Escalade (ESCA) Q4 2025 Earnings Call Transcript

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Date

Friday, Feb. 27, 2026 at 11 a.m. ET

Call participants

• President & CEO — Patrick J. Griffin
• VP & CFO — Stephen Wawrin
• Chairman — Wes Smith

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Takeaways

• Net sales -- $62.6 million, representing a 2.2% decrease, primarily due to softer demand in basketball and outdoor games through the e-commerce sales channel.
• Gross margin -- 27.7%, an increase of 280 basis points from the prior-year period, attributed mainly to lower operational costs and cost rationalization, as well as the accretive Gold Tip Archery acquisition.
• Net income -- $3.7 million, or $0.27 per diluted share.
• SG&A expenses -- $11.6 million, up 6.8%, including $500,000 of nonrecurring executive transition expenses.
• EBITDA -- $6.5 million, up by $600,000 compared to the prior-year period, reflecting improved gross profit, partly offset by higher SG&A.
• Operating cash flow -- $14.9 million for the full year, an increase from $12.3 million, mainly from a 10% ($7.6 million) inventory reduction and improved profitability.
• Inventory -- Declined by 10% year over year, aligning with targeted working capital improvements and aiming for three times inventory turns in the future.
• Total debt and leverage -- $18.5 million total debt outstanding; net leverage ratio was 0.3x as of Dec. 31, 2025.
• Cash balance -- $11.9 million in cash and equivalents at year-end.
• Acquisitions -- Completed full integration of Gold Tip Archery (accretive in the quarter) and acquired All Cornhole to expand the outdoor recreation portfolio.
• Facility investment -- Purchased a 110,000-square-foot facility in Olney, Illinois for warehousing, supporting growth in safety and fitness product lines.
• Product launches -- Introduced the Alaskan Pro Bow in Bear Archery, described as "best value compound bow" in industry publications, and new Trophy Ridge accessories and US Weight umbrella bases.
• Tariffs and refund exposure -- Patrick J. Griffin stated, "the amount that would be refunded is meaningful," estimating a range of "$4 million to $5 million" if certain tariff refunds are enacted.
• Capital expenditures -- Expected to increase in 2026, targeted at capacity expansion, efficiency improvements, and facility optimization.
• Price increases -- No significant additional price increases planned in the near term, pending further developments in the tariff environment.

Summary

Escalade (NASDAQ:ESCA) reported profitability improvements and disciplined capital allocation despite declining headline sales, highlighting operational resilience and cash generation for further growth investments. Management emphasized the successful integration of recent acquisitions, with both Gold Tip Archery and All Cornhole expected to add scale and category breadth. The company’s inventory and leverage reductions enhanced its balance sheet flexibility, enabling increased future capital expenditures and targeted expansion initiatives.

• Patrick J. Griffin said, "With our leading brands, as you referred to with Bear Archery, that is accretive to the overall margin profile," underscoring the positive margin impact of premium and recently acquired product lines.
• "We are not planning on passing on any significant additional price increases at this point," Griffin stated, signaling near-term price stability amidst dynamic tariff conditions.
• The company is actively monitoring prospective tariff policy changes and views a potential $4 million to $5 million refund as financially significant, should pending legal outcomes materialize.
• The purchased facility in Illinois will primarily function as warehousing for safety and fitness operations, but may be used for further category consolidation or future acquisition integration.

Industry glossary

• Accretive: A transaction or business line that increases a company's earnings per share or profit margin.
• IEBA tariffs: Industry-specific import tariffs referenced in relation to potential refund exposure on previously paid duties.

Full Conference Call Transcript

Patrick J. Griffin: Thank you, Wes, and welcome to everyone joining us on today's call. We ended 2025 on solid footing. While the consumer environment remains mixed, our focus on operational excellence and on reshaping our cost structure is paying off. Over the past years, we have built a durable foundation for the business. This foundation gives us a healthier margin profile, the ability to maintain operating leverage in a dynamic environment, and a strong platform from which we can pivot toward profitable growth. Consistent with broader consumer spending for discretionary leisure products, and as expected, net sales declined 2.2% in the quarter, driven by softer consumer demand in categories such as basketball and outdoor games in our e-commerce sales channel.

