Escalade (ESCA) 1 Apr 242023 Q4 Earnings call transcript

Greetings, and welcome to the Escalade Fourth Quarter and Full Year 2023 Results Conference Call.

[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Griffin, Vice President, Corporate Development.

Thank you.

You may begin.

operator. you, Thank the welcome of year at I'd Escalade, results On to entire our to you call. full fourth like conference behalf team quarter XXXX and Walt today Leading with Chief are Glazer; and President Financial the Officer. Stephen me and call our Wawrin, CEO,

Except differ forward-looking statements as may due statements. the risks uncertainties periodic from discussion by to filed of financial Actual contains the SEC. to and open risks forward-looking reports undertake expectations. in we our including our about various our statements will Today's those described obligation questions. business projected future financial results significantly forward-looking in At today's required no line we with law, conclusion for the prepared update remarks, the and

like turn to to over would call Walt. the that, With I

and to call. us on Patrick, you, joining welcome the those Thank

Our in finish team a a the million supported $XX.X by improved the generation We in margins, cash quarter, performance which which operations on leverage. significant focus of a generated highlighted working repayments driven year, in and ratio leverage delivered by robust million from cash strong gross reduction fourth to a in $XX.X net quarter strong ] continued during year-end. Xx on The our inventory emphasis debt reduction. our at cash efficiency, was strategic decline capital generation [ included and a the improved

price our lower our year efforts. so, sales the the margins were more versus quarter in-line costs, our Even quarter, pressured fourth assortment. by XXX quarter inventory our on and in still basis result substantial initiatives points due product reduction of a flow While to mix improved than gross prior improved those discipline cash drove as freight margin fourth

offset year sales by softness growth sales by X.X% from categories, in basketball and versus declined strong quarter indoor other fourth most levels, games our categories. prior in our benefited While

a solid helped believe have for in start meaningfully shape. inventories Exiting season, with most retail This product sell-through. has selling as the XXXX successfully position drove retail declined our inventories holiday good channel us we partners to

direct-to-consumer We sales driven across quarter up continue versus product in XX% by our the year prior to sales our of DTC non-licensed in lines. most with experience strong fourth growth momentum the

Looking to consumer the sheets, relative spending has and in pressured consumer balance Change conditions employment of continue spending. health household ahead, discretionary closely behavior categories. our most monitor we in discretionary of

lower into We expect storage we reductions continue realized consumer costs, fourth and cost demand costs as and goal lower the the of of These $X trends XXXX. of of our remain handling soft improvements. million annually these quarter. to inventory relatively freight by as costs reducing end comprised are Operationally, operational

X% and expenses also of XXXX. which on in We during resulted expenses, SG&A fixed in focused reducing the fourth a reduction operating our quarter variable our

through our combination, as gross move operations manufacturing transitioned of operating to reduced and fourth our leverage warehousing actions and Mexico In and expand we improve The these divestiture to Rosarito margins continues facilities Rosarito, expenses. in planned quarter to positioned other operating the have us XXXX. We in progress.

buyers. to to market continue also We facility prospective actively the

at million inventory While goal further impact still an for of XXXX, see we of don't XXXX. our same quarter categories. fourth we as the sports said, particularly the efforts on in water to expect XXXX, these had have and in That we unfavorable we Billiards to through margins as opportunity reduced $XXX reduction than end the have our our move successfully of less we inventory

will key of for inventory in demand the Given categories. our XXXX be spending consumer variable normalized the levels, the more channel level in

key cycle. market-leading innovative we and positions position Strategically, we our move development for growth in product economic through committed build to remain portfolio to as investing above-market categories best in growth the

lean demand current sheet. further to environment, continue cost we're and a we balance prioritizing structure fortifying As the navigate our

XXXX. during a during more repaid million reduced inventory we quarter [indiscernible] successfully exceeded the in through our have reduction than our and year, also costs debt quarter, in second we the the a $XX.X XXX% for conversion in straight as Cash reduction $XX fourth fixed receivable. Just million accounts

build our maximizing XXXX, will the variable higher quarter, interest end In generation repaying range our our focused the target We leverage X.X our to of X.Xx, rate of and is we debt. At remain fourth on was net believe cash debt within X.Xx. well-capitalized continued which position sheet, diverse and the outdoor for consumer and within recreation transitional together operational continuing period market-leading navigate of portfolio excellence products discipline, of established on our portfolio to while balance successfully focus cost us with to the indoor brands. positions a

spending We well believe performed on consumer a over goods, capital repayment collective efficiency management year. further debt that working and during of coming a to team broader soft the cost us on will focus our Our positioning exceptionally capitalize period support has recovery. demand on

With to on all channel to opportunities business continue experiences loyalty, with value. our focus and clearing the quarter. that In you consumer creating shareholder will inventories updating demand brand build creation over while upbeat to reaccelerate I long-term look the in remain and ahead. years poised for outlook progress next forward We the time, exceptional concerning consumer we value creating our interim, for

the to With for Stephen turn call his prepared that, over remarks. I'll

Thank you, Walt.

per For the sales of months or million. December reported ended diluted Escalade income share net on of XXXX, $X.X $XX.X X XX, $X.XX million net

year of the and the was improvement product primarily initiative mix, reduction partially expense impact handling favorable fourth prior point compared the period. company XXX of reported to expenses costs our of lower freight offset reduced associated inventory with in reductions, facility our under-absorbed costs, fixed the basis margins gross by and operating inventory Mexico. result XX.X% XX.X% The sales the quarter, more in For

period and million. by to compared fourth general year X% decreased to administrative prior the $XX.X Selling, quarter during the expenses

the fourth SG&A XX decrease XX.X% quarter cost year-over-year XX% reductions of year-over-year increased incentive basis points and a to result including SG&A in compensation. As net fourth percentage overhead XXXX in variable a to in quarter of The compared XXXX. of sales, lower of was expense the spending,

the $X.X by fourth increased and period. million million cash provided million the to fourth XXXX Total $X.X for by operations in of the quarter period. in prior million year versus taxes, amortization of interest, for was the Earnings XXXX $XX.X $X.X generated the depreciation before $XX.X to result inventories quarter through The in improvements prior operations reduction quarter payable year flow from in compared reflects of and cash a accounts from as million fourth a the quarter capital of to of cash working primarily increase XXXX.

