Escalade Reports Fourth Quarter and Full Year 2023 Results
- Improved gross margin and cash generation in the fourth quarter
- Reduction in net leverage and debt
- Focus on working capital discipline and inventory reduction
- Significant increase in cash flow from operations
- Efforts to strengthen balance sheet and prioritize debt reduction
- Strategic focus on reducing inventories and debt
- Maintained price discipline and improved sales mix
- Opportunities for value creation and product innovation
- Expectation of lower interest expense and improved financial position
- Decline in net sales for both fourth quarter and full year 2023
- Decrease in operating income and EBITDA for full year 2023
- Net income decline compared to 2022
- Reduction in gross margin for full year 2023
- Lower cash flow from operations for full year 2023
Insights
Escalade, Inc.'s financial results for the fourth quarter and full year 2023 demonstrate a mixed financial performance, with notable strengths in operational efficiency and a disciplined approach to cost management. The decline in net sales by 9.2% and 16.0% for the quarter and full year respectively, indicates a challenging market environment, potentially reflective of broader economic trends affecting consumer discretionary spending. However, the improvement in gross margin by 192 basis points in the fourth quarter suggests effective cost containment strategies and a successful shift towards a more profitable sales mix.
The significant increase in cash flow from operations, up 43.9% from the previous year, highlights strong internal cash generation capabilities. This is a positive sign for investors as it suggests the company is not only managing its expenses well but is also improving its working capital management. The reduction of debt by $21.1 million in the fourth quarter, resulting in a lower net debt to EBITDA ratio, is indicative of a robust balance sheet and a prudent approach to leverage. This could potentially increase the company's financial flexibility and resilience against market volatility.
While the overall decrease in operating income and EBITDA for the full year is a concern, the management's focus on inventory reduction and operational improvements may set a foundation for margin expansion in the future. The strategic exit from Mexico, despite incurring shutdown costs, could be seen as a realignment of resources towards more profitable ventures. For investors, these actions may signal a company positioning itself for long-term stability and profitability, despite short-term headwinds.
Escalade's performance in the sporting goods and recreational equipment sector reflects broader consumer trends, where discretionary spending has been impacted by economic factors. The company's ability to improve demand in specific product categories like basketball and indoor games could indicate a strategic alignment with evolving consumer preferences. However, the overall decline in net sales raises questions about the company's market share and competitive positioning.
The emphasis on working capital discipline and inventory management is a notable strategic move. By reducing inventories, Escalade is likely aiming to match supply with demand more closely, potentially reducing the risk of overstocking and the need for discounting, which can erode margins. This approach could be particularly advantageous in a sector where product life cycles are short and consumer tastes change rapidly.
The strategic focus on direct-to-consumer channels and product innovation is critical for growth within the industry. Escalade's efforts to enhance its online presence and develop new products could capture increased market share and mitigate the impact of softer consumer demand across traditional retail channels. Investors should monitor the effectiveness of these strategies in driving revenue growth and maintaining customer engagement in the long term.
The reduction of Escalade's net debt to EBITDA ratio from 2.8x to 2.2x is a significant improvement, signaling a stronger credit profile. For bondholders and potential lenders, this is a reassuring development as it suggests a lower risk of default. The company's proactive debt management, coupled with its ability to generate robust cash flows, may lead to more favorable borrowing terms in the future, including lower interest rates and access to a broader range of financing options.
Escalade's senior secured revolving credit facility with $66.8 million of availability provides liquidity that could be used for strategic initiatives or to weather potential downturns. The company's commitment to further debt reduction in 2024 could enhance its financial stability and investor confidence. However, the balance between debt reduction and necessary investments in brand and product portfolio will be important for sustaining growth and competitiveness in the market.
Investors should also consider the potential impact of the company's exit from Mexico on its debt profile. While the move is likely to result in one-time costs, the long-term effect on the company's financial leverage could be positive if it leads to a more streamlined and efficient operation.
