Escalade Inc. announced that revenues for the fourth quarter and year ended December 30, 2006 were up 4%, boosted by acquisitions in its sporting goods segment. However, lower gross margins and higher selling, general and administrative costs resulted in a decline in profitability.
Net income for the fourth quarter was $2.6 million, or 20 cents a share, compared to restated net income of $3.4 million or $0.26 per share for the same period last year. Sales rose to $44.1 million from $42.4 million. Net income for the year ended December 30 was $8.5 million, or 65 cents a share, against restated net income of $12.9 million, 99 cents, last year. Sales grew to $191.5 million from $183.3 million.
Revenues in the sporting goods segment were up 11% and 13% for the fourth quarter and year, respectively. Acquisitions completed in the first half of fiscal 2006 comprised a substantial part of the increase in revenues and are a key element in the company's goal of expanding distribution into the specialty retail and dealer marketplace. These include the acquisition of Family Industries, Inc., which manufactures residential playground systems made from stained redwood under the WoodPlay Brand, in February 2006; and the acquisition of Carolina Archery Products, which manufactures archery accessories, in May 2006. Sales into the mass retail market were relatively unchanged from the prior year and the company continues to enjoy strong relationships with these customers.
Gross margins in the sporting goods segment declined slightly in fiscal 2006 due to pricing pressures in the mass retail marketplace and unfavorable production variances in the new manufacturing plant in Reynosa, Mexico. Expanding specialty retail and dealer sales are expected to yield higher gross margins and offset pricing pressures in the mass retail marketplace. Selling, general and administrative costs increased 22% in fiscal 2006 compared to fiscal 2005; due to relocation costs associated with the new plant in Mexico and higher selling costs associated with the specialty retail and dealer marketplace.
Operating income from the sporting goods segment was down 52% and 28% for the fourth quarter and year ended December 30, 2006, respectively, compared to last year. The company anticipates modest revenue growth in the segment in 2007 as recent acquisitions in the archery and residential playground markets enable increased distribution in the specialty retail and dealer marketplace. The higher gross margins associated with this revenue growth are expected to generate improved operating profits in 2007.
Escalade's roster of sports brands reach areas including Table Tennis (Ping-Pong, STIGA); Pool Tables and accessories (Mizerak, Murrey, Mosconi, Black Widow); Basketball Backboards and Goals (Goalrilla, Goaliath, Silverback, Air Hockey and Soccer Game Tables (Harvard Game, Rhino, Murrey Game); Archery (Fred Bear, Indian Archery, Jennings; Fitness (The STEP, USWeight); and Play Systems (ChildLife).
Revenues in the office products segment declined 10% and 12% in the fourth quarter and year ended December 30, 2006, respectively, compared to the same periods last year. Approximately 31% of the year-over-year decline resulted from the completion of a program initiated in 2005 to rationalization low margin products and unprofitable customers. A direct result of this program has been a steady improvement in overall gross margin ratios year-over-year. Roughly 44% of the current year decline is attributed to declining demand for paper shredders in the European and Asian markets. Operating profits in the office products segment declined 40% and 6% in the fourth quarter and year ended December 30, 2006, respectively, compared to last year. Management is optimistic that initiatives begun in 2006 to strengthen selling efforts will increase total sales and improve operating profits for 2007 in comparison to 2006.
Daniel Messmer, President and CEO of Escalade, Inc. stated that “Fiscal 2006 was a very challenging year, but it has not diminished our resolve to increase shareholder value through improved performance. We expect 2007 will also be challenging as we continue expanding the specialty retail and dealer markets in the sporting goods business and begin to experience revenue growth in the office product business.”
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited, In Thousands Except Per Share Amounts)
3 Months Ended 12 Months Ended
---------------------- ----------------------
30 Dec 2006 31 Dec 2005 30 Dec 2006 31 Dec 2005
(Restated) (Restated)
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NET SALES $ 44,133 $ 42,425 $ 191,465 $ 183,315
OPERATING EXPENSES
Cost of goods sold 33,138 28,364 137,821 127,719
Selling and administrative 8,484 8,987 39,918 36,401
Restructuring Costs -- (631) -- (631)
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OPERATING INCOME 2,511 5,705 13,726 19,826
OTHER INCOME (EXPENSE)
Interest expense (711) (357) (2,637) (1,482)
Other income (expense) 937 283 372 915
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INCOME BEFORE INCOME TAXES 2,737 5,631 11,461 19,259
PROVISION FOR INCOME TAXES 146 2,248 2,966 6,343
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NET INCOME $ 2,591 $ 3,383 $ 8,495 $ 12,916
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PER SHARE DATA
Basic earnings per share $ 0.20 $ 0.26 $ 0.65 $ 0.99
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Diluted earnings per
share $ 0.20 $ 0.26 $ 0.65 $ 0.98
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Average shares
outstanding 13,036 12,997 13,012 13,055
