Clarus Corp (CLAR) 2019 Q2 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the second quarter ended June 30, 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 statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Liz. Please note that during this call, the company may use words such as appears, anticipates, believes, plans, expects, intends, future and similar expressions, which constitute 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 company's exposure to product liability or product warranty claims and other loss contingencies; the stability of the company's manufacturing facilities and suppliers; 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 cause the company's financial results is included from time to time in the company's public reports filed with the SEC, 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 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 that this call will be available for replay through August 19, starting at 8 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 is strictly prohibited.

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

Thank you, Cody, and good afternoon, everyone. It's a pleasure to be joining you. Our results in the second quarter of 2019 capped an excellent first half season with sales up 9% for the first 6 months of the year fueled by 13% growth at Black Diamond. We also continued to drive operational improvements and profitability gains across the business with the adjusted EBITDA margin in the first 6 months of 2019 increasing to 8.2%, up 100 basis points compared to that of last year. It is important to note that historically, the second quarter is our lowest sales quarter of the year, and we still believe that we will remain on track to exceed our 10% EBITDA margin target for the full year.

Our results in the second quarter are proof that the innovation and acceleration strategy we have been implementing at Black Diamond is driving both brand awareness and market share gains across all categories. However, performance in the quarter was somewhat offset by our protracted winter season, which impacted Black Diamond spring product sell-throughs and our at-once orders as well as the difficult bullet and ammunition marketplace, which impacted Sierra, both of which we'll cover later in this call.

Turning to Black Diamond. During the first half of 2019, the brand has invested in its people by either hiring or promoting several individuals into key category roles, including footwear, snow, mountain hardgoods as well as key R&D and design roles. Additionally, we have added or promoted individuals into critical sales roles, including the VP of Sales for North America and directors for both national accounts and key accounts. These roles add significant experience and expertise to an already strong team that is making significant strides in designing and developing an expanded product offering focused on the activity-based consumers while increasing brand awareness within both retail and the consumer levels and deepening relationships with our key distribution channels.

Also in the first half of 2019, the Black Diamond marketing team has been hard at work driving product awareness and sell-through with impressive results. On top of the strong first half sales growth of 13%, brand impressions were up 12% to $1.7 billion. This increase in impressions was driven by overwhelming positive response to our new products, which have already won 52 total product awards through Q2, the amazing accomplishment of our athletes with several of them preparing now for the 2020 Tokyo Summer Olympics as well as our ever-expanding social presence.

Now I'd like to dive into our category results within Black Diamond, starting with ski. Sales in the second quarter were up 17% due to the protracted winter. I mentioned previously, this helps support the continued strong demand for our avalanche safety gear, which we were able to sell as a result of the recovery of our supply chains in delivering our new beacons.

Turning to apparel sales. Sales in the second quarter were up 10%, driven by continued strong demand for bottoms, logo wear and sportswear. The second quarter was a relatively tough comparison for the apparel category as last year, we saw the introduction of our best-selling Stretch Rainwear line. That said, we continue to see strong positive response across the offering as apparel remains one of the fastest-growing categories with what we believe is a significant runway for continued long-term growth.

Our mountain business was up 6% due to strength across lighting, trekking poles, packs and tents. Our team continues to design and develop award-winning products within our mountain business, providing retailers and consumers with additional touch points for the brand. Given the large addressable markets for each of these product categories, we are encouraged by the continued strong performance and see further opportunities to potentially grow our market share.

Lastly, our climb category was up 7% in the second quarter, driven by the strength of our carabiner line and the continued positive overall trends and popularity in the climb industry. Additionally, one of our fastest-growing product segments within climb is that of footwear, which continues to be gain traction with existing customers and is bringing new customers into the brand. Going forward, we believe there is a large market share opportunity in the footwear space that we can seek to capitalize on through continued innovation, focused execution and product extensions. But more on this later.

Turning to Sierra. As expected, we experienced strong industry-wide headwinds in the bullet and ammunition space as sales were down 16% for the second quarter of 2018. Despite these continued headwinds, we remain focused on our innovate and accelerate strategy, international expansion and our entrance into the ammunition category, which I'll discuss later in this call.

Now on to some regional comments for the second quarter. Sales domestically were up 2% due to the solid performance in both wholesale and D2C channel. Within wholesale, Black Diamond's key accounts and specialty retail partners experienced strong demand across all of our major categories, led by mountain. D2C also performed well with higher level of traffic online as well as in store. Our retail store performance was driven by higher levels of consumer engagement, including our increased focus on holding more community outreach activities and enhanced product offerings and more refined approach to in-store merchandising.

