Clarus Corporation (CLAR) Management on Q4 2019 - Earnings Call Transcript

Clarus Corporation (NASDAQ:CLAR) Q4 2019 Earnings Conference Call March 9, 2020 5:00 PM ET

Company Participants

Cody Slach - Gateway Group

John Walbrecht - President

Aaron Kuehne - Chief Financial Officer

Conference Call Participants

Randy Konik - Jefferies

Jim Duffy - Stifel

Mark Smith - Lake Street Capital Markets

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the fourth quarter and full year ended December 31, 2019. Joining us today are Clarus Corporation's President, John Walbrecht; Chief Administrative Officer and CFO, Aaron Kuehne; and the company's external Director of Investor Relations, Cody Slach. 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. Slach as he reads 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. Cody, please go ahead.

Cody Slach

Thanks, Carmen.

Please note that during this call, the company may use words such as appears, anticipates, beliefs, plans, expects, intends, future and similar expressions which constitutes 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; the 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 of global climate change trends they have on the company and its suppliers and customers; the company's exposure to product liability or product warranty claims and other loss contingencies; the stability of the company's manufacturing facilities and suppliers including in light of disease, epidemics and health related concerns such as coronavirus; 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 carryforwards; 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 of the date hereof.

The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this call. I'd like to remind everyone this call would be available for replay through March 23 starting at 8:00 p.m. Eastern tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's Web site at claruscorp.com. Any redistribution retransmission or rebroadcast of this call in any way without the express written consent of Clarus is strictly prohibited.

Now I would like to turn the call over to the President of Clarus, John Walbrecht. John?

John Walbrecht

Thank you, Cody, and good afternoon everyone. It's a pleasure to be joining you to discuss our fourth quarter and full year 2019 results.

We are pleased with our strong performance in the fourth quarter driven by the continued momentum within Black Diamond, which grew 13% year-over-year with contribution from all regions and product categories. The solid performance from Black Diamond demonstrates the continued success of our innovate and accelerate growth strategy.

The same can be said for our full-year performance. Black Diamond sales were up 13% with growth in every geography, sales channel, and category. This drove a 9% increase in our consolidated adjusted EBITDA for the year and 10% growth in adjusted net income. We achieved these results while managing through headwinds brought on by the ongoing trade wars and the strengthening U.S. dollar, which together reduced our full-year adjusted EBITDA by 3.7 million. We have taken and will continue to take proactive steps to reengineer our supply chains whenever possible in order to mitigate these headwinds. Aaron will share more on this shortly.

As we've discussed previously, we have focused our Black Diamond strategy over the past three years on leading the market with new product introductions across all categories of climb, mountain, and snow, including the core activities of climbing, alpinism, mountaineering, trail running, back country skiing, and snowboarding. These innovations in equipment have generated more than 2,900 product reviews in popular media and more than 92 industry awards for 2019 compared to 75 in 2018. This allowed us to achieve more first to market with our key retailers than ever before, while accelerating the marketing of these new products through social media, athlete [ph] content, and national advertising.

In fact, we increased followers across social media platforms by more than 33% and some of our athletes achieved their greatest accomplishments using our new equipment. These products were widely recognized by some of the most prestigious trade organizations in our industry.

During the recent winter trade show circuit previewing product for Fall '20, Black Diamond won an ISPO Gold Award for backcountry touring apparel in the snow sports category with Black Diamond's Dawn Patrol hybrid shell recognized as the best overall product in the category. Additionally, at the Outdoor Retailer’s Snow Show, The Editors and Nen's Journal magazine named Black Diamond's Dawn Patrol hybrid shell one of the 10 coolest products of the year. These recognitions demonstrate how our engineer and design teams truly understand the needs of climbers, skiers, and mountain athletes and bring the most relevant, thoughtfully designed and high performance gear to the market.

Now, moving on to some brands specific updates for the fourth quarter. Our Black Diamond apparel business was up 25% due to continued growth in men's and women's sportswear, technical outerwear, and logo wear. Our technical outerwear has been a bright spot in an otherwise challenging broader market for this type of product due to our unique point of differentiation. Some of our key apparel styles like the Vision Down, , Approach and Recon and Boundary Lines are matching innovations with specific activity-based user groups, which is resonating very well in the market. We are also gaining greater awareness around the technical features of differentiation within our apparel line.

