Escalade, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 21, 2020; unaudited. Unless noted otherwise, financial amounts are in millions of dollars. The company’s principal business is sporting goods, including basketball, archery, recreation, and fitness products.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $37.289 | $32.102 |
| Gross margin | 27.4% | 26.4% |
| Operating income | $2.424 | $0.394 |
| Income before taxes | $2.426 | $0.332 |
| Net income | $1.951 | $0.267 |
| Diluted EPS | $0.14 | $0.02 |
| Operating cash flow | $3.859 | $0.248 |
- Sales increased 16.2%, driven primarily by outdoor categories, including basketball, pickleball, and Victory Tailgate. E-commerce gross sales rose to $13.581 million from $9.934 million; specialty dealer sales fell to $13.067 million from $13.601 million.
- Management attributed the gross-margin improvement to product mix and operational improvements. SG&A decreased 3.7% to $7.457 million, with SG&A falling to 20.0% of sales from 24.1%. The effective tax rate was 19.6% in both periods.
- Cash and equivalents were $6.167 million at quarter-end. Current assets were $83.642 million and current liabilities $15.461 million. Net cash provided by operations was $3.859 million; capital spending was $0.351 million. Cash increased $0.285 million during the quarter.
- Reported debt was zero at March 21, 2020, versus a $0.135 million acquisition note at December 28, 2019 and $3.662 million long-term debt at March 23, 2019. Lease liabilities totaled $1.597 million. The company said it expected adequate revolving-credit access to support working capital, but this filing does not state the available amount.
- The company declared and paid a $0.125-per-share dividend (approximately $1.8 million). It repurchased $1.326 million of shares during the quarter; 14.097 million shares were outstanding at March 21.
Changes, outlook, and risks
- Profitability improved substantially year over year alongside higher sales, lower SG&A, and a one-percentage-point increase in gross margin.
- COVID-19 had no material adverse effect on Q1 results, but management said it was affecting Q2 operations and could continue indefinitely. Near-term demand increased in several categories, including fitness, basketball, playground, games, and trampolines; management cautioned that this demand may not persist.
- The filing highlights uncertainty around customer and channel access, supply chains, manufacturing and distribution disruptions, workforce availability, consumer spending, and the broader economy. Amazon had stopped accepting deliveries of non-essential goods to its warehouses at the time described; Dick’s Sporting Goods had closed substantially all U.S. stores while continuing online and curbside orders.
- No quantitative earnings or sales guidance is provided. Management cautioned that Q1 results are not necessarily indicative of full-year results, citing seasonality and pandemic uncertainty.
- Subsequent events: on March 24, the company amended its credit agreement to increase authorized share repurchases from $5 million to $15 million. On April 14, its subsidiary Indian Industries was informed of SBA approval for a $5.6275 million PPP loan, at 1.00% interest and scheduled to mature April 9, 2022; proceeds were intended primarily for payroll. The filing does not establish that the loan had been received by the reporting date. A new CEO was expected to begin around April 27, 2020.
- The company reported ordinary-course litigation but did not expect its resolution to materially adversely affect the business or financial condition. Management concluded disclosure controls were effective and reported no material Q1 change in internal control over financial reporting.
Important facts for investors to verify
- Whether elevated pandemic-related demand continued, and how COVID-19 affected subsequent sales, operations, and customer access.
- The status, receipt, use, and potential forgiveness or repayment terms of the $5.6275 million PPP loan.
- Availability and terms of revolving credit, particularly given the filing’s expectation of adequate access without a stated facility amount.
- Whether margin and SG&A improvements proved sustainable beyond this quarter.
- Execution of the CEO transition and the company’s use of the expanded share-repurchase authorization.