Escalade, Inc. reported third-quarter profits climbed 43.3 percent in the third quarter as strong improvement in gross margins. Sales were down 2.1 percent as healthy demand for basketball and pickleball offset weakness in other categories. Excluding the benefit of a calendar change, sales declined 11.6 percent.

For the third quarter ended September 30, net income of $4.3 million, or 31 cents per share, compared to net income of $3.0 million, or 22 cents, for the third quarter in 2022. Total net sales declined 2.1 percent on a year-over-year basis, primarily due to softer consumer demand across the majority of the company’s product categories, partially offset by improved demand in our basketball and pickleball product categories and the impact of the change in the company’s reporting calendar which resulted in eight more business days during the third quarter of 2023. Excluding the impact of the change in the company’s reporting calendar, net sales declined 11.6 percent.

Escalade reported third-quarter gross margin of 24.7 percent, an increase of 652 basis points versus the prior-year quarter, due to a favorable product mix, lower costs associated with supply chain disruption and nonrecurring product recall expenses in the prior year quarter that did not recur in the third quarter of 2023.

For the nine months ended September 30, net income reached $7.0 million, or 50 cents per diluted share, versus $15.3 million, or $1.12, a year ago. Total net sales declined 18.0 percent on a year-over-year basis in 2023 due to softer consumer demand and the impact of the change in the company’s reporting calendar, which has resulted in seven fewer days in the first three quarters of 2023 compared to the first three quarters of 2022. Excluding the impact of the change in the company’s reporting calendar, net sales declined 15.5 percent.

The company generated $14.8 million of cash flow from operations in the third quarter 2023, compared to cash use from operations of $5.5 million for the same quarter in 2022. Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 35.7 percent to $7.9 million in the third quarter 2023, versus $5.8 million in the prior-year period.

As of September 30, the company had total cash and equivalents of $0.9 million, together with $47.5 million of availability on its senior secured revolving credit facility maturing in 2027. At the end of the third quarter 2023, net debt (total debt less cash) was 3.1x trailing twelve-month EBITDA.

Escalade’s Board of Directors has declared a quarterly dividend of $0.15 per share of common stock. The dividend is payable on January 12, 2024 to all shareholders of record at the close of business on January 5, 2024.

“We delivered strong third-quarter results highlighted by significant year-over-year growth in gross margins, operating income and operating cash flow resulting in substantial debt reduction,” said Walter P. Glazer, Jr., president and CEO of Escalade. “The wholesale inventory destocking cycle that began earlier this year progressed favorably for many of our categories. Order activity also improved within our mass merchant channel, which includes our big box and sporting goods retailers, during the third quarter driven by demand for our basketball and pickleball product categories. We’ve remained highly focused on reducing fixed overhead expenses, while continuing to reduce inventory levels, consistent with our focus on improved working capital efficiency,” stated Glazer.

“During a period of higher interest rates and persistent inflationary headwinds, consumer demand for many of our categories has so far remained resilient,” continued Glazer. “These economic headwinds will likely continue for some time and may further erode consumer confidence and have a greater impact on discretionary spending in our categories. We also believe our retail partners will continue to closely manage their inventory levels and be more promotional in this uncertain economic environment.”

“Our diverse portfolio of recreational brands has resonated with consumers in this current environment, particularly within our basketball and pickleball assortment,” said Glazer. “The sales improvement we are seeing in these categories results from innovative product introductions, our strong brand support and our continued investment in our direct-to-consumer (DTC) sales platform, which has grown over 50 percent year-to-date. We continue to invest in both our DTC initiatives and new product development within our brand portfolio.”

“Third quarter gross margin improved substantially to the best levels since the second quarter of last year,” said Glazer. “The improvement is the result of favorable product mix, expense reductions, and price discipline. We believe that this gross margin level is sustainable as we continue to identify opportunities for fixed cost reductions amid raw material and freight tailwinds. We also continue to focus on the divestiture of our underutilized facility in Mexico.”

“Debt reduction remains our top capital allocation priority at this time,” said Glazer. “Strong free cash generation in the third quarter supported approximately $12 million in debt reduction, bringing net leverage down to 3.1x at the end of the quarter,” stated Glazer. “Looking ahead, we remain focused on closely managing our capital expenditures as well as further reducing outstanding borrowings and reinvesting in our market-leading portfolio of high-quality brands.”

Escalade’s brands include Brunswick Billiards, Stiga, Accudart, Rave Sports, Victory Tailgate, Onix, Goalrilla, Lifeline fitness, Woodplay, and Bear Archery.

Photo courtesy Escalade/Onix