Easton Bell Sports reported that net sales for the first quarter ended April 3 rose 5.0% to $194.1 million as growth in the Team Sports segment was partially offset by a decline in Action Sports segment sales.  Net income plunged 87.5% to $122,000 from $975,000 in Q1 2009, but the company said adjusted EBITDA and operating income rose in the teens thanks to higher sales, better margins and cost controls.

 

Team Sports net sales increased by $11.6 million to $119.4 million due to increased sales of baseball, softball and football equipment as well as gains in apparel. Hockey sales were flat. On a constant currency basis, sales rose 8.3%.   Management said the gain in FX rates had a favorable impact on the sales of ice hockey products in Canada and Europe, and baseball and softball products sold in Canada, Europe, and Asia.  The company said it remains cautious about its football business as schools nationwide ponder deep budget cuts.

 

“School budgets remain a concern,” said President and CEO Paul Harrington on a conference call with analysts.  “Institutions which fund their programs based on tax revenues are still constricted by budget issues, whereas those that rely on gates receipts are managing through the trying times more successfully.”

 

While Easton-Bell’s backlog for football gear is healthy, Harrington said the company is evaluating how it can control direct sales and R&D costs in the business in case sales drop off. He said conditions will come into focus in the next 30 to 45 days.

 

Action Sports segment net sales decreased 3.1% to $74.6 million compared to the prior-year quarter, or a 4.4% decline on a constant-currency basis as sales of action sports products in Canada and Europe benefited from FX rates in the quarter.  The decrease reflects lower cycling helmet and accessory sales, particularly in the higher-end specialty channel, due to a longer winter. The decline was partially offset by growth in sales of snow sports helmets and strong sales of licensed cycling helmets and accessories and fitness related products in the mass channel. Pre-booking order rates for Giro snow helmets for the upcoming winter season are up double-digits. Moreover, cycling helmets sales are now exceeding forecast. Sales of Easton bicycle wheels are up double digits in the current quarter across both road and MTB and aluminum and composite categories.

 

Gross margin for the quarter was 33.4% of sales as compared to 32.6% of sales in Q1 2009, reflecting increased sales of higher margin products, lower sourced product costs, improved efficiencies of the company’s Mexico operations, lower close-out sales and gains in foreign currency exchange rates. Team Sports gross margin was 36.9% of sales for Q1 as compared to 36.2% in Q1 2009. The increase resulted from 20 basis points of improvement from gains in FX rates, with the balance related to improved sales mix and lower product costs, both sourced and internally manufactured.  Action Sports gross margin increased 20 basis points for the quarter from 27.5% of sales to 27.7% of sales. The increase primarily resulted from lower source product costs and lower close-out sales, partially offset by increased royalties on licensed product sales and write-offs of specialty inventory.

 

The sales growth, margin improvement and expense management enabled the company to grow its adjusted EBITDA to $20.8 million in the quarter, up 14.8% from $18.1 million a year earlier. Operating income reached $11.7 million, an increase of $1.8 million, or 18.0%, compared to $9.9 million for the first quarter of fiscal 2009.

 

Easton-Bell ended the quarter with net inventory of $119.3 million, down 17.8% from a the 2009 first quarter-end.  Harrington said inventories remain low in most channels, as retailers “remain focused on conserving cash and cautious on taking positions in many product categories,” which puts more pressure on wholesalers to “carry the appropriate levels of inventory to service demand.”

 

The Easton OEM business is recovering, although some bike makers are pushing back purchases as they move toward delivering bikes to dealers just in time.