ToughBuilt Industries Inc. $TBLT Company Analysis
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- They sell heavy-duty, modular, mobile tool storage (new StackTech TM) and rolling Massive Mouth TM tool bags.
- They sell soft goods like tool bags, tool belts and pouches, business organizers, and knee pads.
- They sell metal goods such as hammers, saw horses, mitre saw tables, knives, screw drivers, ratchet sets, saws, tape measures, wrenches, pliers, and levels.
- They sell electronics like a distance finder, angle finder, and a room laser leveler (we saw one at Lowe's).
- Lowe's is their product showroom, with a wide range of products well displayed and in stock in every store in Chicagoland we visited. We saw 'near perfect' displays of StackTech, with walls and shelves full of ToughBuilt tools, soft goods, including bags, belts, pouches, and the four knee pads SKUs they carry. We did not see any sawhorses, tables, nor mitre saw tables. When we first shopped, there were no discounts. Our first purchases were 100% full price. Now, Lowe's is running sales across tool & accessory brands, although StackTech prices were raised 10% to 20%. Their popular level (the one we bought) now has a new 'Everyday Low Price.'
- Menards in Long Grove and Mt. Prospect carries in-store and showcases their full line of soft goods including belts, suspenders, many types of pouches, and kneepads. This is a significant display for ToughBuilt.
- Mutual Ace Hardware in Highland Park, IL carries the knife cutter / scraper in the store.
- Ace Hardware & Rental in Zion, IL stocks soft goods including tool belts, tool pouches, knee pads, and suspenders.
- Home Depot does not carry ToughBuilt products in the store. This is a big miss.
- Craftwood Lumber & Hardware in Highland Park, IL, a Do it Best store, carries the cutter / scraper and replacement blades in store.
- Menards is fully stocked, and carries significant ToughBuilt branded ClipTech TM soft goods, and MasterForce TM branded knee pads.
- Lowe's has been clearing out tools and accessories with targeted clearance pricing. We see fewer numbers of ToughBuilt SKUs, and we still see clearance pricing on some of them. We see reasonable inventory in tool bags and tool totes. The biggest difference is the clearance or de-prioritizing of products competitive to Stack Tech TM, and a full inventory everywhere in Stack Tech TM. We don't see the full line of accessories in all stores, but we do in some stores. DeWalt has recently been positioned as a Massive Mouth TM competitor, and Craftsman Versa Stack TM and Trade Stack TM as lower priced competitors in mobile storage. Flex and others seem to be de-prioritized.
- At Lowe's, we see significant clearance across wrenches, clamps and pliers, screwdrivers, and tape measures, and a nearly empty saw horse section, with a few plastic items and one metal BORA SKU in stock.
- Lowe's carries the full line.
- Menards in Vernon Hills has 42 soft good products stocked in-store, as seen online.
- Home Depot sells ToughBuilt knee pads.
- Amazon carries a full line of new ToughBuilt products sold by the ToughBuilt store.
- Walmart has about fifty (50) items available for sale, including belts, suspenders and pouches, bags across the product lines, ClipTech accessories, saw horses, a knife and a keychain. Their pricing is above and below retail.
- Falabella dot com, affiliated with Sodimac, a Latin America and South America hardware retailer, carries 55 products.
- Harbor Freight carries knee-pads.
- eBay is all small vendors and resellers. Some products were new and others were used.
- Many other tool resellers online carry ToughBuilt products, but seems hit or miss.
- Craftwood Lumber & Hardware has four SKUs of knee pads available.
- These online tool sellers do not stock, list and sell ToughBuilt Products: B.E. Atlas, Northern Tool & Equipment, Contractorsdirect.com, Contractor Tool Supply by Very Tools, Construction tool Warehouse, Jim and Slims Tool Supply, Professional Contractors Supply, Ilini Contractor Supply dot com. This is a missed opportunity.
ToughBuilt: We Don't Build Ordinary
WE CREATE INNOVATIVE PRODUCTS THAT HELP YOU BUILD FASTER, BUILD STRONGER, AND WORK SMARTER.
How do we do it? We listen, we research how professionals work, then create tools to help them save time, save hassle, and save money. If it is not better, we don't make it. It's as simple as that.
When you check out a ToughBuilt product, you'll probably think "I wish I'd thought of that." In a way, you did. Because before we start designing, we spend hours watching hard working professionals like you at work. Then we figure out how to make your life work easier, better, faster.
