Good afternoon, everyone. Thank you for participating in today's conference call to discuss Black Diamond's financial results for the second quarter ended June 30th, 2013. Joining us today are Black Diamond's President and CEO, Mr. Peter Metcalf, and the company's Interim CFO and Vice President of Finance, Mr. Aaron Kuehne. Following their remarks, we'll open the call for your questions. Before we go further, I would like to take a moment to read 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. Please note that during this conference call, the company may use such words 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 the operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements used in this conference call include, but are not limited to, the overall level of consumer spending on the company's products, general economic conditions and other factors affecting consumer confidence, disruption and volatility in the global capital and capital markets, the financial strength of the company's customers, the company's ability to implement its growth strategy, the company's ability to successfully integrate and grow 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 foreign suppliers, the company's ability to correct trademarks and other intellectual property rights, fluctuations in the price, availability, and quality of raw materials and contracted products, foreign currency fluctuations, the company's ability to utilize its net operating loss carryforwards, and legal, regulatory, political, and economic risks in international markets. More information on potential factors that could affect the company's financial results is included from time to time in the company's public reports filed with the Securities and Exchange Commission, including the company's annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Forward-looking statements included in this conference call are based upon information available to the company as of the date of this conference call and speak only as of the date hereof.
The company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of the conference call. I would like to remind everyone that this call will be available for replay through August 19th, 2013, starting at 8:00 P.M. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release, as well as available on the company's website at www.blackdiamond-inc.com. Any distribution, retransmission, or rebroadcast of this call in any way without the express written consent of Black Diamond, Inc. is strictly prohibited. I would like to turn the call over to the Chief Executive Officer of Black Diamond, Mr. Peter Metcalf. Sir, please go ahead.
Thank you, Lily. Good afternoon, everyone. As you saw at the close of the market today, we issued a press release announcing our financial results for the second quarter ended June 30th, 2013. The first half of the year represents our spring/summer product season and compared to last year, sales during the first half of 2013 were up 15% to $89.9 million, in line with our long-term organic growth target. Second quarter 2013 sales increased 22% to $38.9 million, which includes double-digit growth from all of our brands compared to the same period last year. We attribute these record sales to our diverse collection of new and existing active outdoor performance products, global distribution, and increased focus on sales and marketing.
The industry was not without its challenges during the first half of 2013, largely due to an extreme, unseasonably cool, wet spring, both in North America and especially in Europe. Following two consecutive challenging winter seasons, industry purchasing trends are continuing to evolve toward a model that we believe is intentionally shifting more inventory risk to manufacturers and distributors. We are adjusting our strategy to reflect these dynamics. You may recall that during our Q1 earnings call, we described a global retail marketplace that was more reticent to make order commitments on the scale that they have in the past. In many cases, challenges breed opportunity. During the second quarter, we took the opportunity to make meaningful progress to improve working capital through reductions to our global inventory.
At the same time, our business continues to grow, market shares are either stable or growing. Most importantly, our dream of launching apparel is expected to be about one month away from becoming reality. While we have modestly adjusted our second half revenue outlook to reflect these near-term industry dynamics, we remain confident in our belief that our evolving and innovative product portfolio will continue to generate growing consumer demand. Before I comment further, I'd like to turn the call over to our interim CFO and Vice President of Finance, Aaron Kuehne, who will take us through some details of our financial results for the second quarter. Following Aaron's remarks, I'll return to discuss some additional highlights. Then open the call for your questions. Aaron?
Thanks, Peter, good afternoon, everyone. Black Diamond's consolidated total sales in the second quarter of 2013 increased 22% to $38.9 million, compared to $31.9 million during the same year-ago quarter. The increase was attributed to the addition of POC, which was acquired in the second half of 2012, a number of new and existing products sold during the period, as well as the expected increase in Gregory's sales in Japan due to the transition of the Japanese distribution assets from ANF. Our sales growth was partially offset by the unseasonably cool, wet spring, the shift in our dealers' buying strategy that Peter just mentioned, as well as a weak yen compared to the dollar. On a positive note, a longer winter season allowed us to move a significant amount of winter goods that we wouldn't otherwise have sold in typical spring-like conditions.
The foreign exchange markets continue to experience volatility. Black Diamond operates across multiple currencies, primarily the US dollar, the euro, the yen, and Swiss franc. Due to the weakening of foreign currencies against the US dollar, we experienced a decrease in sales of approximately 40 basis points during the second quarter. As you may recall, in the first quarter, the US dollar strengthened more than 20% against the yen. During the second quarter, a weaker US dollar had a negative impact on sales and gross margin for our new Gregory Japan distribution business of approximately 130 basis points and approximately 110 basis points, respectively. This is because in Japan, Gregory sells product in yen and converts those yen back to US dollars at what is now an approximately 20% discount to our December 31st estimates.
Gross margin in the second quarter of 2013 was 40.3%, compared to 39.1% in the same period last year. This 120 basis point increase was primarily due to a favorable mix in higher margin products and channel distribution in spite of several factors which negatively impacted margins. Those factors included a higher level of closeout and promotional activity on winter season product. During the second quarter, gross margins were negatively impacted by approximately 150 basis points from discontinued merchandise, or DM, and by approximately 20 basis points from promotional activities. Taken together and including total FX, these factors partially offset our gross margins by approximately 240 basis points. We were very pleased to see our investments in higher margin products result in an increase of 120 basis points in overall gross margins during the second quarter after this 240 basis points negative impact.
The benefit from moving so much winter inventory can be seen in our working capital. While revenue during the first six months of 2013 grew 15%, total inventory actually decreased approximately $3.9 million or 6.5% to $56.7 million, from $60.7 million at the end of 2012. Excluding POC, PIEPS, and BD Japan, which we did not have in the year-ago period, inventory at Black Diamond and Gregory decreased approximately $7.7 million as of June 30th, 2013, compared to the same period in 2012. This is as a result of a coordinated effort from both our operations and sales teams and a major driver behind the company's second quarter free cash flow of approximately $2.2 million. At June 30th, 2013, we had $8.4 million outstanding on our $30 million revolving credit line with Zions Bank, compared to $20 million at December 31st, 2012.
Total debt stood at $36.8 million, which includes $16.6 million of 5% subordinated notes due in 2017. This compares to total debt of $40.5 million at December 31st, 2012. Part of the decrease in debt was the paydown and closure of the majority of PIEPS debt facilities assumed with the acquisition. In February of this year, we provided guidance as follows. First half revenue between $90 million and $95 million. Full fiscal year 2013 revenue between $216 million and $221 million. Gross margins of between 40% and 41%, and CapEx of approximately $5 million. Rounding up, first half revenue was at the bottom end of our guidance range against a challenging environment.