Regarding our D2C strategy, in today's world, clearly, a direct relationship with our consumer is a necessity, and we will continue to develop this through our focus on community engagement and education supported by our expertise in all of the product categories we offer. However, we not only view this strategy as allowing us to create deeper relationships with our customers but also an effective marketing platform that can support sell-through and growth at our retail partners as well.

Turning to our international region. Sales were up 3% despite a slow kickoff to the spring/summer season due to extended winter conditions. Europe experienced strong order fulfillment in key markets of Germany, France, Austria and Scandinavia. Additionally, we saw strong performance in the U.K., Korea and Hong Kong with our distributor business.

Before turning the call to Aaron, I'd like to mention that even in the face of adverse weather at Black Diamond and a tough market environment at Sierra, our performance in the second quarter shows the strength and resiliency of our portfolio. On top of this, we generated strong first half 2019 results with sales up 9% and an adjusted EBITDA margin expansion of 100 basis points. Looking towards the second half of 2019, where we historically generate a little over half of our annual sales, we have an extremely compelling product offering that we expect will continue to propel our brands forward, drive awareness, and in fact, grow market share.

With that, I'd like to turn the call over to Aaron to speak more details about our second quarter financial results. Aaron?

Thank you, John, and good afternoon, everyone. Jumping into our results for the second quarter of 2019, sales increased 2% to $47 million compared to $45.9 million in the same year ago quarter. And on a constant currency basis, sales were up 3%. Sales were driven by 8% growth in Black Diamond, which saw strong performance across all categories and channels. This was offset by headwinds in the bullet and ammunition marketplace, which led to a 16% decline in Sierra.

Gross margin in the second quarter was 34% compared to 34.6% in the year ago quarter. The slight decline was primarily due to channel and product mix via our international distributor network as well as foreign exchange headwinds from the strengthening U.S. dollar. This was partially offset by the continued benefits of our productivity programs focused on the value-enhancing activities within our supply chains and operations.

Overall, our sales and gross profit in the second quarter were negatively impacted by unfavorable foreign currency changes on a transactional basis by $400,000. The primary cost of our inventory is denominated in U.S. dollars, while 32% 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. Although we have hedges in place for the different cash flows denominated in foreign currencies, these hedges will never be a perfect offset to the actual currency movements, especially with the currency volatility we've recently experienced.

These hedges also do not protect our financial statements from the translation impact we experience from these foreign currencies. In our reported sales and gross profit, our hedges offset approximately $300,000 of foreign currency exposure in the second quarter. For the full year 2019, we now expect foreign currency to have a negative impact of approximately $2.3 million on sales and gross profit when compared to the prior year.

At the Sierra level, approximately 50% to 65% of our product costs consist of materials such as copper and lead. We seek to actively manage the impact the 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 6 to 9 months out.

Another point on gross margin, specifically surrounding the current trade war. Based upon tariffs enacted to date, we now expect cost of goods sold in 2019 will be impacted by an estimated $600,000, which is substantially lower than the $1 million to $1.2 million we originally expected. This number is assumed in our unchanged financial outlook, which I will address shortly.

Our ability to lower the estimated tariff impact on our cost of goods sold is due to the proactive approach of our research and development and sourcing teams in ramping up new supply chains on key products negatively impacted by the trade war. While it is still unclear if additional tariffs will be levied, we continue to be active in working to mitigate our exposures and decrease the negative impacts of the current enactment.

As I have stated previously, we are focused on 4 primary mitigating activities. First is resourcing. Well, we are working with our device -- we are working with our device -- our diversified supply chains in coming up with different sources for the product coming out of China. Second 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. Third is recosting. We have been working with our vendors to renegotiate costing to offset some of the impacts. And finally, we are optimizing logistics to bypass the U.S. on international shipments.

Selling, general and administrative expenses in the second quarter were $17.2 million compared to $15.8 million in the year ago quarter. And as a percentage of sales, SG&A was 36.6% compared to 34.4%. The increase in SG&A was attributable to our continued investment in brand-related activities of marketing and direct-to-consumer of $500,000, a shift in timing of summer trade shows from traditionally the third quarter to the second quarter that amounted to approximately $500,000 and costs incurred with the move of our warehouse in Europe of another approximately $400,000.

