Escalade, Inc. reported fourth-quarter revenues net sales decreased 1.8 percent to $72.1 million. Organic sales, excluding acquisition contributions, declined 14.4 percent in the quarter. ESCA said sales declined due to softening consumer demand and excess inventories in the retail channel. During the fourth quarter, increases in indoor games and pickleball sales, together with a contribution from the Brunswick Billiards acquisition completed January 21, 2022 were said to be more than offset by lower sales in outdoor categories including archery, basketball, games, water sports, and playground.
The company reported a fourth-quarter gross margin of 22.4 percent, an increase of 19 basis points when compared with the prior-year period, despite increased logistics expenses primarily associated with ongoing inventory handling and storage. Selling, general, and administrative expense as a percentage of net sales increased to 15.0 percent in the fourth quarter 2022, versus 12.9 percent in the prior-year period, due to the addition of Brunswick Billiards.
Operating income decreased 23.8 percent to $4.9 million in the quarter. EBITDA declined 21.5 percent to $5.8 million in the fourth quarter 2022, versus $7.3 million in the prior-year period. Net income was $2.7 million in the quarter, or 20 cents per diluted share, versus $4.9 million, or 36 cents per share, for the prior-year quarter.
For the full year, net sales were essentially flat to the prior year at $313.8 million. Organic sales, excluding acquisition contributions, declined 9.8 percent for the year. Gross margin declined 112 basis points, to 23.5 percent of sales. Operating income decreased 17.5 percent to $26.3 million. EBITDA decreased 12.0 percent to $32.5 million for the year. Net income for the year settled at $18.0 million, or $1.31 per diluted share, compared to $24.4 million, or $1.76 per diluted share in 2021.
“During the full-year 2022, we continued to build leading market positions within key indoor and outdoor recreational categories, while navigating supply chain disruptions and a return to more normalized demand conditions,” stated Walter P. Glazer, Jr., president and CEO of Escalade. “While inventory in the system remained elevated and consumer demand softened into year-end, we maintained our price discipline, underscoring the resiliency of our brands and the loyalty of our customers.”
“Fourth quarter sales declined year-over-year due to softness in most outdoor categories, including archery, partially offset by continued strength in pickleball, table tennis, indoor games and billiards,” continued Glazer. “We delivered year-over-year growth in gross margin during the fourth quarter, despite a seasonal promotional environment. We also successfully completed the integration of Brunswick Billiards, which was accretive to our full-year earnings per share, consistent with our expectations for this acquisition.
“We expect conditions in the first half of 2023 to be challenging as we work through high-cost inventory, manage through continued excess inventory levels in the channel, respond to a cautionary outlook from retailers and adjust to softer consumer demand. The first quarter 2023 will be a particularly difficult comparison as we go up against an unusually strong prior-year period. As we noted last year, our first quarter 2022 benefited from the favorable mix and sales pulled forward from the second quarter 2022,” stated Glazer.
“As expected, inventory levels began to recede during the fourth quarter due to planned reductions of inbound product flow, anticipated seasonal demand and select promotional activities,” continued Glazer. “We reduced our total inventory by over $13 million sequentially in the fourth quarter, which enabled us to repay nearly $12 million in outstanding debt. We expect to further reduce inventory by year-end 2023, resulting in improved cash conversion.”
“Given expectations for a continued challenging economic environment, including a general softening in consumer demand, we’ve stayed focused on prudent capital allocation, while further reducing controllable expenses and improving our asset utilization. As a result, we made the decision to close our manufacturing facilities in Rosarito, Mexico. While we expect some near term costs related to the closure of the facility, we believe this strategic action will drive improved organizational efficiency,” continued Glazer.
“In 2023, we intend to use our cash flow primarily for debt reduction, consistent with our long-term target of a net leverage ratio in a range of 1.5x – 2.5x, while supporting investment in new product development. During the first quarter, we are launching patented, innovative paddle technology to further support our market leadership in the fast-growing pickleball category; a suite of American Cornhole League (ACL) licensed products; together with accessory and ancillary products in other leading categories. We are also building a market-leading billiards and game room platform through the combination of our Brunswick Billiards, American Heritage, and Cue & Case brands.”
“Looking ahead, we see opportunities for market share gains within our categories in the year ahead, yet remain equally focused on maintaining a lean, efficient cost structure supportive of our margin and profitability targets given the increasing economic headwinds facing consumers as they return to more normal post-pandemic buying patterns,” continued Glazer. “As Escalade completes the celebration of its 100-year anniversary, we are grateful for the ongoing support of our customers, employees, and investors, and remain steadfast in our focus on delivering exceptional, memorable consumer experiences that build brand loyalty, while driving long-term value creation for our shareholders. I would particularly like to thank our talented employees who responded to the many challenges we faced in 2022.”