FOURTH QUARTER 2023 RESULTS
(As compared to the fourth quarter 2022)
- Net sales decreased
9.2% to$65.5 million - Gross margin improved 192 basis points, to
24.3% - Operating income increased
1.6% to$5.0 million - EBITDA totaled
$6.4 million 11.1% - Net income of
$2.9 million $0.21 $2.7 million $0.20 - Cash provided by operations of
$20.6 million $14.3 million
FULL YEAR 2023 RESULTS
(As compared to full year 2022)
- Net sales decreased
16.0% to$263.6 million - Gross margin declined 3 basis points, to
23.4% - Operating income decreased
32.3% to$17.8 million - EBITDA totaled
$23.5 million 27.6% - Net income of
$9.8 million $0.71 $18.0 million $1.31 - Cash provided by operations of
$48.3 million $8.6 million
For the fourth quarter ended December 31, 2023, Escalade reported net income of
Escalade reported fourth quarter gross margin of
The Company generated
As of December 31, 2023, the Company had
Escalade's Board of Directors has declared a quarterly dividend of
Effective January 1, 2023, Escalade transitioned to a conventional twelve-month reporting calendar. Please see the accompanying table in our footnotes for a comparison of the days in each quarter for 2022 and 2023.
MANAGEMENT COMMENTARY
"We delivered a strong finish to the year, highlighted by improved gross margin, robust cash generation, and a significant reduction in net leverage," stated Walter P. Glazer, Jr., President and CEO of Escalade. "During a period of softer consumer demand driven by changes in discretionary spending, we successfully maintained our price discipline on in-line product while clearing excess inventory acquired during the Covid era supply chain disruptions, reduced both fixed and variable costs, and continued to drive a more favorable sales mix, culminating in fourth quarter growth in earnings per share and cash flow despite lower sales."
"Our strategic focus on working capital discipline continues to prioritize a reduction in our inventories," continued Glazer. "During the fourth quarter, we reduced total inventories by nearly
"Improved profitability and cash conversion contributed to significant year-over-year growth in fourth quarter cash flow from operations, which allowed us to reduce our debt and further strengthen our balance sheet," continued Glazer. "We generated more than
"Our fourth quarter gross margin benefited from a favorable sales mix and freight cost reductions," continued Glazer. "While gross margin increased more than 190 basis points year-over-year to
"Our exit from
"We remain optimistic regarding opportunities for value creation in the year ahead," stated Glazer. "While consumer demand remains relatively soft across most of our categories so far this year, we continue to see encouraging signs of growth within our direct-to-consumer channel as well as opportunities for product innovation across our portfolio. Inventory levels at retail are lower in most categories following prudent inventory management during the holiday season by our retail partners. Finally, we expect to benefit from lower interest expense as a result of successfully reducing our debt levels and an improved mix of lower cost fixed rate debt. Looking ahead, we believe that our strong, diverse portfolio of recreational brands positions us to successfully navigate the current macroeconomic environment."
CONFERENCE CALL
A conference call will be held Monday, April 1, 2024, 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: | 1-877-407-0792 |
International Live: | 1-201-689-8263 |
To listen to a replay of the teleconference, which subsequently will be available through April 15, 2024:
Domestic Replay: | 1-844-512-2921 |
International Replay: | 1-412-317-6671 |
Conference ID: | 13745214 |
USE OF NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial statements in accordance with
ABOUT ESCALADE
Founded in 1922, and headquartered in
INVESTOR RELATIONS CONTACT
Patrick Griffin
Vice President - Corporate Development & Investor Relations
812-467-1358