Net loss in the second quarter was a loss of $700,000 or a negative $0.02 per share compared to a net loss of $800,000 or a loss of $0.03 per share in the year ago quarter. Net loss in the second quarter of 2019 included $2.2 million of noncash charges compared to $3.2 million of noncash charges and $200,000 in transaction and restructuring costs in the second quarter of 2018.

Adjusted net income, which excludes noncash items as well as transaction and restructuring costs, was $1.5 million or $0.05 per diluted share compared to $2.6 million or $0.09 per diluted share in the second quarter of 2018.

Adjusted EBITDA was $1.6 million compared to $2.8 million in the year ago quarter. As a percentage of sales, adjusted EBITDA was 3.4% compared to 6.2% in the second quarter of 2018.

Net cash provided by operating activities for the first 6 months of 2019 was $9.7 million compared to $7.9 million in the year ago period. And capital expenditures in the first 6 months of 2019 were $2 million compared to $1.5 million. Free cash flow, defined as net cash provided by operating activities less capital expenditures for the 6 months of 2019, was $7.7 million compared to $6.4 million in the year ago period.

Now moving on to the balance sheet. At June 30, 2019, cash and cash equivalents totaled $2 million compared to $2.5 million at December 31, 2018. At June 30, 2019, total debt was $16.7 million compared to $22.1 million at December 31, 2018.

Switching gears. Our 2019 financial outlook remains unchanged from what was provided on the last call in May 2019. Through the first half of the year, Black Diamond has performed extremely well across all categories, channels and regions. This is a testament to the team's dedication to our innovate and accelerate strategy as well as our compelling core offering and strong consumer following, which has driven balanced growth.

At Sierra, we also remained focused on an innovate and accelerate strategy while improving our go-to-market process. Combined, we believe this will produce market share gains even in the difficult market environment. However, we expect growth at Sierra in the second half of 2019 to be impacted by the continued strong headwinds facing the bullet and ammunition market.

To reiterate, sales are still expected to increase approximately 8% to $230 million compared to $212.1 million in 2018. However, we now expect sales for Black Diamond to increase low double digits from high single to low double digits previously and sales for Sierra to decrease high single digits from a low single-digit increase previously.

We still expect adjusted EBITDA to increase 20% to approximately $25 million in 2019 for a margin of approximately 10.9% compared to 9.8% in 2018. With this margin expectation, we expect to cross the 10% adjusted EBITDA margin threshold, which was a long-term target we introduced a couple of years ago and is further proof that our operating strategy is working and that our brand portfolio is on solid footing. This outlook includes the appropriate amount of investment into our brands to drive brand awareness and product innovation and we believe is a testament to the leverage we can drive throughout the organization.

We also still expect to generate free cash flow from continuing operations of approximately $10 million after approximately $4.5 million in capital expenditures, which incorporates additional investments on our ability to create better consumer experiences, innovate and launch new products at a faster rate, increase production capacity and to solidify systems for greater insights and scalability.

Before passing the call back over to John, we would like to highlight another point on the substantial improvements we continue to make within the financial performance of our businesses. Internally, we drive our financial results towards a modified return on invested capital metric. We believe this modified ROIC best aligns profitability targets within the entire organization despite what accounting adjustments might be required during purchase accounting and represents our true invested capital in the different businesses.

We calculate our internal ROIC by comparing adjusted EBITDA, as defined in our earnings release, for each of the business to the associated purchase prices plus or minus any additional capital required or generated on a cumulative basis. Using this calculation, both the Black Diamond and Sierra businesses generated more than a 15% ROIC on a trailing 12-month basis. We are very proud of the performance of both businesses and look to drive even further returns in the future.

Furthermore, 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 June 30, 2019, we estimate that we have available NOL carryforwards for U.S. federal income tax purposes of approximately $141 million.

This concludes my prepared remarks. Now I'll turn the call back over to John.

Thanks, Aaron. Now that we've highlighted our results, I'd like to transition to a product discussion for the upcoming fall '19 and spring '20 seasons. For both seasons, we have an innovative and comprehensive suite of new product offerings that have already garnered significant positive response with our retail partners and our industry publications. For fall '19, we expect to have over 150 new products slated for launch. And for spring '20, we expect to have an additional 125 new products slated for launch.

