Black Diamond's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.11.14 | About: Black Diamond, (BDE)

Black Diamond, Inc. (NASDAQ:BDE)

Q4 2013 Results Earnings Conference Call

February 11, 2014 05:00 PM ET

Executives

Peter Metcalf - President and CEO

Aaron Kuehne - Chief Financial Officer

Analysts

Sean Naughton - Piper Jaffray

Sean McGowan - Needham & Company

Joe Altobello - Oppenheimer

David King - Roth Capital

Camilo Lyon - Canaccord Genuity

Jim Duffy - Stifel

Howard Rosencrans - Value Advisory

Operator

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Black Diamond’s Preliminary 2013 Results and Full Year 2014 Guidance.

Joining us today are Black Diamond’s President and CEO, Mr. Peter Metcalf; and the company’s CFO, Mr. Aaron Kuehne. Following their remarks, we’ll open the call for your questions.

Before we go further, I would like to take a moment to read the company’s Safe Harbor statements within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

Please note that during this conference 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 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 forward-looking statements. Potential risks and uncertainties that could cause the actual results also operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this conference call include, but are not limited to, the overall level of consumer spending on the company’s products; general economic conditions and other factors affecting consumer confidence; distribution and volatility in the global capital and capital markets, the financial strength of the company's customers, the company's ability to implement its growth strategies; the company's ability to successfully integrate and grow acquisitions; the company's exposure to product liability and product warranty claims and other loss contingencies; the stability of the company's manufacturing facilities in foreign suppliers; the company's ability to protect trademarks and other intellectual property rights; fluctuations in price, availability and quality of raw materials and contracted products; foreign currency fluctuations; the company's ability to utilize its net operating loss, carry forwards and legal, regulatory, political and economic risks in international markets.

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 conference call are based upon information available to the company as of the date of this conference call and speak only as the date hereof, the company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I would like to remind everyone that this call will be available for replay through February 25, 2014, starting at 8:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website at www.blackdiamond-inc.com. Any redistribution, retransmission or rebroadcast of this call in any way without the expressed written consent of Black Diamond, Inc is strictly prohibited.

Now I would like to turn the call over to the Chief Executive Officer of Black Diamond Mr. Peter Metcalf. Please go ahead, sir.

Peter Metcalf

Thank you (inaudible) and good afternoon everyone. So most of you have had a chance to watch some of the exciting [mighty] events at The Sochi Winter Olympics and witnessed POC athletes, Bode Miller and Julia Mancuso as they’re competing on the world’s stage in their POC helmet. A primary focus of this call is to review our expectations for 2014. While our fiscal year 2013 audit is in process and not yet complete during this call we will provide limited preliminary high level financial results for 2013 to establish a baseline from which discuss our expectations for 2014 and beyond. We expect to discuss our actual 2013 financial results in detail in March when our audit is complete.

For Black Diamond 2013 was a significant transition and investment year as we crossed through $200 million in total revenue approximately three years after crossing through $100 million. Strategically speaking we believe 2013 was a year of major accomplishment not only did we achieve record revenue but more significantly in our opinion we successfully executed against all of the following important strategic objectives. We successfully launched our apparel band at retail in the fall. We successfully completed integration of POC and PIEPS into our global operating platforms in North America, Europe and Asia. We successfully set up our own distribution business in Japanese for Gregory Mountain Products. We completed the construction for our ski factory in China. We successfully launched POC’s spring ‘14 road bike line trade globally. We continue to invest heavily in our infrastructure for future growth. And we completed a global profitability study with an outside consultant confirmed the long-term organic growth objectives and initiated a strategic shift towards the fastest growing components of our business, and away from acquisition led growth. As a result, we believe that we entered 2014 as a meaningfully larger, more diversified and more profitable enterprise.

We expect that 2014 would be an equally transformative year, fueled by global double-digit growth which we expect to result in improved margins and accelerating profitability.

So before I comment further I’d like to turn the call over to Aaron to discuss our preliminary 2013 results and financial expectations for 2014 and beyond. Aaron?

Aaron Kuehne

Thanks Peter and good afternoon everyone. To put the future in context, I want to start with some preliminary unaudited financial results for 2013. We expect to report fourth quarter 2013 total sales of approximately $60.4 million up 24% from $48.8 million in the year ago quarter. This healthy increase was broad based across the entire Black Diamond portfolio as we experienced healthy double-digit growth across all of our brands, categories and major geographies.

For the full year ended December 31, 2013, we expect to report total sales of approximately $203 million up 15% from $175.9 million in 2012. Currently we expect gross margin in the fourth quarter of 2013 to be around 38% compared to 36.3% in the year ago quarter. Although gross margin was up, several factors negatively impacted gross margin. These included an estimate of 120 basis points from discontinued merchandise or DM as well as approximately 310 basis points from unfavorable production and shipping variances and the inventory adjustments associated with older discontinued winter seasonal product. We estimate that this was partially offset by a 70 basis point net benefit from total FX. Taken together, these factors offset our gross margin by approximately 360 basis points or said differently, without the negative factors outlined gross margin for the fourth quarter would have been 10% higher at 41.6%.

Gross margin for the full year of 2013 including a $1.5 million charge for the PIEPS product recall in the third quarter is expected to be around 38.2% compared to 38.2% in 2012. Excluding this charge we expect 2013 adjusted gross margin to be approximately 38.9%. There were certain factors that negatively impacted gross margin during 2013. These included production variances and inventory adjustments associated with product season changes, as well as the impact from discontinued merchandise.

