Earnings call transcript: Escalade Q2 2025 sees earnings miss, stock drops

Escalade Inc. (NASDAQ:ESCA) reported its Q2 2025 earnings, revealing a shortfall in both earnings per share (EPS) and revenue compared to forecasts. The company’s EPS came in at $0.13, missing the anticipated $0.23 by a significant margin. Revenue was reported at $54.3 million, falling short of the expected $60.03 million. This performance led to a 6.43% decline in pre-market trading, with shares priced at $11.50. According to InvestingPro analysis, the stock is currently trading near its 52-week low, though Fair Value calculations suggest potential upside from current levels. InvestingPro subscribers have access to detailed valuation metrics and 7 additional key insights about ESCA’s financial position.

Key Takeaways

• EPS missed estimates by 43.48%.
• Revenue decreased by 13% year-over-year.
• Pre-market stock price fell by 6.43%.
• New product launches include the On X Hype and Hype Pro Pickle Paddles.

Company Performance

Escalade’s financial results for Q2 2025 indicate a challenging quarter, with net sales declining 13% year-over-year. The company reported a net income of $1.8 million, translating to $0.13 per diluted share. Despite the decline in sales, the gross margin improved slightly by 56 basis points to 24.7%. The company has been focusing on product innovation, launching new products in the pickleball and table tennis categories. Notably, InvestingPro data shows the company has maintained dividend payments for 16 consecutive years, with a current dividend yield of 4.88%. The company’s strong financial position is evidenced by a healthy current ratio of 4.05, indicating robust liquidity.

Financial Highlights

• Revenue: $54.3 million, down 13% year-over-year.
• Earnings per share: $0.13, compared to $0.23 forecasted.
• Gross Margin: 24.7%, up 56 basis points from last year.
• EBITDA: $3.9 million, down from $5.8 million in the prior year.

Earnings vs. Forecast

Escalade’s EPS of $0.13 was 43.48% below the forecasted $0.23. Revenue also missed expectations, coming in at $54.3 million against a forecast of $60.03 million, a 9.55% shortfall. This marks a notable deviation from expected performance, impacting investor confidence.

Market Reaction

Following the earnings release, Escalade’s stock price dropped by 6.43% in pre-market trading, reaching $11.50. This decline reflects investor disappointment with the earnings miss. The stock’s movement places it closer to its 52-week low of $11.93, indicating potential challenges in regaining investor trust in the short term.

Outlook & Guidance

Looking ahead, Escalade anticipates a slightly lower seasonal inventory build for Q3 and expects tariff-related expenses to increase in the second half of the year. The company remains committed to evaluating strategic acquisition opportunities and maintaining disciplined capital allocation. InvestingPro analysis reveals a "Good" overall financial health score of 2.63, with particularly strong cash flow metrics. For investors seeking deeper insights, InvestingPro offers a comprehensive research report covering ESCA’s financial health, valuation metrics, and growth prospects among 1,400+ US stocks analyzed.

Executive Commentary

Armen Boone, CEO of Escalade, stated, "Our second quarter performance reflects disciplined execution in a dynamic environment." He emphasized the company’s focus on product innovation, noting, "We are leaning in, in terms of product innovation, and we are even increasing our bringing new product to the marketplace."

Risks and Challenges

• Elevated interest rates impacting recreational product sales.
• Consumer sentiment below historical average, affecting discretionary spending.
• Increased tariff-related expenses expected in the second half of the year.
• Frozen housing market impacting related product categories.

Q&A

During the earnings call, Rommel Dionisio from Aegis inquired about new product launch plans and gross margin impacts. The company confirmed no changes to its product launch cadence and noted that weather and tariff disruptions have impacted its product mix.

Full transcript - Escalade Incorporated (ESCA) Q2 2025:

Conference Operator: Good day, and welcome to the Escalade Inc. Second Quarter twenty twenty five Results Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.

I would now like to turn the conference over to Patrick Griffin, Vice President, Corporate Development. Please go ahead, sir.

Patrick Griffin, Vice President, Corporate Development, Escalade Inc.: Thank you, operator. On behalf of the entire team at Escalade, I’d like to welcome you to our second quarter twenty twenty five results conference call. Leaving the call with me today are President and CEO, Armen Boone and Stephen Warren, our Chief Financial Officer. Today’s discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today’s forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC.

Except as required by law, we undertake no obligation to update our forward looking statements. At the conclusion of our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Armen. Thank you, Patrick,

Armen Boone, President and CEO, Escalade Inc.: and welcome to everyone joining us on today’s call. Our second quarter results reflect the strong operating leverage our team has built over the past few years. Despite a $1,600,000 tariff related headwind, we delivered a solid margin profile. Excluding this impact, our gross margin would have been approximately 28 percent for the quarter. Net sales declined approximately 13% year over year, which was in line with our expectations.

