Solo Brands, Inc. (SBDS) Q3 2026 Earnings Call Transcript

Thank you.

Good morning, everyone. Welcome to the Solo Brands 3rd Quarter Fiscal 2026 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then And one on his touchtone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I will now turn the call to Mr. Mark Anderson, Senior Director, Treasury and Investor Relations. Mr. Anderson, the floor is yours, sir.

Thank you, and good morning, everyone. We appreciate you joining us for the Solo Brands Conference Call to review the 2026 third quarter results. Joining me on the call today are the company's president and chief executive officer, John Larson, and chief financial officer, Laura Coffey. This call is being webcast and can be accessed through the investors portion of our website at investors.solobrands.com. Today's conference call will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of any replay or transcript reading date. After our prepared remarks, we will open the call for analysts and investor questions. I would also like to remind you that the statements in today's discussion that are not historical facts, including statements about future financial and operating performance, including guidance, liquidity and cash flows, covenant compliance, business strategy, including product innovation, marketing tactics, introduction of new products, cost savings, benefits of technological advances, trends in seasonality, expected savings in connection with our consolidated U.S. distribution model, anticipated benefits from new leadership, And international expansion are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, by their nature, are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Solo Brands assumes no obligation to publicly update or revise any forward-looking statements except as required by law. Management will refer to non-GAAP measures, and reconciliations to the nearest GAAP measures are included at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form 8K. Now I'd like to turn the call over to John Larson.

Thanks, Mark, and thank you all for joining us today. Let me start with the key Take away from the quarter. While we are not satisfied with our top-line performance, we have continued to make meaningful progress on our profitability and cash generation priorities. Third quarter is typically our smallest sales quarter due to seasonal factors. Consolidated net sales were $43.7 million, down 17.6% from last year. We reported a net loss of $20.8 million and adjusted EBITDA of negative $2.1 million. Which represents a $3 million EBITDA improvement over last year despite lower sales due to our much leaner cost structure. All three segments were profitable on a segment-adjusted EBITDA basis, with stove and chubbies improving and water sports roughly flat without corporate costs allocated. These results reflect deliberate choices, a leaner cost structure, tighter inventory, and being less promotional overall. Our philosophy has been to strengthen the foundation first, then accelerate growth, and we believe our actions have strengthened that foundation. Through nine months, adjusted EBITDA was $13 million, up from $8.9 million last year, and operating cash flow was $26 million, compared with the use of cash a year ago. Our job now is to turn that foundation into profitable growth. At Stove, products launched over the past year accounted for approximately 50% of our website sales this quarter. Since its launch on September 23rd, the Chiminea Topper has become our number two selling product for the dot-com business, while the Teak Steel Infinity Flame Fire Pit, also launched during Q3, was our top seller. Our product videos drew more than 200,000 views this fall, and we earned recognition, including the Wall Street Journal's positive review of our griddle, Esquire's 2026 Gadget Awards for our propane teak steel infinity flame fire pit, and men's health recognition for top portable fire pits. As we continue to innovate, protecting our innovations through patent filings remains a standard part of our process. Finally, of note, our Windchill 47 cooler with misting fan was featured at the recent U.S. Open and select NFL tailgate events with Stove, introducing the brand to a broader audience and reinforcing our innovation-led strategy. To be clear, these launches have not yet completely offset the softness in legacy core fire pit volumes at the Solo Stove division. But they are the clear sign that customers respond to something new and differentiated within our brand. At Chubby's, we are now featuring collections built on two seasonal fabric patterns, the Cloud 10 sweater fleece and grid cord layering spanning both tops and bottoms. These collections were added to extend our traditional spring and summer foundation into a year-round offering for our customers and to complement our incoming holiday collections. As you know, WaterSports also added an assortment of new products for Costco this year and continues to develop additional products for future launches. Before I turn the call to Laura, here's how we are thinking about the path ahead. When I joined the board and later became interim CEO in early 2025, we moved quickly. We simplified the organization, reduced costs, diversified our supply chain, heightened inventory, adopted discipline, pricing, and marketing, and refocused on innovation. In 2026, we have been stabilizing the business from a much leaner base. We have always believed this transformation would be a multi-year effort, and our priorities remain unchanged. To build the top line, we are focused on three areas, delivering product newness, investing in our highest return channels and products, and accelerating international expansion. Every product we launch is held to a high bar. It must earn premium positioning and meet our return thresholds. International remains a compelling long-term opportunity. We intend to keep a disciplined market-by-market approach, partnering with experienced distributors and retailers to extend the reach of our brands while maintaining a capital-efficient operating model. We have just received our first orders from our newly contracted partners in Europe and Canada. At the same time, we remain focused on becoming a leaner, more efficient company with a strong focus on working capital and cash generation. We continue to streamline fulfillment and simplify operations, having reduced our U.S. distribution footprint from five facilities in 2025 to one, and cut third-quarter SGMA by 20%. Since year-end, we have reduced inventory by about $22 million to $59 million and generated more than $26 million of operating cash flow and ended September with $40 million of cash, up from $35 million at the end of June. We recognize the importance of driving top-line growth and know we have more work to do on our capital structure. These priorities are how we attend to achieve consistent profitability and cash generation and create long-term shareholder value. With that, I'll turn the call to Laura to review the financials.

