Escalade, Inc. reported that sales in the 2023 first quarter declined 21.3 percent on a year-over-year basis to $56.9 million. The company said the decline was due to changing post-pandemic consumer demand, excess inventories in the retail channel and unfavorable weather conditions in the quarter, which delayed the start of the spring business.

“In January, sales declined materially versus the prior year period due to lower sell-in of our basketball and archery categories given elevated inventory levels in the wholesale channel,” explained Walter Glazer, Jr., president and CEO of Escalade, Inc. “During February and March, demand conditions improved meaningfully versus January levels, supported by demand from indoor games, fitness, and safety. While our overall E-commerce sales declined in the quarter due to inventory destocking within our marketplace and at third-party reseller customers, our owned direct-to-consumer website sales increased 44 percent on a year-over-year basis in the first quarter, reflecting continued consumer demand for our products and the effectiveness of our marketing, product development, and E-commerce teams.”

First quarter gross margin of 19.4 percent of sales, a decline of 840 basis points versus the prior-year period, primarily driven by a less favorable product mix, ongoing additional inventory storage and handling costs, and lower operating leverage with the lower sales level.

Glazer said the first quarter gross margin decline reflected the “impact of higher-cost inventory, shut-down and severance expenses, lower sales volumes and a less favorable product mix.”

Operating income fell 98.3 percent to approximately $100,000. The company’s EBITDA declined 85.2 percent to $1.6 million in the first quarter 2023 versus $10.5 million in the prior-year period. The resulting net loss for the quarter was $1.0 million, or 7 cents loss per diluted share, compared to net income of $6.7 million, or 49 cents earnings diluted per share in Q1 2022.

“As expected, consumer demand softened during the first quarter and retailers continued to aggressively manage inventories, both contributing to a year-over-year decline in revenue and profitability,” Glazer continued. “While sales volumes declined across most categories in the period, given a challenging prior-year comparison, we continued to maintain price discipline, consistent with our strategic focus. Entering the second quarter, channel inventories remain elevated. We anticipate wholesale restocking to gradually increase as we move into the warmer summer months and the second half of the year.”

Cash provided by operations for the first quarter of 2023 was $4.5 million compared to cash used of $2.9 million for the comparable quarter in 2022.

“Although Escalade remains lean, we continue to evaluate opportunities to further align our cost structure with the current demand environment,” said Glazer. “In February, we announced plans to divest our owned facility in Rosarito, Mexico as we seek to further optimize our manufacturing footprint. We are targeting the divestiture of this facility by year-end 2023 and expect to realize annualized savings of between $0.5 million to $1.5 million upon the sale of the asset. We will use the net proceeds from the divestiture for debt reduction. Additionally, we initiated a targeted reduction in force during the second quarter 2023 within our domestic operations. We anticipate $2.3 million in annualized cost savings resulting from the domestic reduction in force beginning in the third quarter 2023. Between the divestiture of our Mexico operations and planned reduction in force domestically, we anticipate total annualized savings to be approximately $2.8 million to $3.8 million annually.”

As of March 31, 2023, ESCA had total cash and equivalents of $6.1 million and $32.9 million of availability on its senior secured revolving credit facility maturing in 2027.

“We ended the first quarter with a ratio of net debt to trailing twelve-month EBITDA of 3.8x, well above our targeted range of 1.5x to 2.5x,” stated Glazer. “Importantly, we anticipate a combination of improved seasonal demand and expense reductions, together with normalization of channel inventories, will bring us back within our targeted range by year-end. We have worked with our banks to amend our credit agreement to address the temporarily higher leverage. We have also reduced our planned capital expenditures and initiated other actions to generate additional cash to reduce our debt. We have taken these preemptive actions to ensure adequate liquidity with which to support our customers while continuing to build a market-leading portfolio of high-quality, beloved brands and indoor/outdoor products for our loyal consumer base.”

Escalade announced a quarterly dividend of 15 cents per share to be paid to all shareholders of record on June 12, 2023 and disbursed on June 19, 2023.

Effective January 1, 2023, Escalade transitioned to a conventional twelve-month reporting calendar. The first quarter 2023 had 90 operating days versus 84 days in the prior year period.

Photo courtesy Escalade