You probably own a tool that belonged to your Dad. It's been sharpened, oiled, worn smooth and still works like the day it was made. That's the kind of tools we make. We design every ToughBuilt product to last.
We invent, engineer, test, and verify every ToughBuilt product in the USA, manufacture every one to our strict quality standards and back them up with a Limited Lifetime Warranty.
Some people think that to get the best of anything, you have to pay a lot. That doesn't work for us. We're tradesmen, designers, engineers, and manufacturing experts. We take pride in value engineering every ToughBuilt tool to give you unprecedented performance. Like you, we work hard to work smarter. We take pride in providing building quality and innovation, at a price affordable to nearly everyone. Innovation made affordable.
ToughBuilt is inspired by you and is designed from its inception to make your work easier and more efficient. We are dedicated to delivering "Affordable Innovation" to you. The journey of creating the best tools is just the beginning. Our intention is to provide an avenue for each of our customers to have a voice in improving what we do. We welcome your participation and any constructive criticism or comments that may help us improve and build better tools.
Please feel free to send us your suggestions and comments.
Here are a few videos to give a sense of the company's marketing and positioning.
My sense is of a technology incubator / startup / fast-paced firm that pays well, but expects teams to create innovative tool designs that are brought through production and global distribution.
There are two job openings at Toughbuilt in-person at Irvine, CA today:
- Global sourcing buyer (open, $90k to $100k)
- Graphics and packaging designer (open, $80k to $110k)
- A Senior Industrial Designer role (now closed, $125k to $250k), a broad job that includes the full range of product design, development and implementation work to take designs into production.
We recently reviewed online reviews by self-declared, but unverified current and previous employees.
- A fast-paced environment with high expectations. People are expected to work nights, weekends and travel for business when needed. This is not an early-morning office.
- People liked the culture, and the chance to work with passionate, committed, driven design experts.
- People liked the office and coffee/food perks. People work in the office.
- Pay and benefits are good. More than competitive.
- Few human resources formal processes (e.g., annual reviews).
- Solid design shop. They win design awards for innovation.
- Tool developers own the process end-to-end (we infer this).
- No formal project management processes and no micromanagement.
- Opportunities to create cool and innovative products.
- There is always more to do as someone completes a project. The demand for design work is there.
- The company recently laid off ~20 workers.
- This is a high-growth environment and that can be tough on the organization.
Source: Job reviews and job descriptions we could view for free, get our hands on, for free and without signing up. This included Glassdoor dot com (thank you).
ToughBuilt has many competitors who are significantly larger and better capitalized.
- Their competitors dominate tool and accessory retailers.
- Their competitors have a history of tool brand acquisitions.
- Their competitors have a wider selection of products, including power tools.
- Techtronic Industries (Milwaukee Tools, Ryobi, Ridgid)
- Snap-on Incorporated (Snap-On)
- Stanley Black & Decker (Dewalt, Craftsman, Black & Decker)
- Bosch (Bosch, Diablo, Dremel)
- Chervon (EGO, SKIL, Flex)
- This is a profitable industry that favors the largest companies. Most large competitors have positive earnings, pay dividends and enjoy high PE ratios.
- Competitor equity market capitalizations are in single or double-digit billions (vs. ToughBuilt in millions)
- ToughBuilt Industries tools recently expanded distribution from North America into Europe and South America. They identified and signed agreements gaining access into South America, the U.K., France and Spain in 2023 with large-footprint retailers and supply houses (and their eCommerce arms) that target the professional trades.
- ToughBuilt UK, located in London, is led by Vahe Der Kureghian, Managing Director.
- Discussed in the Q3 2023 earnings call and 10-Q.
- Evidenced by a lawsuit against ToughBuilt in the Superior Court of California for vacating their offices at 8687 Research Drive, Suites 100, 150 and 250. From the lawsuit, this looks to have cut future SG&A expenses by $2.5mm (through 2027).
- They occupy a 15,000 sq. ft. single tenant headquarters at 8669 Research Drive. Irvine, CA, which lease expires March 31, 2025.
- We saw a post about 20 job cuts in 2023 and we see minimal job postings (1 or 2 positions at a time).
