Clarus Corporation's earnings have taken a downturn over the last year as eight consecutive quarters of meeting or beating earnings expectations were followed by five quarters that fell short.
Following two downward adjustments to its full-year 2023 guidance — which was already below consensus — analysts at Jefferies have downgraded the stock to 'Hold' from 'Buy' and slashed their price target to $7 from $13.
"We see an uncertain path forward for Clarus amid macro challenges and category-specific softness stemming from the COVID unwind," the analysts wrote in a broker note.
"Earnings revisions have skewed materially negative over the past year, shaking our confidence in go-forward targets. As a result, we view it as prudent to move to the sidelines until greater earnings visibility emerges."
The challenges are particularly pronounced in Clarus' Outdoor and Precision segments, even with new leadership in place. Despite strategic adjustments and ongoing efforts, these segments continue to grapple with broader macroeconomic and category-specific challenges. The analysts highlighted the impact of inventory destocking at the retailer level, further complicated by the reliance of its Black Diamond Equipment unit on REI as its primary wholesale channel partner.
While the Adventure segment has shown resilience, achieving positive growth in 3Q23 despite challenges, the long-term impact remains uncertain. High interest rates, especially in Australia, have impacted car and overlanding accessory purchases.
"We believe investors will likely need to see evidence of improving visibility before the stock sees meaningful recovery," the Jefferies analysts wrote.
"Given the company has entered into a definitive agreement to sell its Precision business, we have calculated our valuation based on a SOTP analysis of the Outdoor and Adventure businesses."
Clarus' shares were up 2.9% at $6.30 in early afternoon trade on Thursday.