Escalade, Inc. relied heavily on its sporting goods division to help post a sales gain in the second quarter, but the net income increase produced by Escalade Sports in Q2 wasn’t enough to keep the company in the black.

Total consolidated net sales rose 9.7% to $54.7 million in the second quarter, helped by a 15.9% increase in sales at Escalade Sports to $30.6 million in Q2 versus $26.4 million in the year-ago period. Sporting goods revenues for the first half were up 23.2% over the same period last year. Roughly half of the increased revenue is directly attributed to the archery acquisition made during the third quarter of 2003. The remainder of the increase is attributed to table tennis and basketball sales which have increased as a result of better retail placement.

Sporting Goods now makes up roughly 56% of ESCA sales versus 53% in Q2 last year.

ESCA consolidated net income declined 13.3% for the quarter to $2.0 million, or 15 cents per diluted share.

Gross margins declined 540 basis points to 32.1% from 37.5% in the year-ago period. The decrease was clearly a refection of lower margins and profitability at the company’s office products group as increased sales and continued improvement in factory operating expenses at Escalade Sports pushed division net income up 7.5% for the quarter to $1.7 million, and drove net income for the first half up 81.8% to $2.2 million for the division.

The company is continuing to evaluate acquisitions in the sporting goods industry and said they should be in a position to begin looking for opportunities in the office products industry in the last half of 2005.

Growth expectations for the second half of 2004 are expected to be “modest” compared to H2 2003.