Escalade, Inc. (NASDAQ: ESCA, or the “Company”), a leading
manufacturer and distributor of sporting goods and indoor/outdoor
recreational equipment, today announced second quarter and year to
date results for 2023.
SECOND QUARTER 2023 (As
compared to the second quarter 2022)
- Net sales were
$67.8 million, a decline of 28.2%
- Operating income
was $6.3 million, 23.6% below 2022
- EBITDA totaled
$7.7 million, a decline of 25.9%
- Net income of
$3.6 million, or $0.26 per diluted share, a decline of $2.0
million
- Cash provided by
operations of $8.4 million, an increase of $5.9 million
TWO QUARTERS ENDED JUNE 30, 2023
(As compared to the first half 2022)
- Net sales
decreased 25.2% to $124.7 million
- Gross margin
declined 410 basis points, to 22.2%
- Operating income
decreased 62.8% to $6.4 million
- Net income of
$2.7 million, or $0.20 per diluted share vs. $12.3 million, or
$0.91 per diluted share for 2022
- Cash provided by
operations of $12.9 million vs. cash used of $0.3 million
For the second quarter ended June 30, 2023,
Escalade reported net income of $3.6 million, or $0.26 per diluted
share, versus net income of $5.7 million, or $0.42 per diluted
share for the second quarter in 2022. Total net sales declined
28.2% on a year-over-year basis in the second quarter, due to a
combination of reduced post-pandemic consumer demand across most
product categories, together with 21 fewer days in the Company’s
new reporting calendar, when compared to the year-ago period.
Excluding the impact of the change in the Company’s reporting
calendar, sales declined 9.5% on a year-over-year basis.
For the two quarters ended June 30, 2023,
Escalade reported net income of $2.7 million, or $0.20 per diluted
share, versus $12.3 million, or $0.91 per diluted share for the
first half of 2022. Total net sales declined 25.2% on a
year-over-year basis in the first half of 2023 due mainly to
reduced post-pandemic demand, particularly in our archery,
basketball, and indoor/outdoor games categories as well as excess
inventory levels in the retail channel.
Escalade reported second quarter gross margin of
24.6%, a decline of 50 basis points versus the prior-year quarter,
primarily driven by higher-cost inventory, elevated inventory
storage and handling costs, and lower operating leverage on a
comparably lower revenue base partially offset by improved margins
in several categories and expense reductions implemented through
the second quarter.
The Company generated $8.4 million of cash flow
from operations in the second quarter 2023, compared to $2.5
million for the same quarter in 2022. Earnings before interest,
taxes, depreciation, and amortization (“EBITDA”) declined 25.9% to
$7.7 million in the second quarter 2023, versus $10.3 million in
the prior-year period.
As of June 30, 2023, the Company had total cash
and equivalents of $0.6 million, together with $42.4 million of
availability on its senior secured revolving credit facility
maturing in 2027. At the end of the second quarter 2023, net debt
(total debt less cash) was 4.0x trailing twelve-month EBITDA.
Escalade’s Board of Directors has declared a
quarterly dividend of $0.15 per share of common stock. The dividend
is payable on September 5, 2023 to all shareholders of record at
the close of business on August 29, 2023.
Effective January 1, 2023, Escalade transitioned
to a conventional twelve-month reporting calendar. The second
quarter 2023 had 91 operating days, versus 112 days in the prior
year period. Please see the accompanying table in our footnotes for
a comparison of the days in each quarter for 2022 and 2023.
MANAGEMENT COMMENTARY
"Recovering from a challenging start to the year
and our disappointing first quarter, I am proud that our team
demonstrated resilience and delivered strong second quarter results
highlighted by substantial growth in cash provided by operations,
significant inventory and long-term debt reductions, EBITDA margin
expansion, thoughtful expense reductions, and a return to
profitability,” stated Walter P. Glazer, Jr., President and CEO of
Escalade. “While US retail sales of sporting goods are soft and
consumer confidence remains dampened by inflationary headwinds,
higher interest rates and a mixed employment outlook, we believe
our diverse portfolio of leading recreational brands will continue
to resonate with consumers. As we look into the second half of the
year, we anticipate continued normalization of wholesale channel
inventories which should position us to capitalize on restocking
opportunities with our retail partners as we move into the holiday
season. Continuing with our strategic direction, we remain highly
focused on a combination of cost control, improved working capital
management, and balance sheet optimization including the
divestiture of our owned facility in Rosarito, Mexico.”