Looking forward with appropriate sensitivity to changing buying behavior of our dealers, constant foreign currency rates, and a slightly less robust industry sales environment year to date, we are revising our full year 2013 guidance to reflect our expectations as follows. Second half revenue to range between $115 million and $120 million, down from approximately $126 million. These estimates suggest year-over-year pro forma revenue growth in the second half of between 17% and 22%. We now expect full year 2013 revenue to range between $205 million and $210 million. These estimates suggest actual year-over-year revenue growth for the full calendar year to be between 17% and 19%, and pro forma year-over-year revenue growth for the full calendar year to be between 11% and 14%.
More rapid growth in the second half is expected due to a combination of apparel launching in the second half, as well as significant impact from the acquisition of our Japanese distributor, which occurred at the end of 2012. You may recall that this acquisition had a negative impact on Gregory revenue in the fourth quarter of 2012. We now expect gross margins for the full year 2013 to range between 38.5% and 40%. This is the result of higher-than-anticipated DM and promotional activities, which are expected to have a negative impact of 100 basis points to 150 basis points, the weakening of the yen compared to initial expectations having a negative impact of around 60 basis points, and manufacturing variances. These negative impacts are expected to be partially offset by higher-than-anticipated gross margins coming from some of our investments in higher-margin product.
Looking ahead to 2014, we still expect to increase sales by 20%, albeit off of a lower base. Increasing gross margins due to a higher margin product mix coming from apparel and POC, as well as accelerating profitability from better operating leverage in the business. This completes the financial portion of our presentation. Now I'll turn the call back over to Peter. Peter?
Thanks, Aaron. As I said in my opening remarks, we generated record sales for our spring/summer selling season. According to the latest Outdoor Industry Association's participation report, the global industry grew healthy single digits in 2012. In particular, Asia, which is our highest growth geography, grew nicely, while Europe, which has been more challenging due to economic and weather factors, also grew. There's no denying that our industry has undergone a level of instability in the first half of 2013. We have witnessed both the volatile consumer and a reactive wholesale environment. Following two consecutive challenging winters, most of the world with Black Diamond's business experienced an extreme unseasonably cold and wet spring with a fair share of extreme weather events. As an example, the U.K. endured the coldest spring in 50 years, and parts of Germany and Austria experienced 500-year record floods.
This compares to last year, when spring-like conditions greeted most of the global outdoor community in January. The same study that proved 2012 outdoor participation on the rise also showed sales of most outdoor categories, even beyond where BD competes, being flat or down. Beginning in the first quarter of 2013, we also witnessed an evolving industry buying strategy among some of our large dealers to more of an ASAP versus pre-season approach, shifting investment risk to manufacturers and global distributors. This trend was particularly dramatic in the final 30 days of the quarter, when more than one retailer actually canceled pre-booked orders. We believe this environment exists due to the extreme weather the outdoor industry has recently endured and its impact on retailer inventory, as well as general consumers' buying behavior in light of weather and economic events.
It is in this environment which led us to slightly revise our second half revenue guidance. These circumstances have also led us to improve inventory management, a closer look at additional channels of distribution, and a thorough review of our volume discounts. All things considered, we are pleased with our performance and believe that it demonstrates the strength of our brand and product portfolio diversity. As we've mentioned, one of Black Diamond's greatest competitive advantages is our seasonal sales balance, our global distribution, and our product strength across 33 related categories. We believe these strengths, along with our ongoing investments in 2013, will continue to benefit our brand and market share globally. Looking ahead, we have just completed the summer trade show circuit and are optimistic about the remainder of 2013 and 2014.
We believe that retail sentiment is positive due to much-improved inventory positions and solid financial footing, and we continue to experience minimal bad debt write-off. In Europe, we've expanded our sales force while also terminating some underperforming sales agents and now believe we have assembled robust internal and external sales teams in this important growth market. Speaking of trade shows, Black Diamond and Gregory both showcased an impressive line of spring 2014 products at summer trade shows, and POC will do so starting in mid-August. The initial responses have been very positive, and we believe that each of our brands are showing increasingly strong lines. We also believe the work that has gone into these collections continues our multi-decade track record of innovative product launches in line with our long-term growth targets.
As a result, we expect to see strong and growing global bookings for the spring of 2014 from the majority of the world. Moving on, the BD brand launched its new website during the quarter, and the direct-to-consumer business reported another quarter of solid double-digit growth. Although it's small, our direct-to-consumer channel continues to be one of our fastest-growing segments, and our recent investments in this platform are now being rolled out to our other brands. We continue to be pleased with our team's execution in this channel and believe strongly in its future. BD Japan has been up and running on our platform for just over seven months and operating to plan. The team is coalescing, and our dealers are responding well. POC is gearing up for an impressive launch of its new Spring 2014 collection that takes them into the road category.
This is cycling's largest and most vibrant niche. POC's expansion into this has been part of its well-thought-out growth strategy for over half a dozen years. This is being developed from all perspectives as far more than just a line extension. This is a material strategic objective that carries with it the opportunity to continue driving sales on the same trajectory as when we purchased POC just over one year ago. We launched POC's road category to the media, sales agents, and distributors during the quarter, and it was very well received. We plan to unveil the line at Eurobike in Friedrichshafen later this month and at the Interbike Show in Las Vegas in September. During the quarter, we came to an agreement to be a 2014 sponsor of a major Tour de France team.
While we are not yet at liberty to disclose the name of the team, we view this major market endorsement as absolutely critical to building meaningful brand awareness for POC. We look forward to making an official announcement sometime in early October. Thus far, we are performing in line with our integration schedules for POC and PIEPS. We've made solid progress hiring new agents to replace select distributors in critical markets and expect to take these over for Spring 2014, with the remainder of those that are material in Fall 2014. We expect the benefit of these transitions and integrations to drive higher margins in 2014 as we begin to sell direct to retail in both Canada and some additional key European markets. Our ability to do this is built upon both the North American and European operating platforms that we had created prior to the consummation of this transaction.
Lastly, perhaps most importantly, our global apparel initiative remains on track, and we're excited for its consumer launch, which is expected to be in stores at the end of this month. Our entire inventory is sold out, consistent with our scarcity strategy, and we are excited to see how it sells through. In spite of the fact that our Fall 2013 collection hasn't shipped yet, our Spring 2014 apparel collection has sold extremely well at wholesale and is nearly sold out on a booking basis. The response is strong from both existing and new apparel retailers. We believe that the spring sportswear category has challenged and repelled quite a few established fall/winter outdoor apparel brands, so the initial enthusiastic reception is especially gratifying.
