Performance Sports Group (PSG) reported profits declined sharply in its fiscal first quarter on an 11.2 percent drop in sales. The decline was expected due to the timing off product launches and foreign currency exchange headwinds.

The company had warned that product launch timing in its hockey and baseball/softball businesses along with foreign currency exchange rates would affect results for the quarter ended Aug. 31. The company launched its new hockey products earlier this season, resulting in more sales than usual in its fourth quarter. PSG also launched only one new Easton bat family this yea versus two last year.

On a conference call with analysts, Kevin Davis, CEO of Performance Sports Group, estimated that the strengthened U.S. dollar lowered its first quarter-adjusted EPS by approximately 60 percent or 21 cents a share compared to the prior year.

“Despite the ongoing impact of currency on our reported results, we continue to see solid growth across our brands, including continued market share gains in the recently completed back-to-hockey season, which runs from April through September,” said Davis.

Revenues in the quarter decreased 11.2 percent to $175.0 million. On a currency-neutral basis, revenues were down 4 percent. The decline was due to the unfavorable impact from foreign exchange, variations in product launch cycles, as well as challenging market conditions in the company’s hockey business in Russia. On a regional basis, revenues in North America were down 6 percent, while the rest of the world was down 27 percent, reflecting the challenges in hockey.

By segment, hockey revenues, which includes Bauer and Mission, decreased 14 percent to $137.5 million, driven by an unfavorable impact from foreign exchange, lower sales in most ice hockey equipment categories as a result of the timing of product launches, a decline in performance apparel related to the prior year’s launch of a complete line of 37.5 apparel, and lower sales to the company’s Russian distributor. Sales were off 5 percent on a currency-neutral basis. Hockey EBITDA slumped 51 percent to $19.2 million, driven by the currency headwinds, product launch timing differences as well as higher freight and distribution costs.
Sales for Back-to-Hockey selling season, which spans Q4 and Q1 of fiscal year, were ahead 2 percent on a currency-neutral basis, driven by growth in virtually every hockey equipment and apparel category. Said Davis, “This is a big win for our hockey business, given the softness in Russia and the launch of only one family of new products this season versus multiple families in the last season.”

Baseball/Softball revenues in the quarter were essentially unchanged (including and excluding the impact of foreign currency) at $32.3 million. The launch of only one bat family for Easton compared to a two-family launch last year was offset by a gain of 80 percent on a currency-neutral basis at Combat. The segment also saw 76 percent sales growth in Easton batting helmets and solid double-digit sales growth in its senior league bats across both its Easton and Combat brands. Baseball/softball EBITDA plunged 68 percent to $1.2 million, driven by the product launch timing differences, Easton product mix, higher freight and distribution costs, as well as other SG&A investments in marketing and IT.
Revenues in the company’s “Other Sports” segment, which comprises lacrosse and soccer, increased 23 percent (or 25 percent on a currency-neutral basis) to $5.4 million. This was driven by a 24 percent increase in lacrosse, which was driven by continued strong growth in Maverik’s head and shaft categories, , including the new Centrik head launch, as well as a 27 percent currency-neutral increase in Inaria soccer uniform sales.

Adjusted gross profit decreased 540 basis points to 31.8 percent, primarily driven by unfavorable foreign exchange rates, and lower margins in baseball/softball due to the impact of Easton product mix and higher freight and distribution costs. On a currency-neutral basis, adjusted gross profit margin was down 50 basis points to 36.7 percent. Reported gross margins decreased 230 basis points to 30.1 percent.

As a percentage of revenues and excluding acquisition-related charges and share-based payment expenses, SG&A expenses increased 390 basis points to 19.9 percent, compared to 16.0 percent. The erosion reflected the sales decline and increased costs tied to start-up costs related to the “Own the Moment” retail initiative, regulatory compliance costs associated with the company’s transition to a U.S. domestic issuer, and corporate IT infrastructure investments.

Adjusted net Income slumped 72.5 percent to $6.0 million, or 13 cents a share. The net loss in the period was $4.4 million, or 10 cents a share, compared to net income of $10.8 million, or 24 cents.

Davis said the back half of the year will be supported by a two-family launch of products in its hockey business in the fourth quarter, as well as other new product initiatives across all of its sports. Added Davis, “As we look to the remainder of fiscal 2016, we reiterate our expectation that on a currency-neutral basis our brands will continue to outpace the growth of the markets we serve, resulting in market share gains and increased profitability.”

PSG also announced that it acquired a worldwide license from Q30 Sports, LLC to use its patent and technology assets in the development of products intended to address mild traumatic brain injury (mTBI) in sports and athletic activities. The price was $7 million with future payments of up to $18 million if certain product development and sales milestones are achieved. PSG also made a $1.0 million equity investment in Q30 Sports' parent company, Q30 Sports Science, LLC.

Q30's technology and supporting science have shown a reduction in indicators of mTBI in both animal and human studies. PSG and Q30 have initiated the process of bringing this promising technology to the marketplace with both the United States Food & Drug Administration (FDA) and Health Canada. Said Davis, “While there is more research that needs to be done, this technology and the wealth of knowledge and science behind it could mark a very important step in addressing this important issue and protecting the future of sports in general.”