“Sales strengthened relative to our first
quarter as we continued to gain momentum through the second
quarter,” continued Glazer. “Notably, direct to consumer (DTC)
sales have continued to accelerate, with DTC sales up more than 60%
versus the comparable April to June period in 2022, driven by a
combination of effective marketing campaigns and successful new
product launches. In the second quarter, we also continued with
strong sales growth in the pickleball category versus year-ago
second quarter, despite 19% fewer days this year, driven by growing
consumer demand for our Onix brand and leading assortment of
innovative paddles, balls, and accessories.”
“Second quarter gross margin declined on a
year-over-year basis, but improved significantly compared to the
first quarter, due to expense reductions, factory absorption, price
discipline, and a more favorable product mix,” continued Glazer.
“Looking to the second half of the year, we anticipate margin
expansion opportunities as we expect to continue those favorable
trends from the second quarter and work through our higher-cost
inventory.”
“We remain highly focused on reducing net
leverage to within our targeted range of 1.5x to 2.5x,” stated
Glazer. “Over the near-term, we will prioritize debt reduction,
consistent with our previously stated strategy. During the second
half of the year, we expect to materially reduce inventory levels,
while closely managing our capital expenditures, thereby
positioning us to further reduce net leverage and maintain our
stable quarterly cash dividend while supporting our customers and
continuing to build our market-leading portfolio of high-quality
and beloved brands for our loyal consumer base.”
CONFERENCE CALL
A conference call will be held Thursday, July
27, 2023, at 11:00 a.m. ET to review the Company’s financial
results, discuss recent events and conduct a question-and-answer
session.
A webcast of the conference call and
accompanying presentation materials will be available in the
Investor Relations section of Escalade’s website at
www.escaladeinc.com. To listen to a live broadcast, go to the site
at least 15 minutes prior to the scheduled start time in order to
register, download, and install any necessary audio software.
To participate in the live teleconference:
Domestic Live: |
1-877-407-0792 |
International Live: |
1-201-689-8263 |
|
|
To listen to a replay of the teleconference,
which subsequently will be available through August 10, 2023:
Domestic Replay: |
1-844-512-2921 |
International Replay: |
1-412-317-6671 |
Conference ID: |
13740128 |
|
|
USE OF NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial statements
in accordance with U.S. generally accepted accounting principles
(“GAAP”), this release contains the non-GAAP financial measure
known as “EBITDA.” A reconciliation of this non-GAAP financial
measure is contained at the end of this press release. EBITDA is a
non-GAAP financial measure that Escalade uses to facilitate
comparisons of operating performance across periods. Escalade
believes the disclosure of EBITDA provides useful information to
investors regarding its financial condition and results of
operations. Non-GAAP measures should be viewed as a supplement to
and not a substitute for the Company’s U.S. GAAP measures of
performance and the financial results calculated in accordance with
U.S. GAAP and reconciliations from these results should be
carefully evaluated. Non-GAAP measures have limitations as an
analytical tool and should not be considered in isolation or in
lieu of an analysis of the Company’s results as reported under U.S.
GAAP and should be evaluated only on a supplementary basis.
ABOUT ESCALADE
Founded in 1922, and headquartered in
Evansville, Indiana, Escalade designs, manufactures, and sells
sporting goods, fitness, and indoor/outdoor recreation equipment.
Our mission is to connect family and friends creating lasting
memories. Leaders in our respective categories, Escalade’s brands
include Brunswick Billiards®; STIGA® table tennis; Accudart®; RAVE
Sports® water recreation; Victory Tailgate® custom games; Onix®
pickleball; Goalrilla™ basketball; Lifeline® fitness; Woodplay®
playsets; and Bear® Archery. Escalade’s products are available
online and at leading retailers nationwide. For more information
about Escalade’s many brands, history, financials, and governance
please visit www.escaladeinc.com.