The Spring 2014 collection is tight, and it consists of approximately 40 styles and 150 SKUs, with a primary focus on summer alpinism and modern crag wear. We are employing high-tech synthetics, cotton, and merino blend fabrics for a line of sportswear that will look as sharp on the deck of the brew pub as it will perform on a mountain crag or summer peak bag. Finally, our designs for fall/winter 2014 are also nearly complete, raising our expected commitment to 119 styles and 1,945 SKUs. Later this quarter, we will begin the budgeting process for 2014, but our preliminary planning is suggesting approximately 20% organic growth off of a slightly lower 2013 base than anticipated earlier this year. The largest percentage growth drivers remain apparel and POC, and we expect double-digit organic growth from all our brands.
We continue to anticipate that 2014 will demonstrate increasing profitability both from a higher margin product mix as well as years of investment, which we expect to begin paying off with increasing operating leverage in the business. To conclude our remarks this afternoon, I want to reiterate the following. First, rounding up first half 2013 revenue was at the low end of our expectations in spite of difficult operating environment. Secondly, gross margins in the first half were remarkably strong on lower volume with higher-than-average closeout and promotional activities and a weakening JPY-US dollar relationship. Three, working capital improvements, particularly in inventory, yielded greater than anticipated operating cash flow. Four, we are revising modestly our full year 2013 sales expectations to be between $205 million and $210 million. These ranges imply significant year-over-year growth of between 17% and 19% for the full year.
Five, for 2014, we continue to manage towards an expected 20% sales increase off of a slightly lower base in 2013, with expected increases in both gross and operating margins. Six, 2013 continues to be a meaningful investment year, primarily in the organic growth of our brands and in apparel, but also in the integration of POC and PIEPS, the creation of Gregory BD Japan, our IT infrastructure, and globally integrated operating software. Seven, we remain enthusiastic about the remainder of 2013 as the consumer launch year for apparel and trade launch year for POC's road collection. We look forward to 2014 as the year we expect continued double-digit organic sales growth and the benefit of scale, integration, and operating leverage in our business. Thank you. At this time, I'd like to open up the call for questions.
Thank you, Mr. Metcalf. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touch-tone phone. If you would like to withdraw your question, press the star followed by the two. If you're using speaker equipment, you will need to lift the handset before making your selection. Our first question comes from the line of Camilo Lyon with Canaccord Genuity. Please go ahead, sir.
Thanks, good afternoon, everyone. Peter, I was hoping you could give a little bit more color on just the type of conversations you're having with the retailers. I think caution is the keyword that everyone is coming to the fall/winter 2013 season with. Does that mean that there's just more of a shift towards ASAP orders for you, or is it outright cancellations? If you could discuss what categories that's really honed in on, that'd be appreciated.
Sure, Camilo. Thanks for the question. First off, yes, we have had this summer some outright cancellations. They were the exceptions, but there were a few large ones with our very largest retailers. That certainly was unexpected by them and by us, it hurt. Relative to the fall and moving forward, we have an order book. The order book from the largest retailers reflected, by the time we got it, a more conservative approach to what they're willing to commit to. By the time the larger retailers wrote, they were writing with that new perspective. Hence, we do not believe that we're going to see any meaningful cancellations from our retailers at this point, in part because the fall 2013 season was written with a more conservative approach to the marketplace.
I would say that with certainly some of the larger accounts, that conservatism has certainly manifested itself up to this point in time. The messaging or the takeaways that we have gotten, it depends a little bit upon brand by brand, but in the outdoor segments for Gregory and Black Diamond, is the following. The first one is that some of the larger retailers certainly would prefer to run out rather than be over-inventoried. Being out of stock and then ordering is apparently, at this moment, the preferred mentality versus running the risk of being over-inventoried. On the positive side, it does feel right now from talking to retailers, including the largest ones, they certainly have their inventories under control. There is not a lot of fat in the retail channels with inventory.
There is some question as to discount ski product in the discount channels, other sort of alternative distribution venues. How much is there? We don't know. It's the need and the desire to modestly readjust our forecast for the second half is not predicated on cancellations or the fear thereof. It's just predicated on a much more conservative approach that retailers appear to be taking right now relative to the inventory they want to carry. I think there's going to be a little bit of a lag time before they shift from a bit of an attitude that is more bullish than more conservative. I will say, as you know, Camilo, I've been doing this for 31 years, from when this was a $900,000 a year process of business. In that 31-year period, there's been pretty dang good growth for three decades.
I can't say it's been linear. There have been times during that period of time where for economic reasons, for weather reasons, and for reasons even now, looking back at those periods that were a decade and two decades ago, I don't think any of us can really put our finger on why there was this sense of a timeout and retailers needed a period to adjust, digest, and go from bullish to conservative. It is that period of adjustment that is somewhat traumatic. Just as quickly as it came on, it disappeared. I think that we here at BD, because of our intimacy with these activities, being in the heart of one of the most vibrant user communities in America, feel guardily optimistic from the perspective of seeing participation.
When you get out here and engage in any of these activities, from road or mountain biking, climbing or hiking, mountaineering, look at the bookings at the guide services in the Tetons, which are 100%, it's a wait list. Participation is as high as it's ever been. What's happening at the moment is simply that consumers in the U.S. and in Europe have certainly held a little bit more snugly onto their pocketbooks. The reasons for this are clearly in part having to do with the very cold, inclement, wet weather that occurred in two major markets, and potentially had to do with some other things that we would only be surmising from housing sales, renovations, the number of cars bought. Consumer income is finite, or it hasn't gone up dramatically. It perhaps has been a momentary shift in that.
Again, from my experience of 30 years of doing this and seeing how much was contributed by Southern European economic conditions, and really some of the most horrific weather that I've seen in spring, especially in Europe, in my lifetime, as well as two bad winters. It is understandable how retailers who need to manage their businesses carefully have just taken on a more bearish versus bullish approach towards their ordering and their inventory strategy.
If weather is more favorable in the back half, how well equipped are you to meet ASAP orders?
