Escalade, Inc. (NASDAQ: ESCA, or the “Company”), a leading
manufacturer and distributor of sporting goods and indoor/outdoor
recreational equipment, today announced third quarter and year to
date results for 2022.
THIRD QUARTER 2022 (As compared
to the third quarter 2021)
- Net Sales decreased 7.9% to $74.9
million
- Organic sales, excluding
acquisition contributions, declined 17.9%
- Gross margin declined 432 basis
points, to 18.2%
- Operating income decreased 45.0% to
$4.2 million
- Net income of $3.0 million, or
$0.22 per diluted share vs. $6.0 million, or $0.43 per share for Q3
2021
- EBITDA decreased 35.3% to $5.8
million
- Announced $0.15 per share cash
dividend to shareholders of record on December 5, 2022
NINE MONTHS ENDED OCTOBER 1,
2022
(As compared to the first nine months of
2021)
- Net Sales increased 0.6% to $241.6
million
- Organic sales, excluding
acquisition contributions, declined 8.4%
- Gross margin declined 153 basis
points, to 23.8%
- Operating income decreased 15.9% to
$21.4 million
- Net income of $15.3 million, or
$1.12 per diluted share vs. $19.5 million, or $1.40 per diluted
share for 2021
- EBITDA decreased 9.7% to $26.7
million
For the three months ended October 1, 2022,
Escalade reported net income of $3.0 million, or $0.22 per diluted
share, including $0.06 per diluted share of non-recurring
expense.
Sales declined due to softening consumer demand
and excess inventories in the retail channel. During the third
quarter, increases in billiards and pickleball sales, together with
contribution from the Brunswick Billiards® acquisition completed
January 21, 2022 were more than offset by lower sales in outdoor
categories including archery, games, water sports, and
playground.
The Company reported gross margin of 18.2%, a
decline of 432 basis points compared with the prior-year period,
due to lower sales, unfavorable product mix, global supply chain
constraints, and nonrecurring product recall expenses.
Selling, general, and administrative expense as
percentage of net sales decreased to 11.7% in the third quarter
2022, versus 12.5% in the prior-year period, due to the Company’s
expense mitigation efforts.
Earnings before interest, taxes, depreciation,
and amortization (“EBITDA”) declined 35.3% to $5.8 million in the
third quarter 2022, versus $9.0 million in the prior-year period.
For the nine months year-to-date EBITDA decreased 9.7% to $26.7
million vs $29.5 million in 2021.
As of October 1, 2022, the Company had total
cash and equivalents of $4.0 million, together with $10.0 million
of availability on its senior secured revolving credit facility
maturing in 2027. At the end of the third quarter 2022, net debt
(total debt less cash) was 3.0x trailing twelve-month EBITDA.
Escalade announced a quarterly dividend of $0.15
per share to be paid to all shareholders of record on December 5,
2022 and disbursed on December 12, 2022.
Effective January 1, 2023, Escalade will
transition to a conventional twelve-month reporting calendar. The
fourth quarter 2022 will end on December 31, 2022, then the Company
will transition to its new financial reporting calendar for
2023.
MANAGEMENT COMMENTARY
“Broad-based inflationary pressures and a rising
interest rate environment adversely impacted consumer discretionary
spending behaviors during the third quarter, resulting in a
year-over-year decline in sales and profitability during the
period,” stated Walter P. Glazer, Jr., President and CEO of
Escalade. “During a transitional period for the consumer, we
believe the strength of our brands, diverse sourcing capabilities,
onshore manufacturing presence and disciplined expense management
will position us to successfully navigate a challenging near-term
macroeconomic backdrop.”
“Third quarter sales
declined year-over-year due to softness in most outdoor categories,
including archery, partially offset by continued strength in
pickleball and billiards,” continued Glazer. “Elevated freight and
logistics expenses more than offset some lower material costs in
the third quarter, contributing to a year-over-year decline in
gross profit in the period. While ocean freight rates and
turnaround have begun to improve, inland freight has become
challenging due to domestic labor and equipment shortages.”
