Solo Brands' Q4 Surprise Stokes Double-Digit Gains in Earnings Wake

Adventure outdoor lifestyle company Solo Brands (US:DTC) stock jumped 12.7% on Thursday after delivering better-than-expected fourth quarter results.

And while both the beat and investor reaction are impressive, the DTC stock price still sits almost 75% below its October 2021 initial public offering price of $17 a share.

For the final quarter of 2022, the internet retailer grew net sales by 11.8% to $197.24 million, surprising analysts who had forecast a sales decline to $157 million.

Solo Brands CEO John Merris told investors that the growth across all businesses — direct-to-consumer, wholesale and international business — was a result of the team executing on its strategy as planned.

The group’s underlying profit measured by adjusted EBITDA narrowed by $4.4 million or 10% over the year to $38.70 million. Again, that surprised analysts, whose bearish expectations showed a consensus forecast of $21 million.

Solo Brands adjusted net income fell by 17.7% over the year to $29 million, equating to underlying earnings per share (non-GAAP) of 33 cents. The figure surpassed market expectations for 23 cents by 43%.

Spending Pressure

Management provided guidance for 2023 which incorporated some expectations of pressured consumer discretionary spending from broader macroeconomic pressures arising from inflation and slowing economy.

For the full year, Solo Brands expects to generate some marginal growth from total sales of $520 million to $540 million with an adjusted EBITDA margin of 16.5% to 17.5%. Fintel’s revenue consensus forecast for the year was within the guidance range.

From a liquidity standpoint, DTC ended the year with $23.29 million in cash and cash equivalents and total assets of $862.35 million, well above the $440 million market cap.

William Blair analyst Ryan Sundby commented on the better-than-expected results noting that the guidance was broadly within market forecasts despite headwinds in the outdoor category.

Fintel’s consensus target price for DTC of $8.23 suggests the stock could double over the next 12 months, recovering some of the 2022 declines.

A chart from the Fintel forecast page for DTC shows the forward analyst sales expectations for the company through to 2030.

Analysts are forecasting for slower sales growth over the next three to four years as the global economy grapples with inflationary pressures before stepping up significantly over the medium-term.

Insider Sentiment

Several insider purchases of the stock last year have shown up on Fintel’s tracking, including, as we highlighted in September, Chief Financial Officer Somer Webb’s transactions.

The DTC stock rates an Insider Sentiment Score of 84.5, which is bullish as it ranks DTC in the top 2% out of 14.871 companies screened for the highest levels of insider trading activity.

Contributing to that is CEO Merris’ purchase within the past 90 days a total of 5,533 shares on the market at prices ranging from $3.81 to $3.84 per share. The trades occurred in mid-December with the CEO now owning a total of 144,552 shares in the company.

Options trading worth noting show up in since yesterday’s results included a call purchase on Thursday morning that registered Premium Sigma, signaling a deviation of the premium from the mean.

This article originally appeared on Fintel

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