Bauer Performance Sports Ltd. reported revenues rose 16 percent on a currency-neutral (C-N) basis its third quarter ended Feb. 28 and that its loss before non-recurring items had narrowed. But the best news was that “Back-to-Hockey” bookings were up 18 percent to $200.2 million on a C-N basis and ahead 12 percent to $190.1 million at current FX rates.
“While the currency headwinds, which are beyond our control, have impacted and may continue to impact our reported results, we have a very positive outlook on our business,” said Kevin Davis, Bauer’s president and CEO, on a conference call with analysts.
The third quarter, traditionally its weakest seasonally, was in line with the estimates previously provided in the company on Mar. 19, which also included news of its pending acquisition of the Easton baseball/softball business from Easton-Bell Sports.
In the quarter, reported sales grew 13.2 percent to $62.2 million. Because of the net weakening of foreign currencies, especially the Canadian dollar versus the US dollar, sales growth was unfavorably impacted by approximately 270 basis points during the quarter. On a C-N basis, ice hockey equipment revenues were up 13 percent, lacrosse grew 11 percent and apparel ran up 35 percent. The gains also reflect the addition of Combat.
Davis said the hockey growth in the quarter was driven by booking orders for skates, helmets, and protective sales; continued strength in its team business; higher repeat sales; and growth in its accessories, due to the continued acceptance of the TUUK Lightspeed Edge Holder and replaceable blades. The growth was offset by lower stick sales in anticipation of the NEXUS launch in April.
“The broader hockey retail environment has further improved, and we expect the retail environment to return to a normalized level during our fourth fiscal quarter,” said Davis.
Davis also noted that Rich Wuerthele, most recently president of Newell Rubbermaid's tool business, was appointed EVP of Hockey in March to continue to support it’s core category’s growth.
“As our portfolio of brands and sports continues to expand, our hockey business remains the core of our high-performance platform, and it's essential that we expand our already strong management team to meet the needs of our evolving company,” said Davis. “Rich's proven track record and expertise will ensure that we keep the necessary focus on increasing market share in every ice hockey category.”
The apparel gains were due to the addition of hockey, lacrosse and soccer uniform sales, as well as a 60 percent increase in hockey bags, a 36 percent increase in off-ice team apparel and an 11 percent gain in lifestyle apparel.
The lacrosse gains was primarily driven by the R Helmet, which features proprietary protective technology from both Cascade and Bauer families; growth in its Maverik bookings; and the launch of a women's product line.
Its newest category, baseball and softball, with the Combat acquisition continues to progress as expected. Said Davis, “Our factory is running smoothly, and we are experiencing good sell-through at retail.”
Davis further noted that the company has not experienced any disruption in that business from its dealer base, despite its pending Easton acquisition, “which we believe speaks very strongly to the consumer demand of Combat’s proprietary technology.”
The net loss in the period was $10.3 million, or 14 cents a share, against a loss of $5.4 million, or 8 cents, a year ago. The latest period included acquisition related costs of $3.1million, among other special items. The adjusted net loss was virtually unchanged. On an adjusted basis, the EBITDA loss was trimmed to $3.2 million from $3.8 million.
Adjusted gross margins grew 190 basis points to 31.8 percent primarily driven by higher profit margins in ice hockey equipment. As a percentage of revenues and excluding acquisition-related charges, costs related to share offerings and share-based payment expense, SG&A expenses were 32.8 percent compared to 31.3 percent of revenues in the year-ago quarter. The overall 28.0 percent SG&A increase was due to higher acquisition-related costs, the addition of Combat and higher marketing costs as a result of the NHL lockout last year.
Looking at the current business, Davis said hockey market fundamentals “continue to improve,” with expectations of strong growth in the U.S. as well as outside the U.S. Apparel remains a “significant” opportunity with lacrosse uniforms launching in 2014 and untapped opportunities in soccer apparel and uniform markets as well. In lacrosse, Bauer is “targeting market leadership by 2016, and we are well on our way.” New “game-changing” lacrosse heads and shafts will hit retail in July with an expansion of women’s, including head protection, also planned.
Davis still sees tremendous potential product synergies, especially with protective and helmets, in the baseball/softball categories, as well as a pending apparel launch. It expect to supplement the 7 percent compounded annual revenue growth that Easton has experienced in 2009 through 2013 with ongoing market share gains with investments in innovation and consumer outreach. Easton currently has 20 percent market share in baseball/softball. It likewise plans to expand in uniforms.
Davis said that while its acquisition of Easton will limit its “near-term resources for incremental acquisitions of significant size, we still remain fully committed to a long-term acquisition strategy that will enhance our position in the performance sports market in which we currently compete, as well as provide entry into new potential markets.”
