Bauer Performance Sports Ltd. reported a modest increase in earnings and revenues in its first quarter ended Aug. 31, with gains slowed by the launch of only one new family of ice hockey equipment this year versus the two introduced in Q1 last year. The promising story was that bookings for its 2013 “Holiday” season (October 2013 – March 2014), were up 9 percent on a currency-neutral basis.
On a conference call with analysts, Kevin Davis, Bauer Performance Sports’ president and CEO, described the results as “impressive” and ahead of plan, with “very strong performance” in some non-ice hockey equipment, particularly apparel and lacrosse.
Revenues improved 3.8 percent to $154.0 million, led by gains in apparel, lacrosse, and roller hockey.
Ice hockey equipment sales grew in key categories such as sticks, protective equipment, and replacement steel blades. Composite sticks benefited from the recent Vapor launch, Those areas helped make up for challenging comparisons, given the prior year’s initial launch of Bauer's third family of ice hockey equipment, NEXUS, resulting in a 2 percent decline in ice hockey equipment sales versus the prior year. High levels of retail inventory in the hockey marketplace due to of competitive closeout products also contributed to the lower ice hockey equipment revenues in the quarter.
Excluding the impact of foreign exchange, the impact of lower wholesale prices, as a result of the Canadian tariff reduction, the impact of Cascade, Inaria, and Combat acquisitions, its ice hockey equipment revenues increased over 1 percent.
While the dynamics in the hockey market, that we have previously described, persist, we are profitably growing our sales and taking market share,” said Davis.
Ice hockey apparel revenues increased by 57 percent driven by strong growth in off-ice team apparel, base layer performance apparel, lifestyle apparel, and the addition of hockey and soccer uniform sales. The acquisition of Inaria in 2012 has provided a significant boost. Said Davis, “We could have grown this category even faster, as the demand for our new hockey team offerings has temporarily outpaced our ability to supply product, causing some disruptions in supply to certain of our customers, and preventing us from delivering more orders that we needed to decline.”
Lacrosse sales increased 43 percent in a seasonally slow period for the sport, driven by strong demand for the new Cascade “R” helmet, which features proprietary technology from both the Cascade and Bauer technologies, as well as solid growth in the Maverick line, which, for the season, includes a launch of a full line of women's gear.
Roller hockey sales grew 47 percent driven by strong skate sales.
Davis said baseball/softball, its newest category, is off to a strong start. He elaborated, “Our factory is running smoothly and we are seeing good sell-through at retail. We are well on our way to paying back the Combat asset purchase on a cash basis within our first six months of ownership.”
Overall revenues from the North American market grew 3 percent in the quarter, while sales outside North America advanced 7 percent.
Adjusted gross margins decreased to 39.9 percent from 41.1 percent a year ago, primarily due to growth in uniforms which have lower gross profit margins compared to its other equipment and apparel categories.
Excluding the impact of one-time acquisition related charges and share-based compensation expense, SG&A as a percentage of revenues increased to 15.1 percent from 14.2 percent in the comparative quarter last year. This increase was driven primarily by the effect of adding the SG&A from recently acquired companies in a seasonally low revenue quarter for these same companies. Adjusted earnings inched up 0.9 percent to $23.1 million, or 63 cents a share.
Regarding its outlook, Davis said hockey market fundamentals are slowly improving.
“Our bookings are up nicely,” said Davis. “We are experiencing positive sales momentum in key categories, and we expect that growth in all categories will improve over time as the market improves. We are also seeing good growth geographically in the US and outside of North America.”
Regarding other categories, Davis said the company has “only begun to scratch the surface” in apparel and is “well on our way” to becoming the market leader in lacrosse by 2015. Lacrosse team apparel is being added.
Davis also said the company continues to seek out acquisitions to enable to it to enter new categories in the team space.
“With six successful transactions under our belts, we have established a very effective internal process for identifying, acquiring, and integrating target companies,” said Davis. “This experience, combined with a solid balance sheet and strong cash flow, positions us well to target larger acquisitions going forward.”