Last year we initiated global plans to improve working capital primarily through more efficient sourcing and better inventory management. Thus far we are very pleased with the results. While revenue in 2013 grew 15%, total inventory actually decreased by approximately $6.6 million or 11% from $60.7 million at the end of 2012.

We continue to improve the management of our DM inventory and believe that we have exited 2013 with a healthy balance sheet. Using 2013 estimated sales and estimated gross margin as base lines, let us turn your attention to the future; 2014 and beyond.

For the year ending December 31, 2014, we anticipate sales between $235 million to $240 million, which would represent an increase of 16% to 18% from our expected 2013 sales.

On a constant currency basis, we are forecasting consolidated gross margins for fiscal 2014 to be approximately 39.5% to 40.5%. As you know, BD apparel and POC are both among our fastest-growing and higher gross margin businesses. As a result, overtime, we expect these components of our business to drive higher year-over-year gross margins annually for the next five years.

While we plan to continue to drive growth in our fastest-growing brands through incremental investment, as promised, we also expect to begin generating more profit from accelerating operating leverage in the business over this same time period. As a result, we anticipate the rate of increase in our operating expenses to moderate in 2014, while we continue to invest in Black Diamond apparel and POC.

We expect investments in the form of SG&A to increase up to $12 million during 2014, of which approximately 80% is brand specific investments and about 20% represent investments in our operating platforms. At the same time, we are planning to invest approximately $5 million in incremental capital spending across the business, of which approximately 50% will be dedicated to Black Diamond apparel and POC; approximately 30% will be reinvested in our operating platform and the balance in maintenance CapEx across the other brands.

For context, this level of investment is consistent with the anticipated build in style in ski account planned for 2014, which we discussed in our third quarter call. Our Fall ‘13 launch encompass approximately 25 styles and 440 SKUs. The line is now on the shelves of approximately 240 of our best retail doors and ranges in price from $119 to $399. Our Spring ‘14 collection builds the line to approximately 50 styles and 608 SKUs and will be available in approximately 400 retail doors, retailing between $32 and $189.

Our Fall '14 line raises our total expected commitment to 119 styles and just under 2,000 SKUs, which we expect to be sold to approximately 800 retail doors. For orders of magnitude, we are expecting 2014 BD apparel revenue to be about 3.5 times our actual 2013 apparel revenue.

From an operating income perspective, we expect to generate positive operating income and to realize an almost four times increase in EBITDA. From a strategic and financial point of view, we expect to look back on 2014 as an inflection point in the company’s history where apparel expanded to two seasons and the company began to realize the benefits from several years of investment and growth through accelerating profitability from operating leverage and growth.

Looking beyond 2014, our longer term planning remains constructed around an expected five year compounded annual growth rate of between 15 to 20% coming from our three primary brands. While keeping these levels is dependent upon a number of internal and external factors outside of our control, we expect these growth rates combined with anticipated increased operating margins will allow us to reach a point during this period where our returns on invested capital begin to exceed our weighted average cost of capital. During this time we expect to achieve gross margin improvements from a higher margin product mix and increasing scale.

We’re so compelled by the organic growth curve in front of us that we expect to focus our resources more on the organic opportunity than on strategic acquisitions. By the end of 2017, we believe our business will be even more balance from a geographic product and seasonal basis.

This concludes my prepared remarks. Now I’ll turn the call back over to Peter. Peter?

Peter Metcalf

Thanks Aaron. I will tend to keep my comments brief we’ll have more time for questions following our prepared remarks. I want to provide you some color of the fourth quarter some insights into our thinking behind 2014 and finally some perspective on our tactical positioning for the longer term opportunity.

At the shipping of significant percentage of the orders from the third quarter to the fourth quarter last year, the majority of our retail partners experienced a solid holiday selling season and took the majority of orders as originally planned. In Europe, conditions of retail have stabilized and have begun to show modest momentum. This is year’s winter has overall been more normalized in the past two, which also drove stronger sales and improved inventory at retail.

While Black Diamond achieved record fourth quarter, second half and full year sales, we were affected by a slightly lower than anticipated ASAP order rate in the final month of the year due to the mild winter weather in the Western U.S. and parts of Northern and Central Europe.

The 24% organic growth reported during the fourth quarter is a testament to our diversity of geography, season and product. Although these regional weather trends have persisted so far in 2014, we believe Black Diamond is very well positioned to continue our multi-year track record of double-digit organic sales growth.

We exited 2013 with what we believe could be our healthiest inventory levels in several years and our early spring 2014 bookings are strong. Our line-up of new products for 2014 is robust highlighted by the spring launch of POC’s road bike collection including expansion of apparel and our new Jetforce avalanche technology which we are planning to make available this fall across each of the Black Diamond POC and PIEPS brands.

Our 24% organic revenue growth in the fourth quarter was driven by solid performance across the entire product line. We saw market share and volume gains at POC in the face of stagnant helmet sales, the launch of BD apparel and the solid growth across all of our brands.

The obvious and most compelling story from fall ‘13 is BD apparel. The project began approximately three years ago as a Greenfield project to leverage the BD brand, provide our end users with products for which they had long been asking and to take advantage of Blank Diamond’s global distribution. We endeavored to launch apparel our way, the BD way in a style and the manner that we have been launching products and categories for over 25 years by targeting our core customers. By design fall ‘13 was a limited and global launch of BD apparel and by every internal measure, the launch was a great success it was on budget, delivered on time and with extremely limited support from us at retail, most of our styles and sizes sold out by us as planned. We didn’t discount and we achieved our gross margin expectations. Certain retailers discounted product consistent with our policies and consistent with a very typical retail formula. Looking back, we achieved our objectives.