Our climb business was up 19% driven by harnesses, carabiners, and helmets as well as the continued positive growth trends and popularity of the sport. Additionally footwear, our fastest-growing product segment continues to gain traction amongst both existing and new customers to the brand. We've been quite pleased with the early results and look forward to our global performance footwear launch this Spring.

Our ski business grew 13% due to strong demand across our backcountry portfolio of products, specifically focused on snow safety products such as beacons and our new line of JetForce packs along with equipment for Alpine touring such as bindings and skins.

In our mountain business, we grew sales by 4% due to some early launches of spring product to our international distributor markets, and we experienced particularly strong growth in trekking poles and gloves.

Finally, our efforts to evaluate the customer experience, build brand awareness, and support our wholesale partners is also gaining traction with a 38% increase in our direct business. We are prospecting and retargeting more effectively to drive increased levels of traffic to our website as well as to our three new strategic retail locations in Castle Rock, Colorado; Lehigh and Salt Lake city, Utah.

We also continue to support our multi-channel direct business with more community outreach, increased training to our employees, and an enhanced product offering and improved merchandising efforts. Switching gears to Sierra, as expected, we continue to experience softness in the bullet and ammunition market, which contributed to a 35% decline in sales. We believe the brand is still outperforming the competition in this environment due to Sierra's diversified customer base of retailers, distributors, and OEM partners as well as its 250 SKU offering.

Like last quarter, Sierra's premium products have allowed us to maintain margins and continue executing our innovate and accelerate playbook regardless of the market dynamics. This playbook includes further strengthening the brand's market positioning by investing in product innovations, sales and marketing, and pursuing new long-term revenue opportunities like our launch in [ammunition] [ph].

Now a few comments on regional sales in the fourth quarter. Sales domestically were up 3% as Sierra headwinds masked, otherwise healthy sales trends at Black Diamond, particularly in our apparel and climb categories. We also experienced strong growth at a couple of key accounts, and as I just mentioned realized strong growth in our direct-to-consumer business. Internationally, sales were up 11% due to solid snow safety orders in our European market, which was partially due to favorable winter weather that drove healthy replenishment orders.

In our distributor markets, improved product availability, early launches of spring 2020 products, and higher replenishment orders drove the increases in sales.

At Black Diamond, we are committed to continued product innovation, new product introductions, and an accelerated go to market strategy to deliver strong results and we look forward to carrying this momentum into 2020. 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 levels of return on invested capital.

We also take a strategic and disciplined approach to our capital allocation. We regularly evaluate opportunities to opportunistically acquire similar super-fan brands to compliment our portfolio and where we can deploy our unique innovate and accelerate brand strategy. We expect to target acquisitions that provide access to new product groups and customer channels or that can diversify us within the outdoor and consumer markets. Super-Fan brands not only have leading product market share and brand strength among diehard customers, but also provide recurring revenue, sustainable margins and strong cash flows to be accretive to earnings. They must be well-run businesses. This will ensure we are enhancing value for the company and continued to be careful stewards of the shareholder capital along with funding our quarterly dividends and repurchasing our common stock.

Consistent with our focus on the disciplined pursuit of value enhancing external growth opportunities, we have identified a target that meets our stringent M&A criteria and expect to have more news to share if this opportunity progresses further.

Before I talk more about the outlook for 2020, I'd like to turn the call over to Aaron to walk through our Q4 results in more detail.

Aaron Kuehne

Thank you, John, and good afternoon everyone.

For the first quarter of 2019, sales increased 7% to $61 million compared to the same year ago quarter and on a constant currency basis, sales were up 8%. This was driven by 13% growth in Black Diamond, which saw strong performance across all categories, geographies and channels partially offset by a 35% decline in Sierra due to continued headwinds and the bullet and ammunition marketplace, which were felt most prominently in our domestic OEM and international industrial businesses.

In the domestic market, military law enforcement orders remained soft while our international industrial business was impacted by lower demand. Both markets continue to face a supply versus demand imbalances with the global environment being heavily promotional, which is not something Sierra's interested in chasing.