For expenditures year, were year. capital prior to the full similar the

was senior XXXX, debt XXXX, $XX.X outstanding maturing credit XX, December with had end equivalents of in revolving or on and of fourth facility cash trailing XXXX. total EBITDA. XX-month debt secured of of together At As net the of total cash company million our quarter availability the $XX,XXX, X.Xx the less

repaid the during debt of to quarter earlier, bringing we Walt million full $XX.X million. XXXX, repayment As the debt of $XX XXXX mentioned for year fourth total our

XXXX, $XX.X million outstanding, million XX, December of As variable rate interest had of debt of including total high debt. we $XX.X

debt managing We of variable target our within leverage total XXXX to will continue X.Xx range while of to net our X.Xx prioritize rate during this the repayment long-term EBITDA.

net For the full a compared of XX% year XXXX, $XXX.X of sales total XXXX. full to were year our the decrease million,

or full of in SG&A gross our XXXX total sales and to our variable XXXX. consumer expenses XX.X% and was intentionally manage reflects to the expense compared of compared to million a Our XXXX. softening efforts net in the for during The demand. costs fixed $XX.X million million in or period decrease sales margin $XX.X $X.X our administrative year of year net XX.X% XXXX XX.X% XX.X% general Selling, was for during

over financial disclosed controls public [ technology ] weaknesses information and we our certain As controls, as process, the LLP and our internal and design Forbis, accounts March, has related monitoring statement to early control the assertions in framework. material to controls, general reporting of company's the closing internal documentation our firm, relates specifically in controls identified financial accounting it year-end

noting. this disclosure There takeaways are several key from worth

these the our accuracy not statements. financial impact First did and material of historical most weaknesses consolidated importantly,

XX-K. Second, these not did statements on material for consolidated ability an the impact Forbis' to the financial weaknesses issue opinion XXXX

we develop intend across to strong we take controls continue as decisive to internal action remedial organization. the Third,

Our to conclude expects remedial timely a this year. process management the in team this compliant entire to and intends resolve manner and process

calendar. XX in fourth transitioned XX minimal was conventional One on X, of days There impact the fourth to the to XXXX last year we quarter were operating relatively as the a quarter prior on results thing effective important there XXXX, period. a XX-month remember, for to opposed reporting in because January our

XXX year, results full reflect XXXX the to now our compared days XXX normal operating a For during XXXX. days operating

comparability the As our will longer impacted year-over-year be into by this of XXXX, move results we no change.

With questions. that, operator, for the call we open will

Instructions] [Operator

Our first Capital question with Corp. Aegis comes from Rommel Dionisio

inventories we from retail are ask retail you that Just point Are to solid that? maybe now down. situation, or sell-through? quarters Or a about where couple have mentioned wanted months to few of a we come I inventory still equals think away the a

inventories retail system. There actually, are couple would of some areas where retail different lot good We there's sort inventories that are most in involved inventory categories. categories And balanced below in for are few say the part, the I where a in And normal. are excess shape. and of a of still there a are

guess, balance factory should of I seeing. in the sales and pretty POS reflect your I would we're to inventories So are much question, say, retail answer level overall, generally that

a maybe And Okay. to follow-up that.

competitive that as -- just across As retail or inventories factor on is any obviously, could promotional comment promotions in sort you if moderation environment competitors' in well. the wonder of is seeing that the normalized, demand are a you categories? I

tremendous [indiscernible] the on categories, that high again, of certain seeing category. we're programs. a activity, of being it depends amount sort of say on all promotional Once spent Sure. would lot a I money just growth in

to in positions, but been no and compete will quite it's categories, had maintain market our certain We others say, change. real I'd strong

controls cost I just different in prepared it in Okay. Is could. you there if XXXX? of The expect would comments, last will that question, to meaningful a financial be Maybe a one maybe allocation you follow-up more alluded expenditures? impact current the

audit expect Rommel, some various our in and for we do systems higher some and higher controls. Yes. IT and costs budgeting we're costs Sure.

think doesn't enough to -- our However, that change we outlook. it's don't significant

XXXX believe cautious consumer. the we opportunities, forth. that But particularly inventory line unusual had some do substantial about costs cautious we around are storage, enhancement to regarding sales. margin handling have we relative top We're so when and We

were was I to, would in we in as And inventory and cases, was levels, below some think was that excess obsolete, then that also, which to but discounting inventory margins we optimal moving running move. And also, where as some it our had areas we're alluded some some and then facilities do things reducing we somewhat. wanted aggressively I our it some did towards impacts we we obsolete. say that

a so And sell those to little and were at margins. discount lower bit willing those we

the So the message line, margin send that we feel guess opportunities. I I'm top we're the but is cautious about to good trying about

floor I'll closing are further back there remarks. to Patrick questions this no And time. hand at Griffin for the

ir@escaladeinc.com. at interest today. That concludes for have joining please call. Escalade in you free your contact thank questions, and our you any again, us call feel our Once to Should

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