At the same time, we partially offset these declines through healthy growth in archery and billiards, driven by a recent acquisition and new product introductions. These trends reaffirm that we are positioned in the right niche categories where consumers remain engaged and where our brands have equity. The impact of our operational improvements was also reflected in our fourth quarter results. Gross margin improved 280 basis points year over year to 27.7% of net sales, despite a 2.2% decline in net sales. This improvement reflects the structural cost actions we have executed and the discipline embedded across our operations. We also made meaningful inventory efficiency improvements in the quarter.

Total inventory declined 10% year over year, reflecting our ongoing effort to sharpen working capital management to support improved free cash flow. We expect to further reduce inventory levels in 2026 as we work toward our longer-term target of 3x inventory turns. This objective is a key element of our broader balance sheet management strategy. Looking ahead to 2026, we expect consumer conditions to remain mixed, shaped by the contrast between moderating interest rates and persistent inflation. Less affluent consumers will likely continue to be more price sensitive, while more affluent consumers will likely continue to be less price sensitive.

Against this backdrop, our focus is shifting from cost optimization to profitable growth, while continuing to leverage our leaner balance sheet and the operational discipline we established in 2025. We are closely monitoring emerging tariff policy changes and are prepared to adjust as market conditions clarify. We do not see any immediate impact from the recent changes. Our established playbook enables us to remain agile and proactive in navigating through this dynamic environment. A central component of our growth agenda is to strategically invest in our businesses. Our strength in free cash flow allows us to invest in growth opportunities and pursue accretive M&A opportunities.

Following our recent Gold Tip Archery purchase, we completed another acquisition during the fourth quarter to further support growth. The acquisition of All Cornhole brings a leading brand in competitive cornhole bags to our growing outdoor recreation portfolio. During the fourth quarter, we fully integrated Gold Tip Archery, which was acquired in the third quarter. This business was accretive in the fourth quarter. Looking forward, M&A remains a capital allocation priority as we concentrate on profitable growth. Our approach will remain consistent: focus on strategic acquisitions that are accretive and complement existing product categories, as well as strengthen our market position where we have competitive advantages.

In addition to M&A, we expect to increase growth investments in 2026 through targeted capital expenditures that expand capacity, improve efficiency, and support long-term growth. As a result, we expect capital expenditures to increase next year. We also plan to selectively invest in and optimize our manufacturing and distribution footprint. In the fourth quarter, we purchased a 110,000 square foot facility to support continued growth in our safety and fitness categories. We had several significant new product launches during the fourth quarter to support our growth agenda. In our Bear Archery business, we launched the new Alaskan Pro Bow, which has been awarded best value compound bow in many publications and online review platforms.

We also launched an entire new line of Trophy Ridge accessories, featuring new designs and a fresh new look. Additionally, during the quarter, our US Weight business expanded our safety offering with several new umbrella bases to fully address market opportunities. Strengthening our balance sheet continues to be a priority. During the fourth quarter, we repaid nearly $2 million of long-term debt while also increasing our cash levels. Given the current interest rate environment and our low-cost fixed-rate bank debt, we are taking advantage of attractive cash arbitrage. Our strong free cash flow generation gives us confidence in our ability to meet our financial commitments while continuing to invest in future growth.

In summary, we have made significant progress in repositioning the company as we move from cost optimization toward profitable, market share-driven growth. As we move further into 2026, we believe we are operating from a position of strength, supported by a leaner cost structure, a stable free cash flow profile, and a disciplined capital allocation strategy aimed at expanding our leadership in key categories. These actions will allow us to deliver durable value to shareholders as we move through the cycle. With that, I will now turn the call over to Stephen Wawrin for a review of our fourth quarter financial results.

Stephen Wawrin: Thank you, Patrick. For the three months ended December 31, 2025, Escalade, Incorporated reported net income of $3.7 million, or $0.27 per diluted share, on net sales of $62.6 million. For the fourth quarter, the company reported gross margins of 27.7% compared to 24.9% in the prior-year period. The 280 basis point increase in gross margin was primarily the result of lower operational costs, driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs, and the benefit of the Gold Tip acquisition, which was completed in 2025 and was accretive to our fourth quarter results.