Consolidated gross margin in the fourth quarter was 35.5% compared to 35.6% in the year ago quarter. The slight decline was primarily due to foreign exchange headwinds from the strengthening U.S. dollar and the impact from recent tariffs, foreign exchange headwinds reduced year-over-year gross margin by approximately 75 basis points in the fourth quarter and the impact from tariffs was 80 basis points.

Overall, our sales in gross profit in the fourth quarter were negatively impacted by unfavorable foreign currency changes on a transactional basis of $700,000. [Technical Difficulty] cost of our inventories denominated in U.S. dollars, while 30% of our global sales are denominated in foreign currencies, primarily the Euro, Canadian dollar, Norwegian kroner, and Swiss Franc. We attempt to manage our foreign currency risk on a continuous basis through natural hedges and foreign currency hedge contracts, but these hedges will never be a perfect offset to the actual currency movements, especially with recent currency volatility.

In our reported sales and gross profit, our hedges offset approximately $200,000 of foreign currency exposure in the fourth quarter. For the full year, foreign currency had an impact of approximately $2.6 million on sales and gross profit when compared to 2018. At Sierra, approximately 45% of our product costs consistent materials such as copper and led, we seek to actively manage the impact that commodity costs have on our business, specifically on gross margins with our vendor partners.

We believe that we have a sound process in place that enables us to mitigate this risk for a period of six to nine months out another point on gross margin specifically surrounding the latest impact from the trade war. Our costs of goods sold were negatively impacted by approximately $510,000 in the fourth quarter and $1.1 million for the full year as a result of tariffs.

Note, this was slightly below our full year estimate of 1.2 million given the rollback of list 4(b). I would like to reiterate the proactive majors we are taking to reduce future impacts wherever possible. We are focused on four primary mitigating activities.

First is recosting. We've been working with vendors to renegotiate costing to offset some of the impacts. Second is resourcing. We are partnering with our diversified supply chains to identify different sources for the product coming out of China.

Third is repricing. We are working with our retailers to pass along some of the costs given our pace of recent product innovation. However, these conversations are natural progression and we believe will have a positive outcome. And finally, we are optimizing logistics to bypass the U.S. on international shipments.

Selling, general and administrative expenses in the fourth quarter were $17.5 million compared to $16.5 million in the year ago quarter. The increase was attributable to our continued investment of Black Diamond brand-related activities focused on direct to consumer and research and development.

As a percentage of sales, selling, general and administrative expenses were 28.6% compared to 28.7% a decrease of 10 basis points. Net income in the fourth quarter increasing significantly to $12.4 million or $0.40 per diluted share compared to $3.5 million or $0.12 per diluted share in the year ago quarter. The increase included a $10.4 million net benefit associated with the partial release of our valuation allowance on deferred tax assets.

Net income in the fourth quarter of 2019 also included $5.6 million of non-cash charges compared to $2.2 million of non-cash charges and $200,000 in transaction and restriction costs in the fourth quarter of 2018. Adjusted net income which excludes non-cash items as well as transaction and reconstruction costs increased 16% to $6.8 million or 22% or $0.22 per diluted share compared to the fourth quarter of 2018.

Adjusted EBITDA on the fourth quarter was $7 million compared to $6.6 million in the year ago quarter. As a percentage of sales, adjusted EBITDA was 11.5% compared to 11.6% in the fourth quarter of 2018. All-in tariff escalations as well as unfavorable movement in foreign currency impacted our fourth quarter adjusted EBITDA by $1.2 million represented by $700,000 in FX and $500,000 in tariffs.

On an annual basis, the impact was $3.7 million on adjusted EBITDA coming from $2.6 million in foreign currency and $1.11 million in tariffs. Net cash provided by operating activities for the full year ended December 31, 2019 was $9.5 million compared to $11.4 million in the same year ago period. And capital expenditures were $4.1 million compared to $3.4 million in 2018.

As communicated at the beginning of the year, increased CapEx reflects additional investments to improve our consumers experience, innovate and launch new products at a faster rate, increased production capacity, and to solidify systems for greater insights and scalability. With these investments in mind, free cash flow defined as net cash provided by operating activities, less capital expenditures for 2019 was $5.4 million compared to $8 million in 2018.