Turning to fall '19. As discussed on our last call, Black Diamond's fall '19 offerings received significant attention and awards from the industry. Our new product introductions will encompass footwear, apparel, headlamps, trekking poles and packs. And I am particularly encouraged with our fall apparel line with styles like the Deploy jacket, the Rhythm wool tee and the Stretch Rainwear.

Within our ski category, Black Diamond -- backcountry skiing and snow safety continue to be a significant emphasis of Black Diamond with the expansion of the most innovative collection of JetForce packs to date featuring the JetForce Pro, the Tour and the Ultralight. These offerings will be alongside an expanded suite of beacons, gloves, ultralight skis, bindings and this new Snow Outerwear program.

Additionally, we recently won Editors' Choice for Runner's World magazine for our new Distance 15 pack for trail running, hiking and climbing. This innovative pack incorporates the best technologies from both running vest and Alpine packs and has enough capacity for multiday adventures.

Finally, this fall's offering is the culmination of the innovate and accelerate strategy we've been implementing over the last 2 years. Due to the length of the product development cycle, this is the first season where from start to finish, we have one consistent strategy, starting with the line plan to the catalog, to the trade show events, and finally to our sell-in to our retail partners.

Now let's discuss spring '20. This summer kept our most successful Outdoor Retailer and summer ISPO shows as Black Diamond launch its most comprehensive collection of products ever for a spring in the spring 2020 collection. This collection has won already 10 awards so far across both trade shows, including Gear Patrol Editors' Choice for the Cirrus 9 pack, Gear Junkie Best in Show for the new Z4 Cams, REI's 7 coolest new products for backpacks -- backpackers for the ReVolt 350 headlamp and the ISPO award for the Carbon Distance running pole. Our new product launches for spring '20 will cover climb, mountain and apparel.

Within climb, we are expanding our performance footwear offering to include both performance and lifestyle approach use. This extension of our footwear category will complement our climbing shoe line, and we expect this to continue the strong momentum we have already generated with our entrance into footwear just 1.5 years ago. We expect to initially launch the approach used with one of our national accounts in the fall to test the market and then expect to launch globally for spring '20. This will be combined with new carabiners, cams, helmets, harnesses, rock shoes and bouldering accessories.

In our mountain category, we will introduce a complete collection of rechargeable lighting, new trekking poles and an expanded collection of daypacks.

Within apparel, the focus of spring '20 will be on trail running as well as the new Highline jacket, Swift pants, Rhythm shirt in long sleeve and the new Distance running short and in climb with our new Crag Denim and Forged Denim, a stretched denim collection made for our core climbing consumers. Supporting these product launches will be a marketing campaign focused on accelerating in-store support and consumer engagement via our athletes, events and a more robust digital presence. We also expect to add additional retail locations in certain key markets, elevating the awareness and demand of our brand in a more consumer-centric manner and allowing us to grow our outdoor community and be the provider of equipment, knowledge and experience.

Now turning to Sierra. Despite the decline in sales in the second quarter, which was expected, we remain intently focused on driving efficiencies in the go-to-market process and continuing to innovate and accelerate across our product offerings. While the entire bullet and ammunition market is facing headwinds, we remain focused on our strategy, and I am confident we can continue to execute our goal to drive market share gains.

Also, our expansion in the ammo category is underway and our offerings have been extremely well received from both consumers and our retail partners. To date, we have launched 8 cartridges and expect to ramp up with several more in the coming months. These introductions will be combined with creating awareness and driving demand for our ammunition offering, but this doesn't happen overnight. 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.

Lastly, we have developed strong partnerships with our domestic retailers and see an opportunity to replicate this internationally. Specifically, we have our near-term opportunity in Europe and in Australia as well as our already developing key relationships to expand distribution and drive increased awareness.

Now turning to SKINourishment. The brand is focused on building out the climbOn products offering with an expanded line for fall '19 and spring '20. Within climbOn, we added a new Cedar scent, added a spray and soak options for our popular RIDICULOUS! category and added refills to our leading climbOn lotion bars, which are packaged in sustainable, compostable tubes. Additionally, we are in the process of seeking to integrate CBD oil into our top products, including the original lotion bars, creams and RIDICULOUS! products as well as releasing pure CBD oil in a 500-milligram dose. Lastly, we plan to release an all-natural, food-grade insect repellent called Bug Drug, where we see a big opportunity for our core consumers.

