Easton-Bell Sports Q2 Buoyed by Team Sports, North America

Easton-Bell Sports, Inc. reported net sales edged up 1.0 percent in the second quarter as team sports and cycling sales in North America offset action sports declines in Europe.

“Notwithstanding the uncertainty in the European markets and its impact on our Action Sports segment sales for the quarter, we were pleased with the sales growth in our Team Sports segment and our fourth consecutive quarter of margin expansion overall,” said Paul Harrington, president and CEO.

Team Sports net sales increased $4.1 million or 3.4 percent in the second quarter of 2012, as compared to the second quarter of 2011, or 3.9 percent on a constant currency basis. The increase resulted from continued market share gains with Riddell football helmets and apparel and the recently introduced Easton Mako hockey stick line, partially offset by a decline in sales of Easton baseball bats following the double-digit growth driven by the Power Brigade line in the first quarter as retailers now right-size BBCOR bat inventories.

Action Sports net sales decreased $1.9 million or 2.1 percent for the second quarter of 2012, as compared to the second quarter of 2011, or 1.6 percent on a constant currency basis. The decrease resulted from double-digit decreases in sales of Bell and Giro cycling helmets and Giro snow helmets in Europe due to retail skepticism surrounding the economic uncertainty in the region and the weather related softness in the snow market, substantially offset by growth in sales of Giro cycling shoes and Bell powersports helmets in North America and Asia.

The 150 bps of improvement in the company’s gross margin during the second quarter reflects enhanced focus on product development and go to market strategies. The second quarter also benefitted from the increased sales of higher margin football helmets and hockey sticks, partially offset by lower sales of high margin snow helmets and baseball bats.

The company’s operating expenses increased $3.3 million or 6.3 percent and 130 bps as a percentage of net sales during the second quarter from costs incurred to support the sales growth and planned spending on product innovation and brand marketing.

The company’s Adjusted EBITDA was $25.7 million for the second quarter of 2012, an increase of $0.7 million or 2.7 percent as compared to the second quarter of 2011. A detailed reconciliation of Adjusted EBITDA to net income, which the company considers to be the most closely comparable GAAP financial measure, is included in the section entitled “Reconciliation of Non-GAAP Financial Measures,” which appears at the end of this press release.

Balance Sheet Items

 Net debt totaled $370.4 million (total debt of $398.0 million less cash of $27.6 million) as of June 30, 2012, a decrease of $17.9 million compared to net debt of $388.3 million as of July 2, 2011. The decrease in net debt relates to the generation of positive cash flow and pay down on the revolving credit facility. Working capital as of June 30, 2012 was $277.0 million, as compared to $251.9 million as of July 2, 2011 with the increase primarily related to seasonal working capital requirements, the increase in cash and reduction in the revolving credit facility.

The company had substantial borrowing capability as of June 30, 2012, with $175.7 million of additional borrowing ability under the revolving credit facility and liquidity of $203.3 million when including the $27.6 million of cash.