Perhaps more importantly, spring ‘14 is sold and while we are still in the fall ‘14 sales cycle, we are excited with our sales momentum and product offering which recently received an ISPO Gold Award for the cohesive embedded component.

For perspective, we expect BD apparel revenue to grow in 2014 to a level of approximately 3.5 times that of 2013. The spring ‘14 line is designed around alpine and crag climbing which includes shirts, hoodies and lightweight synthetic outerwear. Our fall 14 line incorporates innovative designs utilizing fabrics like GORE-TEX and WINDSTOPPER, and it also marks the launch of women's outerwear.

We are planning to support our retail as more aggressively in 2014 with investments in merchandising and fixturing that quite honestly didn't make sense in 2013, because of limited SKUs that we put into the marketplace.

POC is also gearing up for bold new retail product launch with the spring 2014 road collection. Similar to BD apparel POC is assuming the scarcity strategy and we expect this impact in sales to be more meaningful as the collection builds into spring 15. However this is cycling's largest and most vibrant niche, and POC's expansion into this has been part of the growth strategy for many years. This move into cycling's largest and most vibrant category is supported by two innovative high profile and global marketing initiatives. The first is that of POC partnering with the Garmin-Sharp to be the official helmet and single sponsor for the Tour de France team. The Tour de France is one of the largest annual global sporting event produced each year and it's watched in over 180 countries with 3.5 billion viewers across three weeks in July.

This should prove to be exceedingly impactful and benefit POC subsequent product developments in the bike market. This increased the recently announced partnership with Volvo. Together POC and Volvo are cooperating on a mere project from exchanging competencies and safety equipment and research to producing innovative driver cycle as interaction products.

Finally, we just unveiled our new Jetforce technology at all of the recent trade shows. Jetforce simply establishes a new standard and avalanche safety and our approach is truly revolutionary. Jetforce uses a lithium-ion battery and high power sand to place the current canister-based airbag systems. This technology is a result of collaboration across BD’s gear and equipment business as well as PIEPS engineers and will be launched across the Black Diamond POC and PIEPS brand names. This cross brand product development and go to market strategy is one of the first tangible product benefit seen from our combined brand portfolio.

While Jetforce will not have the financial impact at apparel we expect this to solidify Black Diamond’s competitive positioning in a core equipment category. During the recent winter trade show circuit, Jetforce received several accolades including the Outside magazine Gear of the Show award.

With apparel launch, the POC PIEPS integration’s complete and the business increasingly positioned for an anticipated 15% to 20% compounded annual growth rate over the next several years, we are more committed than ever to our long-term vision and on the midst of significant strategic pivot which we discussed briefly when we reported the third quarter.

The pivot is still upon several important strategic conclusions: first, the recognition of and commitment to idea that each of BD apparel and POC independently represents the company’s most significant long-term opportunities for compounded multi-channel revenue growth and profitability. Secondly, given the magnitudes and the opportunity that we see in POC and BD apparel, we prefer to invest the precious capital resources in the growth and development of our fastest growing assets rather than acquiring additional brands in a marketplace, where the attractive brands are trading at historic valuations.

Thirdly , the belief is that get over time e-commerce and direct-to-consumer and some forms still to be defined strategic retail distribution model will play a meaningful role in the development and distribution of all our brands. And fourthly, a long term commitment to Black Diamond gear and equipment that our customers perceive to be a brand defining.

These four principles are the foundation for a four-point strategic pivot that is already underway of Black Diamond due to following for initiatives. First, you will recall that during 2013, we retained an international consulting firm to help us think about our profitability by SKU, product, category, and geography. To reflect this study in 2014 and beyond, it is our intention to focus resources on brand defining products and categories, but we rationalize the balance our product portfolio to achieve operating margin objectives. Secondly, we've retained executive search firm to help us augment our senior leadership team in brand, in general management, make best in class background, in apparel, company of brand owned retail and e-commerce. This process is in its early stages and is likely to take a six to 12 months to fill the position.

Thirdly, in nearly 30 years we have been and intend to remain committed to our specialty retail partners globally. Consistent with this commitment, our own e-commerce and direct-to-consumer distribution are also important parts of our business today and will be a critical part of our business its future.

Today we have two retail stores one at our headquarters in Salt Lake City and a POC store in Shamini, France. And today we know that strong physical retail presence is important for the brand. We might also consider a series of flagship stores in certain important markets and can certainly envision a store and store concept in other important BD markets. As previously said 2014 is the year in which we intend to define the role of retail with our strategy.

Fourthly, overtime retail and e-commerce are expected to require additional investment. For the time being we anticipate funding these initiatives from our existing balance sheet and from our existing operation. However we have also begun to explore strategic alternatives to monetize the value of untapped markets for our Gregory Mountain Products business. We know that Gregory is an extremely valuable asset we know that it is a committed lifestyle brand in Japan, Korea and other Asian markets and that it had significant growth opportunities both from a brand extension and from additional geographies. To this end we have retained Rothschild to help us explore the water front of strategic alternatives. We expect to share more about this process if and when something more material develops.

Fifth, respectively we believe that all of the pieces of a strategic pivot as outlined work together. By pursuing strategic alternatives to potentially monetize the value of untapped markets for our Gregory business at this time we are optimistic that we can invest that incremental capital intelligently and accelerate growth rates at POC and BD to levels in excess of our current 15% to 20% compounded targets.

As this time Aaron and I would like to open the call for 30 minute question-and-answer session. We ask that each analyst try to limit themselves to two questions. Thank you. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from the line of Sean Naughton with Piper Jaffray. Please go ahead.

