Solo Brands' (NYSE:DTC) announcement that CEO John Merris is on his way out, shortly after the company made a significant revision to its 2023 revenue and earnings guidance, has forced analysts at Jefferies to reassess their valuation of the company.
While the analysts continue to view the company’s portfolio of lifestyle brands as strong, they said it was “prudent” to move to the sidelines until its go-forward strategy is better understood.
As a result, they have downgraded the stock to ‘Hold’ from ‘Buy’ and cut their price target to $4 from $12.
As well as Merris leaving the company — to be replaced by former Vista Outdoor CEO Chris Metz — the analysts noted the departure of former chief financial officer Somer Webb in October 2023, prompting the appointment of Andrea Tarbox as interim CFO.
“Merris' departure coupled with that of Webb, raises considerations about the stability and direction of the company,” the analysts wrote in a client note.
“We view these significant leadership changes as a flag to step to the sidelines until the company's go-forward strategy is better understood.”
Due to the company’s downward FY2023 guidance, the analysts have also revised their estimates for 4Q 2023 revenue and underlying earnings (EBITDA). They now expect 4Q revenue of roughly $166 million, down from $201 million previously, while adjusted EBITDA is likely to be around $19 million from $40 million.
“[Solo Brands (NYSE:DTC)'] recent announcement and disappointing guidance have prompted us to reassess how we view the company going forward,” the analysts said, highlighting the company’s execution missteps, management turnover and the absence of a strategic plan.