We continue to believe that we are uniquely capable to significantly grow SKINourishment's brand and product portfolios as we implement our innovate and accelerate strategy across all aspects of its operations and product offerings.

As we've discussed on the last couple of calls, the strength we have built across our brand portfolio, which have already driven significant value creation, is being supported by a strategic and disciplined capital allocation policy. The profitability gains and increased cash flow generation of our brands are producing along with expanded flexibility and capacity under our new cash flow credit facility provides us the liquidity to opportunistically evaluate acquisitions of additional super-fan brands, adequately fund our quarterly dividend and potentially repurchase our common stock.

Before getting to Q&A, I'd like to reiterate how encouraged I am by Black Diamond's upcoming fall and winter '19 product offerings. As I said, this will be the first full season where our strategy is fully embedded and driving each vertical of our go-to-market strategy. The entire team has been working extremely hard over the last couple of years, and the initial results and the reception to this expanded offering has been very positive. As we continue to roll this strategy out to future seasons as well as through Sierra and SKINourishment, I expect to continue to produce positive results and create value for our shareholders.

With that, I'd now like to turn the call back over to the operator for Q&A before my closing remarks. Operator?

(Operator Instructions) And our first question will come from Jim Duffy with Stifel.

If I'm interpreting the outlook appropriately, it sounds like a more optimistic view for the BD business, maybe things pacing ahead of the views communicated in the previous guidance. What are the categories or products that are really driving that more confident view as you look across the remainder of the year?

I think we continue to see more momentum in climb, and the combination of both the hardgoods and the softgoods side, obviously, with footwear addition both in rock shoes as well as approach shoes and the new products within climb. We have had and continue to see strong pickup and excitement around the whole winter direction, the new skis and skins and that aspect but more around snow safety, specifically the new JetForce and beacons. And then we continue to see market share gains in trekking poles, headlamps, packs and in the mountain category. We believe the activity-based model is working and that the product innovations across all categories simultaneously has balanced the business and shown growth in every category.

And John, is that concentrated in any one region? Or is it really balanced across the globe?

No, it's been balanced across the globe.

Okay. And then Sierra, a little softer in the guidance. Is this a reflection of the ammunition launch being more sluggish than you anticipated? Or is it really just category-specific, your headwinds for the category as a whole? And then related to that, John, I guess I'd be curious, your views on the category and when you think there might be potential for turning the category.

I would say that it's been category as a whole. Obviously, for us, it's been more driven by what we would call the softness of our OEM side of the business than it is the consumer or green box side of the business. And I think that's a reflection of what's taking place in law enforcement, military and that aspect of the business. I think everybody came out of SHOT Show believing the market would be relatively flat in the first and second quarter and see more growth in the third and fourth and what the market experienced was softness in the first and second quarters and hoping to see more flat growth in the -- flat maintenance of the business in the third and fourth and hoping to see growth again in 2020. I think that's kind of the view in the marketplace. We continue to play it as a market share story and believe that it's -- this market will -- just like we had it going out tide, we'll have it going in tide again.

Okay. Good. And then one more for me. Can you guys comment on the recent news that's been out there about your decision to relocate some manufacturing, as you do so, some of the strategies to mitigate operating risk and how you're thinking about that in terms of like its financial implications to the P&L?

Okay. So the first thing we would say is that the termination of manufacturing will start from around September 1 and through the rest of this year. The decision was not a reflection on the capabilities, abilities, progress, efforts of the team downstairs in manufacturing. But as we said in our discussions, this has really been driven off of a multi-tiered strategy and the biggest theme that for Black Diamond to be able to innovate and design the most disruptive equipment in the marketplace. And that's really what drives us, becoming a design house. We have been very focused on those individuals. We see them, the operators downstairs, as part of the BD family.

And so we have been very cognizant to work with them, both in severance agreements as well as in job placement here in the Salt Lake Valley to ensure that -- the easiest transition. From a pickup of margin in long term, we believe that we will be able to see some margin enhancement from that. And obviously, from a quality perspective, that is first and foremost the most important thing to us, is to ensure that always our product, which is personal protection equipment, is certified, watched and meets or exceeds the expectations of Black Diamond wherever it is made.

Our next question will come from Dave King with Roth Capital Partners.

I guess first, on the BD side, maybe sticking with some of the line of questioning on guidance. Do you have what the growth cadence was by month relative to that sort of 8% number? It sounds like May might have been tough. Just curious about the trend in June and July and how that sort of fits in with the guidance and the trajectory as we head into Q3.