We have really worked the last eight months, nine months especially, started earlier, on inventory management, and we hired, we recruited out of Flextronics, a VP of supply chain or senior director of supply chain, Glenn Ritter, who in working with his team and very closely with Mark Ritchie, have really done a lot to bring a higher level of diligence, discipline, and greater scrutiny to our ordering cycle, our buying cycle, shipping direct, how we manufacture, shifting from a level load to a demand load and done in part through how we're cross-training our own people so they can be moved quickly from one line to the other. I think that within reason, we are capable of responding to the upper end and a little bit better of that range.
It does come down to when do we see that trend hitting, how quickly does it hit, et cetera. We have some flexibility. It's not unlimited by any means, but the goal here at this point in time is to try to engineer that delicate path between not being greedy and blowing it and ending up with way too much inventory and discounts and hurting margins, and having enough inventory to meet a healthy market that is beginning to see a rebound in ASAPs at a reasonable level. That's a narrative to subjectively describe to you. I feel good about the position that we've taken and our ability to hit a range and to be comfortable in a somewhat conservative to an upwardly trending ASAP mode.
Which I should say in the last few weeks with warmer weather in Europe and better weather here, we've certainly seen that uptick in ASAPs in the last couple of weeks.
It seems like the retailers have swung too conservative on one end of the pendulum, and that there's signs that there's a reversion to the center mean. Is that fair from what you can see today?
I don't think we've seen the reversion to the center mean. I think it is human nature, unfortunately, for situations to have to swing from one extreme to the other. When things are good, there's a belief that they will never stop being good, and they will just keep getting better, and people begin to get into that mentality, a little bit of omnipotence and ever-steepening growth. Conversely, when it begins to go more than a month or two, but you talk about two seasons where it's going the other way, then the dark glasses come on and people begin to look at things through dark glasses that put on a sort of a bearish attitude. I think the attitude that we felt at the show was one of conservatism, in control of the business, and a degree of guarded optimism at the sudden pickup on ASAPs.
Not yet what I would call an attitude of happy days are here again. I really want to open up my open to buy because I believe we're about to see a major uptick. What I will say is we have people who are confident of their competence in running their businesses in whatever situations they have anticipate, what they have been through. I think that is why even over these two bad winters and a very horrific spring in Europe, we have had such tiny bad debt write-off is that we have been discriminating in who we work with, and those people have learned how to run their businesses in good times and bad times. Again, to summarize, we clearly are getting an uptick in ASAP. We have a group of dealers who want to be optimistic.
They just need to be given the evidence that they should start opening, and they need a little bit more time to experience that before they're going to, I think, change in a meaningful way their buying strategy.
That's great, Peter. Thank you. Just if I could sneak one last in. On the apparel launch, you've gotten some great feedback, it sounds from an order perspective on fall 2014. I'm sorry, spring 2014. We have yet to see fall 2013 in stores. Maybe you could share a little bit of the qualitative feedback that you've had on the spring line. It doesn't sound like there's conservatism on accepting the BD apparel brand by the retailers. Maybe you could share a little bit of what the conversations are and how you're dialoguing with your retailers who are naturally a little bit more guarded going into the winter season.
Sure. Another good question, Camilo. I think that probably the best way to sum it up initially is that the eve of the Outdoor Retailer trade show, we had one of the Senior account reps of Leisure Trends, which is the sales tracking organization for the outdoor industry, who we pay to track BD within the categories that we compete in. They gave a nearly two-hour presentation to us, and we were very gratified to see that for Black Diamond and Gregory, they're tracking the outdoors, not the cycle industry, by the way. We were doing better than market in nearly every category that we competed in. Not every, but nearly every one.
I think I share that with you because what retailers are looking for right now in their product mixes is not to take silly risks, yet that is juxtaposed against a very understood need in challenging times to have something new, innovative, exciting, edgy, that is going to bring that coveted consumer with a tight wallet into their store. I believe from what we're hearing, the enthusiasm for spring 2014 and the vibrancy and speed at which it has been written is reflective of those attributes that reside within the Black Diamond brand to keep being one with the sports, absolutely indistinguishable from them, that we're innovative, we're edgy, we bring excitement to the store. They need that right now because they're not getting that differentiation from big box and department stores, from our more mainstream retailers, with some of the other lines they carry.
We bring that. I think it's also reflective of the fact that the grapevine surrounding BD has always been the major source of our marketing, being so well connected with the core user communities. We've gotten product on people. Those people are traveling around, they're climbing in it. Photos of them are beginning to appear in social media and other places. I think retailers have had more time to think about what they've written for us for fall. They've begun to see some of the ads, and get a solid presentation on what their marketing is going to be surrounding that apparel. They've also been trying to add to their fall 2013 apparel orders, which we can't do.
I do think in part, the scarcity strategy that we have deliberately employed, which was a limited number of doors around the world, as you know, and then not taking a large inventory risk, is really paying off here. Because when a retailer now can't get more inventory attached to his or her fall 2013 order, the first thing they're doing is jumping on the spring apparel, of which there are some lightweight Alpine products, which have shipped in late January, could be sold in late January as spring ski, spring Alpine sorts of apparel. I think that's driving it. Then in addition to this, is that you have parts of the world from southeastern part of the U.S., the very southwestern part of the U.S. as well, and in parts of Southern Europe, where it's just not a robust winter business for apparel to begin with.
The spring line is really resonating with those folks. As you know, before we did the POC and PIEPS deal, before we launched apparel, BD spring, summer line was every bit as big as our winter line, and we're a very dominant spring, summer brand, having a great affinity among the climbers, the mountaineers, the craggers, the boulders, the alpinists. I just think there's that group of people who don't operate in winter climates who are just very enthusiastic about the company, the brand, our values, all of that. The apparel is beautiful. It looks good, it's unique, and I think that is what's drawn the knowledgeable, experienced retailer to it, along with the other contributing factors that I mentioned at the beginning of your question.
Great. Well, appreciate the color and best of luck in the back half.
Thanks, Camilo.
Our next question comes from the line of Sean Naughton with Piper Jaffray. Please go ahead.
Hi. Thanks for taking the questions. First, just wondering, maybe Aaron or Peter, if you guys could just talk about the incremental revenue you guys had in the first half of the year, around $11.5 million, $12 million. Just thinking about what the buckets of that incremental revenue were from Gregory Japan coming back in-house, some of the acquisitions, and just some of the core Black Diamond hard goods that you had before.
Okay. Sean, let me just understand your question. Is what were the drivers for revenue in the first half of the year? I mean, that's basically the question, right?
Yeah. Correct.
