Escalade, Inc. reported total second-quarter net sales declined 28.2 percent on a year-over-year basis to $67.8 million, due to what the company described as a combination of reduced post-pandemic consumer demand across most product categories, together with 21 fewer days in the company’s new reporting calendar, when compared to the year-ago period. Effective January 1, 2023, Escalade transitioned to a conventional twelve-month reporting calendar. The second quarter 2023 had 91 operating days, versus 112 days in the prior-year period.
Excluding the impact of the change in the company’s reporting calendar, second-quarter sales declined 9.5 percent on a year-over-year basis.
“Sales strengthened relative to our first quarter as we continued to gain momentum through the second quarter,” shared Walter P. Glazer, Jr., president and CEO of Escalade. “Notably, direct-to-consumer (DTC) sales have continued to accelerate, with DTC sales up more than 60 percent versus the comparable April to June period in 2022, driven by a combination of effective marketing campaigns and successful new product launches. In the second quarter, we also continued with strong sales growth in the pickleball category versus the year-ago second quarter, despite 19 percent fewer days this year, driven by growing consumer demand for our Onix brand and leading assortment of innovative paddles, balls, and accessories.”
Net income for the quarter came to $3.6 million, or 26 cents per diluted share, versus net income of $5.7 million, or 42 cents per diluted share for the second quarter in 2022.
Escalade reported second-quarter gross margin of 24.6 percent of sales, a decline of 50 basis points versus the prior-year quarter, primarily driven by “higher-cost inventory, elevated inventory storage and handling costs, and lower operating leverage on a comparably lower revenue base partially offset by improved margins in several categories and expense reductions implemented through the second quarter.”
Glazer said second-quarter gross margin improved significantly compared to the first quarter, due to expense reductions, factory absorption, price discipline, and a more favorable product mix.
“Looking to the second half of the year, we anticipate margin expansion opportunities as we expect to continue those favorable trends from the second quarter and work through our higher-cost inventory,” he said.
The company generated $8.4 million of cash flow from operations in the second quarter 2023, compared to $2.5 million for the same quarter in 2022. Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) declined 25.9 percent to $7.7 million in the second quarter 2023, versus $10.3 million in the prior-year period.
“Recovering from a challenging start to the year and our disappointing first quarter, I am proud that our team demonstrated resilience and delivered strong second-quarter results highlighted by substantial growth in cash provided by operations, significant inventory and long-term debt reductions, EBITDA margin expansion, thoughtful expense reductions, and a return to profitability,” said Glazer. “While U.S. retail sales of sporting goods are soft and consumer confidence remains dampened by inflationary headwinds, higher interest rates and a mixed employment outlook, we believe our diverse portfolio of leading recreational brands will continue to resonate with consumers. As we look into the second half of the year, we anticipate continued normalization of wholesale channel inventories which should position us to capitalize on restocking opportunities with our retail partners as we move into the holiday season. Continuing with our strategic direction, we remain highly focused on a combination of cost control, improved working capital management, and balance sheet optimization including the divestiture of our owned facility in Rosarito, Mexico.”
Year-to-date, Escalade reported total net sales declined 25.2 percent on a year-over-year basis to $124.7 million in the first half of 2023 due mainly to reduced post-pandemic demand, particularly in our archery, basketball, and indoor/outdoor games categories as well as excess inventory levels in the retail channel. Year-to-date net income was $2.7 million, or 20 cents per diluted share, versus $12.3 million, or 91 cents per diluted share for the first half of 2022.
As of June 30, 2023, the company had total cash and equivalents of $0.6 million, together with $42.4 million of availability on its senior secured revolving credit facility maturing in 2027. At the end of the second quarter 2023, net debt (total debt less cash) was 4.0x trailing twelve-month EBITDA.
“We remain highly focused on reducing net leverage to within our targeted range of 1.5x to 2.5x,” stated Glazer. “Over the near term, we will prioritize debt reduction, consistent with our previously stated strategy. During the second half of the year, we expect to materially reduce inventory levels, while closely managing our capital expenditures, thereby positioning us to further reduce net leverage and maintain our stable quarterly cash dividend while supporting our customers and continuing to build our market-leading portfolio of high-quality and beloved brands for our loyal consumer base.”
Escalade’s Board of Directors has declared a quarterly dividend of 15 cents per share of common stock. The dividend is payable on September 5, 2023 to all shareholders of record at the close of business on August 29, 2023.
Photo courtesy Escalade/Onix
