Easton-Bell Sports, Inc. had net sales of $211.9 million for the second quarter of fiscal 2011, an increase of 4.5 percent as compared to $202.8 million of net sales for the second quarter of fiscal 2010.

Operating income was $16.7 million for the second quarter of fiscal 2011, a decrease of $2.1 million, or 11.2 percent compared to the second quarter of fiscal 2010 when normalized. The decline in operating income is associated with a 50 bps margin decrease due to shifting product introductions into the second half of 2011 and the negative effect of inventory clearance sales.

“We are pleased to report our sixth consecutive quarter of sales growth despite shifting several key product introductions to the back half of this year,” said Paul Harrington, president and CEO. “In addition, margins improved throughout the quarter as we replenished our inventory, allowing us to fund marketing investments behind our new products.”

Team Sports net sales increased $10.3 million or 9.4 percent in the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010, or 8.7 percent on a constant currency basis. The increase was due to sales growth of football equipment and reconditioning services and a broad based sales increase across baseball and softball categories, including bats. These increases were primarily the result of gains in market share and the success of new products.

Action Sports net sales decreased $1.1 million or 1.2 percent for the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010, or 2.3 percent on a constant currency basis. The decrease was associated with lower traffic and sell-through of bicycle products in the mass channel, partially offset by increases in cycling and powersports helmets in the specialty channel and the introduction of Giro cycling shoes.

The company’s gross margin for the second quarter of fiscal 2011 was 33.5 percent, as compared to 34.0 percent for the second quarter of fiscal 2010. The margin decline related primarily to shifting product introductions to the back half of the year, sales growth in lower margin youth football equipment and close-out sales of certain inventory items, and was partially offset by increased sales of higher margin cycling helmets in the specialty channel.

The company’s operating expenses increased $5.1 million or 10.9 percent and 140 bps as a percentage of net sales during the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010 when normalized for a $1.3 million benefit in 2010 related to a mark-to-market adjustment for foreign currency exchange forward contracts. The increase related to variable costs to support the sales growth and planned investments.

The company’s adjusted EBITDA was $25.0 million for the second quarter of fiscal 2011, a decrease of $1.4 million or 5.2 percent as compared to the second quarter of fiscal 2010 when normalized.

Net debt totaled $388.3 million (total debt of $404.5 million less cash of $16.2 million) as of July 2, 2011, an increase of $27.2 million compared to net debt of $361.1 million at the end of fiscal 2010. The increase in net debt relates to financing seasonal working capital requirements. Working capital as of July 2, 2011 was $251.9 million as compared to $242.6 million at the end of fiscal 2010.

The company had substantial borrowing capability as of July 2, 2011, with $162.1 million of additional borrowing ability under the revolving credit facility and liquidity of $178.3 million when including the $16.2 million of cash.

EASTON-BELL SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited and amounts in thousands)











 




Fiscal Quarter Ended




Two Fiscal Quarters Ended

 




July 2,
2011

     

July 3,
2010






July 2,
2011

     

July 3,
2010

Net sales


$ 211,913


$ 202,757





$ 415,311


$ 396,861
Cost of sales


  140,888


  133,817  




  280,329


  263,159  
Gross profit



71,025



68,940






134,982



133,702
Selling, general and administrative expenses



52,018



45,577






102,386



95,287
Amortization of intangibles


  2,348


  3,251  




  4,901


  6,586  
Income from operations



16,659



20,112






27,695



31,829
Interest expense, net


  11,101


  11,162  




  22,094


  22,674  
Income before income taxes



5,558



8,950






5,601



9,155
Income tax expense


  2,612


  3,990  




  2,717


  4,072  
Net income



2,946



4,960






2,884



5,083
Other comprehensive income:

















Foreign currency translation adjustment


  319


  (3,792 )




  1,273


  (2,514 )
Comprehensive income


$ 3,265


$ 1,168  




$ 4,157


$ 2,569