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Clarus Corporation (NASDAQ:CLAR)
Q4 2019 Earnings Call
Mar 9, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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 -- Director, Investor Relations

Thanks, Carmen. Please note that during this call the company may use words such as appears, anticipates, believes, 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; 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 that global climate change trends may 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 of 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 will be available for replay through March 23rd 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 website at claruscorp.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of Clarus Corp. is strictly prohibited.

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

John C. Walbrecht -- President

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 contributions 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 US 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 are focused on 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, backcountry 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-markets with our key retailers than ever before, while accelerating the marketing of these new products through social media, [Indecipherable] 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 1 and ISPO Gold Award for backcountry touring apparel in the snow sports category with Black Diamond Dawn Patrol hybrid shell recognized as the best overall product in the category.

Additionally, at the Outdoor Retailer's Snow Show, the Editor's and Men'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 engine year [Phonetic] 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 brand 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 logowear. Our technical outerwear has been a bright spot in an otherwise challenging broader market for this type of products due to our unique point of differentiation. Some of our key apparel styles like the Vision Down approach and recon and boundary lines are match matching innovations with specific activity-based user group, which is resonating very well on 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 gaining traction among 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 products in our -- to our international distributor markets, and we experienced particularly strong growth in trekking poles and gloves.

Finally, our efforts to evaluate the customer experience built 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 3 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 of our employees and an enhanced product offering, 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 to execute on our innovate and accelerate playbook regardless of the market dynamics. This playbook includes further strengthening the brand market positioning by investing in product innovation, sales and marketing and pursuing new long-term revenue opportunities like our launch in GI ammunition [Phonetic].

Now a few comment 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 on time [Phonetic] 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 superfan brands to complement 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. Superfan 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 continue 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 J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

Thank you, John, and good afternoon, everyone. For the fourth 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 in the bullet and ammunition marketplace, which were felt most prominently in our domestic OEM and international industrial businesses.

In the domestic market, military and law enforcement orders remained soft, while our international industrial business was impacted by lower demand. Both markets continue to face supply versus demand imbalances with the global environment being heavily promotional, which is not something Sierra is 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 US 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 and gross profit in the fourth quarter were negatively impacted by unfavorable foreign currency changes on a transactional basis of $700,000. The primary cost of our inventory is denominated in US 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 of sales and gross profit when compared to 2018.

At Sierra, approximately 45% of our product cost consist of materials such as copper and lead. 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 cost of goods -- our cost 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 roll back of List 4B.

I would like to reiterate the proactive measures 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 our 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 a natural progression, and we believe will have a positive outcome. And finally, we are optimizing logistics to bypass the US 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 in 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 increased 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 restructuring costs in the fourth quarter of 2018. Adjusted net income, which excludes cash items as well as transaction and restructuring costs, increased 16% to $6.8 million or 22% -- or $0.22 per diluted share compared to the fourth quarter of 2018. Adjusted EBITDA in 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 the unfavorable movement in foreign currency impacted our 4th 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 an adjusted EBITDA coming from $2.6 million in foreign currency and $1.1 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 $73.4 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, ramping up our inventory levels of key product categories at the beginning of each season to ensure higher levels of fulfillment of pre-season orders and the ability to provide higher levels of replenishment. On the C&I [Phonetic] side, we have continued to be opportunistic in managing our cost of goods sold and exposure to certain commodities by advanced purchases of copper and lead.

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 used $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 40% 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 still generates strong relative profit, 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 e-commerce and retail currently our commerce and retail initiatives represent 5% of our 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 backcountry activities. This will be supported by continued focus on core equipment categories as well as accelerating growth within our footwear and apparel initiatives. We are also mindful of the need to continue to invest in people systems and our operational footprint as we grow and scale our business into the future. Further investments will also be made to increase new product development capabilities at Sierra.

We continue to employ our buy versus build approach focusing on designing and building the best products for our consumers and increasing 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 impact due to the coronavirus. First and foremost, the health and safety of our employees, customers and partners around the world is our highest priority. 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 the 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 chains. We are also currently seeing an impact to consumer demand and 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 year -- 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 our existing and significant NOLs for federal income tax purposes. As of December 31, 2019, we estimate that we have available NOL carry-forwards for US federal income tax purposes of approximately $132 million.

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

John C. Walbrecht -- President

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 product offerings that will be coming to market and have already garnered significant positive response. For spring 20, 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 complement our climbing shoe line and continue the strong momentum we have already generated with our entrance into footwear two years ago.

