• Net Sales: $67.7 million, a decline of 7.7% year-over-year.
• Net Income: $5.7 million or $0.40 per diluted share.
• Gross Margin: 24.8%, a 10-basis-point increase from the prior year.
• Nonrecurring Expenses: $1.8 million related to business rationalization.
• SG&A Expenses: Increased by 6% to $11.1 million.
• EBITDA: $9.9 million, up from $7.9 million in the prior year.
• Cash from Operations: $10.5 million for the quarter.
• Total Debt: $29.5 million, with net leverage at 1.1 times trailing 12-month EBITDA.
• Direct-to-Consumer E-commerce Growth: Up 29% year-over-year.
• Facility Optimization: Reduced operational footprint by approximately 300,000 square feet or 20%.

• Warning! GuruFocus has detected 5 Warning Signs with ESCA.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Escalade Inc (NASDAQ:ESCA) achieved a modest gross margin expansion despite a 7.7% decline in net sales.
• The company generated $10.5 million of cash from operations during the quarter.
• Escalade Inc (NASDAQ:ESCA) reduced its operational footprint by approximately 300,000 square feet, or 20%, optimizing its cost structure.
• Direct-to-consumer e-commerce volumes increased by 29% year over year.
• The company entered into a new agreement to be the official US distributor of Adidas fitness accessories, expanding its fitness offering.

Negative Points

• Net sales declined by 7.7% compared to the prior year.
• Selling, general, and administrative expenses increased by 6% or $0.6 million compared to the prior year period.
• The company absorbed $1.8 million of nonrecurring business rationalization expenses in its cost of goods sold.
• Operating cash flow decreased compared to the prior-year period, driven by timing of inventory management initiatives.
• Escalade Inc (NASDAQ:ESCA) anticipates a higher level of promotional activity due to price-conscious consumers, which may impact margins.

Q & A Highlights

Q: Can you provide more details on the Minnesota rationalization and its impact on the water sports business? A: Walter Glazer, CEO, explained that the Minnesota facility in Eagan, which handles the water sports business, had excess inventory and a temporarily smaller market. They reduced square footage and staffing to align costs with current demand, preparing to grow the business when consumer interest returns.

Q: What are the plans for the Orlando facility, particularly concerning the Cornhole business? A: Walter Glazer, CEO, stated that they are shifting to a pre-printed import model instead of print-on-demand in Orlando. The inventory will be consolidated into other facilities, primarily in Evansville and Gainesville, Florida, to adjust the cost structure to current business realities.

Q: Is there any intention to exit or shrink the Cornhole business? A: Walter Glazer, CEO, confirmed there is no intention to exit or shrink the business. The focus is on ensuring the cost structure is appropriate and delivering value to consumers, which was challenging with the previous setup in Orlando.

Q: Why was the amortization expense higher this quarter, and is it a recurring level? A: Stephen Wawrin, CFO, clarified that the higher amortization expense was due to restructuring charges related to Orlando, including writing off some intangible assets. The previous historical level should be considered ongoing.

Q: With debt levels below the target range, are there any changes in capital allocation priorities? A: Walter Glazer, CEO, mentioned they will continue to pay down high-cost variable rate debt. They maintain a strong cash dividend, have been share repurchasers, and are opportunistic acquirers. They are active in monitoring acquisition opportunities but do not feel pressured to make immediate moves.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.