The Escalade Sports division of Esacalade, Inc. reported an increase of 4.5% in net sales for the third quarter to $52.0 million from $49.7 million last year. Operating income at the division, however, decreased 28.4%, while net income dropped 51.7% to $2.1 million from $4.2 million last year. Net sales for the company as a whole increased 3.2%, but net income fell 45.1% to $3.0 million for the third quarter, down from $5.5 million last year.
Higher selling, general and administrative costs, primarily in the Sporting Goods business, resulted in lower operating income and net income. Earnings per share for the third quarter of 2006 were $0.23 per share compared to $0.42 per share last year and $0.41 per share for the nine months ended October 7, 2006 compared to $0.68 per share for the same period last year.
Sporting Goods sales increased 4.5% in the quarter including revenues from acquisitions completed in the first half of 2006. Management anticipates that sales to the mass market channel in 2006 will be comparable to the level achieved in 2005. The company continues to pursue a strategy of expanding distribution into the specialty retail and dealer marketplace. The company embarked on this strategy to lessen the impact of fluctuations in sales to the mass market retail channel. The acquisitions in the first half of 2006 support this strategy. Consequently sales into this market channel increased 94% and 59% for the three months and nine months ended October 7, 2006, respectively, compared to the same periods last year. Sales to the specialty retail and dealer channel yield higher gross margins, but have higher selling and advertising costs. Management expects total Sporting Goods sales for 2006 to be better than 2005.
Compared to last year, profitability is down and will be down in total for fiscal 2006 due to pricing pressures from mass market retailers and higher selling, general and administrative costs associated with expanded distribution in the specialty market channels. A majority of the increase in selling, general and administrative costs relates to the Sporting Goods business and includes non-recurring start-up costs relating to the new manufacturing plant in Reynosa, Mexico. Excluding non-recurring costs the ratio of selling, general and administrative costs to revenues in the Sporting Goods business remains relatively unchanged from the prior year. The remainder of the increase in selling, general and administrative cost is composed of incentive stock options expense and non-recurring expenses relating to the retirement of the former President and CEO.
Daniel A. Messmer, President and Chief Executive Officer of Escalade, Inc., stated that “2006 is proving to be a difficult year. We remain focused on profitability while actively engaged in expanding revenues.”
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(All amounts in thousands, except per share amounts)
------------------------------------------------------------
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 7, October 1, October 7, October 1,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 65,583 $ 63,557 $ 147,332 $ 140,890
Costs, expenses and other income:
Cost of products sold 49,023 46,148 104,684 99,355
Selling, general and administrative expenses 10,650 8,935 31,434 27,414
------------ ------------ ------------ ------------
Operating income 5,910 8,474 11,214 14,121
Interest expense, net (862) (345) (1,926) (1,125)
Other income (expense) (310) 225 (565) 632
------------ ------------ ------------ ------------
Income before income taxes 4,738 8,354 8,723 13,628
Provision for income taxes 1,746 2,902 3,335 4,767
------------ ------------ ------------ ------------
Net income $ 2,992 $ 5,452 $ 5,388 $ 8,861
============ ============ ============ ============
Per Share Data:
Basic earnings per share $ 0.23 $ 0.42 $ 0.41 $ 0.68
Diluted earnings per share $ 0.23 $ 0.41 $ 0.41 $ 0.67
Cash dividend paid -- -- $ 0.20 $ 0.15
