Solo Brands stock target cut to $3 from $4, maintains neutral stance

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On Friday, Piper Sandler adjusted its outlook on Solo Brands (NYSE:DTC), a direct-to-consumer lifestyle brand company, by lowering its price target from $4.00 to $3.00, while reiterating a Neutral rating on the stock. The revision follows the company’s fourth-quarter earnings, which aligned with the previously announced negative results from early January.

The company experienced a sales decline of 16%, attributed primarily to a 21% year-over-year decrease in direct-to-consumer (DTC) sales. This downturn was slightly offset by a 4% year-over-year growth in wholesale, although this represented a significant slowdown from previous quarters.

The earnings call marked the first with new management, CEO Chris Metz and CFO Laura Coffey, who outlined significant changes in strategy. These changes include a narrowed focus on the Solo and Chubbies brands, an increased emphasis on innovation, a return to growth in DTC, and a comprehensive overhaul of marketing efforts.

Piper Sandler noted that the restructuring of marketing is expected to lead to considerable adjusted EBITDA pressure in the first quarter, with low single-digit margins, and a reduced full-year guidance to 10-12%.

Despite agreeing with the shift in marketing strategy and recognizing the potential for product innovation, the firm expressed concerns about the ambiguous outlook for Solo Brands over the next 12 months.

The price target adjustment to $3.00 reflects a lowered multiple assumption, changing from 7x to 6x, based on reduced estimates and an extension of the forecast period to 2025. The firm’s analysis indicates caution due to the current uncertain trajectory of Solo Brands’ performance.

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