Yeah. I mean, first off, there are some great new BD product that really helped drive that. The Camalot C4s were some of that. We didn't ship as many as we wanted because we had challenges ramping up, but we still did get a significant amount of those out. The new Magnetron carabiners were significant contributors. Some of Gregory's new pack line was important to driving that revenue. POC clearly is making inroads now in the mountain bike community. For those people who don't mountain bike, I'll just say from anecdotal evidence of being out there in the Utah areas of Park City and a few other spots that I was riding, and feedback we're getting from investors and friends, is that last winter was the year of POC really becoming a dominant brand you saw on the ski slopes in many parts of the country and Europe.
I think the same is true among the serious mountain biker, serious downhill person with body armor and POC helmets. That was another significant growth vehicle. I'll also say that as we put in our numbers, that North America was, as a whole, soft. We did grow in Europe, but very modestly. We're proud that we grew in a market where you had some of the worst weather in 50 plus years, and many companies went backwards. We grew with all our brands in Europe. We had meaningful growth in Asia.
Okay.
In a nutshell, new product was what drove this for all of the brands.
Okay. Just thinking about the back half of the year, you gave some good color around the margin expectation, why some of that's coming down, some headwinds that may not have been anticipated. Maybe just what are you guys thinking about how much FX is a potential headwind for you in the back half, and how much of an impact was that in terms of lowering the numbers for the back half of the year?
Yeah, for sure. This is Aaron. FX, as mentioned in the script, in particular coming from the yen, had an impact of about 60 basis points on the back half.
Okay. That's the top line?
Both top line. It's actually both top line and gross margin. It's about the same amount.
Okay. I guess just lastly, I was just thinking about longer term, Peter, just in terms of the apparel, and I guess from an inventory standpoint. Is there any ability, if something does start to go well here in 2013, in the back half, if the apparel takes off and it sells through, is there any ability to chase any of that apparel, or is this just more of a it's sold in, they have what they have, and you feel pretty good about. There's not a lot of upside potential, I guess, in the initial apparel launch.
Yeah. We have deliberately chosen unique, innovative fabrics that we worked with the mills to develop. When you take that approach to come up with differentiated materials and fabrics that you believe are better and hence will perform better, you get the differentiator, which is what you need at specialty with core customers. You certainly can reduce any kind of latitude you might have to move quickly and nimbly should you get higher demand than you had anticipated early on. At this point in time, no, there is zero flexibility here. For that matter, what we're candidly investigating right now very hard is can we add anything to spring 2014 because we've had a stronger demand than we had anticipated throughout the world, and we've always thought about this from an aggregation. Some parts will be better than others.
If we were a little bit too bullish in one market, we'll be good somewhere else. In the case of spring, every market we've shown the product at has responded well. We're looking right now still, and we'll answer this question here pretty quickly, is there any of the key items and the key fabrics that we could do a second run onto to have a second or third delivery in late spring without taking risk for us relative to inventory, and that's what we're looking at. Fall 2013, the ability to adjust that ended many months ago. Spring 2014, we are within the last week or so to make any meaningful adjustment to that. Now all our focus, honestly, is really, or 90% of our focus is shifting from a supply chain perspective to fall 2014.
Okay. That's helpful. Thank you.
Yeah.
Our next question comes from the line of Sean McGowan with Needham & Company. Please go ahead, sir.
Thank you. Hi, guys. I have a couple questions as well. Peter, can you talk a little bit about the product areas that were either above or below expectations? I'm a little surprised that you're saying that weather in Europe was worse than 50 years when the sales in Europe actually were higher than we thought, and North America lowest. Can you talk about which product segments were weakest in North America and which were strongest in Europe?
Okay. Thanks, Sean. Let me begin by saying Europe came in pretty much as anticipated.
Right. It was more the IGV or rest of the world channels that have the stronger growth.
Okay.
We saw the challenges of Europe from an economic standpoint, and internally, we're forecasting that for the mature brands in a more conservative fashion. Simply because of the economics and how we were looking at our order book. We were not surprised. I guess what we would say differently, we're pleased that we hit that number based upon the conditions that we had there. We were certainly in a position to have had more robust ASAPS had the weather kicked in, and had demand been there, and we aggregate goods at our Zhuhai facility so we can ship them where we need them. We were in a position to have done better than that forecast had we got it. What we were saying in our guidance was that we pretty much, in Europe, hit our numbers. Those numbers were modest. We had hoped to do better than that.
We did not, but we got our modest growth, and we're pleased with that. Relative to Asia, that's where we exceeded our internal expectations. It was North America where we had not anticipated that we'd see the softness in the market coming out of winter. I think we shared that in the February call, and that no one anticipated the cool wet weather would stay. What we're talking about here, as I shared earlier when talking to Camilo, was I think there's more at play than just cool wet weather. I think there's an attitude difference. What you saw at retail was not robust sales in any meaningful category. I know, Sean, you cover the space pretty carefully, so you've seen that.
Though we had some nice demand for some of the innovative new products, we were disappointed that some of our largest accounts especially, were just relatively weak this spring season.
No, Peter, I think you've been clear on what was going through the minds of the retailers and why that is. I was just interested in whether this was across the board or were there some product segments that were weaker than others. Was it like all products were affected kind of similarly?
To generalize, I would say the following. Looking at the Leisure Trends numbers, which the account executive shared with us, the following. Big packs was a weak category, relatively. Climbing was somewhat soft this year compared to the past several years, where it was a growth driver for many of our retailers. It slowed up. Trekking poles was hot. Lighting slowed in its growth from past seasons. Within each of those categories, you had a hot product. If you're asking me generally.
Right
That's my response.
Okay.
That's within knowing that the Leisure Trends numbers two-thirds of the way through the season were showing that categories like running, water sports, climbing, and even backpacking were all categories that were very weak.
Okay. That is helpful. One of the things that was also different from what I had expected anyway, was the level of operating expenses was lower in the second quarter. Can you comment on your outlook for the balance of the year relative to what you had expected at the beginning of the year?
Yeah. What I say is that this business is pretty disciplined business, and we are very thoughtful in what we spend. When we saw the headwinds that we're experiencing in the marketplace, we immediately gathered as a management team and began to look at what expense levers could we pull in the way of travel, some marketing, some hiring, some replacements, and a myriad of things like that so we could start pulling back and align expenses more closely with revenue. We also have, as you know, in Europe, the majority of our people, not all, but the majority are on a commission. Some of the North American crew is commission. We use 3PLs in parts of Europe. That is related to sales. Those would come down.
