Black Diamond (NASDAQ: BDE) is one of the best outdoor performance products company in the world. Its biggest competitive advantage is its management, which includes its founder and CEO. The company faces intense competition in the industry and must continue to innovate for continued success. The company maintains a rich balance sheet, and faces no immediate financial risks.
Black Diamond is a global leader in the design and manufacture of outdoor performance products. The company manufactures products in 33 single product categories. Its products include equipment for rock and ice climbers, alpinists, hikers, skiers, cyclists, outdoor enthusiasts, and travelers. To widen its appeal, the company has acquired several popular branded companies over the years. A few of these are Gregory Mountain Products, POC™, and PIEPS™. The company is very passionate about its products and focuses on growth through key acquisitions.
Peter Metcalf, Black Diamond's CEO and founder, is the one of the biggest reasons for the company's success. The biggest focus of Mr. Metcalf is on strengthening the core of the business. He mentions upholding the principles of high quality. The company only aims for sustainable success under his management; that success is built upon a foundation of hard work and innovation.
The company enjoys good financial health. Its current ratio was at 3.98, at the end of 2012. The cash reserves have been consistently high and demonstrate the management's focus on a liquidity rich environment. Since Black Diamond intends to continue acquiring related companies in the future, an emphasis on adequate cash reserves is paramount.
The company's long-term debt-to-equity ratio was at 0.14. Again, this demonstrates the high quality of the company's financial books. A major reason for the healthy levels of equity is fresh stock issuance. The company issued $62 million of stock in 2012.
The company has high amounts of accumulated deficit, almost as much as the current 'shareholder's equity.' This deficit has only been marginally reduced over the last few years. The company has found it hard to breakeven in the last 3 years. The net income was positive in 2012, mostly due to the income tax (benefit). The revenue of the company more than doubled between 2010 and 2012, and the gross profit margin improved. The company must exercise prudence as regards the quality of the companies it acquires, so as to achieve economies of scale and reduce its expenses.
Black Diamond has a reputation for quality and design. In addition, its focus on style and innovation differentiates it from the competitors.
For instance, the Gregory packs are world renowned for their high performance standards. They are appreciated for their innovative design, and their ergonomics. Gregory Mountain Products has received several accolades over the years. One of them is National Geographic Magazine's 'Gear Of The Year 2012' award for the Cache 22 rolling travel bag.
Gregory is also known for its innovation. In 2013, it introduced a running hydration system that can be carried by runners, and eliminates bounce. It also eliminates the need for a waist belt or belt band, which may constrict breathing.
In addition to the innovation, Black Diamond's heavy focus on online retailing gives it an edge in the industry. Apart from the normal marketing channels, the company focuses heavily on social media. Over 2012, the company's Facebook 'Likes' grew by 30% to 102,000. Consequently, the online sales at the company grew 34% year over year. The company is also trying to increase its Twitter followers by posting unique and timely content. The company's online presence accords it a huge competitive advantage in the fragmented industry.
Competition faced by Gregory:
Gregory Mountain Products faces intense competition in its Gregory Packs category. One of the biggest threats to the company is from a Colorado-based company called Osprey Packs. Both Osprey Packs and Gregory Mountain Products, were founded by young men whose first pack was made for themselves. They were very passionate about these products, and from that, grew the idea for a company.
Both companies are well known for their products, and as such, Gregory does not have a huge advantage over Osprey. While Osprey's rucksacks are popular for their superior designs, Gregory is known for its great fit and comfort. In addition, Osprey offers a wider range of backpacks; for instance, packs at Osprey also include kids' backpacks. Although, these advantages at Osprey do little to hurt the comfort benefits provided by Gregory products, they leave little margin for error in its quality. Both Gregory and Osprey are well respected and are preferred for different reasons. However, due to intense competition, Gregory would always require excellent management and a great design team, to improve the company's chances of continued success.
Major Risks due to Competition:
As mentioned above, Gregory packs faces intense competition from the industry. The competition faced by its holding company, Black Diamond is no less fierce. Black Diamond competes with other companies such as Mountain Hardwear, owned by Columbia Sportswear company (NASDAQ:COLM), The North Face (NYSE:VFC), Salomon, etc. All of these companies spend large amounts of money on innovation and are very focused on gaining market share. Even though Black Diamond fares better with some of its products, it lags in many others.
Columbia Sportswear, just like Black Diamond is run by the founding family. Tim Boyle, the CEO of Columbia Sportswear has been with the company since 1971, and has been the President and CEO since 1989. He has played an important role in turning the revenue over from $1 million in 1971 to $1.6 billion in 2012. This translates to an average annual increase of 12.5%. Clearly, Columbia is a formidable competitor to Black Diamond. Also, Black Diamond is a much smaller company, and has access to limited resources. This continued access to resources eliminates the kinds of liquidity risks that Black Diamond can face.
|Key Financial statistics:||Columbia Sportswear||Black Diamond|
|Long term debt to Equity||2.30%||14%|
|Return on Assets||6.59%||0.09%|
|Return on Equity||9.46%||-1.52%|
|Black Diamond||Columbia Sportswear||The North Face|
The only way Black Diamond can survive the competition is through a maintained and protected reputation for high quality. And such high quality can only be maintained with the help of focused management. Black Diamond is fortunate to have its founder, Peter Metcalf, at its helm. However, due to its relatively small size, it can be difficult to attract the best managers available; And so, the company would do well, the longer it has the current management in place.
The company does not have a PE ratio due to losses in the last four quarters. However, these losses have continued to decrease with time. The income (loss) before tax has increased from ($19 million) in 2010 to breakeven in 2012. At such pace, the company could quickly become profitable. The stock of the company appears cheap in relation to its future prospects.
Black Diamond is passionate about the work it does. The company has a heavy focus on hi-tech innovation, and includes successful brands such as Gregory. Also, the company, due to its small size, benefits immensely from its founder led management. There is a strong likelihood that Black Diamond would become profitable over the next years. Since the stock is relatively cheap, large amounts of capital gains may ensue.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.