“In recent months,
several large retail customers have slowed their pace of purchasing
to reduce their overall inventories, contributing to the elevated
inventory levels we are holding,” continued Glazer. “During the
next six months, we expect that a combination of seasonal demand,
together with increased promotional activity, will contribute to a
decline in inventories throughout the entire system. We believe
this inventory decline will reduce our carrying costs and improve
asset utilization to more acceptable levels.”
"While we are not
satisfied with the 2022 year to date results, we are taking steps
to right size our cost structure and asset base to weather the
economic headwinds and position our Company for continued growth in
the years ahead,” continued Glazer.
“Subsequent to the
quarter end, we exercised a $15 million accordion provision under
our senior revolving credit facility,” continued Glazer. “Including
this additional availability, we now have nearly $30 million of
liquidity to support the ongoing growth of our business. As our
inventory levels normalize over the coming months, we anticipate
free cash conversion will also improve, further bolstering our
liquidity.”
“Our capital allocation priorities remain
unchanged,” continued Glazer. “We remain committed to a reduction
in net leverage to a range of 1.5x-2.0x trailing-twelve-month
EBITDA, while maintaining a consistent quarterly cash dividend. As
before, we will continue to selectively invest internally in
higher-growth categories that cater to a durable base of loyal
customers who value our portfolio of premium indoor/outdoor brands.
Looking forward, we also believe an economic downturn may create
additional market share opportunities for the Company.”
CONFERENCE CALL
A conference call will be held Thursday, October
27, 2022, at 11:00 a.m. ET to review the Company’s financial
results, discuss recent events and conduct a question-and-answer
session.
A webcast of the conference call and
accompanying presentation materials will be available in the
Investor Relations section of Escalade’s website at
www.escaladeinc.com. To listen to a live broadcast, go to the site
at least 15 minutes prior to the scheduled start time in order to
register, download, and install any necessary audio software.
To participate in the live teleconference: |
Domestic Live: |
877-407-0792 |
International Live: |
201-689-8263 |
|
|
To listen to a replay of the teleconference, which
subsequently will be available through November 10, 2022: |
Domestic Replay: |
844-512-2921 |
International Replay: |
412-317-6671 |
Conference ID: |
13733441 |
|
|
USE OF NON-GAAP FINANCIAL
MEASURES
In addition to disclosing financial statements
in accordance with U.S. generally accepted accounting principles
(“GAAP”), this release contains the non-GAAP financial measure
known as “EBITDA.” A reconciliation of this non-GAAP financial
measure is contained at the end of this press release. EBITDA is a
non-GAAP financial measure that Escalade uses to facilitate
comparisons of operating performance across periods. Escalade
believes the disclosure of EBITDA provides useful information to
investors regarding its financial condition and results of
operations. Non-GAAP measures should be viewed as a supplement to
and not a substitute for the Company’s U.S. GAAP measures of
performance and the financial results calculated in accordance with
U.S. GAAP and reconciliations from these results should be
carefully evaluated. Non-GAAP measures have limitations as an
analytical tool and should not be considered in isolation or in
lieu of an analysis of the Company’s results as reported under U.S.
GAAP and should be evaluated only on a supplementary basis.
ABOUT ESCALADE, INC
Founded in 1922, and headquartered in
Evansville, Indiana, Escalade designs, manufactures, and sells
sporting goods, fitness, and indoor/outdoor recreation equipment.
Our mission is to connect family and friends creating lasting
memories. Leaders in our respective categories, Escalade’s brands
include Brunswick Billiards®; STIGA® table tennis; Accudart®; RAVE
Sports® water recreation; Victory Tailgate® custom games; Onix®
pickleball; Goalrilla™ basketball; Lifeline® fitness; Woodplay®
playsets; and Bear® Archery. Escalade’s products are available
online and at leading retailers nationwide. For more information
about Escalade’s many brands, history, financials, and governance
please visit www.escaladeinc.com.
