Easton-Bell Sports Sees Improving Fourth Quarter Profits on Solid Revenue Gain

 

The company's brands include Easton, Bell, Giro, Riddell and Blackburn.
Team Sports segment sales grew 9.7% to $96.1 million in the quarter due to share gains in football helmets at existing accounts and new channels on top of increased sales of baseball and softball bats, bags and protective gear as new products gained momentum. The launch of the EQ line of hockey sticks during the quarter helped drive double-digit growth for the stick category. Hockey protective equipment also increased as well as collectible football helmets.

 

All three sports – football, baseball/softball and hockey – grew with helmets, bats, sticks and protective equipment all up overall. These gains were partially offset by a decline in sales of baseball/softball and hockey apparel.

For the full year, Team Sports sales increased 10.3% to $426.8 million, or 8.4% on a constant-currency basis.

Action Sports segment revenues moved up 6.4% to $81.5 million. The growth was driven by increased sales of snow helmets and goggles, boosted by strong fill-in orders. The segment also benefited from continued strong demand for Easton-branded cycling wheels and components, double-digit sales increases in cycling helmets in the mass channel, and higher sales of cycling accessories at both specialty and mass channels. A strong snow season in both Europe and the U.S. and the specialty retail channel also supported revenue growth.

For 2010, Action Sports sales moved up 5.1% to $346.0 million, or 4.6% on a constant-currency basis.

Overall gross margins in the quarter improved to 33.4% of sales from 31.4% of sales in the prior-year period. From a segment perspective, team sports experienced a 220 basis point increase in margins, resulting from lower source product costs benefitting the sales of certain baseball and softball products, an improved mix on sales of football products and favorable foreign currency exchange rates on sales of hockey products in Canada and Europe. That offset higher licensing fees paid on sales of certain football products and closeout sales of hockey products.

Margins for Actions Sport were up 180 basis points for the quarter, largely due to a favorable mix on sales of cycling helmets and accessories and snow helmets and goggles, and favorable foreign currency exchange rates, all of which were partially offset by unfavorable mix on sales of cycling components and a write-down of auto racing inventory.

Operating expenses increased $5.0 million, or 12.1%, during the quarter when normalized for $5.3 million of refinancing costs in 2009 and $1.8 million of increased incentive compensation in 2010. The increase related primarily to variable costs to support the sales growth, investments in research and development, and an increase in legal costs. Easton-Bell had $162.9 million of additional borrowing availability under its revolving credit facility.

On a conference call with analysts, company President and CEO Harrington said the recent reorganization of its Easton-Bell Sports Research Design and Development teams to help production development teams better collaborate around common materials, technology and product categories is already driving innovation.
Easton's Stealth Scandium Plus lacrosse shaft, utilizing the same THT100 Scandium alloy used in Easton's Rival and Surge baseball bats, was introduced at the January 21 U.S. Lacrosse National Convention in Baltimore, representing its entry into the sport.

“These products are being shipped now to specialty retailers in the U.S. and supported on the field by our new Easton lacrosse athletes including Casey Powell,” said Harrington.

Giro cycling shoes, with retail prices ranging from $199 to $349, are being launched in March. Featuring Easton engineered carbon fiber outsoles, the 205 Prolight model was worn by American cyclist Levi Leipheimer in the 2010 Tour de France.

“We feel this is an important category extension for the Giro brand in the cycling market and one that is poised to capture share from our competition,” said Harrington.

The company also launched its Riddell 360 football helmet at the American Football Coaches Association show in Dallas in mid-January.
“The feedback from coaches and players are alike at the show and on-field testing is extremely positive,” said Harrington.

Harrington cautioned that while the company still feels it can further reduce costs, it's battling input costs inflation, particularly around carbon fiber.

“We are going to struggle with continuing if the raw materials pressure and oil continues to go up,” said Harrington. “That will be a more difficult process. But we feel we have the right process in place to continue to increase our margins in line with where our products are and our trade channels are.”

Harrington also said Easton-Bell's retail partners remain generally conservative around open-to-buys.

“I think they still remain in the cautious tone,” said Harrington. “I do think as I said earlier, new products and freshness, freshening up the line, gives you the ability to get more product in but from an overall taking a position to begin the season, there they will be cautious.”
“The sales growth for the fourth quarter was primarily driven by strong product introductions and a continued economic recovery,” said Harrington on the conference call. “We were also encouraged by the margin improvement during the quarter as our focus on product costs continues to provide gains as our sales mix improves.”

For the year, revenues gained 7.9% to $772.8 million and grew 6.6% on a constant-currency basis. Adjusted EBITDA increased 15.7% to $95.2 million. Easton posted net earnings of $8.1 million in the year against a $4.1 million net loss in the prior year.