However, we expanded gross margin by nearly 60 basis points, driven by lower manufacturing and logistics costs, supported by our recent facility consolidations and cost rationalization initiatives. The decline in our sales for the quarter was preliminary due to delayed customer orders driven by changing tariff landscape, shifting consumer behavior due to the uncertain macroeconomic environment, and a slow start to the seasonal demand in some of our regions due to unfavorable weather conditions. Additionally, we faced an approximately $900,000 year over year headwind from exiting certain categories over the past year. Importantly, I’m proud of how effectively our team has responded to the dynamics surrounding tariffs. Thanks to the sharp focus of our team, we have successfully minimized the impact of tariffs on our business.

We have executed our tariff mitigation playbook with discipline, tactically managing supplier orders and inventory levels to limit cost exposure during this transitional period. Consistent with our inventory optimization efforts, we reduced inventory by approximately $14,000,000 in the second quarter compared to the prior year quarter, enhancing our flexibility in navigating a complex sourcing landscape while driving working capital efficiencies. Looking ahead to quarter three, we expect a slightly lower seasonal inventory build ahead of the holiday season compared to prior year. We believe this current flow of goods will provide sufficient inventory levels to service our retail partners for the balance of the year. Tariff related expenses will increase in the second half of the year as we receive globally sourced goods for the important holiday season.

To offset these higher costs, we strategically implemented targeted price increases and have successfully negotiated with our sourcing partners to share the cost burden. We continue to investigate opportunities to strengthen our supply chain resiliency, to further increase our U. S.-based manufacturing capacity, streamline our product assortments, and implement other measures to further mitigate evolving tariff headwinds. Our pricing strategy is based on market dynamics. We are closely monitoring the evolving tariff landscape and will continue to balance margin preservation with competitiveness in the market.

From a demand standpoint, uncertainty continues to weigh on consumer behavior. We are seeing consumers delay or reduce discretionary spending or trade down to lower price points, particularly as price becomes a more prominent factor in their decision making. Consumer sentiment remains well below its historical average, reflecting concerns around the impact of tariffs on inflation and fears of a broader economic slowdown. Furthermore, elevated interest rates and a frozen housing market have impacted sales of indoor and outdoor recreational categories, which often correlate with new home investments. These combined factors create a challenging near term backdrop for consumer demand for many of our categories.

However, thanks to our disciplined cost structure and efficient operations, we are well positioned to navigate this environment and capitalize on opportunities to gain market share. Our economies of scale, supply chain flexibility, and organizational agility give us a clear competitive advantage. Notably, despite the overall decline in our sales during the quarter, we maintained or gained market share in key categories, including basketball, safety, archery, and recreational games. Our U. S.-based manufacturing footprint and global sourcing capabilities have allowed us to offer competitive programs and to gain new placements, underscoring the value of our strategic execution over the past years.

We are supporting this momentum through continued investment in product innovation and consumer connections. Recently, we have successfully launched the On X Hype and Hype Pro Pickle Paddles, which offer elevated control and power with a patented PowerFrame thermal used technology and premium materials. We also released our flagship Stiga Paragon table tennis table. This tournament grade table features a sculpted arc leg design, integrated LED lighting, and a dual bow design for maximum performance and gameplay. We are also celebrating the fiftieth anniversary of WoodPlay playsets this year.

Founded in 1975 in Raleigh, North Carolina, WoodPlay provides active outdoor playground equipment nationwide. This enables families to enjoy time together in their backyards. WoodPlay products are made to the highest safety standards from wood sourced from sustainably managed forests. Wood Play looks forward to serving families for generations to come. As always, we remain committed to disciplined capital allocation.

We delivered strong free cash flow during the quarter, underpinned by our continued focus on working capital efficiency. During the quarter, we used this strength to repay approximately $2,000,000 in debt, reducing our net leverage to just 0.5 times trailing twelve months EBITDA. Additionally, we repurchased nearly $800,000 of shares and increased our cash position. We took advantage of favorable interest rate arbitrage and positioned our balance sheet to capitalize on attractive near term opportunities. Looking ahead, we will continue to be opportunistic with share repurchases while managing our capital structure.

