Performance Sports Group Ltd., the parent of Bauer, reported revenues jumped 28.0 percent in its first quarter ended Aug. 31, to $197.1 million. The companys brands also include Mission, Maverik, Cascade, Inaria, Combat and Easton.
On a currency-neutral (C-N) basis, revenues were up 31 percent. The increase was due in part to strong growth in sales of ice hockey equipment and lacrosse, as well as the acquisition of Easton Baseball/Softball, partially offset by an unfavorable impact from foreign exchange. Excluding the results of Easton and the impact from foreign exchange, revenues grew organically by 11 percent.
Net earnings slumped 36.2 percent to $11.9 million, or 26 cents, a share, due largely to acquisition related charges. Adjusting for those charges and non-recurring share-based payment expenses, earnings eased 2.2 percent to $22.6 million, or 51 cents a share.
Adjusted EBITDA rose 8.1 percent to $39.9 million, primarily due to higher adjusted gross profit and a favorable realized gain on derivatives.
Adjusted gross profit jumped 19.3 percent to $73.4 million. As a percentage of revenues, adjusted gross margins eroded to 37.2 percent from 39.9 percent, primarily driven by the unfavorable impact from foreign exchange and a shift in hockey sales mix weighted towards sticks and team equipment. These factors more than offset improvements in production costs for uniforms and the addition of Easton.
SG&A expenses in the quarter climbed 38.8 percent to $36.1 million, primarily due to the addition of Easton as well as higher share-based compensation, acquisition-related charges and sales and marketing costs. As a percentage of revenues and excluding acquisition-related charges and share-based payment expenses, SG&A expenses were 16.0 percent compared to 15.1 percent in the year-ago quarter. R&D expenses in the quarter increased 41.5 percent to $5.8 million due to continued focus on product development and the addition of Easton.
Among sports categories, Hockey revenues (Bauer and Mission) grew 8.4 percent to $160.4 million. Its Other Sports category-including lacrosse and soccer and consisting of the Maverik, Cascade and Inaria – grew to $4.4 million from $4.3 million. Baseball/softball-Easton and Combat-reached $32.1 million, up from $1.7 million due to the Easton acquisition.
On a conference call with analysts, Kevin Davis, president and CEO, said the momentum established during fiscal 2014 carried into its first quarter.
Regarding hockey, the period marked PSGs third consecutive quarter of double-digit constant currency sales growth, led by a 22 percent increase in sticks as a result of the successful launch of the Nexus family of sticks, and continued strength in its new Supreme line, as well as higher sales from the launch of new Vapor and Nexus under Protective lines.
The broader retail environment continued to improve as expected, and maintains the normalized level we began to observe in the fourth quarter of fiscal 2014, said Davis of the hockey category. Bauers peak back-to-hockey season runs from April to September.
Led by the launch of performance apparel integrated with its exclusive 37.5 fabric technology, apparel grew 41 percent in the quarter while uniforms surged 90 percent. A 7 percent increase was seen in bags and an 18 percent gain in lifestyle apparel. Hockey team apparel as well as performance apparel grew 50 percent. The total uniform gain was boosted by the addition of soccer uniform sales from Inaria.
The apparel growth was supported by the June launch of hockey base layer and cross-training products featuring 37.5 technology into its premium retail accounts. The launch will be supported by its first marketing campaign supporting apparel. Said Davis, Sell-through data for the initial launch was strong, which we expect to support sell-through trends when using this technology in upcoming product launches for uniforms, protective equipment, date liners, and certain lacrosse products.
In late September, PSGs annual global sales meeting, now called MOMENTUM, attracted over 600 retailers, the largest in history. The company showcased its Vapor 1X line of sticks and skates set to launch February and April 2015, respectively and a new Prodigy Children’s line to launch later this year. PSG also showcased a new Bauer-branded Street and Hockey product line, a new market for the company. Said Davis, While we estimate the market is worth $30 million to $40 million, Street Hockey provides an easy way for kids to get involved in the sport, and could lead to more ice hockey participation longer-term.
Lacrosse segment sales grew 7 percent in the quarter, driven primarily by strong demand for the new Maverik line of products, including the new Optik head launched in July. For the current year, PSG expects to make a significant push into the lacrosse team uniform category as well. Maverik is also launching a new shaft with an adjustable butt-end and two new heads as well as expanding its push in womens, with a particular focus on head protection.
Regarding baseball/softball, David said Combat continues to hit strong growth trajectory and is looking forward to a great season, while integration of Easton is tracking according to plan. In September, Easton launched a new Mako Torq bat and initial sell-in has been strong with positive retail and consumer feedback.
Said Davis, As weve done in hockey, we plan to significantly expand Easton’s market share in Diamond Sports by accelerating investment in product development, installing a category management discipline, and enhancing what are already very strong consumer connections. Like Combat, we also plan to expand Easton’s apparel business to include uniforms.
Said Davis overall, “Despite continued currency headwinds, we remain on track to deliver another record year of top and bottom-line performance in fiscal 2015. We expect to accomplish this by continuing to raise the bar of innovation across all of our brands through world class R&D, strong intellectual property and our ability to connect with our core consumers.”
PSG also last week promoted Paul Gibson to the newly-created position of chief supply chain officer for PSG. Most recently EVP of product creation and supply chain, Gibson will lead a major, multi-year initiative to enhance the company’s supply chain, with a particular focus on efficiency, product cost reductions and inventory quality improvements. This new initiative is expected to also increase service levels.
Through this initiative, PSG is targeting improvements to its current annualized pre-tax profitability of approximately $30 million over the next five years. The estimated increase in pre-tax profitability excludes certain one-time costs that may be required to implement this initiative. While the company expects to realize cost reductions starting in fiscal 2016, the majority of these benefits are expected to be realized in the latter stages of this initiative.
The company previously disclosed that it expects to achieve approximately $2 million of synergies as a result of the Easton acquisition. That amount is incremental to this initiative’s $30 million targeted improvement. Approximately two-thirds of the target benefit is expected to come from anticipated cost reductions, while approximately one-third relates to expected incremental margin growth from improved service levels and inventory quality.
Said Davis, As we continue to integrate Easton, we see multiple areas where we can take advantage of the combined scale of our collective businesses while improving service to our customers.