So what I would say is that we all saw winter longer than anticipated, which definitely impacted spring as we saw it. And so spring being the second quarter was impacted, and we saw that in the growth being tougher in the earlier months and then starting to pick up. We are positive and optimistic given the signs we've seen going into fall. That momentum has rechanged and is stronger. And we will continue on that as well as the drive to the number of new products that we launched in fall '19. We continue to see that gaining momentum as our most successful season of launch to date. And so unfortunately, it was a weather issue, and that obviously drives to a later summer or spring. And then as we move into fall, just strong optimism and execution on that front.

Okay. And then -- so maybe along those lines, as you move into fall, it sounds like 150 or so new products. How should we think about the magnitude of the revenue impact from those new products versus sort of the revenue benefit you got last year? Just what's sort of the delta there in terms of impact or expected impact that you're thinking in guidance?

I think what we would say from the notes earlier today that you saw is that originally, we were thinking it was going to be a high single-digit growth for the year. And you can see where the first half of the year came in. And we believe that, that double-digit -- low double-digit number achieved in the first half of the year is more in line with our direction for the second half of the year.

Okay. So it sounds like a fair amount of that is coming from the new -- that delta is coming from the new product launches then in terms of that benefit?

Yes, yes.

Okay. Last one for me, switching to Sierra. Do you see any noticeable lifts? I guess probably on the green box side is where you'd see it most. But from the California background checks, either in June or in terms of more recent replenishment orders, was it enough to notice, frankly?

No, I think our business is a combination of the green box business and the OEM partnership that we have being specifically bullet. Even though we launched into ammo this year, we've been clear to everybody saying that of all the bullets we do, we're launching 8 calibers into ammo. We're excited about and we think ammo has a great future for the brand given the response to those 8 calibers, but it is just 8 calibers. We are a brand that is focused on the bullet innovation side, both what we provide in unique opportunities for the OEM partners but also the green box.

We haven't seen that. We're starting to hear rumblings of it coming more in the third and the fourth. We do continue to see -- maintain what I would call market share gains in the green box side. And as we said in our report, we'll now focus more and more on the international businesses as well because we think that's got more opportunity. And our goal is just -- we believe strongly in innovate and accelerate, just double down. The tide is out. It will come back in.

Our next question will come from Laurent Vasilescu with Macquarie.

I wanted to follow up on the footwear and apparel initiatives. I think last quarter, it was noted that footwear grew 60% for the quarter. Just curious, I think I've missed the growth rate for the second quarter. And how should we think about footwear and apparel growth overall for FY '19?

Footwear and apparel are both important initiatives to us. They will have some ebb and flows as you were seeing by seasons. I would say that climb footwear in the second quarter was up high single digits, and that's driven again by a late spring initiative on that. Apparel continues to gain ground, and as we move into fall '19, outerwear, sportswear opportunities. And we continue to see long-term future growth with both outerwear and footwear, recently winning the Gold ISPO Award for our Highline jacket at ISPO, which is a covenant award for a jacket that is a 3-layer fully recyclable jacket, and then the overwhelming response to our new approach use. And those are just 2 more initiatives on a long pathway of product innovations to continue to drive growth and consumer experience through footwear and apparel.

Very helpful. And then switching to gross margins. The press release notes that GM was slightly pressured in the second quarter from channel and product mix as well as FX. Aaron, maybe could you part and parcel those out in bps term? And how should we think about those factors for the remaining 2 quarters of the year?

You bet. So FX represented anywhere from 55% to 60%, while channel and products mix was 65 basis points offset by, as I say, some of the productivity programs that we implemented that generated a favorable variance of 110 basis points on a year-over-year basis. As we think about the remainder of the year, we are looking at FX impact of about $2.3 million. And so obviously, that continues to be a headwind that we're experiencing. However, we have implemented a series of hedge contracts to help offset that. We feel like we're in a fairly good spot as it relates especially to the euro and the Canadian dollar in terms of mitigating our exposures there and having decent rates in place to help offset some of the headwinds. But we are looking at a $2.3 million negative impact associated with gross margins for the entire year of 2019.

Okay. Very helpful. And then switching to SG&A. I think the press release notes $400,000 in costs associated with the warehouse in Europe. Is that onetime in nature? Or should we think of that increase for the next 2 quarters?

