Sport Supply Group, Inc. reported record sales of $73.6 million and diluted EPS of 35 cents for its first quarter ended Sept. 30, 2008.

Net Sales Grew 4.6% from $70.4 million to $73.6 million, while gross margins expanded 17 basis points from 36.42% to 36.59%. SG&A expenses grew a marginal 1.7%, from $17.9 million to $18.3 million. SG&A decreased as a percentage of sales from 25.5% to 24.8%.

Operating margins improved from 10.92% to 11.78%, while net income grew 23.6% from $4.1 million to $5.1 million. Diluted EPS rose 13% from 31 to 35 cents per diluted share. 

“We are pleased to report a strong first quarter of the fiscal year, driven by top line growth faster than the first quarter of the previous comparative year, continued gross margin expansion and well controlled expenses,” said Adam Blumenfeld, chairman and CEO. “In particular, our elementary school business, varsity athletics sales and Internet division all showed impressive strength during the period. To produce these results in the highest sales quarter of our year, given the current macro-economic backdrop, is a testament to the relative resiliency of our direct selling business model, and our non-consumer / non-retail oriented institutional customer base. Within the last 90 days we have enhanced certain key vendor relationships and added important new distribution partners.

Buying back debt at a discount

“The current financial crisis is creating opportunities for companies like ours, whose balance sheets are strong and who can deploy cash at critical times. Stress in the fixed income markets has created opportunities for us to redeem our outstanding convertible bonds at prices accretive to our shareholders. We are pleased to announce that we repurchased $5.5 Million of our convertible bonds during the quarter at prices well below par, and an additional $7.0 Million of bonds since quarter end at similarly attractive prices. Together, these purchases have retired 25% of the convertible notes outstanding. We believe our balance sheet strength will continue to be rewarded in the coming months and years, and we will continue to consider similar bond repurchases for the benefit of shareholders as conditions merit.

Outlook

RBI now estimates annualized net revenue growth in FY09 will be in the low to mid single digits, and slightly modified its FY09 diluted EPS range from 85 to 95 cent to 82 to 92 cents. The midpoint of this range implies a mid-teens growth rate when compared to FY08 EPS of 76 cents.

“Sport Supply’s basic operating thesis remains well intact. Over the course of time, we continue to envision a 'strong get stronger, weak get weaker' scenario unfolding,” Blumenfield continued. “Unlike discretionary purchases, we view unspent dollars in the Institutional sporting goods market as deferred – not lost. We are well situated to target these sales dollars as future spending trends improve.”