The last thing I should share before I talk about looking forward, we did not, in any meaningful way, cut any muscle from any of the meaningful strategic initiatives that are going to drive the growth of this business moving forward, which we define as overall the operating platform, the IT systems, the new B2C website, working to get Gregory onto that and BD apparel. We pulled nothing away from the overall apparel initiative, the hiring, the investments, the marketing dollars for that. Nothing from the investments POC's been making to launch the road line. We adequately supported Gregory BD Japan in the hiring of that team and getting them positioned to launch. We feel like we were very thoughtful in the cuts we made, but we were able to make several million dollars worth of cuts.
Relative to moving forward, Aaron has been really leading that process, and we've been working on that because we want to align expenses as well as we can to revenue, so long as we do nothing to emasculate the major strategic initiatives that are key to our future and our future growth. I'll let Aaron address that.
Yeah. As Peter mentioned, we obviously manage the business just like any other well-managed business in that we operate with budgets, and we've been proactive in adjusting our spend accordingly with the decreased revenues. Overall, once again, we'll maintain the integrity of our strategic investments or our strategic initiatives. Overall, yeah. Are we going to be at the high end of the range that we initially gave? No. At the same time, we're going to continue to manage the business accordingly.
Okay. You're not then expecting that some of the spending simply got shifted out of the second quarter into later quarters?
No.
Okay. Thanks. That's helpful. I'm going to circle back to a question about incremental revenue again, and this is sort of the last quarter, I think, where this is a real fair question. It's always fair, but you don't have to answer it. You didn't have POC really in the second quarter of last year. How did that live up to the expectations? Can you give us some sense of how much POC contributed to this quarter?
Sean, I appreciate the question, we don't break it out by categories. What I will say is that when we acquired POC, we did talk about what kind of average % growth increases we expected POC to deliver to the company. For the first half of 2013, POC delivered at that range.
Okay. That's very helpful. I'm a little sensitive to your use of the word expected, when you're talking about the apparel being on the shelves 30 days from now. Is there any risk that that doesn't happen? Are you hedging it somewhere or is that just a word you're using?
We have a very conservative law firm that scrubs all our documents, Sean. If I was standing next to you and talking to you, I would probably be speaking with more of the street vernacular and tell you it will be in the stores by the end of this month. Because one can't guarantee if FedEx trucks will burn up, if there would be an explosion at a warehouse.
Unforeseen acts of God or terrorism or what have you, I can't say that with 100% confidence.
Touching wood over here. Okay. I didn't know if there was something developing that made you nervous wanted to throw it out there.
No, there's nothing that makes me nervous. That product is in the warehouses. It's been inspected. We're ready to ship. We have a timeframe to do that. We are aligned with our retailers as to when is it going on our website so that it can be done in tandem with them when some interesting social media stuff is flying off, we're basically timing around the Labor Day weekend. That's the sort of liftoff.
Okay. I have some other questions. I'll circle back and get on the queue again. Thanks.
Our next question is from the line of Joe Altobello with Oppenheimer. Please go ahead.
Hey, thanks. Good afternoon. First question, I kind of wanted to circle back on the increased cautiousness you guys have been talking about throughout this call, on the part of your retailers. I think, Peter, earlier you referenced a lot of your larger retailers, in some instances, actually canceling orders. The increased cautiousness that you've seen on your retailer base, is it really focused or most acute, I should say, on the larger retailer side? Are you seeing other smaller retailers as well coming under those same pressures?
Hi. Yeah, Joe, good question. Fundamentally, what we've seen here in North America, it was really the largest retailers that were the primary driver of this, using an 80/20 principle. Far and away, they are the ones who had been placing some of the largest orders. They seem to be, in this current headwind, the ones who seem to be most impacted by the situation, more so than the, what I would call, the unique standalone specialty retailer that seem to not experience that level of volatility.
Okay. Is that the sort of channel mix that you guys talked about earlier in terms of a boost to gross margin in the quarter?
For sure there is some volume discounts that get associated with some of the bigger retailers. I'm going to let Aaron speak to that specifically. I'll just finish by saying, what I would attribute to that is part of why we have made some deliberate decisions to add some important larger specialty retail chains to the Gregory and Black Diamond dealer list by the holidays and into spring 2014, just to make sure that we are a little bit more diverse and have our eggs spread a little bit more broadly. We believe that would give us a little bit more leverage and a little bit more resilience in those channels, in case one or two larger retailers feel some buffeting while another one or two that we're not currently working with do better. We're going to have some greater diversity there. Aaron, you want to go ahead?
One thing that I'd also mention, just as it relates to margin enhancement due to distribution is the impacts of BD Japan. Obviously, by taking over those distribution assets, we expected or knew that that would be an opportunity for us to be able to see enhanced margins coming through those sales as well. That's obviously a benefit that we are beginning to realize more prominently.
Got it. Okay. Moving to the apparel launch, it was good to hear that it sounds like the cautiousness you're seeing on the hard goods side is not transferring over into the apparel side. You guys seem like you're pretty locked and loaded for the fall launch. Could you give us a sense for what you see apparel, in terms of the impact that apparel should have this year on margins in the back half of the year?
Yeah. We've talked about gross margins on apparel being accretive for sure. We've talked about gross margins from apparel being in the low 40s initially and then ramping up as we continue to see increased volumes in the outer years. I guess I'll just leave it at this, is that margins will be accretive to the second half, that's part of what we've outlined in our script.
Okay. I just wanted to confirm that given the revision you made to gross margin for the full year.
Yeah. They'll continue to be accretive for the second half.
Okay, great. Thank you, guys.
Yeah.
Our next question comes from the line of Dave King with Roth Capital Partners. Please go ahead.
Thanks. Good afternoon, guys.
Hi, Dave.
I guess maybe this is as a follow-up to one of the questions or a couple of the questions on kind of what drove the growth in the first half of the year versus last year, and it being new products versus, I think POC you said is growing at kind of the growth rate you've outlined in the past. You could just give us some color around what the, kind of if you back out POC and PIEPS, kind of what the sort of organic growth rate revenue growth was. For sure, Steve, in the first half, if you've got that.
Yeah. As mentioned before, and as Peter just mentioned, we don't break that out specifically. Maybe what I could do is speak a little bit related to the pro forma growth that we had for the first half. We did talk about how the first half pro forma was about 5% growth. Once again, POC experienced some good growth, also we did realize some benefit coming from our international side of the business, specifically driven by areas such as Japan and Korea.
Okay. Maybe along the same lines in terms of the gross margin benefit you had. I think, Aaron, you talked about 360 basis points, if I heard that correctly, year-over-year on the gross margin. In terms of coming from mix, maybe you can talk some more about specifically the geography by brand, I guess by brand or by product type, however you feel more comfortable you can talk about that mix that really kind of drove that.
