Easton-Bell Sports, Inc. sales declined 6.5 percent in the third quarter ended Sept. 28 as its exit from the fitness products category and lower sales of Easton cycling and hockey products more than offset robust sales of Easton baseball and softball and Bell powersports products.

The company reported net sales of $199.4 million as compared to $213.3 million of net sales for the third quarter of 2012.
 
 
“Our financial results for the quarter reflect the continued strong performance of our Easton baseball and softball and Bell powersports businesses, where sales for the quarter were up 21 percent and 34 percent, respectively,” stated Terry Lee, Executive Chairman and Chief Executive Officer of Easton-Bell. “Our other businesses were either relatively flat or up during the quarter, with the exception of our Easton cycling products and hockey businesses which collectively were down 30 percent. The combination of the challenges in those businesses and our exit of the low-margin, non-core fitness products category represent $20.2 million of year-over-year sales declines. We continue to align resources with our strategic initiatives and rationalize spending back to historic levels.”
 
 
Gross margin decreased year over year by 60 basis points (“bps”) to 35.1 percent from 35.7 percent. Adjusted EBITDA exclusive of one-time severance expenses related to management changes, was $21.4 million, a decrease of $5.5 million or 20.3 percent from $26.9 million during the third quarter last year. Adjusted EBITDA inclusive of the severance expenses of $21.1 million decreased by $5.8 million or 21.5 percent for the quarter.
 
 
Team Sports net sales decreased $7.2 million or 5.8 percent for the quarter as inflated inventories and close-out sales in the hockey market continue to depress sales of Easton hockey products. Dampening this decline was 22 percent growth in Easton baseball and softball driven by the recently introduced Mako bat line and Riddell football, despite last year’s benefit from the industry’s new ten-year football helmet life policy, as both brands continue to gain share.
 
 
Action Sports net sales decreased $6.7 million or 7.5 percent for the quarter from exiting the fitness products category and lower sales of Easton cycling products and Giro specialty cycling helmets. Partially mitigating the decreases were the 34 percent sales increase in Bell powersports helmets from continued product and geographic expansion and higher sales of Giro snow products from the global market rebound.
 
 
The gross margin decline in the quarter resulted from an overall sales mix reflecting lower sales of certain high-margin products, as well as close-out sales of Easton cycling products.
 
 
Operating expenses increased $1.3 million or 2.3 percent and 250 bps as a percentage of net sales during the quarter. The increase primarily related to one-time severance expenses and non-cash equity compensation expense for new grants. Operating expenses were relatively flat, but increased 170 bps as a percentage of net sales when excluding the one-time severance expenses and non-cash equity compensation expense.

 
 

Balance sheet items

Net debt totaled $326.3 million (total debt of $362.7 million less cash of $36.4 million) as of Sept. 28, 2013, down $5.1 million when compared with the net debt amount as of Sept. 29, 2012. Working capital as of Sept. 28, 2013 was $245.8 million (current assets of $406.3 million less current liabilities of $160.5 million) as compared to $286.6 million as of Sept. 29, 2012.

 
The company continues to have substantial borrowing capacity and liquidity as of Sept. 28, 2013, with $167.2 million of additional borrowing availability under the revolving credit facility and liquidity of $203.6 million when including $36.4 million of cash.
 
 

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited and amounts in thousands)
Fiscal Quarter Ended Three Fiscal Quarters Ended

September 28,

September 29,

September 28,

 September 29,
2013 2012 2013 2012
Net sales $ 199,421 $ 213,329 $ 608,614 $ 643,677
Cost of sales 129,448 137,076 393,271 419,415
Gross profit 69,973 76,253 215,343 224,262
Selling, general and administrative expenses 57,696 56,354 185,612 168,798
Amortization of intangibles 1,816 2,597 6,102 7,791
Income from operations 10,461 17,302 23,629 47,673
Interest expense, net 11,234 11,112 32,479 32,235
(Loss) income before income taxes (773 ) 6,190 (8,850 ) 15,438
Income tax expense 7,913 2,531 1,814 6,721
Net (loss) income (8,686 ) 3,659 (10,664 ) 8,717
Other comprehensive (loss) income:
Foreign currency translation adjustment 1,184 2,593 (2,364 ) 1,065
Comprehensive (loss) income $ (7,502 ) $ 6,252 $ (13,028 ) $ 9,782