Escalade, Incorporated Q4 FY2025 earnings call

• Consumer environment remains mixed, but focus on operational excellence and cost structure reshaping is paying off.
• Built a durable foundation with healthier margin profile, ability to maintain operating leverage, and platform for profitable growth.
• Partially offset net sales declines in some categories with growth in archery and billiards.
• Gross margin improvement due to structural cost actions and operational discipline.
• Made inventory efficiency improvement, expecting further reduction in 2026 to target three times inventory turns.
• Shift from cost optimization to profitable growth in 2026, leveraging leaner balance sheet and operational discipline.
• Recently acquired All Cornhole and fully integrated Gold Tip archery, with M&A remaining a capital allocation priority.
• Purchased a 110,000 square foot facility to support growth in safety and fitness categories.
• Had significant new product launches in bear archery, Trophy Ridge accessories, and U.S. weight business safety offering.

Net sales declined 2.2% in the quarter, driven by softer consumer demand in categories like basketball and outdoor games in e-commerce. However, archery and billiards saw healthy growth due to a recent acquisition and new product introductions. Gross margin improved 280 basis points year over year to 27.7% of net sales despite the net sales decline. Total inventory declined 10% year-over-year, reflecting ongoing efforts to sharpen working capital management.

• Expect consumer conditions to remain mixed in 2026, shaped by moderating interest rates and persistent inflation.
• Focus shifting from cost optimization to profitable growth while leveraging leaner balance sheet and operational discipline.
• Closely monitoring tariff policy changes, but no immediate impact seen currently.
• M&A remains a capital allocation priority for accretive and complementary acquisitions.
• Expect capital expenditures to increase in 2026 through targeted investments to expand capacity, improve efficiency, and support long-term growth.
• Aim to further reduce inventory levels in 2026 to achieve three times inventory turns.

• Uncertainty regarding tariff policy changes and their potential impact on the business.

Q: I wonder if we could just ask a couple of questions on the acquisition of the new facility, the 110,000 square foot facility. Is that production or distribution or both? Is it domestic? And if so, would that alleviate some of the tariff pressure?

A: The facility is located in Olney, Illinois, where we already had two facilities there. And initially, it's going to be used primarily for warehousing for our fitness and safety businesses. But we're looking at other uses for that facility. So we may consolidate some additional categories into that facility or acquisitions further down the road could go into that. But it's really was meant to support future growth in those categories for our U.S. weight business, but then also maybe some future growth plans as well.

Q: I wonder if we could just delve in the product mix a little bit in the quarter. I know there's a lot of moving parts there between product categories and price points, but you highlighted demand across your – I'm just reading from your press release – Demand across your higher value premium brands remains resilient. So would that have been sort of a positive mix driver during the quarter? And I know that's offset with, you know, consumer shifting down to some lower price points as well. I just want to think about how do we think about product mix shift overall in the quarter?

A: On the higher price points, we're generally seeing favorable sales trends there and, you know, on our opening price points product, we're not seeing as favorable trends. So with our leading brands, which you kind of referred to with Bear Archery, that's accretive to the overall margin profile. And I would say that's true for a lot of the Brunswick portfolio as well.

Q: I know you took some price increases last summer to help offset some of the tariff impact How do you kind of think about that situation? Obviously, it's a very fluid environment with regards even the last few days with regards to tariffs. But how do you guys think about the proclivity for additional price increases as we look out to 2026?

A: We were early on our price increases, Ramla, as you mentioned there. And to the extent that that environment changes, we'll see where that But, you know, we don't have any near-term changes right now. We're not planning on passing on any significant, you know, additional price increases at this point. If tariff, you know, if that environment changes a lot, but, you know, there could be some changes down the road. But, you know, we don't see any near-term impact. As you know, the environment's very dynamic, you know, at this point in time.

Q: Should the Supreme Court's decision occasion the refund of tariffs paid up until this point? Is that a meaningful number for Escalade?

A: Yes, it is a meaningful number for us, and we're waiting to see what happens with the actual implementation of those refunds. Some of the tariffs we paid are not tied to the IEPA tariffs, so it's not our total amount, but the amount that would be refunded is meaningful. It's in the four to five million range.