Sean Naughton - Piper Jaffray

Good afternoon and thanks for taking the question. So, Peter I was just hoping if you could talk a little bit about or Aaron talk about the guidance side. 2013 we initially talked about 18% to 20% top line growth, we came in a little short of that. Q3 we're talking closer to the second half of the range the low end we're a little short now, we're talking about 16% to 18% top line for 2014 while you talked about 20% before. I guess, I just bring this up, so I'm just curious to help get a better explanation of where some of the shortfalls maybe coming from and what you guys are doing to address those?

Peter Metcalf

Yes, sure Sean and this is Peter. I'll kick it out by saying that the growth that we had in the fourth quarter of 24% which brings us within less than 1% of the guidance we gave back in August, is something we're very proud of. And we're very proud of it in light of the fact that I mean despite sales that growth, but very much so in light of the fact that we have had in California and the Pacific Northwest a draught of historical proportions with many of the skiers not opening until I think the last few days, right? If they have opened.

And likewise, we've had in one of the core markets of Europe, Austria and Southern Germany, I think historical dryness there where in one to more vibrant markets that we're in we've had very limited ASAP business just because in those two areas that are very important we’ve not seen any meaningful snowfall with record warms and dryness.

And so when we look at that, I do believe that’s a great testament to BD's diversity of geographies product and seasons that we were able to come as close as we did see that revised guidance. So that’s something we keep in mind here as we’re looking forward now into the next year that we are in a period of somewhat volatile weather, we have created a product portfolio, a global portfolio and the seasonal portfolio that I think meets the top and bottom end of that. But we just feel at this time that we’re better off being a little bit more conservative in our guidance moving forward based upon what we’ve experienced in the past year.

Sean Naughton - Piper Jaffray

Okay. That’s great. Thanks for the color. And then just secondly on the apparel launch any additional commentary there around large chains versus small chains, online versus bricks and mortar, international versus domestic any lesson you can talk about that were learned there and how those can be implied to 2014? Thank you.

Peter Metcalf

Sure. And I’ll say a couple of things, number one is that as everyone, most of you aware we launched the way we have launched every category we’ve ever entered which is very specialized product for our core customers. It needs specialized and it communicates that we have not forgotten who are our core customer is and then as we grow out in a category we add additional product to the (inaudible) broader demographic user group.

So I am pleased that how launched, I think we did it the right way and it worked well when as far as its appeal for our core customers. I think moving forward in 2014, probably what we need to do is augment our merchandising within the stores to make sure that those who come into the stores see the product that has been highlighted, have a greater concentration of it. And the fact that we are now have a significantly broadened our offering to products that appeal to a broader demographic, hits some of the sweets parts of the market it gives us a high degree of confidence that the product is more appropriate for some of the larger boxes and for some of the broader demographic roofs that we want to appeal to. So to that end a more robust spend in various forms of marketing to make sure that our customers both the core and those at the periphery are aware that we are absolutely committed to apparel to bringing forward innovative beautiful well designed, well engineered apparel in the same way that we have approached to gear equipment world, that’s something we’re very committed to do and to make sure that more people are aware of that. We had a limited spend in marketing this year, we are going to increase that in 2014.

Sean Naughton - Piper Jaffray

Okay. Good to hear. Best of luck in 2014.

Peter Metcalf

Thanks Sean.

Operator

Thank you. Our next question comes from the line of Sean McGowan with Needham and Company. Please go ahead.

Sean McGowan - Needham & Company

Thank you hi guys. Following-up on Sean’s question I am a little confused to about the conservative business, the guidance we have checked out, conservative is great. I am sure it’s great, but if you look at the kind of growth that you have had and you can say me you are having impart and you are having road helmet this year and I assume skis growing and the earn out that you have to the former owners is predicated on growth of over 30% around that's load, you have this huge increase probably 3.5 times projected revenue increase in apparel, I don’t get how it adds up mathematically to only 16% to 18%? So maybe just comment on how to make the numbers work? And then related to that, it seems like the number of doors that you are talking about currently doing in is a lot less than what you had talked about right before the launch, I thought the number was closer to 400 and now you are saying 240. Did you lose doors or was it never close to 400?

Peter Metcalf

Okay Sean, hi. Thanks for that. And let me start with the latter question and Aaron will jump in on the former. So, we haven’t changed our guidance with doors. What we said was that for fall ‘13 we were launching with approximately 240 of our best retailers, best doors around the world. And that for spring we were building up to approximately and we are shipping now, we just started to 400 doors at retail for spring 2014. And that for fall 2014 that number is increasing to 800 doors on a global basis and we are sticking with that guidance that’s all materializing as we have guided starting last fall.

Sean McGowan - Needham & Company

Okay. I thought it was…

Peter Metcalf

That’s pretty much the range we’ve been giving in sometime middle of last year or early last fall when we were in New York.

Sean McGowan - Needham & Company

Okay. And the other -- I just if you are saying at least that all segments will be growing at double-digits, I just don’t know how to make the math working. POC is supposedly lot higher than that you’re 3.5x on the apparel how is the total in the 16 to 18?

Peter Metcalf

Yes, we are seeing good growth coming from all brands and regions. But as we've been seeing coming into the last half of 2013, the North American region has been a little soft, a little softer, a little volatile in terms of the buying habits of our retailers and although we believe that we're well positioned to continue to grow forward with all of our brands that obviously does plan to how we think about ‘14 and build out our overall forecast.

We do anticipate seeing most of our growth coming from the rest of the world region, I mean it's going to be well balanced throughout the different geographical regions, but rest of the world or the independent global distributors will be [bleeding] that as well. But it comes back to how we've seen the last half of the year, finish up primarily in North America, but once again it goes back to -- we finished the year very strong with 24% organic growth. And as we look towards the future, we believe we're set up for a nice double-digit growth.

