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This post originally appeared on the blog of Bainbridge Growth. It is being republished by The Current with permission.
Solo Brands is a digitally native DTC platform that operates four outdoor lifestyle brands. After launch, the company grew quickly through rapid adoption of their primary product, the Solo Stove. Spencer Jan launched the brand in 2010 using $15,000, premiering his invention of necessity as their only product. Spencer grew up in Canada as an avid camper and self-described tinkerer. He came up with the idea after realizing the need for a small and lightweight stove that could be portable for easier (and warmer) camping trips. Solo’s lineup of outdoor oriented offerings was expanded significantly in 2021 as they acquired three brands across kayaking, paddle boarding and outdoor apparel. They also completed their IPO in late 2021, going public at $17.00 per share while raising $219 million. The initial market capitalization at IPO was $2.1B, but is now fallen to $400 million.
Earlier this year Solo Brands founder Spencer Jan detailed his full backstory for Practical Ecommerce, mentioning his first Solo equity exit in 2019 when a portion of his stake was sold to a private equity entity and he subsequently became a non-executive board member. Jan sold significantly more equity in 2020 at a much higher valuation and left the board as the company was primarily owned by two PE groups by that time. The private equity owners installed current CEO John Merris and pursued the classic buy and build private equity strategy, spending nearly $200 million acquiring three additional brands prior to the IPO:
- Oru Kayak in May 2021, $25.4 Million May 2021
- International Surf Ventures (ISLE) $24.8 Million, August 2021 (Paddleboards Brand)
- Chubbies $129.5 Million, in September 2021 (Outdoor Clothing)
Solo product line. (Courtesy image)
The original filing of the IPO’s S-1 was detailed in a Bainbridge profile last year, primarily focusing on the company’s strong gross margins and relatively low customer acquisition costs. Also detailed in their S-1 was that a notable 92% of FY2020 revenue was from fire pits (Solo Stoves). This is a key statistic as there is minimal visibility of their product mix beyond that point, as the IPO occurred before the newly acquired businesses were fully integrated into the company. The 2021 acquisitions brought the total number of employees from 140 up to 220, but the company does not disclose performance of these brands (other multi-brand companies in the index disclose their brands revenues mix & growth). At this point in time it is difficult to discern what growth is purely acquisition driven and what brands are doing well. The company disclosed no information on average order value or active customers, only that they have a four million strong customer base.
If you were to only examine the income statement, things look pretty good. Revenue in the most recent quarter was $102.1M, up 47% year-over-year. Gross margin has remained steady in the last several quarters in the low to mid 60s range. Looking further down the P&L is where some concerns appear. Operating margins have steadily deteriorated over the last 8 quarters, and Q2 2022 saw a significant impairment charge as the stock declined. While some other DTC brands have taken impairments recently, this one is nearly 10% of market capitalization and will drive a substantial net loss for the full year, while still leaving $380 million in goodwill on their balance sheet after the Q2 writedown.
Solo financial statements. (Courtesy image)
Management now points to their organic growth, a result of expanding their product line within the Solo brand family. They have launched several items in the most recent quarter: Tower, Pie, Surround and Mesa. Most of the leadership's focus on the earnings call centered around Mesa and Pie. Mesa is their first product introduced with a price point below $100. They see this as an entry level offering that will increase the total addressable market and add B2B customers looking for bulk ordered customizable gifts. Pie was also heavily touted with its great reviews and was made Oprah’s “Best for the Holidays” 2022 list. Retail partnerships have also been a focus as they’ve begun wholesale agreements for their Chubbies brand with Dick’s Sporting Goods and Solo Stoves at Costco. The company is currently at 85% and 15% in terms of mix between DTC & wholesale but would like to get to 80/20 over the next few years.
Solo operating margin. (Courtesy of Solo)
Going forward, Solo needs to drive more synergies from their business model. Can Solo retain its genuine appeal while broadening its product line and drive efficient customer acquisition across its product lines? Or will it become a conglomerate of mostly unrelated products?
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On the Move has hiring news from Walmart US, Etsy, commercetools and more.
This week, retailers are bringing on C-level talent in areas such as people, operations and transformation. Plus, Kohl’s appoints an activist investor’s choice for CEO, Fanatics taps a former Snap executive for livestream shopping and Etsy brings aboard Facebook’s former general counsel.
Tom Kingsbury was appointed CEO of Kohl’s. Kingsbury was named interim CEO in December upon the resignation of now-Levi’s President Michelle Gass. Now, Kingsbury will have the job on a permanent basis. Kingsbury served as CEO of Burlington Stores from 2008-2019. Kingsbury was nominated by activist investor Macellum Advisors, which was pushing for change at Kohl’s. With Kingsbury’s appointment as CEO, Macellum has agreed to a “multi-year standstill.”
Judy Werthauser was appointed chief people officer at Walmart U.S. Werthauser comes to the teen-focused retailer from Five Below, where she served as EVP and chief experience officer. Over her four-year tenure, the chain grew from about 750 stores to more than 1,300 locations. Werthauser also served on the board of BJ's Wholesale Club, and is now resigning from that position. “I am excited to work alongside the world-class Walmart U.S. team as they bring the purpose of building a better world – helping people live better and renewing the planet while building thriving, resilient communities – to life,” Werthauser wrote in a LinkedIn post.
Mike Brewer was named chief operating officer at Crate & Barrel Holdings, overseeing operations at Crate & Barrel, CB2, Crate & Kids and Hudson Grace. Brewer brings 20 years of experience from Nike, where he served in roles including sourcing, manufacturing and supply chain. Crate & Barrel said Brewer’s appointment was part of the home retailer’s “ongoing efforts to evaluate and alter its structure in ways that help support overall growth.”
Keith Melker. (Courtesy photo)
Keith Melker was appointed chief strategy and transformation officer at JCPenney. Melker comes to the department store retailer from Wehner Multifamily, where he served as CEO. He was also a previous chief strategy officer at the Kimberly-Clark Corporation. Melker will oversee the transformation office, which includes ownership of metrics such as profitable traffic, inventory management, digital growth and strategic partnerships. With this move, Katie Mullen will remain chief strategy officer.
Blaine Trainor is joining ecommerce software provider commercetools as VP of global partnerships and alliances. In the role, Trainor will lead the headless commerce company’s partnerships ecosystem, working with companies including Deloitte, CapGemini, AWS and Google Cloud. Trainor previously served in senior leadership roles at SAP over a 12-year tenure, and also held sales roles at hybris software and Sterling Commerce.
Nick Bell, a former Google and Snap executive, will lead a new livestream shopping division of Fanatics, Footwear News reported. Bell previously led the teams behind Google Search Experience, and served as VP and global head of content and partnerships at Snap Inc. Bell will lead the Fanatics Live division, which will launch a standalone app that is geared toward collectibles.
NIck Bell. (Photo via LinkedIn)
Colin Stretch was appointed chief legal officer at corporate secretary at Etsy, effective Feb. 14. Stretch previously served as general counsel at Facebook from 2013-2019. He then spent two years as leader in residence at Columbia University Law School's Reuben Mark Initiative for Organizational Character & Leadership, and went on to the law firm Latham & Watkins.
"Colin's extensive experience will be critical to Etsy's efforts to ensure we remain a safe and trusted marketplace, broaden our reach across all our brands, and advocate for microbusinesses around the world,” said CEO Josh Silvermann, in a statement.