For sure. This comes back to what we've been talking about as far as the strategic investments that we've made related to the acquisition of POC. When you think about the first half, that also includes the acquisition of PIEPS, also the taking over the Gregory Japanese distribution assets. All three of those had some good meaningful impact for the positive in the first half related to gross margins.
Okay. Is it fair to say then that POC kind of drove the bulk of that then of that 360 basis points as we kind of think about that we plan our models looking forward?
No. [audio distortion] Japan really had a.
Okay
Maybe could you guys just talk about, given that they want you guys to hold more of the inventory risk address that issue just.
Sure. Dave, before I do that, I just want to jump back to something you asked and Aaron responded to, just to add to this. I think I want to impress upon you and some of the other analysts who cover BD is that I think what you've seen, because I've seen the financial reporting of some of our competitors, is that this spring 2013 was a year of adjustment and challenge due to weather and perhaps some other issues. It came on somewhat unexpectedly out of a challenging winter. I, and we here at BD, believe we have a one-time adjustment that we're going through as retailers adjust to a slightly different market and how to buy, look forward to a first good winter.
I think that, again, based upon participation numbers, based upon the fact that I have had 30 years of doing this, I've seen these one year, nine months periods of adjustment before, followed very quickly by a return to a healthy level of growth. I'm pleased that we've grown through this in all of our markets, and in the second quarter, double-digit growth for all of our brands, regardless of these headwinds and regardless of the weather. We look at this as a one-time adjustment, and we also look at apparel as an incredible opportunity for the company as affirmed here at the trade shows and the selling of spring and people's attempt to get on to fall.
That is the single largest category this company will ever play in, and is the category that has the truly huge opportunities for us, followed by POC and the road bike area. That doesn't mean we don't believe, because we do, that the gear and equipment areas can't return to over two decades of low double-digit growth. We think they can, and that's what we're planning on with the innovations that we launched, the amount we have in the pipeline of new products, the augmentation and building of a much more robust sales force in Europe and in North America. All of those are going to grow.
However, I think the point to make here is that whether we have had slightly slower growth in gear and equipment in the first half of 2013 or not, by no means does it affect what is the number one growth driver for this company, which is the apparel and the opportunity that represents for us, the strength of the brand, and how consumers appear to be lining up for it, and how excited dealers are for that. Then coming on to specifically your question as to what are we doing related to better managing our inventory, we're doing the following. Number one is we have very substantially cut safety stocks. The realization is that in this marketplace, we had too much safety stock, and we don't need that to respond. We can be more responsive with the key OEMs we work with and with ourselves.
Certainly, Glenn Ritter has brought and is bringing a much more rigorous analysis, a much more frequent cycle review, more diligence, more regimen, more process control. It's super disciplined now. In addition to that, we are, at this time, looking at our overall terms, dating, incentives, et cetera, and we haven't implemented that at this point, but that is something that we will address and work on and develop and launch in a very thoughtful way in the not so distant future because we believe that will help as well. I think I mentioned earlier in the call, another thing we're doing is we've moved from level load on our own factory to allowing for peak loading seasonal adjustments. We're doing that. It takes more management time. It takes a more skilled workforce.
We have been very active both here in Salt Lake and in our Zhuhai facility in a cross-training program so people can move between lines relatively quickly, and we can spike it, so we can respond quickly. We are willing to certainly carry higher stocks of raw materials on those things that are going to be in the line for many years. We have many products that are in the line for years, or certainly raw materials that are used for a family of products. So long as you have the raw materials, you're not limited to a single product. Those are the key initiatives that we have implemented here in a very deliberate way over the past, I'd say about eight or nine months.
That's extremely helpful, Peter. Thanks.
Yeah. You're welcome, Dave.
Our next question comes to the line of Mark Smith with Feltl & Company. Please go ahead.
Hi, guys. Just a couple quick ones. First, just wanted to follow up on a question on SG&A on your operating expenses. I don't know if you can quantify. I want to say you guys have said $20 million-$25 million kind of incremental spend this year. Sounds like now you're saying towards the low end of that range?
Yeah. What we've said is that obviously we've scaled back our operating expense spend, just considering the need to manage the business accordingly. If you recall, when we provided that $20-$25, we broke out the different elements of what that represented, and that 10 of that represented just the pure inclusion of having POC and PIEPS in our financial statements for the full year. The remaining 10-15 was bringing on apparel and also Black Diamond Japan, along with some other initiatives. Once again, we're not going to be hitting the higher end of that, but at the same time, we're going to ensure the integrity of our strategic investments.
Okay. Just looking at that as we go into 2014, any reason that we should see any big jumps in that barring any acquisitions?
Yeah. Based off of the business as it stands now, we did provide some guidance related to 2014 spend, that'd be right around a $10 million-$12 million incremental spend, for the moment, that seems still reasonable.
Okay. Then second, just as we kind of come out of Outdoor Retailer, I just wanted to Peter, looking at competitive pressure, are you seeing anything from peers that makes you nervous across all fronts and product lines, or do you feel like you're outperforming and taking share from peers?
Yeah, Mark. Very nice question. It was really helpful to me and the team, the brand teams, to have had the Leisure Trends' senior account executive here the eve of the show so we could juxtapose what we were hearing, what we were seeing, what we were feeling against true quantifiable versus just qualitative data. So it was gratifying to see data that showed that though we've had a soft spring first half in the marketplace, that we were definitely gaining market share in most categories of climbing that we compete in, from protection to helmets to various other categories, as well as lighting and trekking poles. Getting to the show, here's my takeaway from it.
There has never been more me-too companies out there trying to clamor for the open-to-buy dollars of retailers, the advent of the OEM has made it easier and reduced the barriers to entry for someone to do a brand extension and slap on their brand onto a generic trekking pole, a generic lantern, a generic pack, a generic headlamp, what have you. The good news is, what gave us a high degree of comfort and confidence is that in a plethora of me-too crap that is no different than everything else, it's no different than a bunch of people slapping private labels onto flip-flops and thongs and T-shirts and polo shirts. At the end of the day, specialty department stores, our kind of consumer, they're looking for high quality, innovative, unique, edgy branded products and not some kind of generic me-too rip-off.