From an inventory perspective, we finished Q4 2019 with $t3.4 million compared to $64.9 million as of December 31, 2018. The Delta is primarily driven by increases within Black Diamond, which we expect to decrease substantially as we head into the first quarter of 2020. More specifically, the increase has been driven by a couple of different factors. One, increased inventory levels associated with the transition of certain in-house manufacturing activities to OEM partners. Number two, the investment in key product initiatives such as footwear and three wrapping up our inventory levels of key product categories at the beginning of each season to ensure higher levels of fulfillment of preseason orders and the ability to provide higher levels of replenishment.

On the Sierra side, we have continued to be opportunistic and managing our cost of goods sold and exposure to certain commodities by advanced purchases of copper and led.

At December 31, 2019, cash and cash equivalents totaled $1.7 million compared to $2.5 million at December 31, 2018. From a capital allocation perspective, during 2019 we repurchased 244,000 shares of our common stock for approximately $2.7 million at an average price of $10.92 per share, leaving approximately $10.8 million remaining on our $30 million share repurchase program and we'll use $3 million to maintain our quarterly dividend.

At December 31, 2019, total debt was $22.7 million compared to $22.1 million at December 31, 2018.

Turning to our financial outlook for 2020, we anticipate consolidated sales to grow approximately 6% to $244 million versus 2019 with 44% of these sales expected to come in the first half of the year and 56% in the second half.

We expect Black Diamond sales to increase high single digits as the brand continues to perform extremely well across all categories, channels and regions. We expect sales for Sierra to be down low single digits in 2020 due to market headwinds, we assume will persist more than offsetting new growth avenues like ammo which is growing nicely but still relatively small.

Given the divergence in both brands growth trajectories, it is important to note that while Sierra is still generates strong relative profits at 13% of our total sales today, we expect it will become even less of a driver to our consolidated results in 2020.

We expect adjusted EBITDA to increase 6% to approximately $24 million in 2020 and expect to generate free cash flow of approximately $10 million which includes approximately $5 million in capital expenditures. This outlook includes an estimated $1.1 million reduction to 2020 adjusted EBITDA due to the expected impact of tariffs that we are unable to offset with the previously discussed mitigation efforts as well as an estimated $1.5 million negative impact from foreign currency for a total expected headwind to 2020 EBITDA of approximately $2.6 million.

Now a few other qualitative factors to keep in mind regarding our 2020 outlook. Our outlook includes appropriate investments in some of our high growth areas such as eCommerce and retail. Currently our eCommerce and retail initiatives represent 5% of our business. We would expect this percentage to increase substantially over time as we continue to build brand awareness, support our retail partners and create a best in class consumer experience.

We are also seeking to bolster our innovation efforts within the climbing, running, and back country activities. This will be supported by a continued focus on core equipment categories as well as accelerating growth within our footwear and apparel initiatives. We're also mindful of the need to continue to invest in people systems and our operational footprint as we grow in stellar business into the future. Further investments will also be made to increase new product development capabilities at Sierra.

We continue to implore a buy versus build approach focusing on designing and building the best products for our consumers an increase in gross margins along the way. This requires leveraging our ever improving supply chains, implementing continuous improvement programs and vertically integrating certain activities as appropriate.

A few more comments related to our outlook and the potential negative impacts due to due to the Coronavirus. First and foremost, that health and safety of our employees, customers and partners around the world is our highest priority and our thoughts and our thoughts are with those affected by the virus. While, we are not unique to the disruption being caused by the virus and we continue to monitor this situation closely, we believe we are well positioned to navigate it given the diversity of our business and operating model.

However, we will not be able to offset the effect it is having on logistical disruptions and production delays in our supply chain. We are also currently seeing an impact to consumer demand in certain key international markets within the Asia Pacific region, specifically China, Hong Kong, Taiwan, Korea, Japan and Australia and Europe, specifically in Italy, France and the Netherlands representing approximately 15% of our consolidated business.

Our outlook assumes a portion of these headwinds for the first half of the year. However, it does not consider any additional negative developments that could take place related to the buyers on our supply chains, logistics, geographical locations impacted and any negative impact on travel and consumer demand.

