD 136.0 million during the same period in 2022. This drop was attributed to a shift in product mix, including items and accessories introduced in the latter half of 2022, and an increase in the volume of apparel products, along with reduced spending on digital marketing.
  • Revenue Shift: Wholesale channel revenue expanded significantly, increasing by 57.0% to USD 31.3 million, while direct-to-consumer channel revenue declined by 14.2% to USD 99.7 million.
  • Gross Profit and Margin: Gross profit decreased by 4.2% to USD 83.1 million due to the decrease in net sales without a corresponding decrease in the cost of goods sold. The adjusted gross profit also saw a 6.0% decline to USD 83.1 million, partly due to purchase accounting adjustments related to acquired businesses. The gross margin decreased by 0.3% to 63.4%.
  • Operating Expenses: Selling, general, and administrative (SG&A) expenses decreased by 8.2% to USD 63.5 million, driven by a decrease in variable costs of USD 6.8 million, partially offset by a USD 1.2 million increase in fixed costs. The decrease in variable costs was mainly due to reduced marketing and distribution expenses.
  • Impairment Charges: There were no impairment charges recorded during the second quarter of 2023, in contrast to USD 30.6 million in the same period of 2022, which included USD 27.9 million related to goodwill for the Company's ISLE reporting unit and USD 2.7 million related to the ISLE trademark intangible.
  • Earnings per Share: Earnings per Class A common stock was USD 0.12 for the second quarter of 2023, compared to a loss of USD (0.19) in the second quarter of 2022. Adjusted EPS was USD 0.22 per diluted share in the second quarter of 2023, down from USD 0.40 in the same period of 2022.
• Operating Results for the Six Months Ended June 30, 2023
  • Net Sales Increase: Over the first six months of 2023, net sales increased by 0.4% to USD 219.1 million compared to USD 218.2 million in the prior year. This growth was primarily driven by strategic retailers and the wholesale channel, offset by a decline in direct-to-consumer channel revenue.
  • Revenue Breakdown: Wholesale revenues increased significantly, rising by 54.5% to USD 64.7 million, while direct-to-consumer revenues decreased by 12.4% to USD 154.4 million.
  • Gross Profit and Margin: Gross profit increased by 1.4% to USD 137.5 million due to the lower cost of goods sold. Adjusted gross profit decreased by 4.1% to USD 137.5 million, reflecting purchase accounting adjustments related to acquired businesses. The gross margin increased by 0.6% to 62.7%.
  • Operating Expenses: SG&A expenses decreased by 5.8% to USD 108.1 million, driven by a USD 12.2 million decrease in variable costs, partially offset by USD 5.5 million of higher fixed costs.
  • Impairment Charges: No impairment charges were recorded during the six months ended June 30, 2023, compared to USD 30.6 million in the prior year.
  • Earnings per Share: Earnings per Class A common stock for the six months ended June 30, 2023, was USD 0.13, in contrast to a loss of USD (0.22) in the prior year. Adjusted EPS was USD 0.38 per diluted share, down from USD 0.59 in the prior year.
• Balance Sheet
  • Cash and Cash Equivalents: As of June 30, 2023, cash and cash equivalents amounted to USD 60.6 million, a significant increase from USD 23.3 million at the end of 2022.
  • Borrowings: Outstanding borrowings included USD 50.0 million under the Revolving Credit Facility and USD 93.8 million under the Term Loan Agreement as of June 30, 2023. The borrowing capacity on the Revolving Credit Facility was USD 350.0 million at that time, leaving USD 300.0 million available.
  • Inventory: Inventory decreased to USD 113.7 million on June 30, 2023, down from USD 133.0 million at the end of 2022, primarily due to prudent inventory management.
• Full Year 2023 Guidance: The company emphasized its focus on driving profitable growth, with revenue expected to fall within the range of USD 520 to USD 540 million for the full year, with the midpoint at USD 530 million. Additionally, the adjusted EBITDA margin target was raised from 16.5% to 17.5% to 17% to 18% for the full year.

Technical Observation (on the daily chart)

The Relative Strength Index (RSI) observed over a 14-day period registers at 36.14, indicating some more consolidation or a short-term downward movement. Furthermore, the stock's current position is situated below both the 21-day Simple Moving Average (SMA) and the 50-day SMA, potentially acting as dynamic short-term resistance level. The price is currently between USD 4.00-USD 5.00, with a possibility of breakout in any direction. The direction it takes will play a pivotal role in shaping the stock's short to medium-term prospects.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘WATCH’ rating has been given to Solo Brands, Inc. (NYSE: DTC) at the current market price of USD 4.05 as of October 24, 2023, at 08:15 am PDT.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

The reference date for all price data, currency, technical indicators, support, and resistance levels is October 24, 2023. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.