INVESTOR RELATIONS
CONTACTPatrick GriffinVice President - Corporate
Development & Investor Relations812-467-1358
FORWARD-LOOKING
STATEMENTS
This report contains forward-looking statements
relating to present or future trends or factors that are subject to
risks and uncertainties. These risks include, but are not limited
to: specific and overall impacts of the COVID-19 global pandemic on
Escalade’s financial condition and results of operations; the
impact of competitive products and pricing; product demand and
market acceptance; new product development; Escalade’s ability to
achieve its business objectives, especially with respect to its
Sporting Goods business on which it has chosen to focus; Escalade’s
ability to successfully achieve the anticipated results of
strategic transactions, including the integration of the operations
of acquired assets and businesses and of divestitures or
discontinuances of certain operations, assets, brands, and
products; the continuation and development of key customer,
supplier, licensing and other business relationships; Escalade’s
ability to develop and implement our own direct to consumer
e-commerce distribution channel; Escalade’s ability to successfully
negotiate the shifting retail environment and changes in consumer
buying habits; the financial health of our customers; disruptions
or delays in our business operations, including without limitation
disruptions or delays in our supply chain, arising from political
unrest, war, labor strikes, natural disasters, public health crises
such as the coronavirus pandemic, and other events and
circumstances beyond our control; Escalade’s ability to control
costs; Escalade’s ability to successfully implement actions to
lessen the potential impacts of tariffs and other trade
restrictions applicable to our products and raw materials,
including impacts on the costs of producing our goods, importing
products and materials into our markets for sale, and on the
pricing of our products; general economic conditions; fluctuation
in operating results; changes in foreign currency exchange rates;
changes in the securities markets; continued listing of the
Company’s common stock on the NASDAQ Global Market; the Company’s
inclusion or exclusion from certain market indices; Escalade’s
ability to obtain financing and to maintain compliance with the
terms of such financing; the availability, integration and
effective operation of information systems and other technology,
and the potential interruption of such systems or technology; the
potential impact of actual or perceived defects in, or safety of,
our products, including any impact of product recalls or legal or
regulatory claims, proceedings or investigations involving our
products; risks related to data security of privacy breaches; and
other risks detailed from time to time in Escalade’s filings with
the Securities and Exchange Commission. Escalade’s future financial
performance could differ materially from the expectations of
management contained herein. Escalade undertakes no obligation to
release revisions to these forward-looking statements after the
date of this report.
Escalade, Incorporated and
SubsidiariesConsolidated Statements of
Operations(Unaudited, In Thousands Except Per Share
Data)
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
All
Amounts in Thousands Except Per Share Data |
October 1, 2022 |
|
October 2, 2021 |
|
October 1, 2022 |
|
October 2, 2021 |
|
|
|
|
|
|
|
|
Net sales |
$ |
74,904 |
|
|
$ |
81,298 |
|
|
$ |
241,621 |
|
|
$ |
240,168 |
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
Cost of products sold |
|
61,273 |
|
|
|
62,992 |
|
|
|
184,147 |
|
|
|
179,355 |
|
Selling, administrative and general expenses |
|
8,769 |
|
|
|
10,202 |
|
|
|
33,975 |
|
|
|
33,888 |
|
Amortization |
|
642 |
|
|
|
432 |
|
|
|
2,067 |
|
|
|
1,438 |
|
|
|
|
|
|
|
|
|