As a reminder, our common stock continues to be subject to a rights agreement that is intended to limit the number of 5% or more owners and therefore reduce the risk of a possible change of ownership to maximize the value of our NOLs. Any such change of ownership under these rules would impair existing and significant NOLs for federal income tax purposes. As of December 31, 2019, we estimate that we have the available NOL carryforwards for US. federal income tax purposes of approximately $132 million.

Now I'd like to turn the call back over to John.

John Walbrecht

Thanks Aaron.

Now that we've highlighted our results, I'd like to transition our focus to Black Diamond's upcoming spring and fall 2020 seasons. We have an innovative and comprehensive suite of 250 new products offerings that will be coming to market and have already garnered significant positive response. For spring 2020 we expect to have 125 new products launching, covering, climb, mountain and apparel.

Within climb, we are expecting and expanding our performance footwear offering to include both performance and lifestyle approach shoes, which we plan to launch globally this spring. This extension will compliment our climbing shoe line and continued the strong momentum we have already generated with our entrance into footwear two years ago. We will also be launching new carabiners, new Z4 cam, vision helmets, award-winning air net harness, rock shoes, and boundary accessories.

In our mountain categories, we plan to introduce a complete collection of rechargeable lighting, new trekking poles, and expanded collection of day packs. Within apparel, the focus of spring 2020 will be on both Alpine and trail running categories. We will launch the new awarded highline jacket, swift pants, rhythm shirt in long sleeve, a new distance running short and the deployed jacket. In time, we have expanded our stretch denim program with our new crag denim adding to the forge denim and creamy unique denim story made only for our core climbing consumers. Supporting these product launches will be a marketing campaign focused on accelerating in-store support and consumer engagement via athletes events and a more robust digital presence.

The addition of three new strategic retail locations will help elevate the awareness and demand for our brand in a more consumer centric manner.

Now turning to fall 2020, as we continue to refine our focus on the activity based consumer, we see multiple avenues for growth. One of them that being a back country where we see increasing participation and a consumer appreciation for innovation, performance and safety.

In the snow sports category, we will be releasing our Dawn Patrol hybrid shell, which was engineered to provide protection from the storm, while breathable soft shell fabric in a body map in key placements of thermal regulation. It features our proprietary BD dry waterproof breathable solution, green theme technologies, EMPL, a PFC free finish, four way stretch for mobility and an innovative center front dual zipper with built--in mesh paneling for venting while skinning up.

Other products to highlight include our new Cirque 22 ski vests, our partnership [indiscernible] scenic 10 bindings, distance bike tractions and our [stone haller] [ph] duffels.

Now turning to Sierra, despite another decline in sales in the fourth quarter, we remain focused on driving efficiency in the go to market process and continuing to innovate and accelerate across all product offerings. So far in 2020, we have started to see signs of stabilization at some of the key accounts in our domestic green box and OEM businesses as well as progress in our international strategy. Specifically on the international front, we have near term opportunities in Europe and Australia as well as our already developing key relationships to expand distribution and drive brand awareness.

Our expansion into ammo category is progressing nicely and our offerings had been extremely well received both by the consumer as well as our retail partners. To-date we have launched just eight cartridges out of roughly 250 specialty bullets we offer within the Sierra brand and expect to ramp up with several more in the coming months.

For some perspective, if just 10% of Sierra bullets were sold as ammunition, we would expect Sierra's revenue to double and produce an adjusted EBITDA of approximately 20 million. Other avenues which remain untapped or at the early stages of development include enhanced marketing and digital capabilities, improved distribution and forging new customer accounts. We are excited by the runway for growth ahead of us in the Sierra brand. These introductions will be combined with creating awareness and driving demand for our ammunition offerings, but this is a long-term process.

We are working closely with our key partners in our product development and marketing efforts to drive awareness and are encouraged by the results so far.

Now moving onto our performance sport business. In 2020, we will be the year where we plan to meaningfully launch the climb on brand with Taylor West appointment as the division head last September, he and his team had laid the foundation for a successful go to market process focused on new product innovations, enhanced packaging and visual merchandising, new sales tools, a scalable supply chain, expanded distribution and the heavy focus on eCommerce.

