Sales Rise 5% at Easton-Bell Sports, but School Budget Cuts Loom

The company’s net sales for the first quarter ended April 3 rose 5.0% to $194.1 million as 10.8% growth in its Team Sports segment was partially offset by a 3.1% decline in Action Sports segment sales. Net income plunged 87% to $122,000 from $975,000 in the first quarter of 2009, but the company said adjusted EBITDA and operating income rose in the teens thanks to higher sales, better margins and cost controls.

Team Sports net sales increased by $11.6 million compared to the first quarter of fiscal 2009 due to increased sales of baseball, softball and football equipment as well as gains in apparel. Hockey sales were flat. On a constant currency basis, sales rose 8.3%.

“School budgets remain a concern,” said President and CEO Paul Harrington. “Institutions which fund their programs based on tax revenues are still constricted by budget issues, whereas those that rely on gates receipts are managing through the trying times more successfully.”

While Easton-Bell’s backlog for football gear is healthy, Harrington said the company is evaluating how it can control direct sales and R&D costs in the business in case sales drop off. He said conditions will come into focus in the next 30 to 45 days.

At the company’s Action Sports segment, net sales decreased $2.4 million compared to the year earlier quarter, a 4.4% decline on a constant currency basis. The decrease reflects lower cycling helmet and accessory sales, particularly in the higher-end specialty channel, due to a longer winter. The decline was partially offset by growth in sales of snowsports helmets and strong sales of licensed cycling helmets and accessories and fitness related products in the mass channel. Pre-booking order rates for Giro snow helmets for the upcoming winter season are up double-digits. Moreover, cycling helmets sales are now exceeding forecast. Sales of Easton bicycle wheels are up double digits in the current quarter across both road and MTB and aluminum and composite categories.

Gross margin for the quarter edged up 80 basis points to 33.4%, reflecting increased sales of higher margin products, lower sourced product costs, improved efficiencies of the company’s Mexico operations, lower close-out sales and gains in foreign currency exchange rates. Operating expenses were 25.7% of net sales, up 30 basis points from a year earlier due primarily to higher depreciation related to increased IT assets and investments in marketing and research and development. Those, in turn, were partially offset by reduced spending on sales support and events.

The sales growth, margin improvement and expense management enabled the company to grow its adjusted EBITDA to $20.8 million in the quarter, up 14.8% from $18.1 million a year earlier. Operating income reached $11.7 million, an increase of $1.8 million, or 18.0%, compared to $9.9 million for the first quarter of fiscal 2009.

Easton-Bell ended the quarter with net inventory of $119.3 million, down 6.7% from a year earlier. “Inventories are low in most channels, as retailers remain focused on conserving cash and cautious on taking positions in many product categories, putting pressure on wholesalers to carry the appropriate levels of inventory to service demand as it materializes,” Harrington said.

The Easton OEM business is recovering, although some bike makers are pushing back purchases as they move toward delivering bikes to dealers just in time. CFO Mark Tripp said the company’s A/R were actually performing better than anticipated, with team dealers catching up on past due balances.