- Not sure about product COGS cuts. We read in the latest Registration Statement (February 15, 2024) that all products are manufactured in China, India and the Philippines. We caught a glimpse of a lead from an import/export data services provider that ToughBuilt may be moving some manufacturing to Vietnam from China. This would lower labor costs and import tariffs, but is not supported by company filings. Maybe this effort at cost reduction has been terminated?
We did data gathering by shopping at physical stores in Chicagoland and shopping online. We see explicit choices on where inventory investments are made:
- Significant new inventory at Lowe's for StackTech TM mobile modular storage line. This appears to be the main inventory investment.
- All stores had a full assortment of ClipTech soft goods (belts, pouches, and knee pads).
- Main hand-tools are fully in stock. These are their primary products.
- Lowe's is selling down inventory of most ToughBuilt hand tools, accessories, tool bags, and is out of stock on saw horses, work tables, and all other large items. We saw one room laser leveler across six stores as the only large item, and it was on clearance.
- The saw horses are MIA everywhere, but are still part of their active SKUs. You cannot find the 1,300 lb. capacity models anywhere, even online, or even used. You still can buy the 1,100 lb. capacity models new online.
- We see very few heavy-duty rolling tool bags, massive mouth bags, and no tool totes (the yellow & black bags). We saw no business organizers in stores.
Based on Chicagoland and online only, the Q4 bet was on StackTech, ClipTech, and hand-tools. Q1 continues to develop the StackTech line and inventory. We cannot see any other 'big moves' in Lowe's other than maintaining inventory in soft goods and hand-tools.
ToughBuilt is liquidity constrained. It has an ongoing concern statement in its 10-Q filing. It had $1.8mm in cash on hand on September 30, 2023, and has no access to traditional bank lending (Source: CEO on Q3 2023 earnings call). ToughBuilt has borrowed via short-term, one-year loans in 2022 and 2023, which are paid back monthly with principal and interest. The May 2024 maturity "May Note" from May 2023 was in the amount of $1,254,000 and bears interest at 9.49%.
Fresh capital in the millions of dollars can be raised only with a significantly dilutive share offering, short-term borrowing, or by achieving profitability (or at least cash flow from operations positivity).
We rode the stock down from $8.00 to $4.00 as it worked through its latest share offering. Here is our understanding of how it concluded:
- 140,000 shares sold
- 632,628 shares worth of pre-funded warrants sold (execution price of $0.0001 per share)
- 1,098,264 shares worth of warrants sold (execution price of $4.405 per share).
The company will raise $3.5 million from this offering.
It is not very much money when compared against their opportunities, including winning more design awards, re-launching their wrench, plier and clamps line, re-building distribution of sawhorses and mobile tables, expanding global distribution, making really cool product videos and shipping marketing displays to Lowe's and Menards, building their professional and DIY following in the tools & accessories business and building their exclusive U.S. business of StackTech TM mobile storage with Lowe's.
We would like to build a C700 saw horse table in our garage once we can buy them from Lowe's, Home Depot, or Amazon, and hope some of the money goes towards rebuilding Spring season stock.
This company completes against larger competitors based on value-priced gear with significant technological and design advantages. However, ToughBuilt and their competitors are all seeing declines in revenue. The tools and accessories business is in a business cycle downturn that is likely due to the increase in U.S. interest rates.
An 'everything goes well' strategy is to circle the wagons (cut costs) and aggressively grow market share and revenue. The new StackTech line could provide the revenue boost, along with increased global distribution, and 20 layoffs and terminating HQ leases is evidence of cost cutting.
For ToughBuilt to reach profitability, or at least EBIT neutrality, it has to both grow revenue and/or shrink expenses.
Path forward to profitability (this is our opinion):
1) If the company maintains their absolute cost position (SG&A and R&D), and their COGS percentage (76.2%), they reach break-even EBIT at a quarterly revenue of $65.3mm.
2) If the company improves COGS to 72.5% and maintains their absolute cost position (SG&A and R&D), they reach break-even EBIT at a quarterly revenue of $56.5mm.
3) If the company reduces SG&A and R&D expenses, it reduces the revenue required to break even.
Social media coverage of their products is great. We saw product reviews across the net, read the comments, and added a few ourselves about the products we bought or saw at Lowe's. Anything about the product seems positive, and the few hiccups that one would expect seem to get handled quickly.
Social Media coverage of their stock is the darkest, most negative, pessimistic, and even personally insulting towards anyone who is bullish on the stock or company.