On the product side, we are planning to launch an innovative line of sunscreen products that satisfies both consumer and retailer interest in clean plant based recipes that both nurse the skin and protect it from the sun.

We believe that the growing need for re-friendly alternatives in sunscreen also position us very well to compete in this large ever-growing category. Our updated and cohesive brand design has now mostly replaced the old branding on the shelf. New display ready point of purchase chippers will also help build brand presence and help convey our strongest points of differentiation.

The Black Diamond sales force is actively representing and selling the brand through our distribution network and we are seeing momentum beginning to grow and new opportunities emerge in certain accounts and regions. We are investing in a strong direct to consumer sales engine to help grow the brand in a digital space where consumer targeting advertising and storytelling can quickly bring relevant scale to a business with such a compelling product.

As we are taking advantage of the brand's unique formulation and purity, it is rare within skincare, no synthetics in any of our products. This is well aligned with where the category is headed and with the growing awareness that people have of chemicals in everyday skincare products. Our are move toward more compostable and biodegradable packaging also sets us apart within our category and upholds our mission of nurturing both our bodies and the earth around us. While still early days, we expect to earnestly drive sales for the climb on brand in 2020.

We have covered a lot today, but these are exciting times at Clarus and there is much more for us to be excited about. I'm sure analyst community has a lot of questions so I'll turn it over to the operator to begin our questions. Carmen?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Randy Konik with Jefferies. Please go ahead.

Randy Konik

I guess Aaron, really a question for you, how are you thinking about or where are you at with fulfillment for the eCommerce direct-to-consumer business units grew dramatically. Your business from direct to consumer is growing dramatically in the quarter, and you talked about increasing penetration there. Where are you at with investments there and kind of fulfillment for those needs of that channel distribution, and what should we expect from the company over the next six to eight quarters? Thanks.

Aaron Kuehne

Great question, Randy and hope all is well. As mentioned, we continue to see the direct-to-consumer business performing certainly well for us. In the fourth quarter alone, it was up 38%, and we are mindful of how this channel interacts with our retail partners, not only in terms of how it's priced and how it's presented, but also how it's allotted inventory and the overall fulfillment or the overall prioritization of fulfillment. This is something that we're actively working through in that we recognize that with the strong growth we found ourselves with some holes as it relates to fulfillment through that channel. And so, part of the elevated inventory levels that you see at the end of the year is in response to some of those constraints or some of those holes that we've identified and continue to work through to ensure that once again we continue to reinforce our retail partner -- the relationships with our retail partners, but also ensure that the consumer experience is best in class and part of that is ensuring that we have the inventory available on the website and in the actual retail stores themselves. So, it’s something that we're very aware of and something that we're actively managing and working through, and it's something that we expect to see significant improvements over the next several quarters as we continue to refine our approach and have greater insights as it relates to mix and also just overall demand.

John Walbrecht

I was going to say as you found Randy, because I know you’ve sent me a couple of texts about it during the year, obviously last year we saw greater demand for some of these new categories of insulated and snow specific apparel than we had originally forecasted. So, we were chasing it.

Randy Konik

Yes. Helpful. So, this is my last question, and this is for you, John. The playbook of innovate and accelerate has really worked wonders in terms of doing a great job of adding new products. You talked about, I think you said 250 new products. You've talked about -- give some perspective on the awards that those products are garnering. How are you thinking about, as we think about the next few years managing, the SKU count and the product lifecycle as you kind of tell your team kind of let's just continue to kind of push down envelope on innovation across our product categories. How do you kind of think about what's the appropriate level of SKUs to have in the business across the different channels of distribution? Just curious on how you're thinking about managing that over the medium term. Thanks.

John Walbrecht

Yes. So, if you recall three years ago, we felt as a company that we had lost the title of being the innovator in the outdoor space, and that a lot of retailers, due to a lot of the things that we had done internally had their foot on the brake, and our goal was first to get it off the brake and then to put it on the gas. That was accomplished in this innovate and accelerate strategy by innovating products at a pretty rapid pace relative to our competition. And then, through the awards, hopefully achieving the success and the recognition for what we're doing. And successfully, as you said, that's worked.

