Escalade’s Sale Decline 7.9 Percent In Third Quarter

Escalade, Inc. reported earnings fell by 50 percent in the third quarter ending October 1 as margins eroded and sales dipped 7.9 percent.

For the three months ended October 1, 2022, Escalade reported a net income of $3.0 million, or $0.22 per diluted share, including $0.06 per diluted share of the non-recurring expense.

Sales decreased 7.9 percent to $74.9 million. Organic sales, excluding acquisition contributions, declined 17.9 percent

The sales decline was due to softening consumer demand and excess inventories in the retail channel. During the third quarter, increases in billiards and pickleball sales, together with the contribution from the Brunswick Billiards acquisition completed January 21, 2022 were more than offset by lower sales in outdoor categories including archery, games, water sports, and playground.

The company reported a gross margin of 18.2 percent, a decline of 432 basis points compared with the prior-year period, due to lower sales, unfavorable product mix, global supply chain constraints, and nonrecurring product recall expenses.

SG&A expense, as a percentage of net sales, decreased to 11.7 percent in the third quarter 2022, versus 12.5 percent in the prior-year period, due to the company’s expense mitigation efforts.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 35.3 percent to $5.8 million in the third quarter 2022, versus $9.0 million in the prior-year period. For the nine months, year-to-date EBITDA decreased 9.7 percent to $26.7 million vs $29.5 million in 2021.

As of October 1, 2022, the company had total cash and equivalents of $4.0 million, together with $10.0 million of availability on its senior secured revolving credit facility maturing in 2027. At the end of the third quarter 2022, net debt (total debt less cash) was 3.0x trailing twelve-month EBITDA.

Escalade announced a quarterly dividend of $0.15 per share to be paid to all shareholders of record on December 5, 2022 and disbursed on December 12, 2022.

Effective January 1, 2023, Escalade will transition to a conventional twelve-month reporting calendar. The fourth quarter 2022 will end on December 31, 2022, then the company will transition to its new financial reporting calendar for 2023.

Management Commentary
“Broad-based inflationary pressures and a rising interest rate environment adversely impacted consumer discretionary spending behaviors during the third quarter, resulting in a year-over-year decline in sales and profitability during the period,” said Walter P. Glazer, Jr., president and CEO, Escalade. “During a transitional period for the consumer, we believe the strength of our brands, diverse sourcing capabilities, onshore manufacturing presence and disciplined expense management will position us to successfully navigate a challenging near-term macroeconomic backdrop.”

“Third quarter sales declined year-over-year due to softness in most outdoor categories, including archery, partially offset by continued strength in pickleball and billiards,” continued Glazer. “Elevated freight and logistics expenses more than offset some lower material costs in the third quarter, contributing to a year-over-year decline in gross profit in the period. While ocean freight rates and turnaround have begun to improve, inland freight has become challenging due to domestic labor and equipment shortages.

“In recent months, several large retail customers have slowed their pace of purchasing to reduce their overall inventories, contributing to the elevated inventory levels we are holding. During the next six months, we expect that a combination of seasonal demand, together with increased promotional activity, will contribute to a decline in inventories throughout the entire system. We believe this inventory decline will reduce our carrying costs and improve asset utilization to more acceptable levels.

“While we are not satisfied with the 2022 year-to-date results, we are taking steps to right-size our cost structure and asset base to weather the economic headwinds and position our company for continued growth in the years ahead.

“Subsequent to the quarter end, we exercised a $15 million accordion provision under our senior revolving credit facility. Including this additional availability, we now have nearly $30 million of liquidity to support the ongoing growth of our business. As our inventory levels normalize over the coming months, we anticipate free cash conversion will also improve, further bolstering our liquidity.

“Our capital allocation priorities remain unchanged. We remain committed to a reduction in net leverage to a range of 1.5x-2.0x trailing-twelve-month EBITDA, while maintaining a consistent quarterly cash dividend. As before, we will continue to selectively invest internally in higher-growth categories that cater to a durable base of loyal customers who value our portfolio of premium indoor/outdoor brands. Looking forward, we also believe an economic downturn may create additional market share opportunities for the company.”

Escalade’s brands include Brunswick Billiards, Stiga table tennis, Accudart, Rave Sports water recreation, Victory Tailgate custom games, Onix pickleball, Goalrilla basketball, Lifeline fitness, Woodplay playsets, and Bear Archery.

Photo courtesy Escalade/Onix