Easton-Bell Swings to Q1 Loss As New Executives Take Over

The company reported net sales of $207.6 million for the first quarter of 2013, down 4.0 percent from the first quarter of 2012, when unusually warm weather kicked off cycling sales much earlier than normal.
Gross margin increased by 160 basis points (bps) to 35.4 percent compared with the year earlier quarter thanks to the relocation of its reconditioning operations to Mexico, increased sales of higher margin bats and power sports helmets and reduced close-out sales.

 

 

SG&A expenses increased 12.3 percent to $73.5 million, or 30.9 percent of net sales, up 450 bps from the first quarter of 2012. The increase was due to severance expenses related to management changes, which were partially offset by lower legal expense. Excluding severance expenses, operating expenses decreased 1.8 percent and increased 60 bps as a percentage of net sales.

 

 

Easton-Bell announced the resignation of its CEO Paul Harrington and Giro/Easton Cycling President and Easton-Bell Chief Operating Officer Donna Flood in February as part of a management shakeup that elevated several board members representing Fenway Partners into their positions. Reports have since surfaced that Fenway has hired an investment bank to sell Easton-Bell.

 

 

Easton-Bell reported its net loss for the quarter was $2.06 million, excluding the impact of currency translation. That compared with net income of $1.35 million a year earlier. The loss increased to $3.59 million after adjusting for the impact of currency translation.

 

 

The company said its Adjusted EBITDA, which is the basis of covenants in its senior secured credit facilities, declined 11.8 percent to $19.9 million, including severance costs. The figure excludes $21.9 million in cash expenses associated with servicing debt, changes in working capital, taxes, capital expenditures as well as non-cash depreciation and amortization expenses. Excluding severance costs, adjusted EBITDA was $24.1 million, up 6.6 percent.

 

 

Team Sports net sales were flat with the year earlier quarter. Riddell football and Easton baseball/softball sales grew in the low-single digit range, indicating market share gains. The growth came despite difficult comps due to the non-recurring effects of new equipment specifications that fueled a spike in football helmets and bats a year earlier. Sales for the quarter also benefited from the introduction of the Easton Mako hockey skate line. These gains were mitigated by the decrease in sales of Easton hockey sticks due to excess retail inventories in the category.

 

 

Action Sports net sales decreased $8.6 million, or 9.4 percent for the quarter. A loss of $3.3 million in sales from the divested fitness business and a decline in cycling product sales, were partially offset by 44 percent growth in sales of power sports helmets from expanded product offerings and geographic distribution, continued market share gains with Giro footwear and the introduction of Giro cycling apparel.