The next chapters are more about redefining some of these categories and items. Clearly, if we can still build faster, lighter, stronger products than either our product ourselves or our competition, we will continue to look at that. But we're going to -- as we're finding that, we're successfully getting product placement now, it's about how do we motivate as well as accelerate that to the marketplace in marketing. And then, the other side is deciding where the return on investment for these products are in the best case scenario for our investments into them versus RBI, which we call return on brand investments and sometimes they are brand investments to make the ultralight ice crew in the world. Other times it's more -- as we go into things like footwear where it's really focused on the return of actual investment in that category.

I think we're very disciplined to look at those all the time. I would say that I think the team would be happy to know our goal is not to continue to maintain or increase the pace of the amount of products we have launched to market, but to focus more on the fulfillment and the marketing around those.

Operator

Thank you. Our next question comes from Jim Duffy with Stifel.

Jim Duffy

Thank you. Hi, John. Hi, Aaron. Hope you guys are doing well.

John Walbrecht

Thanks Jim.

Jim Duffy

John, I wanted to ask you to spend a moment talking about just the state of the bullet and ammunition industry. When does this promotional downward spiral break? How are you thinking about this plan forward in 2020 and are you planning for inflection in the Sierra business as the year progresses?

John Walbrecht

Well, I think the market would say that and we say this every time we talk. I think the market would say at this point that the market has bottomed, and there's some signs of some positive momentum. Now, can that be changed if other companies in the industry don't survive. And that impacts it potentially if that drops inventories on the market potentially. I think there's always been a cyclical nature to this business, and then this year, politics will likely play a role into this. I know that we've never really focused heavily on the handgun business, bullet business, we've been more of a rifle, but I know that the market is commenting that there's a rise in handgun, bullet demand right now that they haven't seen.

And I suspect with other legislation going into the fall, we'll see that, across the wider spectrum. We haven't modeled the business yet on that because we haven't seen it. We hope for and anticipate that there may be some upside, but right now we've been prudent and said, hey, let's base it on what we really can control both from a product bullet and ammunition launches and fulfillment. And then, attack each year. We're not slowing down, as we said in the write-up on the new product innovations, nor the launches into ammo. And we believe that the strategy is right long-term and the cyclical part of the nature and the market share we're gaining what reward is in the appropriate market.

Jim Duffy

Very helpful. Thank you. And then you mentioned a bright spot in technical outerwear that being a bright spot in an otherwise challenging market. Can you talk about, is that translating to orders for second half of '20 or is the challenging year for the market as a whole working against the order book?

John Walbrecht

No. I think that what we're finding is that outwear as a whole is a mature marketplace, technical outerwear, there's -- we can name the top 10 outerwear companies and then there are lists and lists after that that participate in that sport. In difference to when we launched apparel in fall 13, we really been specific about building being apparel that is equipment. And the Dawn patrol hybrid shell is exactly that. It is specific to a use and a process and because of it, it's won awards. Things like the approach down being the lightest weight down jacket in the marketplace literally in a year and a half went from never heard of to our number one revenue style in outerwear. The vision down, the high line, which is the first recycled, fully recyclable PSC free shell from us is doing really well. And as we look into the future, we seem to think this strategy is paying off for BD as a differentiator towards what is otherwise, a mature market. And we do see strong responses to our bookings in these -- some of these new specific product categories. And hence we'll continue to chase down them.

Jim Duffy

Great. And then last one from me, Aaron, you just eyeball in the margins and thinking about some of the headwinds that you're seeing with tariffs of facts and Sierra weakness from a mixed standpoint, the margins actually look like they're holding up pretty well. Can you talk about what you're seeing in the core Black Diamond business? Is that reflective of a mixed dynamic or, what are some of the other factors that might be a responsible for that?

Aaron Kuehne

Yes. So, it's a combination of a couple of different factors. One of them primarily being a series of different continuous improvement initiatives that we kicked off about a year and a half ago associated with certain value leakages that we were seeing within the business and also within our in-house manufacturing activities, resourcing activities, but then also being, very close with the different category directors. And also end market general managers, if you will, in evaluating opportunities where we could increase prices strategically or opportunistically, while also continue to make sure that we're driving higher margin products in each of the geographical regions, channels.

