Performance Sports Group Ltd reported revenues increased 28 percent to $197.1 million in its fiscal first quarter ended Aug. 31, 2014, or 31 percent in currency-neutral (c-n) terms. While the bulk of the growth came from its acquisition of Easton’s diamond sports business, sales of hockey and lacrosse gear grew 8 and 7 percent respectively.
Adjusted Gross Profit rose 19 percent to $73.4 million, while Adjusted EBITDA up 8 percent to $39.9 million.
“The momentum we established in our business during fiscal 2014 has carried into our first quarter of 2015,” said Kevin Davis, President and CEO of Performance Sports Group. “We reported our third consecutive quarter of double-digit constant currency (11 percent) sales growth in hockey, led by a 22 percent increase in sticks – our largest dollar market share opportunity in the sport. Our apparel and uniform businesses also continue to grow significantly. Led by the launch of performance apparel integrated with our exclusive 37.5 fabric technology, apparel grew 41 percent in the quarter while uniforms grew an impressive 90 percent. Furthermore, we experienced strong demand in lacrosse for our new Maverik products, including the July launch of the Optik head.”
“The integration of Easton continues to progress as planned, and our baseball/softball segment significantly outperformed our expectations in what is typically a low seasonal quarter for that business,” Davis continued. “In September, we launched our new Easton Mako Torq bat and initial sell-in is strong, with positive retail and consumer feedback to what we believe is game-changing technology within the largest category in baseball.
“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.”
Supply chain initiative launched
In addition to record first quarter results, the company announced the appointment of Paul Gibson to the newly-created position of Chief Supply Chain Officer for Performance Sports Group. A 26-year company veteran who most recently held the position of Executive Vice President of Product Creation and Supply Chain, Gibson will lead a significant, multi-year initiative to enhance the overall effectiveness of 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 throughout the company’s supply chain.
Through this initiative, Performance Sports Group is targeting improvements to its current annualized pre-tax profitability of approximately $30 million over the next five years. This estimate assumes that unit volumes remain constant, and that certain macro-economic factors such as currency rates, labor, raw material and other input costs remain at or near current levels. 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.
“We have now more fully analyzed the scale and synergies possible from adding Easton to our performance sports platform,” Davis continued. “Adding this initiative to our ongoing cost reduction and service improvement efforts makes them more impactful than ever. Approximately two-thirds of the target benefit is from anticipated cost reductions, while approximately one-third relates to expected incremental margin growth from improved service levels and inventory quality.
“Our supply chain is one of the most vital aspects of our business, particularly as our platform and market shares grow. 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. We are proud to have Paul driving this important initiative and look forward to the improvements this will bring to our customers and our business.”
Fiscal Q1 2015 financial results
Revenues in the fiscal first quarter of 2015 increased 28 percent to $197.1 million compared to $154.0 million in the same year-ago quarter. On a constant currency 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 addition of revenues generated by Easton Baseball/Softball, partially offset by an unfavorable impact from foreign exchange.
Excluding the results of Easton, as well as the impact from foreign exchange, revenues grew organically by 11 percent.
| PERFORMANCE SPORTS GROUP LTD. | ||||||
| SEGMENT RESULTS (UNAUDITED) | ||||||
| (Expressed in millions of U.S. dollars) | ||||||
| Three Months Ended | ||||||
| August 31, | ||||||
| 2014 | 2013 | |||||
| Hockey | $ | 160.4 | $ | 148.0 | ||
| Baseball/Softball | 32.3 | 1.7 | ||||
| Other Sports | 4.4 | 4.3 | ||||
| Total Revenues | $ | 197.1 | $ | 154.0 | ||
Adjusted Gross Profit (a non-IFRS measure) in the first quarter increased by 19 percent to $73.4 million compared to $61.5 million in the year-ago quarter. As a percentage of revenues, Adjusted Gross Profit was 37.2 percent compared to 39.9 percent in the same year-ago period. The decrease in Adjusted Gross Profit margin was 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 (see “Non-IFRS Measures” below for further discussion).
SG&A expenses in the first quarter increased by 39 percent to $36.1 million compared to $26.0 million in the year-ago quarter, 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 first quarter increased by 40 percent to $5.8 million compared to $4.1 million in the year-ago quarter due to continued focus on product development and the addition of Easton. As a percentage of revenues, R&D expenses were 3.0 percent compared to 2.7 percent in the year-ago quarter.
Adjusted EBITDA (a non-IFRS measure) increased 8 percent to $39.9 million compared to $36.9 million in the year-ago quarter. The increase was primarily due to higher Adjusted Gross Profit and a favorable realized gain on derivatives.
Adjusted Net Income (a non-IFRS measure) in the first quarter was $22.6 million or $0.51 per diluted share, compared to $23.1 million or $0.63 per diluted share in the year-ago quarter. The decrease in adjusted earnings per share was almost entirely driven by the additional shares outstanding as a result of the underwritten public offering completed on June 25, 2014.
On Aug. 31, 2014, working capital was $363.7 million compared to $267.7 million on Aug. 31, 2013, primarily due to the acquisition of Easton. Excluding the acquisition, working capital was $306.2 million as of Aug. 31, 2014, an increase of 14 percent versus the year-ago quarter. Total debt was $420.0 million compared to $206.6 million at Aug. 31, 2013. The company’s leverage ratio, defined as average net indebtedness divided by trailing twelve months EBITDA (a non-IFRS measure), stood at 3.61x as of Aug. 31, 2014 compared to 2.70x one year ago. The increase reflects the company’s financing of the Easton Baseball/Softball acquisition.
| PERFORMANCE SPORTS GROUP LTD. | ||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) | ||||||||||
| (Expressed in thousands of U.S. dollars, except per share amounts) | ||||||||||
| For the three months ended | ||||||||||
| August 31, | ||||||||||
| 2014 | 2013 | |||||||||
| Revenues | $ | 197,135 | $ | 153,986 | ||||||
| Cost of goods sold | 133,199 | 94,247 | ||||||||
| Gross profit | 63,936 | 59,739 | ||||||||
| Selling, general and administrative expenses | 36,069 | 25,980 | ||||||||
| Research and development expenses | 5,816 | 4,163 | ||||||||
| Income before finance costs, finance income, other expenses (income) and income tax expense | 22,051 | 29,596 | ||||||||
| Finance costs | 8,941 | 2,045 | ||||||||
| Finance income | (2,338 | ) | (2,715 | ) | ||||||
| Other expenses (income) | 4 | |||||||||
