Easton Bell Swings Back to Profitability in Q1…

Easton Bell Sports finished off its last quarter of big gains before they anniversary the Easton acquisition, posting strong operating results and some definitive progress towards full integration. Net sales for the first fiscal quarter of 2007 increased $63.5 million due to the inclusion of a full quarter of Easton’s business compared to the 2006 period which only included 15 days of the business. Approximately $55.7 million of the net sales gain was attributable to the Easton acquisition.

On a pro-forma basis, if Easton had been included for the entire first quarter, sales would have increased 4.9% to $174.6 million compared to $166.5 million last year. On the same basis, income would have declined 66.8% to $1.3 million versus $3.8 million last year.

For the first fiscal quarter of 2007, gross margins increased 30 basis points in spite of 100+ basis point declines in both reporting segments. SG&A expenses increased $15.0 million for the first fiscal quarter with $7.9 million of the increase due to the acquisition of Easton. As a percentage of sales, SG&A was down 30 basis points to 24.1%.

Team Sports net sales more than doubled with the acquisition of Easton, adding $49.2 million for the quarter. In addition to the acquisition of Easton, other factors contributing to the increase in Team Sports net sales included increased football helmet and reconditioning sales. Team Sports gross margin was down 250 basis points to 36.9% of net sales compared to the first fiscal quarter of 2006. The decrease is primarily due to the inclusion of a full quarter of Easton’s Team Sports business, which sells products primarily through retail channels, whereas the balance of the Team Sports products are primarily sold directly to institutions.

Action Sports net sales increased 17.4% when compared to the prior year primarily due to the inclusion of a full quarter of Easton’s cycling business and increased sales of helmets and accessories. The addition of Easton added $6.5 million for the quarter. Action Sports gross margin was 29.2% of net sales, down 170 basis points due to the inclusion of a full quarter of the Easton cycling business and increased inventory.

During the first quarter of 2007 the company purchased substantially all the assets of Shanghai Cyclo, a China-based manufacturer of cycling components for a cash amount of $500,000.

Expenses related to reorganization initiatives were $900,000 for the first quarter compared to $400,000 for the same period last year. Restructuring expenses were only $50,000 compared to $275,000 last year. As part of the restructuring plan, Eason Bell will close its team sports manufacturing facility in Van Nuys, Calif. during the second fiscal quarter of 2007. Easton Bell has already also closed its team sports manufacturing operations in Chicago, Ill., which is currently under contract for sale with an anticipated closing date in May 2007.

As reported, Easton also showed considerable improvement to their bottom line, swinging back to profitability compared to Q1 of last year. The increase in profitability was due to a $7.5 million payment to cancel the obligation to pay regular management expenses to Fenway Partners, LLC at the time of the Easton acquisition in Q1 of last year.

While Easton Bell did not provide specific guidance, the company said that it expects the seasonality of its various businesses to moderate due to the inclusion of snow sports and ice hockey. The company also will continue with its plans to replace all legacy management software with a company-wide SAP system.