Sean McGowan - Needham & Company

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Joe Altobello with Oppenheimer. Please go ahead.

Joe Altobello - Oppenheimer

Thanks. Hey guys, good afternoon. Just a couple of ones I guess, first in terms of the apparel launch and how it went in terms of sell through, I think Peter you mentioned earlier that it was in line with your expectations online with budgets. But I think back when we spoke in Salt Lake City it seems like it was a little bit below maybe what you have aspire to and maybe that expectation was higher than the budget. So, if you could sort of reconcile your comments today versus maybe your last comments until a few weeks ago?

Peter Metcalf

Hi Joe. Yes I think I remember sitting down with you in Salt Lake and what I shared with you is that some of the retailers did better than we had hoped, some of the retailers did as we had hoped and some of them did a little bit worse than we had hoped, typically based upon what kind of retailer were they, how is the product merchandised, what product did they carry. But overall, we hit our internal numbers.

We, as I stated earlier, we ship the product out, we didn’t discount any of it. And we’re pleased with what we delivered to folks. And then as I’ve always said that the sell-through varied from retailer-to-retailer. And again, it was just depending on what type of retailer, what product it had to be merchandised.

Joe Altobello - Oppenheimer

Okay. So overall, it was mixed across the different channels, but I think on an overall perspective you’re happy with it?

Peter Metcalf

Yes, yes. We shipped what we had made. We filled the orders and we’re sold out in most sizes and styles and color. So yes, we achieved our objectives.

Joe Altobello - Oppenheimer

Okay. Just one for Aaron, I think you mentioned earlier the gross margin guidance for 2014 you mentioned was on a constant currency basis. Is that correct or is that in dollars?

Aaron Kuehne

So, it’s in dollars, but it’s without giving the effect of any FX what you’re waiting throughout the rest of the year and that we can’t control that. And so, based on where we stand right now that’s the guidance that we’re providing for gross margin.

Joe Altobello - Oppenheimer

Okay. You’re assuming that FX is as is for the rest of the year?

Aaron Kuehne

Right.

Joe Altobello - Oppenheimer

Okay, got it. Thank you. Thanks guys.

Peter Metcalf

Okay, Joe.

Operator

Thank you. Our next question comes from the line of Dave King with Roth Capital. Please go ahead.

David King - Roth Capital

Thanks. Good afternoon guys. I guess just first off in terms of the guidance and trying to dig into that a little bit more. It seems to me as you kind of think about the 16% to 18% growth that appears to be somewhat of an acceleration from the kind of organic growth you had in ‘13. Is that fair I guess or maybe asking it differently, what was the organic growth for the full year in ‘13, I think you gave just for the fourth quarter, just curious what it was for ‘13? And then as we think about the different brands, is it fair to assume that POC, we could see an acceleration in the growth there from the road bike launch, I guess that does expect?

Aaron Kuehne

So, first of all Dave, this is Aaron and as mentioned in our prepared remarks for ‘13 the full year we grew 15%.

David King - Roth Capital

On an organic basis, okay.

Aaron Kuehne

Yes, with the strongest growth coming in the fourth quarter, 24%. And as we look forward into next year, it will give me the general guidance and that is a blended growth rate of all the brands and not all the brands are growing equally.

David King - Roth Capital

Right got it. So, in terms of POC I mean I think you’ve talked in the past about that kind of growing at a 40% or so rate, is that still kind of a case, is that what you’re also expecting then in terms of 2014, should we expect that to be kind of an acceleration then when we look at the road bike launch or just given that you’ve grown up a higher base, is that slow a bit?

Aaron Kuehne

I don’t think we ever, Dave, just to clarify, I don’t think we ever mentioned 40% we have talked about 30% growth. And POC had nice growth, it is going to continue. We anticipate that it will continue to have nice growth as you get larger, the percentage that is often slow up a little bit. As far as the road bike launch that is great launch, but as I stated in my opening remarks, we are doing that like we do with BD apparel in a very selected way sort of a scarcity to be in a top 100 plus, in several 100 shops, I don’t have the number in front of me, racing shops around the world with very premium product to continue to raise POC’s brand profile so that it can command the kind of premium price points and margins that it does in cycling as it does in skiing. We think that’s a great strategy. And at the same time when you launch then you launch in a very premium position, it doesn’t do as much for your growth acceleration the first year you launch as it does in outlying years and we have seen that with POC’s business in skiing.

David King - Roth Capital

Okay. That helps. And then in terms of the follow up on the apparel launch, it was my impression both coming out of Salt Lake and I guess from other conversations that sell through out of the gate wasn’t necessarily as strong as planned or as hoped. It sounds like some of that was varied by retailer. I guess can you just talk, can we get a real time kind of update there, understanding that you talked in the past about or talking about for other businesses or the business overall that obviously the lack of winter weather out west that’s being weighing on which makes a lot of sense. Now that we are starting to see some of that weather that you need that -- the weather in the west, have you seen any kind of improvement either for apparel or the overall business?

Peter Metcalf

All interesting good questions and I will begin by saying that again from our perspective, the apparel from here sold out nicely, we got into the shops we wanted, we delivered pretty much on time to people. And then the sell through varied and that’s to be unexpected in the first season of the launch for the reasons that I articulated a few moments ago. What I will share to your question about weather changing, is that -- yeah I mean from part to Europe to part to the U.S., there are places where when the snow comes and the cold, they wish they had more apparel, more gloves, more mittens more this or that. We don’t have much of that to ship at this point in time which we are very happy about, if you too agree, often less with much inventory.

