Easton-Bell Sports, Inc. saw sales for the second quarter increase in both its Team Sports and Action Sports divisions with divisional operating income increasing for both divisions as well, though at a slightly slower rate. The company saw a major boost to its bottom line, however, due to a sharp decline in quarterly interest expense as a result of a $5.3 million write-down as well as reduced debt levels and lower borrowing rates.
Team Sports net sales increased due to increased sales of football equipment, reconditioning services and ice hockey equipment, which was partially offset by decreased sales of baseball and softball equipment and accessories, collectible football helmets, and apparel. Action Sports net sales increased due to increased sales of cycling helmets, accessories and components, snowsports helmets, eyewear and fitness related products.
“In fact, our Riddell Football business experienced one of its strongest quarters ever, with a 36% increase in football helmet sales,” commented Easton-Pell president and CEO Paul Harrington during a conference call with analysts discussing the quarterly results. Harrington clarified the football helmet growth by noting that some sales did move back from Q1 into Q2 as well as forward from Q3, but that for the first half sales were up 14%.
Gross profit for the quarter declined slightly as a downturn in Action Sports margins offset improvement in Team Sports. Team Sports gross profit of 43.2% increased 50 basis points compared to the second quarter of 2007. CFO Mark Tripp attributed that increase primarily to the cost savings the company has realized from transitioning the manufacturing of its aluminum products overseas and increased selling prices to customers in select products. Said Tripp, “Action Sports gross profit of 27.5% of net sales decreased 70 basis points compared to the second quarter of 2007. That decrease was primarily due to increased product costs and royalties, offset partially by increased selling prices to our customers.”
Selling, general and administrative expenses for Easton-Bells second quarter increased 10 basis points. The company said the increase primarily relates to its investment in research and development, increased depreciation related to information technology capital investments, equity compensation expense, product liability, reorganization costs related to the recent senior management changes, and increased variable selling experiences driven by the increase in sales. Restructuring expenses increased $300,000 during the quarter as compared to the second quarter of 2007 related to nonrecurring expenses associated with the closure of the Van Nuys, CA manufacturing facility.
Operating income for the quarter reflects an increase of $2.1 million and is 14.4% of net sales. Operating income for the Team Sports division increased 2.7% to $30.8 million from $30.0 million last year, while increasing 6.8% for the Action Sports division to $9.2 million from $8.6 million last year.
Tripp stated that the increase in net income for the quarter is primarily due to the sales increase and a decrease in interest expense, which was partially offset by the increase in selling, general, and administrative expenses and income tax expense. In addition, the prior year reflected a $1.8 million nonrecurring gain related to sale of property plant and equipment.