Escalade, Inc. — Q3 2021 Form 10-Q
Business context and period: Sporting goods company reporting the three and nine months ended October 2, 2021, compared with periods ended October 3, 2020. Amounts below are in U.S. dollars; financial figures are rounded to millions unless otherwise noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $81.3m | $78.1m | $240.2m | $198.9m |
| Gross margin | 22.5% | 30.1% | 25.3% | 28.6% |
| Operating income | $7.7m | $12.8m | $25.5m | $26.1m |
| Net income | $6.0m | $10.2m | $19.5m | $20.8m |
| Diluted EPS | $0.43 | $0.71 | $1.40 | $1.47 |
- Q3 sales rose 4.1%; nine-month sales increased 20.8%. Management attributed continued demand mainly to archery and games products.
- Q3 operating margin was 9.4%, versus 16.4% a year earlier; nine-month operating margin was 10.6%, versus 13.1%. Q3 net income declined about 41%; nine-month net income declined about 6%.
- Gross margin pressure reflected higher transportation and raw-material costs, unfavorable currency effects, wage pressure, and inventory handling costs. SG&A was $10.2m in Q3, down 1.7%, and $33.9m year to date, up 13.9%.
Cash flow, liquidity, and capital
- Nine-month operating cash flow was negative $3.0m, compared with positive $10.9m in 2020. Investing cash outflow was $8.2m, including $8.3m of property and equipment purchases; financing cash inflow was $14.3m.
- Cash was $6.5m at October 2, 2021. Current assets were $173.6m and current liabilities $51.4m, yielding working capital of approximately $122.2m.
- Inventory was $91.8m, up from $72.5m at December 26, 2020 and $63.7m a year earlier. The filing cites accelerated ordering and increased inventory to meet demand.
- Total debt was $59.0m, up $28.9m from year-end 2020; debt equaled 40.8% of stockholders’ equity. Interest expense was $0.4m for Q3 and $1.0m for the first nine months.
- A July 2021 credit amendment provided a $50m term loan, reduced maximum revolving availability from $75m to $50m, and extended both facilities’ maturity to July 7, 2026. Debt is secured by substantially all company assets except real estate and domestic subsidiary equity.
- The company declared quarterly dividends of $0.14 per share and repurchased $9.1m of stock during the first nine months. Remaining authorization at quarter-end was approximately $5.5m.
Outlook, risks, and other items
- The filing provides no numerical earnings or revenue guidance. Management cautioned that seasonal results and pandemic-related demand make period results not necessarily indicative of full-year performance.
- COVID-19-related uncertainty, changing consumer demand, supply-chain and operating disruptions, customer payment delays, inflationary costs, tariffs, competition, and financing availability are identified risks. Management said a sharp demand decline or slower customer payments could adversely affect liquidity.
- Management said it expects adequate revolving-credit access for growth needs. The filing also identifies the transition to an Interim CEO as a forward-looking risk.
- Existing litigation is described as arising in the normal course, with no expected material adverse effect. The company reported no material changes to its previously disclosed risk factors and no material changes in internal control over financial reporting; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether demand remains strong and elevated inventory converts to sales without markdowns, obsolescence, or further working-capital strain.
- Whether transportation, materials, labor, currency, and handling costs continue to compress margins.
- Credit-agreement covenants, borrowing availability, and the company’s capacity to service the increased debt; covenant details are not clearly provided in this filing text.
- Customer payment trends, supply-chain conditions, and the effects of COVID-19 and consumer-demand normalization.
- Any developments in the Interim CEO transition and the execution of the company’s sporting-goods growth strategy.