We will also be launching new carabiners, the new Z4 Cam, Vision helmets, award-winning airNET harness, rock shoes and bouldering accessories. In our mountain categories, we plan to introduce a complete collection of rechargeable lighting, new trekking poles and expanded collection of daypacks. 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 shirts in long sleeve, the new distance running short and the deploy jacket. In time, we have expanded our Stretch Denim program with our new Crag Denim adding to the Forged Denim and creating a unique Denim story made only for our core climbing consumers.

Supporting these product launches will be a marketing campaign campaign focused on accelerating in-store support and consumer engagement via our 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 of that 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 softgel fabric in a body mapped in key placements of thermal regulation that features our proprietary BD.dry waterproof breathable solution, Green Theme Technology's EMPEL, a PFC-free finish, 4-way stretch for mobility and an innovative center-front dual zipper with built-in mesh panel for venting while skinning up. Other products to highlight include our new [Indecipherable] distance by traction and our stone hollow duffles [Phonetic].

Now, turning to Sierra. Despite another decline in sales in the fourth quarter, we remain focused on driving efficiencies 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 the 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 have 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, it's 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 on to our performance sport business, In 2020, we will be the year where we plan to meaningfully launch the climbOn brand. With Taylor West appointment as the division had last September. He and his team have 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 a heavy focus on e-commerce.

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 protected from the sun. We believe that the growing need for refriendly alternatives in sunscreen also position us very well to compete in this large ever-growing categories, our updated and cohesive brand design has now mostly replaced the old branding, on the shelf new display ready point of purchase shippers will also help build brand presence and help convey our strongest points of differentiation. The Black Diamond sales force is actively representing in 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 the 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 brands unique formulation purity. It is rare within skincare no synthetic 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 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 climbOn 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. S I'll turn it over to the operator to begin our questions. Calman?

Questions and Answers:

Operator

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

Randy Konik -- Jefferies -- Analyst

Yeah. Thanks a lot. I guess, Aaron, really a question for you. How are you thinking about or where are you at with fulfillment for the e-commerce 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 J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

Yeah. Great question, Randy, and hope as well. As mentioned, we continue to see the direct-to-consumer business performing certainly well for us. The fourth quarter alone, it was up 38%. And we are mindful of how this channel interaction with our retail partners, not only in terms of how it's priced and how it's presented, but also how it's a lot of inventory and the overall fulfillment or the overall prioritization of fulfillment. This is something that we are 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 what you see at the end of the year is in response to some of those constraints and some of those holes that we've identified and continue to work through to ensure that once again we continue to reinforce our retail partners -- 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.

Randy Konik -- Jefferies -- Analyst

Really helpful. [Indecipherable] last question. Sorry. Go ahead.

John C. Walbrecht -- President

I was going to say, as you found Randy because I know you certainly a couple of facts 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 -- Jefferies -- Analyst

Yeah. Helpful. So it was my last question, and it was 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 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 below up 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 C. Walbrecht -- President

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 so -- and then, a lot of retailers, due to a lot of things that we had done internally, have their foot on the brake. And our goal is, first to get it off the break and then to put it on the gas. That was accomplished in this innovate to 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 are doing.

The next, 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, then either our product ourselves or our competition, we will continue to look at that, but we are -- 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 launched to market, but the focus more on the fulfillment and the marketing around those.

Randy Konik -- Jefferies -- Analyst

That's helpful. Thank you, guys.

John C. Walbrecht -- President

Appreciate it.

Operator

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

Jim Duffy -- Stifel -- Analyst

Thank you. Hi, John. Hi, Aaron. Hope he has...

John C. Walbrecht -- President

Hi, Jim.

Jim Duffy -- Stifel -- Analyst

John, I wanted to ask you to spend a moment talking about 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 Sierra business as the year progresses?

John C. Walbrecht -- President

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 is some signs of some positive momentum. Now, it cannot 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 has 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 is 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 face 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 in the market share we are gaining will reward us in the appropriate market.

Jim Duffy -- Stifel -- Analyst

Very helpful. Thank you. And then, you mentioned a bright spot in technical outerwear. And 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 C. Walbrecht -- President

No, I would think -- I think that what we're finding is that outerwear as a whole is a mature marketplace technical outerwear. There is -- we can name...