Selling, general, and administrative expenses during the fourth quarter increased by 6.8%, or $700,000, compared to the prior-year period, to $11.6 million. The increase in SG&A primarily reflects $500,000 of nonrecurring executive transition expenses incurred during 2025. Earnings before interest, taxes, depreciation, and amortization increased by $600,000 to $6.5 million in 2025 versus $5.9 million in the prior-year period. This increase primarily reflects the improvement in our gross profit, partly offset by the nonrecurring executive expenses I just mentioned. Total cash flow from operations for 2025 was $14.9 million compared to $12.3 million in the prior-year period. The year-over-year increase in operating cash flow primarily reflects a 10%, or $7.6 million, decrease in our inventory, coupled with improved profitability.

As of 12/31/2025, the company had total cash and equivalents of $11.9 million. At the end of 2025, net leverage was 0.3x. As of 12/31/2025, we had $18.5 million of total debt outstanding. With that, Operator, we will open the call for questions. Thank you. We will now begin the question-and-answer session.

Operator: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. We will pause for just a moment to assemble our roster. Our first question comes from Rommel Dionisio with Aegis Capital. Please go ahead.

Rommel Dionisio: Good morning. 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? Thank you.

Patrick J. Griffin: Hey, Rommel, it is Patrick. That is a good question. The facility is located in Olney, Illinois, where we already had two facilities. Initially, it is going to be used primarily for warehousing for our fitness and safety businesses. However, we are 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. It was really meant to support future growth in those categories for our US Weight business, and also maybe some future growth plans as well.

Rommel Dionisio: Okay. And as a follow-up question, I wonder if we could just delve into product mix a little bit in the quarter. I know there are a lot of moving parts there between product categories and price points, but you highlighted demand across your— I am just reading through your press release— demand across your higher-value premium brands remains resilient. Would that have been a positive mix driver during the quarter? And I know that is offset with consumers shifting down to some lower price points as well. I just want to think about how to think about product mix shift overall in the quarter. Thank you.

Patrick J. Griffin: Great question. On the higher price points, we are generally seeing favorable sales trends there, and on our opening price-point product, we are not seeing as favorable trends. With our leading brands, as you referred to with Bear Archery, that is accretive to the overall margin profile. I would say that is true for a lot of the Brunswick portfolio as well.

Rommel Dionisio: Okay. And maybe just one last one. I know you took some price increases last summer to help offset some of the tariff impact. How do you think about that situation? Obviously, it is a very fluid environment with regards to tariffs, even in the last few days, but how do you think about the proclivity for additional price increases as we look out to 2026? Thanks.

Patrick J. Griffin: We feel good. We were early on our price increases, as you mentioned, and to the extent that environment changes, we will see where that ends up. We do not have any near-term changes right now. We are not planning on passing on any significant additional price increases at this point. If the tariff environment changes a lot, there could be some changes down the road, but we do not see any near-term impact, as you know. The environment is very dynamic at this point in time.

Rommel Dionisio: Great. Thank you very much.

Operator: Our next question today comes from David Cohen at Minerva. Please go ahead.

David Cohen: Just a quick follow-up with regard to tariffs. Should the Supreme Court's decision occasion a refund of tariffs paid up until this point, is that a meaningful number for Escalade, Incorporated?

Patrick J. Griffin: Great question, David. Thank you. Yes, it is a meaningful number for us, and we are waiting to see what happens with the actual implementation of those refunds. Some of the tariffs we paid are not tied to the IEBA tariffs, so it is not our total amount, but the amount that would be refunded is meaningful.

David Cohen: Do you want to put any numbers around that, a range perhaps?

Patrick J. Griffin: It is in the $4 to $5 million range.

David Cohen: Okay. Thank you very much.

Patrick J. Griffin: You are welcome.

Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks.

Wes Smith: Thank you, Operator. Once again, thank you for your interest in Escalade, Incorporated and for joining our call. Should you have any questions, please feel free to reach out to us at ir@escaladeinc.com, and a member of our team will follow up with you. This concludes our call today. You may now disconnect.

Operator: Thank you. That concludes today's conference call. We thank you all for attending. You may now disconnect your lines, and have a wonderful day.

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