Thank you, John, and good morning, everyone. As John discussed, we have consolidated our U.S. distribution model into a single warehouse in Texas, And this work is expected to generate nearly $3 million in annual savings. These cost actions, together with payroll and compensation-related initiatives implemented earlier this year, have contributed to a lower overhead structure with tighter SG&A spending on a run rate basis. Turning to third quarter results, consolidated net sales were $43.7 million, down 17.6% from the prior year period, primarily due to lower net sales across our reportable segments. Solo Stove generated sales of $24.7 million, down 19.9%, year-over-year. Chubbies reported sales of $13.7 million, down 16.8%, and Water Sports delivered sales of $5.3 million, down 7.4%. Despite this quarter's sales pressure, Each of our segments reported positive segment-adjusted EBITDA, and adjusted EBITDA for solo stow and chubbies increased over the prior year period. Gross profit was $27.7 million, or 63.4% of net sales. This 340 basis point improvement was primarily driven by improved pricing discipline on lower promotional activity and tariff impact. SG&A expenses were $31.6 million, down 20% from the prior year, reflecting our ongoing cost reduction initiatives, including lower employee-related expenses, reduced marketing spend, and lower distribution costs. Restructuring and impairment charges were $6 million, consisting of $3.7 million of cash restructuring expenses and $2.3 million of impairment charges. Net interest expense was $7.5 million compared to $7.6 million in the prior year. We reported a net loss attributable to solo brands of $20.8 million compared to a loss of $15 million a year ago quarter. Adjusted net loss attributable to solo brands was $11.6 million compared to $7.1 million in the prior year period. Our year-to-date adjusted EBITDA improved by 46% to $13 million, demonstrating the benefit of a streamlined and more disciplined operation. For the quarter, we improved the negative adjusted EBITDA from $5.1 million last year to $2.1 million this year. We also generated more than $6 million in operating cash flow for the quarter and $26 million year-to-date. Compared to the third quarter of 2025, this year's balance sheet reflects inventories down $26 million, a 30% decrease to under $60 million. We ended the quarter with $40 million in cash and cash equivalents and zero outstanding on the revolver and credit facility. We continue to actively manage inventory and working capital with no material debt maturities until 2028. On September 30th, we remained in compliance with all financial cabinets. Capital expenditures for the first nine months of the year totaled $5 million, with spending allocated across product innovations, patent-related investments, and IT systems. We remain focused on aligning our cost structure with current demand levels to improve profitability, generate cash flow, and strengthen our long-term earnings power. Today, we are updating our 2026 financial guidance to reflect our nine-month results and current year outlook. For net sales, we are moving from a range of $280 million to $310 million to a new range of $270 million to $290 million, a decline of approximately 5% versus our prior guidance midpoint. For our full-year adjusted EBITDA, our previous guidance was $24 million to $30 million, and today our outlook is $21 million to $25 million. Our updated net sales and adjusted EBITDA ranges include the low end of our prior guidance. With that, I'll turn it back to John.