Jim Duffy -- Stifel -- Analyst

Sure.

John C. Walbrecht -- President

...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 the apparel and fall 13, we really have been specific about building apparel that is equipment, and the Dawn Patrol hybrid shell is exactly that. It is specific to a use in a process and because of it, It's won awards, things like the Approach Down being the lightest way down jacket in the marketplace. Literally in year-and-a-half went from never heard of to our number one revenue-style in outerwear. The Vision Down, the Highline, which is the first recycled fully recyclable PSE3 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 toward what is otherwise a mature market. And we do see strong responses to our bookings in some of these new specific product categories. And hence, we'll continue to chase down them.

Jim Duffy -- Stifel -- Analyst

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

Aaron J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

Yeah. 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 to go associated with certain value leakages that we are 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 can increase prices strategically or opportunistically, while also continue to make sure that we're driving higher margin products in each of the geographical regions and 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 that the team has been working extremely hard toward and it's something that continues to be a 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, what we're starting to see there is as you can see the manifestation of those activities -- of those efforts.

Jim Duffy -- Stifel -- Analyst

Great, thank you.

John C. Walbrecht -- President

Appreciate it.

Operator

Thank you. Thank you again. [Operator Instructions] Our next question is from Mark Smith with Lake Street Capital. Please go ahead.

Mark Eric Smith -- Lake Street Capital Markets, LLC -- Analyst

Hi guys. First off, John, you've 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. Will there be any real impact from you in the near term if you spent money on marketing or anything that would impact that? Hi guys. First off, John, you've 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. Will there be any real impact from you in the near term if you spent money on marketing or anything that would impact that?

John C. Walbrecht -- President

No, I think twofold. The first piece is obviously given the coronavirus market trends and discussions. I think 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 few weeks that will drive -- 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 Little Johnny is going to be a climber rather than a baseball player or they're going to go try a climbing gym because they've now seen this sport and it seems pretty exciting, and that will rise this. As I've 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 rely on going into the Olympics. We haven't spend dollars on that to-date. So we have no risk factor in there to-date, but we watch carefully to understand what's actually going to occur with the Olympics and the summer programs, as the health concerns roll-out. So we're going to be mindful. Who knows how that will be. We may experience as consumers an Olympic Games like nothing ever before, maybe totally just televised as opposed to attended.

Mark Eric Smith -- Lake Street Capital Markets, LLC -- Analyst

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've heard from other companies, manufacturers within China that we're seeing some people back to work and plants starting to pick up again. Can you guys talk to, are you seeing that kind of thing going on in China at this point? And then if you kind of wait what's built into your guidance here in the first half just from impact from coronavirus more so on the supply side or more so on kind of the demand side?

Aaron J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

So as it relates to the activity taking place in China specifically surrounding our supply chains and logistics, fortunate 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're about 60% to 80% of where we need to be in, where we want to be on a go-forward basis. As it relates to how we're considering the coronavirus in our outlook, as you might imagine, it's pretty dynamic and if 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 etc related to supply and logistics standpoint, but overall the factors that we're considering and that we outlined are more also -- are more around the demand side of things.

Mark Eric Smith -- Lake Street Capital Markets, LLC -- Analyst

Okay. And then last one from me. As we look at the Sierra business and your guidance there, does some of this guidance have to do with more of the launch and some new product roll-out that maybe hit later 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 return to growth in the second half of the year?

Aaron J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

Yeah. 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 a little bit tough, and that's where we anticipate continuing to see the negative trends that we've experienced over the last three quarters. But also, as you mentioned not only have we had a strong showing at SHOT Show with some of the new products that we are introducing for 2020, but a lot of the new introductions are also -- they will be available or will start to ship them out in H2 of 2020, so it's a combination of those two factors playing into the overall outlook for Sierra.

Mark Eric Smith -- Lake Street Capital Markets, LLC -- Analyst

Excellent. Thank you.

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 C. Walbrecht -- President

Thank you, everyone. We appreciate. At this time, this concludes it and we'd like to thank everyone for listening for 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

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Cody Slach -- Director, Investor Relations

John C. Walbrecht -- President

Aaron J. Kuehne -- Chief Administrative Officer, Chief Financial Officer, Secretary and Treasurer

Randy Konik -- Jefferies -- Analyst

Jim Duffy -- Stifel -- Analyst

Mark Eric Smith -- Lake Street Capital Markets, LLC -- Analyst

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