Relative to sell through I can stay with assuredness that, yes sell through continues, thanks to snow and cold et cetera. And the next time to get some idea of sell through and any of this product will be when the winter is really over. As you know right now, I think Atlanta's shutdown due to another ice and snow storm. And so whatever product is left in the way of winter close and apparel there, the sell through just continues to increase. So, most people want to know what's the sell through by January 1st, that was something we were trying to get a handle on for the trade shows and we talked about. And then the next time to really get a handle on it is not until winter is really over. And I don't think any of us know when winter is going to be over. We definitely do an audit of retail partners.

What I'm pleased to say is that we're going from 240 stores to 800 stores with apparels from fall ‘13 to fall ‘14. I don't think there -- I've been in this industry for 32 years, I can't think of another company has ever launched apparel with the success that we have that was in 240 of the best stores globally in year one went from 240 to 800 of the best stores globally in year two and went from very limited start to what appears like will be about 3.5 fold increase in sales. So, we're very pleased, very excited and cite that almost all of the shops that we launched with regardless of whether they had the most robust sell through in season one or not, they are back because they believe in BD, they think the fall apparel line is beautiful for those -- I think you were in so like. Everyone started from ISPO to SIA, the Salt Lake, we're just blown away by and that included our competitors, major retailers, friends et cetera.

We turned head, we made an amazing statement and we are incredibly proud of that line, its innovativeness, its static, its silhouette and how it’s turning ahead and how people are talking about it. And we are excited with where we’re at with this and where we’re going.

David King - Roth Capital

Perfect. Thanks so much.

Peter Metcalf

Yes.

Operator

Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please go ahead.

Camilo Lyon - Canaccord Genuity

Thanks. Good afternoon guys. Just a couple of questions here. So looking at the ‘14 growth target you laid out, I’m assuming that that includes Gregory. Can you just talk about what the growth that you’re expecting for Gregory is? And if and once it sold how would that impact the overall growth rate for 2014?

Peter Metcalf

Hi Camilo, it’s Peter. Thanks for the question. As you know, we just don’t break it out by brands. I guess what I’d just share with you is that there is as we look into 2014, yes there are those brands that are growing more quickly and those brands that are growing less quickly but we just have made a strategic decision we’re not going to break it out.

Camilo Lyon - Canaccord Genuity

So, safe to assume that it’s growing slower than the brands you’re keeping in the portfolio?

Peter Metcalf

I am going to have to say that you’re going to have to draw your own conclusions on that from the communications and messaging that we’ve given today in this transcript.

Camilo Lyon - Canaccord Genuity

Okay. You talked about apparel growth growing 3.5 times ‘13, can you provide what the ‘13 base is? And then the follow-up to that is what are you current strategies as you dramatically increase the SKU counts, your channel doors, how do you plan to manage the brand across 800 doors so that it’s consistent with the message that you want to conveyed to your consumer?

Peter Metcalf

Yes. So, all good questions, and again relative to the very first one, it’s certainly not surprise when I say that right now just for competitive reasons, we are not going to give revenue numbers for the categories, but we are trying to give you as much help as possible, talking about SKUs, styles, doors, multiples and that sort of thing, so hopefully that's helpful. There is no question that as we get into more doors, we have to be thoughtful in managing this. And I think we were quite successful overall in managing the 240 doors from the perspective of when people will go in sale, how long they can go in sale, what kind of marks down they could do, when they could do it, and I’m not saying by many means we are installable or perfect, but I’m pleased with how it was managed.

I was in a lot of stores, I know you and many of our other key investors and analysts were as well, but our dealers and our partners were following the protocol and the rules of the road that we had lay down which are very similar to those of our premium key competitors. So if you were to go into a store at certain time of year, we might have some of our products in sale, as would some of our competitors. Relative to the issue of your point of the future maintaining price points, maintaining a premium position for the brand, how do you move DM? The answers are following:

Number one is one has to got to be very vigorous in managing the same things you manage this year, which is when can you put product in sale by what percent, for how long and then what date can you go off price and to start clearing. That's number one. Number two, DM is the part of being in this business regardless of who you are and that needs to be managed very thoughtfully relative to, could you move it to, what discussions you have relative to what pricing when they can sell it, when they can market it, where you want to put it, so it’s not brand damaging.

Likewise as we’ve talked about developing our own retail strategy in 2014 part of that will include some kind of outlet strategy our competitors have that it’s something that is very efficient in moving product at a higher margin in a controlled fashion and people begin to know where those outlet locations are as a way to get that product. In addition to that as we have in gear and equipment and as our competitors have we always want to have some core stable items in colors that can be carried through this is a categories of product, those are the products in the specific style that you can carry through some into spring and some into the next season where you can take the risk with your inventory as you know those are going to be a bit more iconic and they have more than a single season to them they have got a multiple season or a two year life to them so that is a big part of our strategic thinking on how Tim and the team are thinking about the line and managing the line. So that gives you a bit of an overview of our approach to how we are strategically and managing apparel right at this moment.

Camilo Lyon - Canaccord Genuity

Okay. And just one last final question on Gregory, let’s assume that you do complete the sale. Is it cash that you expect to get from that sale? Is that cash usage going to be put towards some of the expenses in CapEx dollars that you talked about or that Aaron talked about investing in, in 2014 or is that incremental to what the plan currently has?

Peter Metcalf

I think the best way for me to respond to that is that we have just laid out to you in this guidance to you and our investors and analysts is a plan that is predicated upon how we exist at this point in time. And what we're sharing with you is that, we are exploring the full waterfront is strategic on opportunities that reside in Gregory because of what it represents is a asset and it may be raised and monetized some of that value and that's what we're exploring at Rothschild.

