Escalade, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 20, 2021; comparative period ended March 21, 2020. Financial amounts below are in millions unless otherwise indicated. Escalade focuses on sporting goods, including archery, basketball, recreation and fitness products.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $59.2 | $37.3 |
| Gross margin | 29.5% | 27.4% |
| Operating income | $7.1 | $2.4 |
| Net income | $5.4 | $2.0 |
| Diluted EPS | $0.39 | $0.14 |
| Operating cash flow | $(10.2) | $3.9 |
| Capital expenditures | $1.5 | $0.4 |
- Sales increased 58.7%, led by growth across nearly all product lines, particularly archery and outdoor categories. Gross margin improved mainly from product mix and operating efficiencies.
- SG&A rose 32.4% to $9.9 million, but declined as a share of sales to 16.7% from 20.0%. The effective tax rate was 21.5%, versus 19.6%.
- Cash and cash equivalents were $5.9 million at quarter-end, versus $3.5 million at December 26, 2020. Current assets were $155.8 million and current liabilities $37.7 million.
- Operating cash use reflected $17.0 million of reconciling adjustments to net income; inventory increased to $91.4 million from $72.5 million at year-end. Financing provided $14.0 million, including $49.1 million of debt proceeds and $32.2 million of debt repayments.
- Long-term debt was $46.9 million, up $16.8 million from year-end; debt equaled 33.1% of stockholders’ equity, compared with 21.6% at year-end and none a year earlier. Total assets were $232.0 million and stockholders’ equity was $141.9 million.
Changes, outlook and risks
- The company’s December 2020 credit amendment increased revolving-facility availability from $50 million to $75 million and extended maturity to December 14, 2023. It also raised borrowing and unused-facility fees and adjusted borrowing-base availability and permitted acquisition and repurchase provisions.
- Management provided no specific numerical full-year guidance. It cautioned that Q1 results are not necessarily indicative of 2021 results, citing seasonality and ongoing uncertainty related to COVID-19.
- COVID-19-related demand remained elevated into Q1. Management identified potential risks from weaker demand or slower customer payments, supply-chain and operating disruptions, consumer spending, tariffs, competition, customer and supplier relationships, financing, and the transition to an Interim CEO.
- Inventories rose substantially year over year, to $91.4 million from $42.2 million. Management said it was accelerating orders and increasing inventory to meet demand.
- Two signed warehouse and operations leases had not commenced; their legally binding minimum payments totaled $10.2 million, excluded from the lease-payment schedule. Existing lease liabilities totaled $2.2 million.
- The company declared a $0.14-per-share quarterly dividend, approximately $1.9 million. It repurchased $1.0 million of stock during Q1, with $13.6 million remaining under its program at March 20, 2021.
- Management reported no material changes to risk factors, no material effect expected from ordinary-course litigation, and effective disclosure controls. No material changes to internal control over financial reporting were reported.
Important facts for investors to verify
- Whether elevated demand persists and whether inventory can be converted to sales without margin pressure or write-downs.
- Drivers of negative operating cash flow and the timing of receivable collections, inventory normalization and customer payments.
- Borrowings, facility availability, interest costs and compliance with credit-agreement terms.
- Progress and financial commitments for the two uncommenced leases, and the effect of the Interim CEO transition.
- Whether pandemic, supply-chain, tariff and customer-demand risks materially affect subsequent results; management cautioned that Q1 is not necessarily representative of the full year.