INVESTOR RELATIONS CONTACT
Patrick GriffinVice President - Corporate Development &
Investor Relations812-467-1358
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements relating to
present or future trends or factors that are subject to risks and
uncertainties. These risks include, but are not limited to:
specific and overall impacts of the COVID-19 global pandemic on
Escalade’s financial condition and results of operations; the
impact of competitive products and pricing; product demand and
market acceptance; new product development; Escalade’s ability to
achieve its business objectives; Escalade’s ability to successfully
achieve the anticipated results of strategic transactions,
including the integration of the operations of acquired assets and
businesses and of divestitures or discontinuances of certain
operations, assets, brands, and products; the continuation and
development of key customer, supplier, licensing and other business
relationships; Escalade’s ability to develop and implement our own
direct to consumer e-commerce distribution channel; Escalade’s
ability to successfully negotiate the shifting retail environment
and changes in consumer buying habits; the financial health of our
customers; disruptions or delays in our business operations,
including without limitation disruptions or delays in our supply
chain, arising from political unrest, war, labor strikes, natural
disasters, public health crises such as the coronavirus pandemic,
and other events and circumstances beyond our control; Escalade’s
ability to control costs; Escalade’s ability to successfully
implement actions to lessen the potential impacts of tariffs and
other trade restrictions applicable to our products and raw
materials, including impacts on the costs of producing our goods,
importing products and materials into our markets for sale, and on
the pricing of our products; general economic conditions, including
inflationary pressures; fluctuation in operating results; changes
in foreign currency exchange rates; changes in the securities
markets; continued listing of the Company’s common stock on the
NASDAQ Global Market; the Company’s inclusion or exclusion from
certain market indices; Escalade’s ability to obtain financing and
to maintain compliance with the terms of such financing; the
availability, integration and effective operation of information
systems and other technology, and the potential interruption of
such systems or technology; the potential impact of actual or
perceived defects in, or safety of, our products, including any
impact of product recalls or legal or regulatory claims,
proceedings or investigations involving our products; risks related
to data security of privacy breaches; the potential impact of
regulatory claims, proceedings or investigations involving our
products; and other risks detailed from time to time in Escalade’s
filings with the Securities and Exchange Commission. Escalade’s
future financial performance could differ materially from the
expectations of management contained herein. Escalade undertakes no
obligation to release revisions to these forward-looking statements
after the date of this report.
Escalade, Incorporated and Subsidiaries |
Consolidated Statements of Operations |
(Unaudited, In Thousands Except Per Share Data) |
|
|
Second Quarter Ended |
|
Two Quarters Ended |
All
Amounts in Thousands Except Per Share Data |
June 30, 2023 |
|
July 9, 2022 |
|
June 30, 2023 |
|
July 9, 2022 |
|
|
|
|
|
|
|
|
Net sales |
$ |
67,771 |
|
|
$ |
94,337 |
|
|
$ |
124,702 |
|
|
$ |
166,717 |
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
Cost of products sold |
|
51,124 |
|
|
|
70,613 |
|
|
|
97,003 |
|
|
|
122,874 |
|
Selling, administrative and general expenses |
|
9,769 |
|
|
|
14,680 |
|
|
|
20,052 |
|
|
|
25,206 |
|
Amortization |
|
620 |
|
|
|
855 |
|
|
|
1,240 |
|
|
|
1,425 |
|
|
|
|
|
|
|
|
|
Operating Income |
|
6,258 |
|
|
|
8,189 |
|
|
|
6,407 |
|
|
|
17,212 |
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