If we do move forward on that then we will be able to talk about how we reduce whatever assets we've monetized and talk about how that might affecting, but I'm just not in a position to talk about at this moment because we are at this time exploring as I said before waterfront of opportunities, potential opportunities that resides within Gregory, which we believe so.

Camilo Lyon - Canaccord Genuity

Understood, thanks so much.

Operator

Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please go ahead.

Jim Duffy - Stifel

Thanks. Hello everyone. Aaron a few questions on your comments. Can you provide more explanation on the 310 basis points impact on the gross margin from the production and shipping variances in the fourth quarter?

Aaron Kuehne

Yes, sure. So the 310 basis points as you said, came from production variances and some shipping costs that were incurred, but also from the inventory adjustment of some older DM product. And so, what that represents is that as we experience certain amounts of demand including the current inventory levels that we had, we did have to incur some airfreight costs that are little bit more expensive than the traditional Ocean freight cost that we typically incur and that had an impact. And then also as we looked at our inventory and as we've -- as you know, we’ve been clearing out quite a bit of DM inventory over the last year as we look at our inventory balances at the end of the year, it became a few different items that just needed to be adjusted down.

And then the production variance as it relate to the overall ramp up of some manufacturing activities that we’ve talked about in the past as well related to certain key innovative products even including that of our skies.

Jim Duffy - Stifel

Okay. And then unless I miss something, I don’t think you provided SG&A for the quarter. Can you speak to that? And then it would be helpful if you could speak in more specifics around the areas of planned investment with the incremental I guess it’s up to $12 million of incremental SG&A planned for ‘14?

Aaron Kuehne

Yes. So, we’ll get into the specific SG&A amounts for Q4 once our audit is complete. But what I can give you is a sense of how we believe our SG&A is coming in for the full year. We anticipate once again recognizing that the audit is not complete, but it will be around $81.5 million in SG&A, plus another $1 million of M&I and restructuring expenses that we’ve seen throughout 2013 to sum up to a full on operating expense level of close to $82.5 or so million. Once again, just give me a ballpark is to where we’re expecting it to come in.

As it relates to up to $12 million of additional investment, I have stated that 80% of that is brand focus and the other 20% is more platform-oriented. Some of the brand focus investments relate to that of marketing, the augmentation of our sales force, continued R&D also the launch of the [AVAP] line for POC, as well as the sponsorship that Peter talked about with Garmin-Sharp, as well as the continued build out of our e-commerce and also the continued conversion of distributors for the POC brand in several parts of the globe.

Jim Duffy - Stifel

Does that include any point of sale support for the apparel product offering, looking it does?

Aaron Kuehne

Yes, for both apparel, as well as POC apparel so there is merchandising [fixtures] POC, as well as for Black Diamond.

Jim Duffy - Stifel

Thanks. I’ll leave you with that guys and I’ll head you with some follow-ups offline.

Aaron Kuehne

Okay. Thanks Jim.

Operator

Thank you. Our next question comes from the line of Sean McGowan with Needham & Company. Please go ahead.

Sean McGowan - Needham & Company

Yes I had a follow-up question regarding the strategic way of handling a launch especially what is so limited in scarcity fact was supposed to be a big part. Could you guys give any thought to having conversations with retailers about making sure there wouldn’t be any discounting, I know some manufacturers have a deal with a small number of retailers, well they take product back if it’s not limited, but the supplier and not necessarily a full policy going forward. I just want to, has that entered into the conversions that all?

Peter Metcalf

As far as taking back inventory, no we just did not want to incur the cost that we did not believe that was necessary because of the size and scale of what went into the shops and also we felt that the policies we've put in place as to when people could go at sale and when they could not and for how long and what percentage or what duration was more than a robust at a policy should them to follow. And I think it worked pretty, it worked very well because they were very much in line with North Face, Patagonia, Burton AK et cetera. So, we’re pleased with that. We don’t feel that we need to change anything in that regards for fall ‘14.

Sean McGowan - Needham & Company

Right. So, if we saw on REI or other places 40% to 50% discounting on some items that really very limited in a number of items that would apply to POC how much inventory they have or how many total items they have to sell. So was that just a couple of things here in Aaron of weird size or was that indicative of a broader issue?

Aaron Kuehne

So first, let me address the question that until after the New Year nobody could put anything do any kind of dramatic clearance discount and they had to follow our policies of maximum is X percent off for a limited time et cetera. And what I will say is that someone like yourself who is going into retail in Salt Lake City here going into there before Thanksgiving I think it was at the REI store there was a round rack with everybody from our – that are going into Burton AK to Marmot to North Face et cetera with selected items on sale with 28, 25, 30 off whatever the policies were of those folks that’s part of the retail landscape I think today.

Once you get into January or February dependent on the area, the environment and what is going on then you begin to see retailer’s discount at whatever rate they want to discount at to clear out depending on how quickly they want to put spring up what they have left what sizes, but the level of discount that you are just talking about that I think was quite few and far between, but I am sure it varies retailers with a few SKUs and styles that occurred at some point. But I doubt, I am confident to say we are not alone when that sort of thing happens as retailers decide to clear out all the inventory.

Sean McGowan - Needham & Company

No, I don’t -- when you have a brand new launch and very few items very few styles, very few SKUs, very few doors you really don’t have, you look on the REI website and that’s something at 50% off it’s not really clear when you are sitting there how little they have or how much they have obviously they didn’t have a lot, that wasn’t allowed ship that wasn’t allowed for anybody to have. So, then some assets sale, I just, I'm not -- as part of a selling a policy, I'm just thinking maybe it would have been kind of need for the first season to say hey, such as a small number, let’s just, we'll take back and you don't sell and that's the one time only. I'm just suggesting and I know some manufacturers in other categories of apparel have that done that before. So, that’s just to say.