We continue to evaluate strategic acquisition opportunities, prioritizing tuck in acquisitions that expand our presence in core categories and generate meaningful synergies through our scaled platforms. To summarize, our second quarter performance reflects disciplined execution in a dynamic environment. The strategic groundwork we have laid enables us to be opportunistic today and positions us for long term value creation and outperformance as demand recovers. With that, I turn the call over to Steven for a review of our second quarter financial results.

Stephen Warren, Chief Financial Officer, Escalade Inc.: Thank you, Armen. For the three months ended 06/30/2025, Escalade reported net income of $1,800,000 or $0.13 per diluted share on net sales of $54,300,000 For the second quarter, the company reported gross margins of 24.7% compared to 24.2% in the prior year period. The 56 basis point increase in gross margin was primarily the result of lower operational costs driven by our facility consolidation and cost rationalization program. Our gross margin for the 2025 also reflects approximately $1,600,000 of expenses associated with tariffs, which negatively impacted gross margin percentage by approximately 200 basis points. Selling, general and administrative expenses during the second quarter decreased by 1.8% or 100,000 compared to the prior year period to $10,200,000 This decrease in our SG and A expense during the quarter was partially offset by approximately $400,000 of non recurring executive transition expenses.

Earnings before interest, taxes, depreciation and amortization decreased by $1,900,000 to $3,900,000 in the 2025 versus $5,800,000 in the prior year period. Total cash provided by operations for the 2025 was $13,300,000 which was flat compared to the prior year period. Cash used for working capital purposes was lower during the 2025 compared to the prior year period, primarily due to lower inventory and AR levels. As of 06/30/2025, the company had total cash and equivalents of $10,400,000 At the end of the 2025, net debt outstanding or total debt less cash was 0.5 times trailing twelve month EBITDA. As of 06/30/2025, we had $22,000,000 of total debt outstanding.

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

Conference Operator: Thank you. We will now begin the question and answer session. And your first question today will come from Rommel Dionisio with Aegis. Please go ahead.

Rommel Dionisio, Analyst, Aegis: Yes. Good morning. Thanks for taking my question. Just with regards to new product cadence over the next several quarters, I wonder if you could just talk about not necessarily specific new products, but just does the tariff situation and the retail situation retail inventory situation change or push out your new product launch plans for the next several months or quarters? Thank you.

Armen Boone, President and CEO, Escalade Inc.: Thank you, Rommel, and good morning as well to you. Good question on that side. We are working very, very close with our customers at that moment in time. We are really working lockstep with our key accounts, for a strong holiday season. Pre order volume is very stable, and our joint marketing plans at this moment in time are all discussed.

We have a very strong assortment lineup, and we’ll launch impactful product innovations in the second half of the year. We will not make any changes to our product launch cadence. On the contrary, we were actually leaning in, in terms of product innovation, working over the last few months very, very close with our accounts, and actually are accelerating our new product in reduction frequency on that side. While doing that, we will also watch the market, of course, and the promotion dynamics that are out there with diligence. And once replenishment orders will depend really on consumer behaviors and how they will react on the overall price increases on the market.

But again, I want to underline that we are leaning in, in terms of product innovation, and we are even increasing our bringing new product to the marketplace.

Rommel Dionisio, Analyst, Aegis: Great. That’s very helpful. Just a quick follow-up, if I may. Obviously, saw significant progress in gross margins despite pretty significant headwinds on tariffs and cost absorption from reduced sales. I did note it was either in 10 Q or press release unfavorable product mix being a headwind on gross margins in the quarter.

I wonder if you could just maybe just provide a little more granularity on specifically what categories resulted in that unfavorable product mix on gross margin?

Armen Boone, President and CEO, Escalade Inc.: Well, quarter, what we have seen two areas was we were impacted on one side really by weather. I hate to say that, but it was absolutely true for us. I mean, we are loading up for a springsummer season. So, heavy rains that we have seen, the storms, and the late start of the summer in particular impacted our basketball and outdoor recreational product on one side. On the other side, obviously, working very close with our key accounts, while all of a sudden, the tariffs exceeded, I mean, was raised up.

We stopped actually with our retailers, also oil shipping at that time, because we wanted to avoid the extremely high tariff situation at that time. And then started again floating once the tariffs didn’t normalize, but they were less exorbitant. So, that had an impact on our shipments actually, and you see that in our quarter two result.

Rommel Dionisio, Analyst, Aegis: Great. Thanks very much.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Patrick Griffin for any closing remarks.

Patrick Griffin, Vice President, Corporate Development, Escalade Inc.: Thank you, operator. Once again, thank you for your interest in Escalade and joining our call. Should you have any questions, please feel free to contact us at irescaladeinc dot com, and a member of our team will follow-up with you. This concludes our call today. You may now disconnect.

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