Operating Income |
|
4,220 |
|
|
|
7,672 |
|
|
|
21,432 |
|
|
|
25,487 |
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
Interest expense |
|
(954 |
) |
|
|
(414 |
) |
|
|
(2,462 |
) |
|
|
(1,035 |
) |
Other income (expense) |
|
(22 |
) |
|
|
68 |
|
|
|
50 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
3,244 |
|
|
|
7,326 |
|
|
|
19,020 |
|
|
|
24,576 |
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
286 |
|
|
|
1,360 |
|
|
|
3,735 |
|
|
|
5,042 |
|
|
|
|
|
|
|
|
|
Net Income |
$ |
2,958 |
|
|
$ |
5,966 |
|
|
$ |
15,285 |
|
|
$ |
19,534 |
|
|
|
|
|
|
|
|
|
Earnings Per Share Data: |
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.22 |
|
|
$ |
0.44 |
|
|
$ |
1.13 |
|
|
$ |
1.41 |
|
Diluted earnings per share |
$ |
0.22 |
|
|
$ |
0.43 |
|
|
$ |
1.12 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
Dividends declared |
$ |
0.15 |
|
|
$ |
0.14 |
|
|
$ |
0.45 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance
Sheets(Unaudited, In Thousands)
|
|
|
|
All
Amounts in Thousands Except Share Information |
October 1, 2022 |
December 25, 2021 |
October 2, 2021 |
|
(Unaudited) |
(Audited) |
(Unaudited) |
ASSETS |
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents |
$ |
4,000 |
$ |
4,374 |
$ |
6,492 |
Receivables, less allowance of $729; $457; and $636;
respectively |
|
65,258 |
|
65,991 |
|
68,849 |
Inventories |
|
134,957 |
|
92,382 |
|
91,755 |
Prepaid expenses |
|
4,143 |
|
7,569 |
|
6,527 |
Prepaid income tax |
|
1,075 |
|
739 |
|
-- |
TOTAL CURRENT ASSETS |
|
209,433 |
|
171,055 |
|
173,623 |
|
|
|
|
Property, plant and equipment,
net |
|
27,618 |
|
24,936 |
|
24,000 |
Operating lease right-of-use
assets |
|
9,074 |
|
2,210 |
|
2,500 |
Intangible assets, net |
|
34,712 |
|
20,778 |
|
21,207 |
Goodwill |
|
39,226 |
|
32,695 |
|
32,695 |
Other assets |
|
261 |
|
124 |
|
131 |
TOTAL ASSETS |
$ |
320,324 |
$ |
251,798 |
$ |
254,156 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
Current Liabilities: |
|
|
|
Current portion of long-term debt |
$ |
7,143 |
$ |
7,143 |
$ |
7,143 |
Trade accounts payable |
|
22,684 |
|
15,847 |
|
25,071 |
Accrued liabilities |
|
19,060 |
|
24,385 |
|
18,100 |
Income tax payable |
|
-- |
|
-- |
|
124 |
Current operating lease liabilities |
|
816 |
|
818 |
|
990 |
TOTAL CURRENT LIABILITIES |
|
49,703 |
|
48,193 |
|
51,428 |
|
|
|
|
Other Liabilities: |
|
|
|
Long-term debt |
|
99,568 |
|
50,396 |
|
51,874 |
Deferred income tax liability |
|
4,759 |
|
4,759 |
|
4,193 |
Operating lease liabilities |
|
8,557 |
|
1,387 |
|
1,493 |
Other liabilities |
|
448 |
|
448 |
|
448 |
TOTAL LIABILITIES |
|
163,035 |
|
105,183 |
|
109,436 |
|
|
|
|
Stockholders' Equity: |
|
|
|
Preferred stock: |
|
|
|
Authorized 1,000,000 shares; no par value, none issued |
|
|
|
Common stock: |
|
|
|
Authorized 30,000,000 shares; no par value, issued and outstanding
– 13,590,407; 13,493,332; and 13,557,879; shares respectively |
|
13,590 |
|
13,493 |
|
13,558 |
Retained earnings |
|
143,699 |
|
133,122 |
|
131,162 |
TOTAL STOCKHOLDERS' EQUITY |
|
157,289 |
|
146,615 |
|
144,720 |
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY |
$ |
320,324 |
$ |
251,798 |
$ |
254,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP Net Income to
Non-GAAP EBITDA(Unaudited, In Thousands)
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
All
Amounts in Thousands |
October 1, 2022 |
|
October 2, 2021 |
|
October 1, 2022 |
|
October 2, 2021 |
|
|
|
|
|
|
|
|
Net Income (GAAP) |
$ |
2,958 |
|
$ |
5,966 |
|
$ |
15,285 |
|
$ |
19,534 |
|
|
|
|
|
|
|
|
Interest expense |
|
954 |
|
|
414 |
|
|
2,462 |
|
|
1,035 |
Income tax expense |
|
286 |
|
|
1,360 |
|
|
3,735 |
|
|
5,042 |
Depreciation and amortization |
|
1,604 |
|
|
1,226 |
|
|
5,207 |
|
|
3,935 |
|
|
|
|
|
|
|
|
EBITDA (Non-GAAP) |
$ |
5,802 |
|
$ |
8,966 |
|
$ |
26,689 |
|
$ |
29,546 |
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