Peter Metcalf

Yes, I appreciate that perspective. It was something that we had decided we did now want to do, but I certainly appreciate hearing from someone like yourself who covers a lot of competitors and companies in the space to hear that perspective.

Sean McGowan - Needham & Company

Okay. Thanks.

Operator

Thank you. Our next question comes from the line of Howard Rosencrans with Value Advisory. Please go ahead.

Howard Rosencrans - Value Advisory

Yes, hi most of my questions have been addressed. Thank you for that. Just a couple of data points to sort of make sure I got them, I got in the call a little late. The -- what was the EBITDA for 13? I think you commented it'll be up 4 times in ‘14.

Aaron Kuehne

Yes. So, we haven’t -- this call primarily is related to our 14 guidance and we'll address 2013 in more specific details once the audit is complete. And so, we'll leave it at that.

Howard Rosencrans - Value Advisory

Okay. And you commented that apparel and POC you expect to be up to what percentage respectively and I guess that's not off of any specific base of ‘13 because you're not breaking that up at this juncture. Is that right?

Aaron Kuehne

Correct, we're not. And so as we mentioned on the -- during the prepared remarks, we anticipate BD apparel and POC be the leaders of our growth over the next several years. And that's where we're going to put our time and attention.

Howard Rosencrans - Value Advisory

Okay. And in terms of how much those are going to be up in ‘14, I don’t -- if you might have given those out, I apologize.

Aaron Kuehne

No worries. We don't break that out for a variety of reasons, we don't segment our business that way. And so we always provide -- we've never been in the practice of providing that and we don't plan on doing that now in terms of breaking out those percentages specifically by brand or region.

Howard Rosencrans - Value Advisory

Okay. Very good, thank you.

Peter Metcalf

Thanks.

Operator

Thank you. Our next question comes from line of Eric (inaudible) Capital. Please go ahead.

Unidentified Analyst

Hi. My question is related to the comments on your credit side and I know it’s you’re pretty close on EBITDA levels, is that something you guys have come back to the lenders with or how do you guys look at that related to the current situation?

Aaron Kuehne

Yes. So, we at the end of Q3, we obviously certified that we’re good with this and we’ve been looking at that. And if you do the math we’re close but we’re in close communication and working through with our banker address any needs if that all. But once again, the audit is not complete, so we don’t -- it’s still too early to tell and we’ll address this during our call in March.

Unidentified Analyst

Got you. And does that -- looking strength on your growth plans or spending?

Aaron Kuehne

No. As communicated, we believe that we’re coming out with one of our healthiest balance sheets in recent paths at the end of 2013 and that we’re well poised to be able to continue to investment into our business the way that we’ve laid out.

Unidentified Analyst

Got you. And more general question regarding guidance and forecasting for the business as a whole. As I guess early November, so a month into the quarter you guys provided pretty strong indication that you’re going to meet the expected 2013 numbers, and so the Q4 was if there is a way through and then with a bit of miss on that and then you’re now providing pretty precise I guess fairly ambitious ‘14 numbers. How should we be comfortable with that given kind of the challenges of the inherently I guess forecasting such a business?

Peter Metcalf

So I guess Eric, with the -- I mean to your first point relative to the August guidance, I think we are quite proud that we came within less than 1% of the low end of that guidance, 24% growth despite the fact that into a most robust markets we had throughout and warms biblical proportion, so I think we feel pretty good about that.

And then relative to this year that we’re in, we have -- I don’t know if you guys did a trade show, we have launched for this spring, between the Black Diamond Gregory and POC brand some very impressive new product that we believe is a great catalyst to growth but more importantly it’s a fall growth between the apparel, what was launched at this trade show, the BD, Jetforce, the new talk line of helmets, the upgrade to skis and else and what not.

We got a very strong line, so if you look at that and look at fact that we have cleared out over the last year was painful, but cleaned up our balance sheet, moved out a lot of the DM, the industry has moved out of a lot of DM that was floating around various distribution channels, we feel that it’s a healthier place to be and to the numbers we’re giving, we believe are bit more conservative to take into account that there is volatility out there.

But we feel quite good about what we're giving here in the way of guidance in this range.

Operator

Thank you. Our next question comes from the line of Dave King with Roth Capital. Please go ahead.

Dave King - Roth Capital

Thanks for allowing me follow-up guys. Just a real quick one, and in terms of the comment about spring bookings being strong, just a clarification there, how should we think about that strength versus kind of the overall guidance or maybe asking the question differently in terms of that the 16% to 18% top-line growth, you are expecting for the year, how should we think about that over the course of the year in that trajectory? Thanks.

Aaron Kuehne

Yes, this is Aaron. As you recall, we have a fairly balanced spring summer fall winter business at the end of ‘13, we are looking at coming in right around 45% for spring summer and 55% fall winter. We are going to see that slightly shift a little bit more towards the fall winter business as we continue to experience solid growth coming from Black Diamond apparel and also from POC. And so, it’s going to slightly shift a little bit more towards the fall winter business. And when I say slightly, spring summer is looking in the low 40s.

Dave King - Roth Capital

Okay. Thank you.

Operator

Thank you. At this time this concludes our question-and-answer session. I would like to turn the call back over to Mr. Metcalf for closing remarks.

Peter Metcalf

Alright, I just want to everybody for their time today. We are obviously very enthused about what’s coming in 2014. We believe that we have positioned the company very ideally for strong growth in ‘14 and look forward to what’s ahead. So thank you.

Operator

Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!