ESCALADE, INCORPORATED 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, 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 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; the
potential impact of regulatory claims, proceedings or investigations involving
our products; and other risks detailed from time to time in Escalade's filings
with the
Overview
Within the sporting goods industry, the Company has successfully built a robust market presence in several niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong brands, excellent customer service and a commitment to innovation. A key strategic advantage is the Company's established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enable it to be a low cost supplier.
To enhance growth opportunities, the Company has focused on promoting new product innovation and development and brand marketing. In addition, the Company has embarked on a strategy of acquiring companies or product lines that complement or expand the Company's existing product lines or provide expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product lines with barriers to entry that the Company can take to market through its established distribution channels or through new market channels. Significant synergies are achieved through assimilation of acquired product lines into the existing Company structure.
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In
Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution.
As the impact of the COVID-19 pandemic evolves and may be waning, the Company
continues to respond to the challenges and opportunities arising from the
pandemic. Even though the pandemic may not have had a material adverse direct
effect on the Company, the pandemic's effects on the global supply chain, higher
freight and materials costs, supplier product delays, workforce availability and
labor costs have caused operational challenges for the Company. The ultimate
extent of the effects of the COVID-19 pandemic on the Company is highly
uncertain and will depend on future developments, and such effects could exist
for an extended period of time. Consumer demand for the Company's products may
be slowing due to additional factors such as general economic conditions,
inflation, recessionary fears, rising interest rates, changes in the housing
market and declining consumer confidence. Management cannot predict the full
impact of these factors on the Company. Due to the above circumstances and as
described generally in this Form 10-Q, the Company's results of operations for
the period ended
Results of Operations
The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:
Three Months Ended
March 31, 2023 March 19, 2022
Net revenue 100.0 % 100.0 %
Cost of products sold 80.6 % 72.2 %
Gross margin 19.4 % 27.8 %
Selling, administrative and general expenses 18.0 % 14.5 %
Amortization 1.1 % 0.8 %
Operating income 0.3 % 12.5 %
Revenue and Gross Margin
Sales decreased by 21.3% for the first quarter of 2023, compared with the same period in the prior year. Sales declined given a combination of changing post-pandemic consumer demand, excess inventories in the retail channel and unfavorable weather conditions in the quarter which delayed the start of the spring business.
Gross margin declined to 19.4% for the first quarter of 2023 compared to 27.8% for the same period in 2022 primarily driven by less favorable product mix, ongoing additional inventory storage and handling costs, and lower operating leverage with the lower sales level.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were
Provision (Benefit) for Income Taxes
The effective tax rate for the first three months of 2023 was 21.2% compared to 21.8% for the same period last year.
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Financial Condition and Liquidity
Total debt at the end of the first three months of 2023 was
March 31, December 31, March 19,
In thousands 2023 2022 2022
Current portion of long-term debt $ 7,143 $ 7,143 $ 7,143
Long term debt 88,082 87,738 92,850
Total Debt $ 95,225 $ 94,881 $ 99,993 As a percentage of stockholders' equity, total debt was 60.9%, 59.9% and 66.0%
at
On
In addition to the increased borrowing amount and extended maturity date, the
2022 Restated Credit Agreement provided a
On
On
As of
On
The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its Lenders. The Company expects that cash generated from its 2023 operations and its access to adequate levels of revolving credit will provide it with sufficient cash flows for its operations and to meet growth needs.
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