And so it's a mixed bag, but it really is a manifestation of some of these initiatives that we put into play about a year, year and a half ago. The team has been working extremely hard towards and that's something that continues to be priority for all of us. This idea of improving every part of the business every single day and I think what you're starting to see there, or what we're starting to see there is as she had the manifestation of those activities and those of those efforts.

Operator

[Operator Instructions] And our next question is from Mark Smith with Lake Street Capital. Please go ahead.

Mark Smith

First off, John, you talked a little bit about the Olympics and potential opportunity there, especially as we look at climbing being involved this year. Has your view changed on that, if we saw cancellation, would there be any real impact from you in the near term, have you spent money on market or anything that would impact that?

John Walbrecht

No. I think two-fold. The first piece is obviously given the coronavirus market trends and discussions. I think that the Tokyo Olympics maybe a question mark and I think a lot of people will pay very close attention to politically as well as responsible wise, how to approach that. Our belief has always been the same that it's not really about the Olympics specifically, the two weeks that would drive -- we don't have a positive impact on the Black Diamond brand. I think like anything it's the awareness of the sport in a greater spectrum to a much wider audience. It's the family sitting around watching the Olympics that decides a little Johnny is going to be a climber rather than a baseball player. Or they are going to try a climbing gym because they have now seen this sport and it seems pretty exciting and that will rise this.

As I have said before Spyder had huge growth coming out of the 2002 Olympic Games not going into it. We have got lots of initiatives that we hope to try and relay on going into the Olympics. We haven't spent dollars on that to-date. So we have no risk factor in there today. But, we watch carefully down the stand, what's actually going to occur with the Olympics and the summer programs. As the health concerns roll out, we are going to be mindful. Who knows how that would be, we may experience as consumers an Olympic games like nothing ever before maybe totally just televised as opposed to attending.

Mark Smith

Okay. And then staying on kind of Coronavirus, Aaron, you talked a little bit about kind of the supply versus the demand side of things, we work from other companies, manufacturers within China that we are seeing some people back to work and plants starting to pick up again. Could you guys talk to -- are you seeing that kind of thing going on into this point? And then, if you kind of weight what's built into your guidance here in the first half, just from -- impact from coronavirus, is it more so on the supply side or more so on kind of the demand side?

Aaron Kuehne

So it relates to the activity taking place and kind of specifically surrounding our supply chains and logistics, fortunately enough we are starting to see a lot of those activities come back online. We by no means are at 100% of where we need to be but I would gauge that we are about 60% to 80% of where we need to be and where we want to be on a go forward basis.

As it relates to, how we are considering the coronavirus in our outlook, as you might have imagined, it's pretty dynamic and it continues to evolve every single day. But, we are more focused from an outlook perspective in terms of how this could impact the demand side of things versus the actual supply and logistics. We do anticipate that there could be some timing differences from Q1 to Q2 et cetera related to a supply and logistics standpoint. But, overall, the factors that we are considering and that we outlined are more around the demand side of things.

Mark Smith

Okay. And then, last one for me, as we look at the Sierra business and your guidance there, some of this guidance I have to do with more of the launch in some new product roll outs that maybe hitting latter in the year that maybe drive some more growth in that business as we look at the timing, are you expecting it to maybe see more of a ramp or turn to growth in the second half of the year?

John Walbrecht

Yes. And part of it is that, remember Q1 of 2019 was still a pretty good quarter for us on a year-over-year basis and so the comparables are a little bit tough and that's where we anticipate and continue to see the negative trends that we have experienced over the last three quarters. But also, as you mentioned not only if we had a strong showing, short show with some of the new products that we are introducing for 2020, that will allow the new introductions and also -- they will be available or we will start to ship them out in H2 of 2020. And so, it's a combination of those two factors playing into the overall outlook for Sierra.

Operator

Thank you. And this concludes our Q&A session for today. I would like to turn the call back to Mr. Walbrecht for his closing remarks.

John Walbrecht

Thank you, everyone. We appreciate. At this time, this concludes it. And we would like to thank everyone for listening in today's call and we look forward to speaking to you when we report on the first quarter of 2020, our results later in May. Thank you for joining us today.

Operator

And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for participating.