Most definitely, onetime in nature. This is a move that we decided to activate coming into the year as we looked at the needs of our European office, primarily focused around having higher levels of fulfillment, easier to do business with type activities and just being quicker to market but also enhancing our direct-to-consumer business in that market. And so that was a need for us to be able to move into a higher-performing facility and what's a different partner. And so they're most definitely onetime in nature.

One of the major impacts of the season, as I said, the shift up of the trade show. So we saw a trade show impact that would have happened in the third quarter now roll into the second quarter in comparison.

Okay. And then my last question is on Sierra. I know you guys don't give quarterly guidance, but any high-level thoughts about the third and fourth quarter. And then with tonight's 10-Q, it looks like both your domestic and international decline at the same rate. Should we think of those declines across the regions for the next 3 quarters -- excuse me, 2 quarters?

As we look to fall, I think our view is to focus on each of the markets individually and to drive through innovation and acceleration each of the markets. We don't give guidance on the quarterly, more on an annual. We now see that we will see high single-digit decline across Sierra. As our outlook, obviously, we'll do our best to exceed on that as a team. But we see those trends kind of maintaining as we go through the rest of '19.

I think it's also important to note that in Q2 of last year, the Sierra business grew 32%. And in Q3 of last year, the Sierra business grew 35%. And so as we continue to see the market headwinds that we're experiencing to date, we'll see a more magnified impact in Q3 versus in Q4 where Q4 grew 14%.

Our next question will come from Michael Kawamoto with D.A. Davidson.

Just building on Sierra, can you just talk about what your expectations are for year 1 of ammunition? And I understand there are industry headwinds. How quickly can you ramp that piece of the business?

We launched into GameChanger to start, which was 8 calibers by this fall. Obviously, 8 calibers is 8 of multiple dozens of different calibers we offer within the Sierra bullet range. We believe long term that ammo is the right process. We launched into the GameChanger because of the -- our history in hunting as well as our long-term market share view in long-range competition bullets and combining the 2. We will continue to escalate the GameChanger and have new additional calibers being launched within the GameChanger collection. And as we get to SHOT 2020, we'll continue to expand into new offerings of ammunition in other categories in partnership with our OEM partners.

Long term, we think it's exactly the right strategy for the brand. As we said, we are doing it in partnership with our OEMs. And we think that it is a growth option, but it's not planned to offset whatever is taking place in the bullet business in the short term.

Got it. That's helpful. And then maybe I missed this, but do you have any visibility into inventory levels, what they look like in the channel or for your retail partners for Serra?

I think we can only speculate, to be honest. I think our view is that there have been a lot of opportunities for our retailers to buy over the last 6 months given the weakness of the market and the promotional nature of all the players in it. I think we're starting to see at their level some movement as we go into the fall season and a little hope it will translate around. Again, for us, only part of our business is driven through retail and the green box. The other side of our business is the OEM partnerships relative to military and law enforcement. And I think those have been softer than even the retail side.

(Operator Instructions) Our next question will come from Mark Smith with Lake Street Capital.

Just a couple other little things here on Sierra. Do you feel that weather had an impact on the Sierra business during the quarter?

To be honest, I don't think we've owned Sierra long enough. The weather wasn't an impact. It's not what we heard as a driver, that it was really just more the aftermath of the stockpiling of both inventories and stockpiling by consumers with the new presidential process. So we haven't seen that. Again, the impact is that we can clear. We still believe that innovation and acceleration is the best way to gain market share. And in a soft market time, sometimes it's the easiest. And even though you gain market share, the results that you have may not be as ambitious as people would love to see.

Okay. And then second on Sierra, what was the impact? Can you speak to the impact just on the launch of ammunition during the quarter? Is it still too small to really speak to? Or any guidance you can give us would be great.

Yes. I mean, ammunition, we have quite a few calibers that we make in bullets across the whole line, across what we would call hunt, compete, defend and protect, the 4 different categories. We launched to ammo 8 calibers by this fall in just the hunt segment. The response has been very positive. And so it's led us to a direction of working on new ammunition launches with our OEM partners again for SHOT Show, but our goal was never that ammo was going to be able to fill the hole if the market saw steep headwinds in the bullet business. It is a long-term strategy, and we'll continue to go towards that. But as we say, we sell a lot of bullets.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Walbrecht for closing remarks.

Thank you. We'd like to thank everyone for listening in today's call, and we look forward to speaking with you again when we report our third quarter results. Thank you for attending.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.