ESCALADE INC Q1 FY2025 earnings call

• Strong first quarter results due to operational discipline and strategic focus, with net sales down 3% Y/Y but gross margins up 160 basis points from lower manufacturing/logistics costs. • Encouraging growth in archery, safety, darting, and outdoor games despite soft discretionary goods demand. • Focus on working capital efficiency, generating $3.8 million in operating cash flow, used to reduce debt, pay dividends, and repurchase shares. • Escalade's strategy rooted in operational discipline, innovation, and customer centricity; ongoing efforts to optimize supply chain, manage tariffs, and invest in e-commerce and innovation. • Brunswick Billiards commemorating 180th anniversary with limited editions and new product launches; openness to strategic acquisitions that enhance brand portfolio.

For the three months ended March 31, 2025, Escalade reported net sales of $55.5 million. Net income was $2.6 million or $0.19 per diluted share. Gross margins improved to 26.7% from 25% in the prior year, driven by lower operational costs from facility consolidations and cost rationalization. Key categories like archery, safety, darting, and outdoor games saw growth, outperforming the prior year. Inventory levels rose modestly, but operating cash flow was nearly $4 million.

• Actively addressing tariff impact by optimizing supply chain, evaluating pricing actions, reducing cost structure, and managing inventory. • Continuing to strengthen direct-to-consumer and e-commerce presence, investing in innovation and consumer-led brand development. • Remaining agile and operating with urgency as global trade situation evolves, with reasonable inventory levels to meet near-term needs. • Evaluating various scenarios for sourcing beyond China, including switching supply lines and other Asian countries.

• Uncertainty around trade, particularly tariffs related to China sourcing, which pose a risk to cost structure and margins. • Impact of macroeconomic factors like soft discretionary spending and changing consumer sentiment on demand for products.

Q: Could you talk about how quickly Escalade can react and shift production from China to other countries given seasonality?

A: Escalade has been diversifying manufacturing footprint, sourcing from several Asian countries and domestic facilities. They are working with value chain partners, evaluating scenarios like switching supply lines from China, negotiating cost concessions, and considering price adjustments. They remain agile and are analyzing all options to navigate tariff uncertainties.

Q: Quantify the tariff impact in Q1 and discuss inventory levels?

A: Tariff impact was a little over 100 basis points negative in Q1. Inventories have been reduced over the years through diligent focus, with current levels rightsized to reduce storage and handling costs, contributing to lower operational costs.