Candidly, coming out of that show, I felt pretty good in that, and when I say I want to say the BD Gregory collective, because though there were a few brands that definitely impressed you who we compete against and will continue to compete against, overall, we didn't see a changing of momentum, a changing of somebody suddenly coming up fast behind us or coming in from the side with anything meaningful. What we saw was a bunch of me-too stuff. What we heard from retailers was they very much appreciated how BD had performed for them in this challenging season. They liked the innovations they saw, the thoughtfulness of the new products, how we had run the business. I actually think that all of us, we just did a debrief early this morning.
First chance that the team had to come back together, the show ended Saturday. That was very much the consensus, that the show was more affirming than anxiety-inducing. I will say, as I've shared with some of you before, if there's a character of this corporation, of our companies, of the people who work here, it's one of thoughtful paranoia at a healthy level, and there's no hubris here. We understand we have to, every day, get up and earn our customers' faith and trust by bringing them great value, real innovation, and being easy to work with. We need to do that every day. I think that is something the team also realized. Fortunately, we feel, coming out of that show, we're right now out in front.
We're leading in most of our categories in what we launched, the marketing that's behind this, that we had somewhat embodied in our trade show booth, and in the workbooks that we showed, and in the first ads that have appeared in "Mountain Living," et cetera. We're feeling quite good that we're calling it right, that we're executing appropriately, and the inspired innovation in both marketing and product is going to deliver for us in 2014 and even now in 2013 fall in a slightly more challenged environment.
Perfect. Thank you.
Yeah.
Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using speaker equipment, you will need to lift the handset before making your selection. Our next question is a follow-up question from the line of Sean McGowan with Needham & Company. Please go ahead.
Hi. Thanks for taking additional questions. Just wanted to circle back on a couple of things. One-
Yeah
regarding the impact of discontinued merchandise and promotions in the second quarter. Was that for winter merchandise or for non-winter merchandise?
It was primarily related to winter merchandise. You do have a small element of carryover from prior spring product, but primarily winter seasonal product.
Remind me. I thought the narrative was that winter got off to a late start but was strong enough during the season to kind of clear out a lot of that stuff, you ended I thought at the end of the first quarter, we were talking about relatively clean inventories. Why would there have been an impact in the second quarter?
Sean, what we had shared with you guys is that we felt fortunate that product like skins and ski poles, bindings, accessories like that, winter packs, avalanche safety equipment not only cleared out. I mean, we sold them out. We could have probably done more. However, bigger-ticket products, skis and ski boots, did not enjoy that kind of end-of-the-season buy. Consumers don't buy those kind of products at the end of the season, and they've been trained, at this point, at the end of the season, for massive discounts.
We did, however, at the end of the season, we did move, as we shared, some significant amount of ski boot and ski DM, we had shared that that was not all of it, and that we had moved some additional product in the second quarter to those with openness to buy for the Labor Day sales and that sort of thing. That helped there. We always do have some in-season, call it free DM, call it what you like, where if the market is not quite as robust as we'd hoped, and that certainly is how I have defined the second quarter in North America, as you're looking at the new products you're launching for spring 2014. As I think you guys know, some of the products that we launched for spring 2014, we have what's called a holiday.
We try to bring some of them in early so we can get the benefit of the holiday buying spurt. What that meant to us was that in a few categories, we needed to start doing some modest promotional discounting to move some quantities of product so that it really didn't turn into true DM on January 1st, 2014.
Okay. All right. Thanks for that clarification. Another area, just to kind of give a similar digging into, is if you look at your 20% growth target for 2014. Considering the inherent high growth of POC, the launch of Road within POC, and the launch of apparel this year and likely big increase next year, what does that say about your expected ongoing growth rate for the rest of the business, given that you're kind of characterizing these weather-related issues as a one-time phenomena? Isn't that implying a kind of greatly reduced growth rate for everything else relative to what you'd had in the past?
No. It's implying low double-digit growth rates. Very low double-digit growth rates, but it should be about double digits for the existing product categories-
Okay
on a global basis.
That was my next follow-up, was is it going to be double digit? Okay, you just answered that. Final question, at the risk of putting Aaron on the spot here, what's the update on the CFO position, permanence thereof?
Yeah. No, that's okay. Aaron is used to it. He has become very capable of dealing with this question. Because we have a very talented interim CFO in Aaron, who has been with us for two and a half years, or three years now, almost, and has learned a lot, both under Robert, has been very involved the last six months operationally, has been spending more time in economy class seats, chilling back and forth to Stockholm, Grasse, Switzerland, and China than anybody should. He is certainly becoming quite fluent in the operations of this business, while also developing increasingly strong working relationships with the senior management team and leading things like some of the cost-cutting we had to do in the last six months and being very involved with the inventory adjustments and the financial analysis.
I share that with you because what it means is, as Aaron is doing that, what the board is recognizing as we interview candidates, is that the candidate who is going to become the CFO of Black Diamond and earn the title of permanent CFO, has got to be someone who brings a higher level of public CFO experience, M&A experience, financial analysis, financial operations, leadership on a global basis with multiple companies in a portfolio corporation than Aaron does. It is got to be somebody who, as you know, Sean, especially you have spent time here, is a cultural fit or the organization is going to reject the person.
We have set a high bar, understandably, and the bar gets higher each week because of the time Aaron is spending here and what he is doing. We are aggressively looking and vetting candidates, and we have had some good candidates that we have vetted, we flew them out here, we have talked to. We have a great firm, Egon Zehnder, one of the best, most prestigious executive recruiters in the U.S. for this kind of thing, working very diligently on this. At this moment, we do not have a candidate that we feel is above Aaron is track record and ability to make an offer to. We are going to continue on this process, and here is what the board and myself and our executive chair and vice chair feel is that, number 1, we are in good hands with Aaron in his role right now with the title of interim CFO.
He is acting like a CFO. He is not treating it as if it is interim, but that is the title. We are aggressively vetting and looking for other candidates, and we have determined that if by the end of December of this year now, we do not find a candidate who we feel meets the set of attributes that I just defined a moment ago, and surpasses Aaron, I think it is going to be the board's judgment to make that offer to Aaron. It is still, as I share, a work in process, but we feel in very good hands with Egon Zehnder doing the search, with Aaron acting the role of CFO with the title as interim CFO.
Okay. Thank you.
You're welcome.
At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Peter Metcalf for closing remarks. Please go ahead, sir.
Thanks very much. Thanks everyone. As we now enter the fall-winter season, we do expect to continue to make investments in our strategic initiatives such as apparel, the integration of POC and PIEPS, and the spring 2014 launch of POC's Road collection. We look forward to 2014, where we expect continued organic sales growth and the benefit of scale, integration, and operating leverage in our business. I look forward to speaking with all of you again soon, and thanks for joining this call today.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.