Thanks, Laura, and to everyone on our finance team who is helping us build a more profitable, cash-generative, and resilient company. Looking ahead to holiday 2026, we believe we're entering the quarter from a stronger position than a year ago. Our inventory is leaner, our operating structure is more efficient, and our newest products are gaining traction with customers. While the consumer environment remains competitive, and the fourth quarter is critical to our full year results, we believe the work we've done over the last two years has positioned us to execute more effectively and capitalize on the opportunities ahead. We have strengthened our leadership team and established a clear roadmap for growth. Earlier this year, we added a SVP of global sales with significant international experience to help scale our North American and global expansion, as well as chief digital officer to lead our DTC business. Under this leadership team, we are broadening customer reach, Expanding awareness of our brands and leveraging premium products and accessories to deepen engagement across digital and social commerce channels. We are also investing in influencer-led marketing and positioning our brands for the emerging agentic commerce landscape, where AI-powered tools increasingly help consumers research, compare, and purchase products. We recently launched both Solo Stove and Chubbies on TikTok Shop, creating new opportunities to engage consumers across evolving digital channels during the holiday season. At Chubbies, we are also excited about the upcoming graphic tee and hat launches in the first quarter, alongside continued international expansion initiatives. We believe the transformation work undertaken over the last two years has created a stronger, more resilient platform from which to drive sustainable growth, profitability, and cash generation. While there is still work to be done, we believe the actions we have taken to strengthen the business, improve our operating foundation, and invest in future growth leave us well-positioned for the opportunities ahead. With that, operator, we are ready to take questions.

Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to address your question, please press star then 2. At this time, we will just pause momentarily to assemble our roster. The first question we have will come from Mitchell Sachs of Grand Slam Asset Management. Please go ahead.

Hey, guys. Can you just talk a little bit more about the solo stove top or the, I think you call it, why it's selling so well, and then when do products like that and other things you can do as extensions to your solo stove start to turn the tide and, you know, sales dropping to sales starting to go the other way and increasing?

Hey, good morning, Mitch. John Larson here, and I appreciate your question. Yeah, we are really excited about the launch of the Chimney and Topper, and as part of our product launch strategy, it became obvious with so many fire pits out there from our previous sales, how do we really leverage that opportunity with our owner base? And so we went through a process. We brought close to 20 ideas, and the challenge I had out to our product team was, How do we provide something so unique that those three and a half to four million customers out there really want to add it to their portfolio? And so going through the testing, a research process, talking with customers, we came up with this very unique product called the Chiminea Topper. We thought it was going to be successful, but the success has really exceeded all of our expectations. And we are aggressively increasing production to meet demand. But what it really does is it provides benefit of more heat. It provides a whole different design element into all of our current owners out there that own that 19 and a half size, which was our number one selling fire pit. It gives them a way to really change the form, the function, and adds a little more heat and intimacy. So yeah, the response has been great. Very excited about it. But the genesis behind it, honestly, Mitch, eight months ago, it wasn't even on the product plan. And we saw the success, we saw how it tested with customers, and we have a very quick turnaround in terms of innovation and new products and brought it into the market as quickly as we could for fourth quarter, which is our biggest quarter. I'd also like to note we launched just prior to that a premium version of our propane fire pit that we call the Teak Steel. And as I mentioned in my comments earlier, that was not on our product plan at all. But when we saw the initial response when we launched our first propane fire pit last year was really successful. We said, let's take this up. Let's make it more premium. Let's add a design element that could really hit the market. When we launched that product, Mitch, the sales in our propane category went up by 300%. So it became the number one selling product that we had. Now the Chiminea is the number two product. So as we've talked before on these calls, innovation is going to be key to offset kind of that core demand decline in the old legacy fire pits. And how can we add on? So very excited about our product team, how quickly we turned it around at the stove division, added two products that in the spring weren't necessarily on the plan. And now they're delivering as our number one and number two selling skews on our dot com.

Okay, and when do you expect that to start to arrest the sales decline? Do you think that's a 27 possibility, or can you walk me through that?

Yeah, I mean, I think it's definitely a possibility for sure, Mitch. I mean, we're pulling all of our 27 plans together right now. You know, the reality is to have long-term success, we need to be an omni-channel brand, and that means selling through each and every category. It takes a while to get the new product into the retail channel, and quite frankly, the retail channel on the stove side has had the decline in the legacy pits. They've drawn back on how much of their... Shelf space is dedicated to fire pits, so we need to bring the new products in. Now, fortunately, we have some tests going in place. The new Infinity Flame Premium, we call Teak Steel, has gone into a number of stores with tests and seems to be selling through very well. So really relying on these new products and getting them further into our retail channel, which has really been devastated by the reduction in kind of the core business out there, is going to be critical to turning it around in 27. But do I think it's a possibility? Absolutely. We need to turn it around in 27.

Thank you.

Well, this will conclude our question and answer session. I would now like to turn the conference call back over to Mr. John Larson for any closing remarks, sir.

Thank you for continuing to follow our company, and we look forward to providing our fourth quarter and year-end results and updates on strategic initiatives in a few months. Have a great day.

And we thank you, sir, and to the rest of the management team for your time also. Again, the conference call has now concluded. At this time, you may need us to connect your lines. Take care and have a great day, everyone.