Black Diamond

BDE : NASDAQ : US$14.71
BUY 
Target: US$20

COMPANY DESCRIPTION:
Black Diamond Inc. is a leading provider of outdoor recreation equipment and lifestyle products. BDE also develops, manufactures and distributes a broad range of products used for climbing, mountaineering, backpacking, skiing, and various other outdoor recreation activities under the Black Diamond and Gregory brands

Investment recommendation
BDE reported adjusted Q3 EPS of +1c vs. our 4c estimate, as both sales ($52.8M vs. our $60.4M est.) and margin (40.2% vs. our 41% est.) missed our projections principally due to a shift in deliveries out of Q3 into Q4. Not surprisingly, retailers continue to exhibit caution with respect to fall receipts from vendors and BDE is no different. That said, full year sales / gross margin guidance was reiterated, and thus we expect Q4 to make up the Q3 shortfall. Importantly, no orders have been cancelled,

inventory is in good shape (-12% vs. sales +8%), and October is off to a good start with favorable weather. Our growth thesis is intact as we believe the apparel SKU proliferation over the next two years will result in BDE reaching its $250M apparel goal by 2017, three years ahead of plan. We reiterate our BUY rating and $20 price target.
Investment highlights
 Separately, BDE is “strategically pivoting” to improve the productivity of its best brands/assets (BD and POC). While details
were scant, we believe BDE could consider the disposition of lower growth assets (such as G regory) and use the proceeds to fund a DTC strategy. It plans to hire a senior level executive to optimize these brands’ potential. We support this sharpened focus on BD and POC, particularly as BD apparel grows into a full assortment best presented by BDE itself. In our view, the potential for both BD and POC is far greater than either brand represents today.
Valuation
Our $20 price target is derived from our DCF analysis.

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