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: Escalade's ability to achieve its business objectives; 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; the impact of competitive products and pricing; product demand and market acceptance; new product development; 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; the impact of management's conclusion, in consultation with the Audit Committee, that material weaknesses existed in the Company's internal control procedures over financial reporting; the evaluation and implementation of remediation efforts designed and implemented to enhance the Company's control environment; the potential identification of one or more additional material weaknesses in the Company's internal control of which the Company is not currently aware or that have not yet been detected; Escalade's ability to control costs, including managing inventory levels; 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, including inflationary pressures; 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, to maintain compliance with the terms of such financing and to manage debt levels; 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; the potential impact of regulatory claims, proceedings or investigations involving our products; potential residual impacts of the COVID-19 global pandemic on Escalade's financial condition and results of operations; 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 Subsidiaries | |||||||
Fourth Quarter Ended | Four Quarters Ended | ||||||
All Amounts in Thousands Except Per Share Data | December 31, | December 31, | December 31, | December 31, | |||
Net sales | 263,566 | ||||||
Costs and Expenses | |||||||
Cost of products sold | 49,570 | 55,971 | 201,795 | 240,118 | |||
Selling, administrative and general expenses | 10,357 | 10,790 | 41,480 | 44,765 | |||
Amortization | 620 | 492 | 2,480 | 2,559 | |||
Operating Income | 4,959 | 4,883 | 17,811 | 26,315 | |||
Other Income (Expense) | |||||||
Interest expense | (1,069) | (1,318) | (5,349) | (3,780) | |||
Other income (expense) | 1 | 29 | 31 | 79 | |||
Income Before Income Taxes | 3,891 | 3,594 | 12,493 | 22,614 | |||
Provision for Income Taxes | 1,027 | 890 | 2,664 | 4,625 | |||
Net Income | 2,864 | 9,829 | |||||
Earnings Per Share Data: | |||||||
Basic earnings per share | $ 0.20 | $ 1.33 | |||||
Diluted earnings per share | $ 0.20 | $ 1.31 | |||||
Dividends declared | -- | $ 0.15 | $ 0.60 | ||||
Consolidated Balance Sheets | ||
All Amounts in Thousands Except Share Information | December 31, | December 31, |
ASSETS | ||
Current Assets: | ||
Cash and cash equivalents | ||
Receivables, less allowance of | 49,985 | 57,419 |
Inventories | 92,462 | 121,870 |
Prepaid expenses | 4,280 | 4,942 |
Prepaid income tax | 88 | -- |
TOTAL CURRENT ASSETS | 146,831 | 188,198 |
Property, plant and equipment, net | 23,786 | 24,751 |
Assets held for sale | 2,653 | 2,823 |
Operating lease right-of-use assets | 8,378 | 9,100 |
Intangible assets, net | 28,640 | 31,120 |
Goodwill | 42,326 | 42,326 |
Other assets | 391 | 400 |
TOTAL ASSETS | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Current Liabilities: | ||
Current portion of long-term debt | ||
Trade accounts payable | 9,797 | 9,414 |
Accrued liabilities | 15,283 | 21,320 |
Income tax payable | -- | 71 |
Current operating lease liabilities | 1,041 | 993 |
TOTAL CURRENT LIABILITIES | 33,264 | 38,941 |
Other Liabilities: | ||
Long‑term debt | 43,753 | 87,738 |
Deferred income tax liability | 3,125 | 4,516 |
Operating lease liabilities | 7,897 | 8,641 |
Other liabilities | 387 | 407 |
TOTAL LIABILITIES | 88,426 | 140,243 |
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 – 13,736,800 and 13,594,407 shares respectively |
4,480 |
2,025 |
Retained earnings | 160,099 | 156,450 |
TOTAL STOCKHOLDERS' EQUITY | 164,579 | 158,475 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | ||
Reconciliation of GAAP Net Income to Non-GAAP EBITDA | |||||||
Fourth Quarter Ended | Four Quarters Ended | ||||||
All Amounts in Thousands | December 31, | December 31, | December 31, | December 31, | |||
Net Income (GAAP) | |||||||
Interest expense | 1,069 | 1,318 | 5,349 | 3,780 | |||
Income tax expense | 1,027 | 890 | 2,664 | 4,625 | |||
Depreciation and amortization | 1,450 | 856 | 5,671 | 6,063 | |||
EBITDA (Non-GAAP) | |||||||
Comparison of Fiscal Calendar Days for 2023 and 2022 Quarters | |||
2023 Days | 2022 Days | ||
First Fiscal Quarter | 90 | 84 | |
Second Fiscal Quarter | 91 | 112 | |
Third Fiscal Quarter | 92 | 84 | |
Fourth Fiscal Quarter | 92 | 91 | |
Total Days | 365 | 371 | |
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SOURCE Escalade, Inc.
FAQ
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