Interest expense |
|
(1,580 |
) |
|
|
(948 |
) |
|
|
(2,955 |
) |
|
|
(1,508 |
) |
Other income |
|
7 |
|
|
|
29 |
|
|
|
25 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
4,685 |
|
|
|
7,270 |
|
|
|
3,477 |
|
|
|
15,776 |
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
1,043 |
|
|
|
1,597 |
|
|
|
787 |
|
|
|
3,449 |
|
|
|
|
|
|
|
|
|
Net Income |
$ |
3,642 |
|
|
$ |
5,673 |
|
|
$ |
2,690 |
|
|
$ |
12,327 |
|
|
|
|
|
|
|
|
|
Earnings Per Share Data: |
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.27 |
|
|
$ |
0.42 |
|
|
$ |
0.20 |
|
|
$ |
0.91 |
|
Diluted earnings per share |
$ |
0.26 |
|
|
$ |
0.42 |
|
|
$ |
0.20 |
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
Dividends declared |
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets |
(Unaudited, In
Thousands) |
|
All
Amounts in Thousands Except Share Information |
June 30, 2023 |
December 31, 2022 |
July 9, 2022 |
|
(Unaudited) |
(Audited) |
(Unaudited) |
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents |
$ |
577 |
$ |
3,967 |
$ |
6,195 |
Receivables, less allowance of $355; $492; and $726;
respectively |
|
54,975 |
|
57,419 |
|
60,011 |
Inventories |
|
111,676 |
|
121,870 |
|
130,246 |
Prepaid expenses |
|
3,925 |
|
4,942 |
|
7,263 |
Prepaid income tax |
|
1,518 |
|
-- |
|
621 |
TOTAL CURRENT ASSETS |
|
172,671 |
|
188,198 |
|
204,336 |
|
|
|
|
Property, plant and equipment,
net |
|
24,261 |
|
24,751 |
|
28,344 |
Assets held for sale |
|
2,823 |
|
2,823 |
|
-- |
Operating lease right-of-use
assets |
|
8,669 |
|
9,100 |
|
9,318 |
Intangible assets, net |
|
29,880 |
|
31,120 |
|
35,353 |
Goodwill |
|
42,326 |
|
42,326 |
|
39,226 |
Other assets |
|
455 |
|
400 |
|
275 |
TOTAL ASSETS |
$ |
281,085 |
$ |
298,718 |
$ |
316,852 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
Current Liabilities: |
|
|
|
Current portion of long-term debt |
$ |
7,143 |
$ |
7,143 |
$ |
7,143 |
Trade accounts payable |
|
14,680 |
|
9,414 |
|
24,650 |
Accrued liabilities |
|
9,897 |
|
21,320 |
|
20,483 |
Income tax payable |
|
-- |
|
71 |
|
-- |
Current operating lease liabilities |
|
1,002 |
|
993 |
|
676 |
TOTAL CURRENT LIABILITIES |
|
32,722 |
|
38,941 |
|
52,952 |
|
|
|
|
Other Liabilities: |
|
|
|
Long-term debt |
|
76,809 |
|
87,738 |
|
94,040 |
Deferred income tax liability |
|
4,516 |
|
4,516 |
|
4,759 |
Operating lease liabilities |
|
8,222 |
|
8,641 |
|
8,660 |
Other liabilities |
|
407 |
|
407 |
|
448 |
TOTAL LIABILITIES |
|
122,676 |
|
140,243 |
|
160,859 |
|
|
|
|
Stockholders' Equity: |
|
|
|
Preferred stock: |
|
|
|
Authorized 1,000,000 shares; no par value, none issued |
|
|
|
Common stock: |
|
|
|
Authorized 30,000,000 shares; no par value, issued and outstanding
– 13,736,800; 13,594,407; and 13,590,407; shares respectively |
|
13,737 |
|
13,594 |
|
13,590 |
Retained earnings |
|
144,672 |
|
144,881 |
|
142,403 |
TOTAL STOCKHOLDERS' EQUITY |
|
158,409 |
|
158,475 |
|
155,993 |
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY |
$ |
281,085 |
$ |
298,718 |
$ |
316,852 |
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income to Non-GAAP
EBITDA |
(Unaudited, In Thousands) |
|
|
Second Quarter Ended |
|
Two Quarters Ended |
All
Amounts in Thousands |
June 30, 2023 |
|
July 9, 2022 |
|
June 30, 2023 |
|
July 9, 2022 |
|
|
|
|
|
|
|
|
Net Income (GAAP) |
$ |
3,642 |
|
$ |
5,673 |
|
$ |
2,690 |
|
$ |
12,327 |
|
|
|
|
|
|
|
|
Interest expense |
|
1,580 |
|
|
948 |
|
|
2,955 |
|
|
1,508 |
Income tax expense |
|
1,043 |
|
|
1,597 |
|
|
787 |
|
|
3,449 |
Depreciation and amortization |
|
1,402 |
|
|
2,130 |
|
|
2,798 |
|
|
3,603 |
|
|
|
|
|
|
|
|
EBITDA (Non-GAAP) |
$ |
7,667 |
|
$ |
10,348 |
|
$ |
9,230 |
|
$ |
20,887 |
|
|
|
|
|
|
|
|
Comparison of Fiscal Calendar Days for 2023 and 2022
Quarters |
|
|
|
|
|
2023 Days |
|
2022 Days |
|
|
|
|
First Fiscal Quarter |
90 |
|
84 |
Second Fiscal Quarter |
91 |
|
112 |
Third Fiscal Quarter |
92 |
|
84 |
Fourth Fiscal Quarter |
92 |
|
91 |
Total Days |
365 |
|
371 |
|
|
|
|
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